Interest Rate Swap Claims Update

The hearing which took place in Leeds Mercantile Court before Christmas, and the expected judgment, attracted considerable interest, not just within the legal community but also among the many thousands of business owners who find themselves in a similar position to the Claimants in that action.

The reason this relatively small claim was potentially very significant is because it was the first hearing of a claim against a UK bank regarding the misselling of an interest rate swap. Tens of thousands of these products were sold to small and medium size businesses byUKbanks in recent years and have brought many of those businesses to their knees.

In this particular case, the Claimants owned a small café and were sold a highly complex derivative product, namely an interest rate collar, with a notional amount of £850,000 and a term of 10 years. The product ended up costing the Claimants well over £80,000.

Unfortunately for interested observers the case settled after the hearing but prior to the handing down of judgment – meaning that the judgment will never now be published. While not unheard of, this is an unusual time to settle a case, not least because the costs of trial have already been incurred and the parties have already gone through the rigours of giving evidence etc. We can only speculate as to why the case was settled at this stage. However, it seems entirely possible that it reflected a very serious concern on the part of the bank that it was going to lose.  If that is right, it would hardly be surprising if the bank sued for peace given the publicity which would have followed had it lost and, importantly, the very real risk that an adverse judgment would open the floodgates to many similar claims. The Defendant in this action is not the only bank that would have feared such an outcome – we are handling a significant number of complaints against each and every majorUKhigh street bank.

While media attention on these claims is currently limited, with only the BBC and Sky News having devoted any time to covering the issue, a judgment in favour of a Claimant in one of these claims is likely to attract a huge amount of media interest, not least because many experts calculate that the collective exposure to UK banks on these claims is much greater than the millions they have put aside to cover PPI claims.

Sadly, as is the way with these things, the terms of settlement are wrapped up in a confidential agreement – pretty much standard practice when any financial institution settles litigation against it.

It is difficult to take any lessons from this case as we were of course deprived of the opportunity to study the judgment. It remains to be seen how the Court would have viewed the appropriateness of a high street bank selling the owners of a very small high street business a highly complex derivative product.

The next interest rate swap case was due to be heard this month, but it has also been settled. We understand the next in line is against Barclays and is due to begin on 16 April in Bristol Mercantile Court. Our lead case is in the High Court Chancery division and is due to be heard in October.

Whether these cases make it to trial is a different matter. The pattern to date has been for the banks to try and settle out of court. This may be a consequence of having one eye on the limitation period – there is a 6 year time limit to bring proceedings. As the majority of these products were sold in 2006 and 2007, the longer the banks can prevent claims getting to court the more potential Claimants fall outside the limitation period and find themselves debarred from pursuing a claim.

If you consider you may have a claim against a UK bank for the misselling of an interest rate swap, it is important you seek legal advice immediately or you may lose the right to claim.

We will continue to update this blog as matters develop in what is a new and relatively untested area of the law.

The Telegraph has published a series of articles highlighting the disastrous impact these products have had on small and medium size businesses in the UK – see below by way of example:

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