Practice

Bailey and another company v Barclays Bank plc: Queen’s Bench Division, Cardiff District Registry: 27 August 2014

Claim – Claimant, B, arranging loan with defendant bank – B seeking to transfer loan from himself to company controlled by him

The claimant, B, conducted business through a company. In 2007, he arranged a loan with the defendant bank to help fund purchases. The loan was agreed with S, the bank’s business relations manager. An interest swap was carried out under a swap agreement. S repeated advice that he had given earlier that interest rates were going to rise, and assured him that the agreement would provide protection against such rises.

In 2010, B sought to restructure his borrowings by transferring properties from his personal portfolio to the company. He was informed that, to avoid the risk of breakage fees, he could novate the swap agreement to the company. He did so, thus making the company subject to the swap on terms identical to those to which B had been subject. B made a number of complaints about the suitability of the swap and the manner in which he had been sold it.

He subsequently brought proceedings, contending that the bank had failed to discharge its duty to exercise reasonable skill and care in the giving of information and advice that would allow him to understand the implications of the swap and its unsuitability for his needs. The claimants made a number of claims, relating to, among other things: breaches of the Financial Services Authority’s Conduct of Business Sourcebook (COBS); unjust enrichment; and that, as a result of misrepresentations, there had been no true novation.

The bank applied for summary determination of: (i) the company’s entire claim; (ii) the claims based on breach of fiduciary duty; (iii) claims for a declaration of unenforcability under section 27 of the Financial Services and Markets Act 2000 and rescission of the swap. The company applied to amend its claim, seeking to address matters arising on the bank’s application.

The court ruled: (1) Regarding the company’s application to amend, none of the alleged breaches of the COBS rules had a realistic prospect of succeeding. Further, the claim in unjust enrichment had no prospect of success. Furthermore, having regard to the particular contractual terms in the case, there was no good reason for interpreting the swap agreement as anything other than a true novation (see [36], [67], [77] of the judgment).

The company’s application for permission to amend the particulars of claim would be dismissed in its entirety (see [78] of the judgment).

(2) Regarding the bank’s application for summary judgment against the company, there was no question of the company having in any relevant sense reposed trust and confidence in the bank, or having relied on the bank to subordinate its interests to those of the company at the relevant time. It had taken the novation on the swap not because it had relied on the bank’s advice, but because it had been the only way to relieve B of a contract by which he no longer wished to remain bound.

With regard to the making of a declaration of uneforceability, S could not be considered a ‘third party’ carrying on a regulated activity in contravention of the general prohibition. He had been the bank’s employee and agent. Further, S had not been involved in the transactions in 2011 (see [89], [92]-[94] of the judgment).

The company’s claim failed and would be dismissed. Judgment would be given for the bank (see [95] of the judgment).

JP Morgan Chase Bank v Springwell Navigation Corp [2008] All ER (D) 167 (Jun) followed; Barclays Bank plc v Svizera Holdings BV [2014] All ER (D) 65 (Apr) applied; Kelly v Cooper [1993] AC 205 considered.

David Berkley QC and Steven McGarry (instructed by Anthony Jeremy & May) for B; Richard Hanke (instructed by Simmons & Simmons LLP) for the bank.