SWAP cases – recent developments

ClockThere continues to be very patchy coverage of the progress and outcomes of Interest Rate Hedging product reviews. The impression would be that the majority of cases have gone through the FCA approved process to have the facts reviewed by an independent reviewer and for compensation to be paid where appropriate. Many of those initial compensation payments have indeed been made – but the more complex aspects of compensation will be the payments to be made for ‘Consequential Loss’.

Consequential Loss claims are complex and it is very important to understand what qualifies and what doesn’t and then to be able to present the facts in a compelling way. These cases will be ruthlessly examined by the banks. One case handled by us will have implications on the business over the next five years and if it is agreed will involve the bank making an assessment annually based on the release of financial information.

Meanwhile two pivotal issues have been pursued to the Courts, which could have an effect on some cases which could have been considered to have been dealt with:

An important judgement in the case of ‘Suremine Ltd v Barclays Bank plc’ has created the opportunity for the borrower to make a claim that the bank was negligent in conducting the review in the way that it did. The claimant had objected to the outcome of the banks review and specifically the banks decision about the ‘replacement product’ that the bank decreed would have been taken out instead of the SWAP. This is common in many cases and has the effect of reducing the amount of the compensation paid. Suremine argued that the bank had a duty of care to the customer to conduct the review in their interests, but the bank argued that their duty of care was to the FCA, to conduct the review in accordance with the process. This is a finely balanced argument and the judge gave permission for the claim to proceed.

Another important point came out of this case which has not been picked up on as much as the above issue. This is the impact that this could have on ‘time-barred’ claims. Many of these miss-selling cases couldn’t be pursued in the courts because of the time elapsed under the Statute of Limitations. However if the outcome of this case is positive for the claimant it could have the impact of effectively ‘starting the clock again’ with the actual review (rather than the miss-selling event).

This will be a case to watch.

Other cases are in the pipeline which are claiming that as the banks have been ‘found guilty’ of manipulating LIBOR their IRHP contracts linked to LIBOR are invalidated. A moot point here is that the banks have not technically been ‘found guilty’. Company formation Financial regulator reviews (here and in the US) have led to fines being imposed but that is not technically the same. Again if a court rules on a case such as this it will create a major precedent.

A lot therefore going on behind the scenes – despite it having gone quiet in the regular Sunday papers!