Carter-Ruck clients successful in substantial interest rate hedging product consequential loss claim

Posted on 15 March 2016 by Carter-Ruck

Two Carter-Ruck clients have received substantial consequential redress awards under the Financial Conduct Authority’s Interest Rate Hedging Product Review.

Contract agreementMJH Executive Homes Limited and MJH Investments Limited are small businesses which buy and develop residential property sites. In 2007 their owner, Mr Michael Hartnett, approached Allied Irish Banks (‘the Bank’) for loans to cover two new developments.

The Bank lent both companies funds to cover the developments but insisted that they enter into two IRHPs, a swap and a collar, as conditions of lending.

The IRHP Review found that the sales of the derivatives fell below the standards set by the Conduct of Business Rules and upheld a substantial number of individual complaints.

Amongst numerous negative findings against the Bank, the Review determined that there had been:

  • deficiencies in the presentation slides used by the Bank’s sales personnel in relation to the risk characteristics of the products covered;
  • failures by the sales personnel to correct those mistakes;
  • an insistence on hedging when the loans did not require them;
  • a complete disregard by the Bank as to the borrowers’ clearly stated preferences not to hedge their debt;
  • mischaracterisation of the hedging as for the borrowers’ protection when in fact they protected the Bank.

The IRHP Review recommended that, including interest, the two companies be awarded in total almost £400,000 in basic redress and a further £825,000 in consequential losses.

According to the FCA’s own figures, as of December 2015 only 45 of the 3,683 bespoke claims for consequential loss under the Review had recovered more than £100,000.

For more information on Carter-Ruck's work in this area please see our Interest Rate Hedging Products page or contact Alasdair Pepper, Adam Tudor or Ruth Collard.

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