Interest Rate Hedging Products
Barclays Bank fail in application to strike-out customer's case as being issued too late
One of the major problems facing a bank customer who considers they have been mis-sold an Interest Rate Hedging Product (IHP) is that of the Limitation Act. Simply put, many customers realise too late that they may have a claim and have to rely on the IHP review process (the "Review") agreed between the banks and the Financial Services Authority. This is a particular problem for customers which fall within the definition of a "Sophisticated Customer" (as defined in the Review) because those customers are not included in the Review. The problem of limitation also, obviously, impacts upon even those customers which are included within the Review because if they have lost the right to take legal action, the customer is obviously in a weaker negotiating position in the Review than they would otherwise like to be.
A recent High Court case called Kays Hotels Limited v Barclays Bank Plc (16 May 2014) may, however, provide some assistance to customers faced with a limitation problem. In this case, the customer had agreed an IHP with Barclays Bank in 2005 and prior to November 2009 had made payments in consequence of the IHP terms of £36,000. The customer eventually issued proceedings against Barclays Bank in November 2012. The normal time limit for the issue of such proceedings would have been 6 years from the date of the accrual of the cause of action (arguably 2005) or where (as in this case) the damage could be argued to be "latent", 3 years starting with the date the customer first had both the knowledge of the facts sufficient to bring an action and also the right to bring such an action.
Barclays Bank applied to strike-out the Kays Hotel claim on the grounds that by making the £36,000 payments prior to November 2009, Kays Hotels should have known that it had a claim and that accordingly, by failing to issue proceedings until November 2012, it was out of time for doing so even if the damage was accepted by the Court as being "latent" in nature.
The Judge held that the essence of the Kays Hotels' claim was that it was one of mis-selling, that Barclays Bank had not explained adequately how the IHP worked, the risks involved, had not considered whether the IHP was suitable for Kays Hotels and had required Kays Hotels to take out the IHP as a condition of a loan. It was also found that Kays Hotels knew in agreeing the IHP that there would be some element of risk. Its complaint was that the risk was excessive.
The Judge decided that just because Kays Hotels had been required to make payments of £36,000 to Barclays Bank that was not necessarily indicative of the IHP being unsuitable for Kays Hotels. Accordingly, the Judge found that Barclays Bank's approach as to what was necessary to establish the requisite knowledge of a right to claim so as to set the time for issuing a claim running was too narrow. The Judge therefore concluded that Kays Hotels had a real prospect of establishing that they were not out of time for issuing proceedings and therefore refused Barclays Bank's application.
Whilst this is only a decision made in respect of an interim application made by a Court of First Instance (and not an Appeal Court), it does provide some comfort to customers involved in disputes with their banks over an IHP who may believe their only prospect of success is to rely upon the Review. It is also of interest to those "Sophisticated Customers" not entitled to take part in the Review and who might consider they are out of time to take action in the Courts.
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.