UK: IRHP Mis-Selling Claims Continue To Be A Thorn In The Side For Banks

Last Updated: 15 June 2016
Article by Laura Cooke and Laura Chicken

Most Read Contributor in UK, December 2017

The behemoth that was PPI mis-selling may be winding down, but there is a new kid on the block, or is there?

It all began in 2012 when the Financial Services Authority ("FSA"), as predecessor to the Financial Conduct Authority ("FCA"), identified failings in the way that some banks sold structured collars, swaps, simple collars and cap products, often referred to as interest rate hedging products ("IRHPs"), to non-sophisticated customers (a number of which were small businesses) and ordered a review (the "Redress Scheme").

Nine banks, including Barclays, RBS and HSBC, agreed to review sales of IRHPs made to non-sophisticated customers since 2001, each having to appoint an independent third party (the "Independent Reviewer"). Once affected customers had been identified, their participation in the Redress Scheme depended on the type of product purchased. Those who had purchased structured collars were automatically included, whereas purchasers of cap products needed to proactively complain to their banks to be included. Purchasers of all other types of IRHPs would be invited to opt-in if assessed as non-sophisticated.

By December 2015, the banks had nearly completed their reviews, having sent a redress determination letter to 18,100 businesses and paid over GBP 2.1bn in redress, including GBP 464m to deal with consequential losses. On paper, the Redress Scheme was relatively successful, with 92% of offers having been accepted.

However, the FCA's statistics have been somewhat overshadowed by a series of legal battles relating to the IRHP Redress Scheme, as well as negative press.

Many customers had little choice but to participate in the Redress Scheme, as their legal claims were time-barred, which meant they did not have the alternative option of court proceedings should their review be unsuccessful.

Small companies also complained that: the compensation was inadequate; they were offered alternative hedging products; or excluded from the process on technicalities.

Time bar

A good example of the time bar issues is the recent case of CGL Group Ltd v Royal Bank of Scotland.

In 2006, CGL bought a base rate collar trade and a swap from RBS which were closed out after interest rates fell. In 2013, RBS accepted that CGL fell within the Redress Scheme for its base rate collar trade, but not for its swap.

CGL commenced proceedings against RBS for mis-selling. CGL argued that their claim for breach of duty was not time-barred as, applying section 14A Limitation Act 1980, they only obtained the necessary 'knowledge' in 2012 when the Redress Scheme was reported in the media. RBS sought to strike out CGL's claim on the basis that CGL had acquired the relevant "knowledge" in November 2009, three years before proceedings were issued.

The Court agreed; evidence at trial proved that CGL had more than a mere suspicion that it had been mis-sold by September 2009.

Interestingly, at the same time as RBS's application for strike out, CGL brought an application to amend its claim on Suremime grounds (more on which below), but was unsuccessful in meeting the relevant test, being the same as for summary judgment.

Timely claim but no advice

By contrast, the family-run business that was the claimant in the case of Crestsign Ltd v National Westminster Bank plc and Royal Bank of Scotland plc was brought in time but failed as the claimant was unable to demonstrate an advisory relationship, despite some criticism being levied against the bank by the judge. The bank was able to rely on its disclaimers.

The case was due to be appealed in April 2016, but an out‑of‑court‑settlement was achieved.

An alternative avenue?

The case of Suremime Limited v Barclays Bank Plc began as a straightforward swaps mis-selling claim, but took an interesting turn in July 2015.

Suremime had participated in the Redress Scheme but was dissatisfied with its offer of redress. It had already issued a swaps mis-selling claim against Barclays in relation to the original sale. As well as alleging negligent misrepresentation, breach of contract and/ or negligent advice or negligent provision of information, Suremime sought to claim, by virtue of section 1 of the Contracts (Rights of Third Parties) Act 1999, to enforce the agreements made between the FSA and Barclays under which the Redress Scheme arose. Whilst novel, it ultimately failed when it transpired that the agreements between the FSA and Barclays expressly excluded third party rights.

Undeterred, Suremime applied to amend its claim to include three new claims for Barclays' alleged breach of contract and/or negligence in conducting the Redress Scheme.

Barclays argued that its duty was only to the FCA and that it could not therefore be liable to its customer if the review failed to meet the standard required by the FCA and came to the wrong conclusion. It asked the judge not to allow these claims to be added because it said they had "no real prospect of success".

The judge disagreed, finding that it was "more than merely arguable" that Barclays did owe a duty to the customer in carrying out the review and so there was sufficient merit and importance in the argument for it to be fully aired at trial. The tort claims could proceed, but he dismissed the contract claim as unsustainable due to lack of consideration.

The judge also acknowledged that as many customers are now unable to bring claims for the original mis-selling for time-bar reasons, the existence of a right to sue for the negligent implementation of the review would be particularly important, providing another compelling reason why the issue should be allowed to proceed to trial.

On its face, the decision in Suremime may be at odds with the decision in CGL given the contrasting outcomes as to whether it could be said that a duty of care in operating a redress scheme was at least arguable. However, in CGL, the Court had all of the facts in front of it, whereas in Suremime it did not; the Court in CGL stated that if all of the available facts were before the Court in Suremime, it was wrongly decided.

It remains to be seen if Suremime will be successful on the merits, but it is undoubtedly being watched with close interest by others similarly placed, though the pathway seems less clear in light of CGL.

Judicial review

Another key case of interest is R (Holmcroft Properties Ltd) v KPMG.

Holmcroft Properties, a nursing home operator, was sold an IRHP by Barclays and was included in the Redress Scheme. Holmcroft received redress by way of compensation for overpayments it had made and then made a consequential loss claim under the scheme against Barclays for further losses, which failed. Holmcroft was concerned that KPMG, the Independent Reviewer appointed by Barclays, appeared to have little or no involvement or engagement with Holmcroft and did not appear to have properly fulfilled the role required by the FCA in the Redress Scheme.

In April 2015, Holmcroft applied for judicial review and was granted permission on the basis that it was arguable that the arrangements put in place by the Redress Scheme had a sufficient public law dimension to make the Independent Reviewer amenable to judicial review.

The much-anticipated hearing came before the High Court in January 2016. It concluded, however, that KPMG's duties did not have "sufficient public law flavour to render it amenable to judicial review" and, further, that, even if it were amenable to judicial review, there was on the facts no unfairness by Barclays in the procedure adopted and therefore there could be no material breach by KPMG of any public law duty to secure fair process.

In April 2016, Holmcroft applied for permission to appeal to the Court of Appeal.


It has been something of a bumpy ride for aggrieved purchasers of IRHPs with some early success in cases such as Suremime, but the end of the road for the types of claims argued in Holmcroft (unless they can mount a successful appeal).

Prior to the hearing, Holmcroft's lawyers had lined up litigation funding to bring similar claims for other affected small businesses. It remains to be seen whether they will continue in view of January's ruling, but IRHP mis-selling does appear to be an area ripe for creative arguments and proceedings for some time to come.

Ageas reaches settlement with Fortis' shareholders for EUR 1.2bn

In the biggest European securities settlement yet, Ageas, the Belgian insurer formed from the insurance arm of the collapsed Fortis group, has agreed to pay EUR 1.2bn to Fortis' shareholders.

In Ageas' press release of 14 March 2016, Ageas admitted no wrongdoing and stated that the settlement related to "among others acquisition of parts of ABN AMRO and capital increase in September/October 2007, announcement of the solvency plan in June 2008, divestment of the banking activities and Dutch insurance activities in September/October 2008." Anyone who owned Fortis shares between February 2007 and October 2008 will be able to claim under the settlement agreement.

The next step is to get the settlement approved by the Dutch courts on an opt-out basis that should be recognised throughout Europe. This opt-out function is beneficial to both parties, especially the defendants, as it is an effective means to ensure the most complete resolution to the Fortis claims. This is despite the fact that those who opt out are not bound by the settlement and any judge who decides on their case is free to deviate from the settlement.

The Dutch system is growing in popularity and the news of this settlement may well spur shareholders of other companies, such as Tesco, Petrobras and VW, to continue to pursue their claims under the collective settlement procedures available in The Netherlands. The appeal is obvious – investors from numerous countries are able to group together and resolve their claims through the procedures and, in this case, even the separate Belgian proceedings were encompassed within the settlement, going someway to resolving the issue of multiple competing actions, (though this may not be possible in all actions).

IRHP Mis-Selling Claims Continue To Be A Thorn In The Side For Banks

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.

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