Robin Henry, partner with the Financial Disputes team at Collyer Bristow, offers a warning for insolvency practitioners dealing with the mis-selling of interest rate hedging products
The fall-out from the mis-selling of interest rate hedging products (IRHPs) rumbles on with the outcome of the Crestsign Ltd v. RBS case being made public at the end of September. This latest development offers no comfort for insolvency practitioners, who must remain alert to the potential impact such claims might have on the value of assets held by the companies they represent.
Firstly, it’s important to establish if there’s a potential claim to be made. When the Financial Conduct Authority (FCA) reviewed the selling practices surrounding IRHPs, it concluded that over 90% may have been mis-sold by the banks concerned, although the FCA only took into consideration the transactions of ‘unsophisticated investors’. If, like Crestsign, your client is what the FCA considers a ‘sophisticated’ investor, you will not be able to claim under the FCA review scheme. Instead, any claim would be reliant on establishing a breach of common law duties by the bank(s) concerned. As Crestsign have discovered to their cost, this can be an altogether trickier scenario.
The judgment in Crestsign v. RBS found in favour of the bank, and decided that RBS had no duty to advise in this case because the bank’s contractual disclaimer clauses stated that it was not providing advice. The Court confirmed that the bank did provide negligent advice but the ‘basis clauses’ – so called because they set out the basis of the contract on which the parties are agreed – protected the bank from liability. A different decision might have been reached if the basis clauses had been worded differently, or if it can be proved that the bank had been clearly aware that it was actually giving advice.
Further, the judgment also decided that although the statutory Conduct of Business Sourcebook (COBS) rules did not give rise to equal common law duties, there was a similar common law duty not to provide misleading information.
In the Crestsign case, it was concluded that the bank did not do this, but that doesn’t alter the fact that in different circumstances, the outcome may have been different. The duty not to provide misleading information is wider than a duty simply not to make a mis-statement and there is still potential for that duty to become even further-reaching in the future – all of which only goes to prove that the law in this area is still in development and the Crestsign judgement is not a bar to future claims being made.
The issues in Crestsign vs RBS are likely to be revisited in other cases, but the message to insolvency practitioners is clear: tread carefully. Be prepared to acknowledge that the potential for making a claim against IRHP mis-selling could perhaps realise valuable assets for creditors or might be subject to insolvency set off. But on the other hand, it’s important to weigh up whether or not legal action is a viable proposition.
After all, the only thing that can be said about the Crestsign vs RBS case is that it proves the outcome is anything but a foregone conclusion.
Posted on 21st October 2014 by
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