Key Points:

  • A relaxing of the strict interpretation of section 138D Financial Services and Markets Act 2000 would require an analysis of a company’s sophistication before deeming it to be non-private.
  • In the forthcoming Crestsign appeal, there is a reasonable prospect that the UCTA reasonableness test could be applied to non-reliance clauses if they are found, in effect, to be exclusion clauses.
  • Claimants may be able to bring a claim in tort against their bank for failure to carry out the Review into the mis-sale of IRHPs as required by the FCA.


In this article the authors consider recent trends that point to a more favourable environment for companies wishing to bring claims against banks for mis-sold financial products or investments.

There has been a small yet palpable move of late, in the courts and in attitude more generally, towards a more favourable legal environment for companies wishing to bring claims against banks regarding mis-sold financial products or investments.

This shift has manifested itself in the form of chinks in the armour of two of the most useful tools available to a bank defending a claim for mis-selling, along with a potential new line of attack for claimants to use against banks.

First, doubts are being cast over the controversial bar to limited companies being ‘private persons’ who can claim against an authorised person (i.e. a bank or other financial institution) for breach of their statutory duty, namely the obligations imposed on them by the FCA’s Conduct of Business rules. This block is created by a strict interpretation of section 138D FSMA, in particular with regards to the meaning of a ‘private person’. [There are also moves afoot to consider, and possibly expand upon, what actually constitutes a statutory breach for which compensation will be payable.]

Second, there has been a definite shift in judicial attitude, if not yet in law, in relation to the operation of the doctrine of contractual estoppel in the context of non-reliance clauses.

Third, the courts have opened the door to the possibility of a claim against a bank for breach of a duty owed to an applicant in the FCA IRHP mis-selling review (the “Review”) to exercise reasonable care and skill in conducting the Review as the FCA required.


Under section 138D (formerly section 150) of the Financial Services and Markets Act 2000 (“FSMA”), a ‘private person’ may bring an action for damages arising as a result of a contravention by a financial institution of the regulations governing its course of business.

The regulatory framework under FSMA includes the Conduct of Business Rules (“COB”), in force up to 31 October 2007, and the Conduct of Business Sourcebook Rules (“COBS”), in force from 1 November 2007.

Under Regulation 3(1)(a) of the Rights of Action Regulations, any individual (that is a non-corporate person) will be a “private person” unless he carries on certain activities.

In relation to companies, Regulation 3(1)(b) of the Rights of Action Regulations allows for a person that is not an individual to be a private person provided the company does not suffer the loss complained of in the course of “carrying out business of any kind”.

The interpretation of the phrase “carrying out business of any kind” has so far been interpreted widely by the courts, with emphasis put on the use of the words “of any kind”. The courts have been reluctant to accept the argument for a narrower interpretation of the phrase, such as that one-off financial trades, or financial trades that were not integral to a company’s business, would not involve it “carrying out business of any kind”.

However, the appellate courts are poised to revisit this issue.

MTR Bailey Trading Limited v Barclays Bank Plc

The overarching litigation in this case arose from familiar circumstances. Mr Bailey, a director and the sole shareholder of MTR Bailey Trading Limited (the “Company”), was sold an interest rate swap by Barclays Bank, covering a loan granted to the Company and a personal loan granted to Mr Bailey. The swap agreement was later transferred to the Company.

The Company sought to amend its particulars of claim, with the amended particulars including, amongst other things, that Barclays had breached the COBS in its sale of the swap. The question of whether the Company had a cause of action against the bank in respect of this alleged breach therefore arose. Barclays applied to strike out the entire claim of the Company, or for summary judgment in respect of the same, in reliance on the judicial approach adopted thus far.

Applying current case law, namely Titan Steel Wheels and Camerata Property, the judge rejected the Company’s contention that it did not enter into the transaction in the course of carrying out its business in any relevant sense because it dealt in vehicles and property and not in derivatives and hedging instruments or any other financial products. A narrower interpretation of “carrying out business of any kind” was once again rejected, and summary judgment was granted in favour of the bank.

The Company applied for permission to appeal against this judgement, which brings us to the recent ruling of Lord Justice Kitchin and its consequences for this area of the law.

Kitchin LJ granted the permission sought, remarking as follows (at para. 12):

“[The Company] submits that [Titan Steel Wheels and Camerata Property] were wrongly decided and that their effect is to rob [section 138D] of its substance because most companies will be in business of some kind. [The Company’s Counsel] has persuaded me that this issue does merit consideration by this court and it is one upon which the Company has a real prospect of success.”

Notably, on the facts, Kitchin LJ was also persuaded by the Company that it was sufficiently arguable that the COBS had been incorporated into the contract between the parties, and that accordingly the Company may also have a valid claim in contract regardless of any statutory claim it might be afforded.

So, it seems that there may be some appetite in the judiciary to reassess the correct position in relation to the interpretation of section 138D.

Such a consideration seems sensible in light of the assumed purpose of the provision, i.e. to protect vulnerable consumers from unfair or prejudicial conduct perpetrated by more sophisticated financial institutions.

A relaxing of this strict interpretation would be welcomed, necessarily requiring an analysis of a company’s sophistication before deeming it to be non-private for the purposes of section 138D, rather than ruling it out altogether.

Sophistication could be judged perhaps by the company’s knowledge of the financial instrument which it has been sold, the frequency with which it generally deals in these products, or even more bluntly by its size – the theory being that larger companies have the resources available to instruct specialist advisers and are deserving of less sympathy from the courts if they have failed to do so.

To effectively apply a blanket bar to any limited company, which a wide (some might say literal) interpretation of “carrying out business of any kind” achieves, provides profoundly iniquitous consequences (consequences we submit were not intended by those who drafted and approved the legislation). A correction in this respect by the Court of Appeal would and should be applauded.

FCA Principles

Another area where the extension of section 138D’s ambit would be welcomed lies in the matter of what constitutes a ‘breach’ for the purposes of the provision.

At present, it is uncontroversial that s138D will cover most breaches of the COBS. However, a breach of the FCA Principles (the “PRIN”) is not actionable, despite the fact that such breaches can form the basis of disciplinary action against firms by the FCA. There seems to be little logic in limiting the application of s138D in this way.

An extension of the provision to include the PRIN would allow counterparties / investors to sue for loss caused by behaviour which resulted from a conflict of interest, or which failed to pay due regard to their interests. This right would be independent of a contractual relationship. So for example, a customer of a financial institution would be entitled to sue intermediaries higher in the investment chain for losses caused to them, even absent a direct contractual relationship. As things currently stand, such redress is difficult to obtain.

The Law Commission

The Law Commission has given some consideration to s138D, in its July 2014 report, suggesting that both of the extensions discussed above (i.e. the ‘Private Person’ and the ‘PRIN’ extension) could be implemented.

Unsurprisingly, the Law Commission’s suggestions were met with resistance from the financial industry upon consultation. After hearing arguments from both sides, it felt unable to recommend an extension to the provision in either respect for other reasons too, namely that the effects of such changes would be uncertain, be disruptive and add to costs. None of these it would seem are particularly convincing reasons to justify the continued stifling of the spirit of section 138D, which would be better served by a wider application in terms of both those who benefit from it and the breaches that are caught by it.

For now however, it seems we must hang our hopes on court-led progression, for the time-being in the form of the MTR Bailey litigation (in the context of the ‘Private Person’ extension at least).


Recent months have also witnessed some encouraging signs for claimants against banks with regard to the doctrine of contractual estoppel and its application to non-reliance clauses (usually included as a matter of course in banks’ standard terms and conditions).

The Courts have traditionally been reluctant to interfere in contractual relations between commercial entities, taking the understandable position that if someone of full capacity has signed a document on behalf of a company, then they are taken to have read and understood it and the company should be bound by the terms of that document. In addition, and again with good reason, the Courts prefer the legal certainty that results from being able to consult the black and white terms of properly executed legal documentation.

The problem arises where the parties to a particular agreement are of vastly different size and sophistication i.e. where there is clearly unequal bargaining power. The reality is often that the person signing on behalf of a small limited company is highly unlikely to have even read the 40+ page terms and conditions, let alone understood them and their potential consequences for the company.

The operation of contractual estoppel in mis-selling cases is familiar to most, and has acted as an effective bar to claims against banks for negligent misrepresentation. The Courts have consistently honoured such agreements (even where to do so has effectively been to allow a clause which states that black is white). The Courts have upheld clauses where a company has signed an agreement stating that it has not relied on any advice provided by the bank, even where the facts demonstrate that advice was provided by the bank, the bank knew the company was reliant on that advice and the company did indeed rely on that advice to its detriment.

Crestsign Limited v RBS

In the recent case of Crestsign Limited v RBS (“Crestsign”) Crestsign, a small business, claimed damages from RBS for allegedly mis-selling an IRHP. Crestsign’s claims were grounded in negligent advice or negligent misstatement, along with misrepresentation under the Misrepresentation Act 1967.

The terms of business upon which the swap transaction had been conducted contained familiar provisions, in particular stating that: RBS was providing a non-advisory dealing service; RBS would not advise on the merits of a transaction or provide any personal recommendations in relation to any transaction or account; and the customer should make its own assessment of any transaction and not rely on any opinion, research or analysis provided by RBS or its affiliates as being a recommendation or advice.

On the basis of these terms, RBS’s defence to Crestsign’s claim for negligent advice was upheld at first instance. It was held that, although the relevant individual within Crestsign had been advised, the terms of the agreement in place between the parties estopped Crestsign from asserting a duty of care. This was classic contractual estoppel in operation.

Crestsign argued that the non-reliance terms were so inconsistent with what actually happened that they were, in effect, unreasonable exclusion clauses and so void under the Unfair Contract Terms Act 1977. This argument failed however: the court held that the relevant terms of the documents provided to Crestsign were not an attempt to ‘re-write history’ and were therefore not exclusion clauses – they were “basis clauses” – i.e. clauses which defined the parameters of the relationship between the parties. The point in time at which the clauses had arisen was early enough in the parties’ relationship to be seen as defining what that relationship was, rather than coming in at the last minute and attempting to re-define what relationship had already been moulded (as would be the case for instance in Clarke J’s car dealer example, in the case of Raiffeisen Zentralbank v RBS Plc [2010] EWHC 1392)).

Crestsign at first blush therefore appears to be a recent re-statement of the doctrine of contractual estoppel in its application to a contract which includes non-reliance clauses.

However, the claimant has recently been granted permission to appeal on several points, one of which is whether the relevant clause contained in the bank’s standard terms and conditions actually prevented Crestsign’s cause of action against RBS for negligent advice or whether it was in fact an exclusion clause which must be subject to the UCTA reasonableness test.

Although there is certainly no guarantee that the principle will be overturned in its application to IRHP mis-selling claims, the Lord Justice of Appeal has ruled that the grounds relied upon by Crestsign have “a reasonable prospect of success”. So this signifies at least a glance in the right direction.

The appeal hearing is due to take place in Spring 2016.

The UCTA exclusion clause argument is an attractive one, and seems to be the Achilles heel in the otherwise seemingly impenetrable contractual estoppel defence deployed by banks when faced with IRHP mis-selling claims. Section 3 of the Misrepresentation Act 1967 could be deployed in a similar way, where it is a claim for misrepresentation that the bank wishes to use the non-reliance clause as a shield against.

It seems quite unreasonable that in circumstances where a bank is dealing with an unsophisticated party, the latter will be unable to rely on advice that the bank has in actual fact given, regardless of the fact that that party may not appreciate that it is not able to do so.

The implementation of a reasonableness test applied to non-reliance clauses in such circumstances should help to remedy this imbalance. Pressure is certainly being applied in the right places, and it will be very interesting to see whether the appellate courts of England and Wales will achieve such a rectification.


The Bristol Mercantile Court on 30 July 2015 produced a judgment with potentially far reaching effect for those businesses caught up in the mis-sale of IRHPs and the FCA instigated Review into the same. The judgment in Suremime Ltd v Barclays offers some hope for those businesses that have been left dissatisfied with the way their claim has been handled, and with the redress they received (or did not receive, as the case may be), particularly in circumstances where recourse to the courts has become barred by the Limitation Act 1980.

Upon publication, in February 2015, of the previously undisclosed agreement between the FCA and Barclays, Suremime, a holiday park operator, sought to amend its claim against Barclays for the mis-sale of an IRHP to include the argument that Barclays owed it a duty of care to exercise reasonable care and skill in conducting the Review as the FCA required. Barclays resisted Suremime’s application to amend on the basis that the proposed new claims stood no realistic prospect of success.

The judge, HHJ Havelock-Allan QC, rejected the proposed amendment based on contract law however he was persuaded that the Claimant’s proposed claims in tort had a realistic prospect of success.

He found that it was arguable that in agreeing to provide redress in accordance with the specification for the conduct of the Review Barclays owed Suremime a duty of care in tort. He stated that:

“The fact that there may be public law remedies with which to challenge the way in which the FCA Review has been implemented is not necessarily a bar to a private law duty of care being owed. In any case, it has yet to be decided whether public law remedies are available. If they are not, the case for implying a duty on the banks towards customers whose swaps sales are being reviewed is arguably stronger. Nor, in my judgment, is the fact that the claimant can sue for the original mis-selling a sufficient answer to the proposed new claims in tort. The FCA Review was intended to provide a route to fair and reasonable compensation without customers having to sue for mis-selling. Those who stayed their hand and have not sued for the mis-sale in the hope of deriving a satisfactory result from the FCA Review process, but now allege that the specification of the FCA Review has not been faithfully applied, may be left without any remedy if they did not agree a standstill or moratorium with the bank which sold the swap and the mis-selling claim has since become statute-barred. Whilst that is not this case, it is a relevant consideration because it is part of the wider landscape in which the Court will have to assess whether the banks should owe a duty of care to customers in their conduct of the FCA Review.”

The Judge held that it was more than merely arguable that such a duty was owed, and that he could not be confident that all the relevant facts were known at this early stage of the Claimant’s action. Accordingly, the addition to the Claimant’s case was allowed.

The judge was helped in his decision by consideration of the fact that many Claimants may have trusted in the Review to provide them with redress, to the extent that they did not issue proceedings within the time-limit prescribed by statute.

The Suremime judgment is a potentially important development for Claimants with IRHP claims who thought they were at the end of the road.

  • Such claimants may now be able to bring a claim in tort against their bank for failure to carry out the Review in accordance with the terms of the agreement reached between that bank and the FCA.
  • Further, the limitation period for claims in respect of the way in which the Review was carried out would run from the point at which the bank breached its obligations under the agreement with the FCA. Therefore, claimants whose other claims were time-barred might now have a new weapon to deploy against their bank.
  • In addition, the Judge has indicated that “private persons” may have a statutory cause of action against the Bank for breaching the FCA’s dispute resolution rules, particularly DISP 1.4.1 R in relation to its conduct of the Review process.

This judgment signifies another small victory for claimants that have been caught up in the mis-sale of financial products or investments. Should the argument be upheld at full trial, Claimants will find themselves with a whole new string to their bows.


Case law in this area has decidedly and unquestionably favoured the defendant banks thus far (though that in itself does not tell the full story as banks have been extremely selective in determining which cases to fight and which cases to settle; they have, quite sensibly, bought off the strong, well-argued claims with settlements, and attached confidentiality agreements). However, successes in the courts in the cases referenced above will go a long way to redressing the balance.

Any company that is caught up in litigation with a bank, or any company that is considering embarking upon litigation against a bank, would do well to keep an eye on the above developments. It may be that some very useful precedents are set, which would open the door for further analogous claims to succeed where they may previously have failed. In the meantime, such companies should consider seeking legal advice in order to protect their interests whilst the outcomes are awaited.

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