UK: High Court Confirms A Settlement Agreement Under An FCA Review Scheme Does Not Equate To Civil Liability Or Create An Automatic Entitlement To Consequential Losses

Last Updated: 30 July 2019
Article by Adam Ibrahim

The High Court has handed down a judgment which is relevant to all banks who have been involved with any form of FCA review process.

In summary, the judge rejected the argument that customers have an automatic contractual entitlement to receive consequential losses where they have signed a settlement agreement under an FCA review process relating to swaps mis-selling. The court also rejected the argument that the settlement agreement estopped the bank from contesting that the swap had been mis-sold.

Although the decision is case specific, it follows a line of similar authorities where the courts have rejected arguments that banks owe customers a contractual and/or tortious duty of care under the FCA review process.

We set out further details of the decision below.

Background

On 29th February 2008, Norham Holdings Group Limited (Norham) and Lloyds Bank PLC (the Bank) entered into a 10 year, amortising swap (Swap). The Swap fell under the scope of the FCA review for swaps mis-selling.

On 27 January 2014, the Bank informed Norham that basic redress was due to the company.

The Bank gave Norham three options in the Basic Redress Determination Statement (BRDS); options A, B and C. Option B included the following paragraph:

"I/We understand and agree that the Basic Redress Determination is in full and

final settlement of all and any actual or potential claims or complaints…(including claims…such as those based on fraud…) except any claims for consequential loss ("the Settled Claims"). I/We release the Bank from the Settled Claims…"

On 23 April 2014, Norham signed and returned the BRDS and opted for Option B.

The Bank carried out a consequential loss review and made an offer of c. GBP40,000. Norham rejected the consequential loss offer and issued proceedings for its consequential losses against the Bank. Norham argued, amongst other things, that by signing the BRDS it was automatically entitled to consequential losses through a merger by compromise. Norham also argued that, having determined that Norham was entitled to basic redress, the Bank was now estopped from denying that the Swap had been mis-sold. Following a CMC, the court ordered a preliminary issue trial to determine two issues.

First, by accepting Option B of the BRDS, was Norham contractually entitled to receive consequential losses?

Secondly, as a result of the outcome of the review, was the Bank estopped from contending that the Swap was mis-sold?

Issue 1

Norham argued that the settlement wording settled "all claims" (ie all causes of action) in relation to the sale of the Swap but preserved Norham's "claim" (meaning heads of loss not cause of action) for consequential losses. Norham therefore argued that the effect of the BRDS was to give it an automatic contractual entitlement to receive consequential losses.

The Bank argued that Norham's case required them to argue that the same word "claim" should have two completely different meanings within the same paragraph. The Bank also argued that "entitlement" to consequential losses depended on Norham being able to establish "any successful claims" rather than any automatic contractual entitlement to consequential losses. Elite was authority that the FCA review did not create a contractual entitlement for customers.

His Honour Judge Kramer agreed with the Bank and held that:

  • The natural and ordinary interpretation of the word "claims" would require it to have the same meaning wherever it was used in the BRDS (rather than be given two separate meanings as Norham asserted).
  • Norham's interpretation would have the effect of potentially preventing causes of action for consequential loss being pursued in which damages could be awarded on a more favourable basis than in the review, eg damages for fraud or negligent mis-statement. This construction seemed flawed.
  • The BRDS did not involve the Bank admitting facts which were sufficient to found or give rise to a cause of action since it was based on an assessment of whether the Bank had complied with its "regulatory requirements" at the time of the sale of the Swap.
  • The fact that the Court of Appeal in Elite (considering similar wording to the BRDS) rejected the proposition that the agreement to compromise basic redress was capable of creating a contractual obligation to determine consequential loss, "fatally" undermined Norham's construction argument. Any purported contractual cause of action requiring the Bank to assess consequential loss in accordance with the counterfactual under the review would "merely replicate the bank's existing obligations to the FCA and could not exist as a contract due to want of consideration".

Accordingly his Honour Judge Kramer held that there was no contractual entitlement to consequential losses for Norham.

Issue 2

Norham argued that the parties entered into the BRDS on the agreed premise and/or common assumption that Norham had been mis-sold the Swap and the Bank was therefore estopped from disputing and/or denying that the Swap was mis-sold, leaving the court to determine Norham's consequential losses.

The Bank argued that it had not admitted "mis-selling" nor had it made any such representation/statement. In fact, the Bank argued that (i) the contemporaneous evidence showed the Bank had expressly denied mis-selling; and (ii) "mis-selling" was not a legal cause of action.

His Honour Judge Kramer agreed with the Bank and held that:

  • The "mis-selling" accepted in the review related to a failure to comply with the "regulatory requirements" under the review rather than a civilly owed duty under litigation. Norham, a limited company, did not have any civil claim arising out of any breach of regulatory requirements.
  • There was no unequivocal common assumption or representation arising out of the review. The admission made by the Bank under the BRDS was made as result of an "absence of information on file" because the Bank (unlike in litigation) had failed to discharge the burden to demonstrate regulatory compliance.

Accordingly, the Judge held that the Bank would not be estopped from disputing that the Swap had been mis-sold in breach of an actionable duty owed to Norham.

Conclusion

This decision will be well received by the banking sector. An adverse outcome would have potentially had the effect of leading to a significant number of customers seeking to bring consequential loss claims in circumstances where they had received basic redress but had been dissatisfied with their consequential loss determination.

Although Norham may seek to appeal the decision, the Court of Appeal has already shown in Elite that it is reluctant to impose a contractual duty arising out of the FCA review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions