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.


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.


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.