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Strike outs in mis-selling case could bolster banks' positions in future cases, says expert

Out-Law Analysis | 05 Sep 2014 | 11:54 am | 2 min. read

FOCUS: The High Court has struck out a series of claims made in a case related to the mis-selling of interest rate hedging products (IRHP) in a ruling that will help banks to defend themselves against similar claims. 

It is common for people claiming they have been mis-sold IHRPs to put their case in breach of contract, tort, breach of statutory duty, misrepresentation,  and even unconscionability and duress. These elements are all frequently stated even where the factual background appears not to support some or all of them. So when His Honour Judge Keyser QC struck many of these claims out in a case involving a small business and Barclays Bank the decision attracted attention from both banks and the claims industry. 

Some of the claims had been struck out in previous cases, such as the non-entitlement of a corporate claimant to sue for breach of COBS Rules, and some have been less-frequently considered, such as duress and whether a right to sue for rescission can survive a novation.

The case was taken by Bailey and one of his companies and it was accepted that he qualified as a corporate entity; that the sale of the IRHP was a non-advised, and that the sale was a novation, which means that the benefits and burdens of a contract are transferred from one entity to another.

These are the allegations that the judge struck out:

• that the bank did not act honestly, fairly and professionally in accordance with the best interests of the customer in requiring the novation as a condition of a debt restructure;

• that the bank gave investment advice. The terms of the contract and the confirmation were treated as conclusive on this;

• that the corporate claimant could sue for alleged breaches of conduct of business (COBS) rules, whether by way of direct action, or by virtue of those rules allegedly being incorporated into the contract between the bank and its customer;

• that there was a fiduciary relationship;

• that the alleged existence of better value products resulted in a breach of the best execution rules;

• that there had been any kind of duress, undue influence of unconscionability;

• that the novation was something short of a full novation, which Bailey and his company said allowed them to claim rescission, which means  treating the contract as void from the outset, in the same way that the transferee could have done but for the novation;

• that the making of a recommendation by the bank's relationship manager, if true, would have rendered the swap unenforceable.

This was a 'strong facts' case, and not all of the same allegations will necessarily be strike-able in other cases. Nonetheless, it helpfully draws together the arguments on a number of common issues and reaches helpful conclusions.

Many of the points which were not allowed were points which Bailey had sought to introduce by amendment in response to the original strike out application. This is a common sequence of events, and is sometimes seen as a downside to making a strike out application. Very sensibly, the judge was sceptical of serious allegations which only emerged late and by way of amendment.

Mike Hawthorne is a financial litigation expert at Pinsent Masons, the law firm behind Out-Law.com