In an April 2016 Financial List decision by Mrs Justice Asplin in Diane & Michael Hockin and Lonwest Ltd v Royal Bank of Scotland plc and National Westminster Bank plc [2016] EWHC 925 (Ch), the Bank unsuccessfully applied for strike out of parts of the mis-selling claim issued against them by the Claimants. The Claimants had also successfully applied to amend their particulars of claim. Allegations of breach of an implied duty of good faith will now proceed to trial.
The background
In 2008 the Bank extended a loan facility to LWE, a company owned by Mr and Mrs Hockin. The parties also agreed an interest rate swap as a precondition of the loan facility. LWE’s facility was placed under the supervision of the Bank’s Global Restructuring Group (“GRG”) in October 2009, assigned to “Isobel”, a joint venture between the bank and Blackstone, at a discount in March 2014, and later LWE was put into administration. Rights of action against the Bank were assigned to the Claimants by LWE by a deed of assignment.
The Claimant’s case comprised familiar allegations of breach of a duty to advise in relation to the swap, misrepresentations, and breach of implied terms regarding LIBOR. The Claimants also alleged that the Bank was subject to an implied term to act in good faith in relation to its management of the facility. It was that allegation that the Bank applied to strike out.
The strike out application
The application was on three grounds:
- First, that the Claimants lacked standing to bring the GRG claim because the rights of action assigned to them related to the swap and did not extend to the facility.
- Secondly, that the good faith implied term claim was unarguable because the facility had been breached and the Bank was entitled to accelerate. The Bank’s acted to enforce a right, and not to exercise a discretion that could be subject to a ‘good faith’ qualification.
- Thirdly, that it was an abuse of process because the allegations were a fishing expedition to elicit information for the purposes of a claim.
Decision
The judge found that the wording of the assignment was wide. The phrase ‘in connection with’ was capable of being interpreted so as to connect the Claimant’s claims with the breaches as defined in the assignment. It was reasonably arguable that the GRG claim flowed from the misrepresentation claim as a matter of causation.
Whilst acknowledging that the threshold for the implication of a term into a commercial contract is high, the court declined to conclude that there were no reasonable grounds for bringing the GRG claim. Deciding whether the facility was the subject of an implied duty of good faith required an analysis of what a reasonable person would have believed and the relevant factual matrix. These matters would be better decided at trial.
The Claimants’ application to amend their particulars was also, subject to refinements, allowed.
Interim challenges
This decision shows once again the difficulties banks face in trying to dispose of the more speculative or exotic parts of these types of swaps mis-selling cases at an interim stage. Examples of similar attempts falling on stony ground can be seen in the Unitech and Graiseley LIBOR claims, and the Provincia di Crotone swaps litigation. Judges continue to eschew a technical approach to cherry-picking issues, preferring to allow claimants a chance to make out these types of allegations at trial. Courts also continue to take a relatively permissive approach to applications by claimants in these cases to remedy the flaws in their pleadings with on the hoof amendments.