Court throws out claim against bank over interest rate swaps

Companies’ hopes of securing compensation for mis-sold interest rate swaps were dealt a serious blow yesterday after the Court of Session threw out a case brought by a property developer.

Grant Estates, which claimed that the cost of a swap agreement with Royal Bank of Scotland had pushed it into administration last year, alleged the bank’s staff had acted negligently and the sale of the product was in breach of Financial Services Authority (FSA) rules.

However, in a keenly-awaited ruling yesterday, Lord Hodge threw out the action, saying the firm’s claims were “irrelevant”.

He said Grant Estates could take its complaint to the FSA, but even if that proved successful it “does not provide a basis for suspending the administration” of the firm.

Cat MacLean, a partner at MBM Commercial in Edinburgh, who specialises in dispute resolution, said yesterday’s ruling made for “very negative and depressing reading”, although she admitted it did not come as a surprise.

She said that claims brought against banks by companies or partnerships are prevented by section 150 of the Financial Services and Markets Act, “so a big part of the case was focused on trying to find a way round section 150”.

In his ruling, Hodge said it appeared that section 150 was aimed at addressing “the misuse by businesses of a right of civil action to raise strategic actions to obtain competitive advantage and that any non‑natural person, including a charity, is barred from raising a civil claim in respect of anything done by or to it in the course of business”.

He concluded that Grant Estates was not a “private person” in terms of the act, so had no right of action for breaches of the FSA’s conduct of business rules.

MacLean said: “If you think of the FSA regulations as a road to recovery, section 150 operates as a complete roadblock for anyone other than an individual.

“If an individual operating as a property developer was sold an interest rate swap, they would be entitled to raise proceedings for a breach of the FSA regulations. But Grant Estates, being a company, was blocked by section 150.”

An RBS spokesman said: “This decision clarifies that in this case RBS complied with all legal requirements regarding the sale of interest rate swap products.

“RBS is moving forward with an independent review of interest rate hedging products in agreement with the FSA, and will review any situation where a business has concerns about an interest rate product sold by us.”

In June, the FSA announced that it had found “serious failings” in the sale of interest rate swap products to SMEs and said four banks – Barclays, HSBC, Lloyds and RBS – had agreed to recompense customers who had been mis-sold.

Since then another seven banks, including Clydesdale, have agreed to review past sales of the products.

The regulator has the power to force banks to appoint independent reviewers to examine their sales processes and oversee their redress procedures, but MacLean said yesterday’s ruling meant claimants would find the process tougher.

She said: “This will have a real knock-on effect to the FSA review process which is supposed to be under way, because customers will either have to accept the bank’s position or resort to litigation. Banks will know now that claimants are in a weaker position as a result of the Grant Estates case.”