By Kalvin P Chapman
In June 2012 the then financial regulator, the Financial Services Authority (“FSA”) announced a review into the historic sale of Interest Rate Hedging Products, sold by nine banks after 1 December 2001. This was the culmination of a huge amount of hard work by Bully Banks, quite a few specialist law firms and numerous MPs. It was unheard of, and quite astonishing.
Fast forward four years. The scheme has paid out
“To date, around 13,900 customers have accepted a redress offer and £2.2 billion has been paid out, including £507 million to cover consequential losses. This means that, so far, around 95% of offers have been accepted.”
Is it job done? Has everyone walked away happy? No.
3,784 made consequential loss claims. As at the end of June 2016 3,683 have had the results of their consequential loss claims. Only six complainants received consequential loss redress in excess of £1 million. Six. Prior to the review proper getting underway, it was suggested that consequential losses for just the property businesses would top £10 billion. The total combined only just topped £500 million.
One of the questions Muldoon Britton now hears from clients is the issue of whether their representation provided adequate representation during the IRHP review process. This is a difficult subject. As most people are aware, in June 2014 some banks appear to have taken the position that it would only offer alternative products. There is a lot of scepticism that this apparent decision was done to keep the cash redress paid out to a minimum. On top of this, the last time Barclays put any money aside for the review was in their end of year accounts for 2013. They had a large sum left over, and that was moved sideways into the Banks’ PPI redress pot.
So, did a client receive no redress or inadequate redress because their representation was poor or because the banks were simply not going to pay out redress? Should the Financial Conduct Authority be undertaking a review to test this?
The review has only had six people receive redress over £1 million. We are aware that a lot of businesses assumed that the review process for consequential losses was going to be the same as for the first stage redress. It was not the same. Different rules applied. We have seen many clients who submitted claims that were over inflated and demanded losses that are not properly recoverable. But some legal and claims management representatives also put forward inadequate/over-inflated claims.
Claims Management Companies are not lawyers. The consequential loss process applied the strict legal test. Some Claimants Management Companies simply did not know how to adequately or properly apply that test. Some accountants decided they wanted in on the action and did not refer their clients to solicitors, but undertook the review themselves. And some solicitors who did not understand the review process kept clients and failed to provide experienced and knowledgeable representation.
So, in addition to some banks appearing to be trying to ensure most offers were alternative hedging products, some clients who saw themselves as Kavanagh QC and submitted bad claims, some Claims Management Companies who also thought they were Kavanagh QC or Martha Costello QC, and some inexperienced solicitors undertook the work without understanding fully what the process was, all led to clients receiving no consequential losses over and above the 8% interest or receiving minimal offers.
Alleged professional negligence in an IRHP case is not so straightforward (see below). However, the one type of case that Muldoon Britton does come across that is much easier to deal with are the cases where time ran out.
The sale of a hedging arrangement carries a primary limitation of six years from the date of the sale of the IRHP. For individuals and Partnerships, you may wish to take it as six years from the date at which you first met the CF21/CF30, as that may be when the COB/COBS breaches occurred, leaving a six year s. 138D claim for that breach. There is debate on this topic.
What has occurred are law firms (rarely) or Claims Management Companies not realising that the six year period was near and letting the case go past limitation, making a claim against the bank impossible. Some entered into standstill agreements and did not realise that it had come to an end, letting the time run out. This more often than not occurred because people became too confident that the review would lead to a quick settlement of consequential losses. When the rejection came, or the minimal offer arrived, they then realised that it was too late to sue.
A professional negligence claim against a solicitor or claims management company (or even potentially an accountant) is not an easy claim to make.
The claim has to be a claim for the loss of chance to make your claim in Court. As such, in addition to evidencing that the solicitor, accountant or claims management company were negligent, you must also prove that a Court would likely have found in your favour. For limited companies, and potentially partnerships, this will be very hard. That is because every IRHP case that has been heard at the High Court has been lost. Grant Estates, Green & Rowley, Crestsign and Bailey all found in favour of the bank. The company claims all determined that companies could not sue for a breach of COB/COBS (Green & Rowley was a partnership, Bailey was a limited company and an individual). Most commentators thought Crestsign might reverse things at the Court of Appeal (I personally thought they would have needed to go to the Supreme Court to reverse the law), but alas they settled out of Court before their appeal could be heard. So, as matters stand, proving a claim if you are a limited company can be difficult.
Some limited companies have assumed, incorrectly, that because they got offered first stage redress (ie the refund of cash flows) they automatically should have received consequential losses and as such would easily succeed in a professional negligence claim. Not so. Many took on their consequential loss claims themselves, quite often to save money. In law it is often the case that you get what you paid for. If you paid nothing, you should expect that level of expertise to be reflected in your consequential loss offer.
As noted, limited companies do not have s. 138D rights to sue for a breach of COBS. So, their only claims must be breach of contract, misrepresentation or a breach of some other duty. The existing case law rules out most other duties (subject to the PAG and Hockin cases). The ISDA terms and the terms in many IRHP trade confirmation includes the statement that you cannot rely on things said and done by the bank (the non-reliance clauses) and you would seek out your own independent advice. That takes care of most misrepresentations. And breach of contract for an IRHP case is difficult.
Is that the end then? No, certainly not.
A professional negligence claim that the professional failed you in the IRHP review would be a much better argument than failing to secure a Court Claim due to limitation. There are arguments that can be formulated. Muldoon Britton is a firm that has and is currently running cases such as this. Further, the decisions in PAG v RBS and Hockin v RBS are likely to have an impact on these cases when the judgments are handed down.
However, it is essential that you take legal advice. There is only one appeal allowed in the FCA’s review process. If you are one of the 3% that has not had your case reviewed, please remember that you writing back to the Bank and challenging your case that is your one and only appeal. It is far better to take advice before responding.
If you have used your appeal and/or you are out of limitation and/or you cannot use the Financial Conduct Authority then your case is bleak. Take advice. Listen to the advice you are given. Please makes that you seek advice from a solicitor that is very experienced in dealing with, specifically, IRHP consequential losses.
If a professional caused you to miss limitation, then you should urgently speak to a solicitor. A qualified and experienced solicitor. Claims Management Companies may be set up just to undertake this work, and may be closed down afterwards (though certainly not all CMCs are like this – some are top quality, but sadly there are those that are not). Getting your claim in early so that the CMC’s insurance covers your claim is important. Finding out who the insurer is after the CMC company has been liquidated may be difficult. Sending a letter of claim before they close may save your claim.
There is a formal process that all professional negligence claims should follow under the Civil Procedure Rules. It is important that it is followed.
Taking on an IRHP professional negligence claim is, as noted above, fraught with dangers. It is vital that you use a law firm, a solicitor and a barrister that have experienced of both professional negligence claims and the IRHP litigation process.
The claim should set out the IRHP claim and then set out how the professional failed in their duties. A barrister should then give an indication of what chances of success the IRHP case would have had had it been issued in Court properly. That percentage will then be applied to the losses. So, if you had losses of £100,000 that can be evidenced and the barrister gives you 60% chances of success, the greatest claim you can make is £60,000 (being 60% of £100,000). No case ever had a 100% chance of success, so it is highly unlikely you will recover everything. It is done this way because you have lost the opportunity of putting forward your IRHP claim.
There is the possibility of out of date Financial Ombudsman Service claims being made, subject to the micro enterprise rule and the maximum of £150,000 that the service can order a financial firm (ie the bank) to pay. It is occasionally possible to negotiate with the bank and ask the Bank to pay the full amount awarded by the Ombudsman, but they are rare cases. Again, an experienced solicitor can help you understand these issues. A good solicitor with no experience of IRHP cases may not be as understanding of how this works.
For a claim against a solicitor or a claims management company, it may be possible to complain to the Legal Ombudsman Service. They have a limit of £50,000. That is why going after their insurance policy would be more preferable. However, the Legal Ombudsman Service is free and a Court claim is expensive with no certainty of winning. There is no limitation on the size of company that can complain through the Legal Ombudsman Service.
In short: if your IRHP claim failed and you think that a professional failed in their duties in representation you, call Muldoon Britton today. Cases such as these are not straightforward or easy. It is therefore essential that you use an experienced solicitor, and Muldoon Britton have highly trained solicitors who have all been working on IRHP cases since long before the FSA announced their review in June 2012, and as such have the experience you need to take your case forward.
Kalvin P. Chapman
https://www.fca.org.uk/consumers/interest-rate-hedging-products  Daily Telegraph 8 September 2013 “Banks face up to £10bn hidden bill for swaps mis-selling”
http://www.telegraph.co.uk/finance/rate-swap-scandal/10294960/Banks-face-up-to-10bn-hidden-bill-for-swaps-mis-selling.html  Treasury Select Committee Report 10 March 2015 Paragraphs 94 – 96 “Conduct and competition in SME lending”
http://www.publications.parliament.uk/pa/cm201415/cmselect/cmtreasy/204/20406.htm  FCA Website updated 2 August 2016 IRHP: claims for consequential loss