Marz Ltd v Bank of Scotland Plc (includes Costs)

INTRODUCTION

This claim is the latest in many recently pursued against banks by customers who have bought interest rate hedging products in order to protect against the risk of changes in loan interest. In the present case, the interest rate hedging product was a Swap sold by the Defendant (“BoS”) to the Claimant (“Marz”) in June 2008, now more than 9 years ago.

The Swap was intended to hedge against interest in respect of £12.5 million (or just over two-thirds) out of a proposed loan from BoS to Marz of £18.5 million, and included a novated trigger swap sold by another bank Royal Bank of Scotland (“RBS”) to an associated company of Marz in the sum of £7.5 million, previously protected by a so-called “trigger swap”.

Marz says that the Swap was unsuitable at least when compared with a certain Alternative Arrangement – an interest swap of £5 million and amortising interest rate cap of £7.5 million - and that in explaining the available hedging products and recommending the Swap, BoS breached duties of care which it owed Marz by way of (a) express contractual duties uunder its Terms of Business to take reasonable steps to ensure that it was suitable and/or (b) common law duties to take care in allegedly advising and/or providing information and/or explaining the options so as to enable Marz to make an informed decision.

As against this, BoS denies that the relevant Swap was unsuitable or that it owed Marz any duty of care to ensure or assist in ensuring that it was suitable; and it relies on the draft and executed ISDA Master Agreement and the individual trade confirmation governing the transaction and previous recorded communications between the parties in order to negate almost every allegation made against it.

As has emerged in many similar cases, BoS gained revenue from the Swap and Marz alleges a substantial loss, which it puts at up to some £1.85 million more than the more suitable alternative in the form of a cap on interest rates rather than a swap. The parties had conflicting interests. Some of the deficiencies in such processes were explained in Interest Rate Hedging Product reviews by the Financial Services Authority and subsequently the Financial Conduct Authority from 2012 to 2016.

BoS was motivated by a desire to maximise its profit above merely ensuring that Marz could repay its borrowings and interest. Long gone are the days when businessmen might assume that banks are ordinarily limited to the latter objective as serving their mutual interests with customers. Whilst banks may vaunt their service, they often regard themselves and their customers as little more than commercial counterparties. Perhaps it was always thus: according to Mark Twain, “A banker … lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”

Be that as it may, despite the broad canvas and detail of the allegations and counter-allegations made in this action, the primary issues to be determined at trial related to the legal interpretation and application of the written contractual terms between bank and customer, that is BoS and Marz, and in particular whether they included or effectively excluded the various duties of care on the part of BoS which are alleged by Marz.

BACKGROUND

Marz was established in 2005 as one of the catering businesses owned by the Adil family, the first Adil Catering Limited (“ACL”) having been started by Mr Mohammed Adil in about 1969. Marz is owned by Mr Mohammed Adil’s son Mr Raja Adil (“Mr Adil”) and operates Kentucky Fried Chicken (“KFC”) franchises in the North of England.

BoS is a well-known bank with a history going back to 1695. In September 2007, it was reincorporated under the HBOS Reorganisation Act 2006; and since January 2009, when HBOS was acquired by Lloyds TSB, it has been a subsidiary of Lloyds Banking Group.

Mr Adil become a director of ACL in the early 1990s, whilst still at college. He qualified as a solicitor in 1999 and practised as such for a time. He was on KFC’s Franchise Council from 2002 and in about 2004 set up his own company Alderforce Limited (“Alderforce”), which acquired a chain of KFC outlets in Bedfordshire and Northamptonshire, and banked with BoS.

Mr Adil had had some experience of ACL’s trigger swap with RBS whereby, when the 3-month LIBOR rate went above the specified rate of 6%, a swap was agreed for the rest of a 10-year term of the £5 million loan at a fixed rate of 6.9%. He also received presentations from BoS about interest rate hedging for Alderforce in 2004 and 2005, and from RBS in 2007 but was sceptical as regards the benefits and costs.

From 2006 Mr Adil considered the acquisition of further catering businesses including the KFC franchisee Marsdens Caterers of Sheffield Limited (“Marsdens”), which BoS offered to finance subject to interest rate hedging (and became known as “Project Excel”).

Mr Adil appointed Wright Vigar accountants (principally Mr Christopher Shelbourne) to assist with the transaction, under a formal retainer letter setting out services and fees, along with a long-standing accountant to his family, Mr Nevzet Ekrem of Hurkan Sayman & Co and Mr Akbar Bata, Marz’s company secretary. None of these, including Mr Shelbourne, were authorised by the Finanacial Services Authority.

BoS was represented by successive relationship managers, Messrs Harfield, Orr and Shirley, and by a Mr Barry Millar of its Treasury Department, assisted by a trainee Mr Shukri Arnold.

By 10 December 2007, BoS issued Outline Terms and Conditions for the facilities which it was willing to provide including (a) a term loan of £18.5 million in two tranches - Tranche A for £8 million by way of interest only and repayable on 31 March 2015 and Tranche B for £10.5 million repayable in 28 quarterly instalments (rising from £250,000 in year 1 to £500,000 in year 7) and subject also to an annual sweep of 75% of excess cashflow – and (b) an overdraft facility of £500,000.

It was a condition of the term loan, to be satisfied within a few months of drawdown, that Marz would enter into interest hedging “to be determined between BoS and Borrower” in the form of “either [a] 5 year interest rate swap or an interest rate cap in a minimum amount of £12.5m…”.

The Outline Terms were re-issued on 22 January 2008 and were incorporated in a Term Loan Facility Letter signed by the parties on 3 March 2008.

When Mr Shirley sent a copy of the Outline Terms to Mr Millar in late January 2008, Mr Millar emailed Mr Arnold:

On 7 February 2008, BoS sent Mr Adil a Retail Client Classification Letter, together with copies of its Terms of Business for Retail Clients and its “Execution Policy”. The letter stated that BoS would be providing Marz with “advisory and execution services in over the counter derivatives such as interest rate or foreign exchange products”.

BoS’ Terms of Business for Retail Clients provided among other things as follows:

On 27 February 2008, BoS sent Mr Adil an ISDA Master Agreement. This was in standard form, providing among other things as follows (“ISDA Part 5(2)”):

On 3 March 2008, Marz completed its purchase of Marsdens using the loan from BoS.

On 4 April 2008, Mr Millar emailed Mr Adil (subject: “Interest Rate Saving”):

On 5 April 2008 Mr Millar emailed Mr Adil:

By 25 April 2008, it was proposed that further time be allowed for the hedge to be concluded and that it included the novation of the RBS Swap. Mr Shirley wrote to Mr Adil:

A so-called “Solutions Paper” in Powerpoint was presented to Mr Adil by Mr Millar at a meeting on 1 May 2008. It was also said to be attached to an email on 16 June 2008, the day before the Swap concluded. Two different versions of such a document were in evidence, one containing four options and the other three options “to hedge your interest rate exposure”, both apparently unfinished and containing errors.

After the meeting of 1 May 2008 Mr Adil wrote to Mr Shirley:

Mr Shirley wrote back to Mr Adil:

Thereafter BoS sent Mr Adil regular pricing updates by email quoting for 5-year and 7-year interest rate swaps and a 5-year extendable interest rate swap, sometimes with a brief market commentary such as “Given the CPI data yesterday, we are currently still seeing an increase in swap rates and hence the rates have moved against you”. From 28 May 2008, these emails also stated “Please bear in mind that these rates include the proposed novated Swap currently held with RBS”.

On 2 June 2008, Mr Millar wrote to a colleague:

The extra margin (reduced later that day from 9 to 8 basis points) was at some point included in the prices quoted in the daily update emails and so, it is said by Marz, adding to the apparent upward trend without Marz being informed of that reason. By the time the Swap was eventually traded, it included a margin of 42 basis points, 12 points above the BoS “guideline” rate of 30 bps which Marz’s expert witness Mrs regarded as itself a “very high level of applied credit spread”.

On 10, 11 and 13 June 2008, Mr Millar emailed Mr Adil asking him to confirm that he was happy with BoS’ best execution documents (referred to in schedule 3 of its Terms of Business) and would sign the ISDA Master Agreement “within 30 days of the trade”. On 13 June 2008, Mr Adil said that he was happy with the best execution documents and would do the remainder of the hedging the following Monday.

A written confirmation in respect of the novated RBS Trigger Swap was sent by BoS to Marz on 17 June 2008 and a written confirmation in respect of the Swap itself was sent on 23 June 2008, as expected by Marz. These confirmations contained terms and representations in materially identical terms to those included in the ISDA Master Agreement as set out above. Mr Adil among others for Marz signed the Confirmations and returned them to BoS.

Mr Millar then completed an internal form headed “Suitability and Understanding” recording among other things that Marz was not using an advisor in relation to the Swap, expected rates to increase (although Mr Adil had in fact stated that the expected them to fall) and the transaction was “suitable for this client”, because “… he has debt for 5 years which will give him protection from rising LIBOR costs”. The following day Mr Millar stated within BoS that he had just added “an additional £214K to Southampton’s Treasury target” – which was greeted by BoS’ Commercial Business as “Great news”.

Within some two months of the Swap, during the summer of 2008, the state of the financial markets drastically changed and interest rates plummeted. Mr Millar approached Marz with a view to a restructuring of the Swap. According to BoS’ internal documents, this would have involved increasing the notional debt to £17.5m, and producing further revenue for BoS through a 15 basis point “sales claim”.

By September 2008 BoS considered it appropriate to increase the credit line for the Swap to £1.6 million, again without telling Mr Adil, who was expressing his unhappiness about the Swap after querying a payment out from the account:

Following further exchanges Mr Millar produced a further discussion paper with two proposals for reducing the rate, both based on increasing the notional amount (to £17 million and £15 million), one including an extension option, which were said to offer “savings” of £28,000 per year and over £100,000 per year respectively, assuming that LIBOR remained constant for the duration.

These proposals were presented at a meeting on 8 December 2008 at which it was noted the existing Swap was costing Marz £425,000 per annum compared to paying LIBOR at a variable rate, and would cost £2 million to break.

On 9 December 2008, Mr Shelbourne wrote to Mr Millar saying that BoS’ proposals all seemed to work out about the same, adding:

The alternative which Mr Millar offered was to replace the Swap with a cap at 6.83% and paying the break costs (together with presumably the premium for the cap) over the remainder of the term at £43,000 per month, notwithstanding his evidence that deferred premium caps were “very unusual products in my experience, particularly at that time within the Bank”.

Given the break costs, Marz still found this solution unacceptable. On 29 December 2008 Mr Adil wrote “… the SWAP really is killing us! Where are we with this, we need to get out! Cant afford this going forward …”.

In February 2009, BoS’ internal credit line for the Swap was increased to £2.6m (again, without informing Marz) and by the time it expired in June 2013, the Swap had cost Marz £3,355,658, or £1,995,885 after deduction of the cost attributable to the novation of the RBS Swap. Marz says that this is £1,872,141 more than it would have had to pay if it had entered into the alternative, a cap rather than a swap, which it claims was suitable.

THE PROCEEDINGS

Marz issued a Claim Form on 6 March 2015 and served Particulars of Claim which it amended on 3 June 2016 (to include the Alternative Arrangement as a secondary counterfactual, as addressed at the end of this judgment).

As regards the alleged breaches of duty towards it on the part of BoS in relation to the Swap, Marz pleaded in summary:

BoS served a Defence which it amended on 7 July 2016. As regards the duties allegedly breached by it, in summary, BoS denied that it owed Marz any of the alleged duties beyond a duty to take reasonable care to ensure that information provided by it to Marz was accurate and not misleading, since:

There followed an Amended Reply by Marz dated 28 July 2016 and a Rejoinder by BoS dated 19 May 2017 in particular as regards the reasonableness or otherwise of BoS’ alleged exclusion of liability for negligence for the purpose of the Unfair Contract Terms Act 1977 (included in an Agreed List of Issues, which I do not need to set out in full).

Following disclosure of documents and exchanges of witness statements and expert reports, the trial took place over 7 days commencing 28 June 2017, with the benefit of more than 11 bundles of contemporaneous documents, more than 5 volumes of authorities and a real-time transcript. Marz was represented by Mr Edwards QC and BoS by Ms Phelps QC and Mr Duffy of counsel. They made lengthy oral and written submissions (in several sets) and I am grateful for their assistance.

The factual recollection of the witnesses at the trial was largely dependent on the documents and they could not otherwise furnish much reliable evidence on many of the matters of detail which were explored.

Marz called Mr Adil, his father, Mr Shelbourne and Mr Ekrem. I am bound to say that I did not find Mr Adil an entirely credible witness. He was emotional in his determination to blame BoS. Often he would claim not to recall something and then say forcefully that he could recall not being involved in or informed of it.

This and other aspects of his testimony seemed to me to border on the evasive, as did his attempts to distance himself from inconvenient documents and facts in a rather implausible way.

I deal much later in this judgment with what Mr Adil claimed to be his expectations as to interest charges, but for now summarise other examples of these attempts at distancing. Thus Mr Adil stated:

As to Marz’s other factual witnesses:

BoS called as factual witnesses: (a) Mr Edward Massey, its then Director of Treasury Sales in contact with Mr Adil during 2004 and 2005 regarding possible hedging transactions; (b) Mr Orr, the BoS (now Lloyds) Relationship Director who held discussions with Marz regarding its proposed borrowing in 2007 and 2008; and (c) Mr Millar, now Director of Mid-Cap Solutions at Lloyds, who was the salesman and the primary BoS Treasury point of contact with Marz in 2008 prior to the entry into the Swap.

I need say no more as regards these witnesses at this stage other than that (a) Mr Massey presented as clear but he did not purport to have an actual recall of the material events in 2004/5; (b) Mr Orr’s evidence on the hedging condition was largely unchallenged; and (c) Mr Millar could say little specific to the material events and I cannot attach too great significance to what he said about his “usual” explanations, given the passage of nearly 10 years and what has happened since.

As regards the expert witnesses, Mrs Jackie Bowie for Marz and Mr David Croft for BoS, they both endeavoured to assist the Court in their reports including their joint report and their concurrent oral testimony, based on an agenda drafted by counsel in accordance with 35PD11.2.

The remaining differences between the experts were not material to the outcome of the case, as will appear in this judgment, save to some extent as regards the justification, meaning and effect of BoS’ hedging condition from the credit perspective, on which the opinions of Mr Croft (who had more experience in this respect than Mrs Bowie) was in my judgment to be preferred.

At the start and after the end of the trial respectively, Marz sought to add:

LEGAL ISSUES

Before turning in more detail to the facts and the arguments, it is worthwhile to address early in the discussion some of the main legal issues which have been raised. This requires preliminary consideration of the contractual and regulatory structure, and the inter-relation between BoS’ Terms of Business and the ISDA terms applicable to the Swap.

There follows an outline of some of the principal areas of law argued between the parties, who made voluminous reference to authority. I hope that I may be forgiven for summarising matters shortly at this stage, with no disrespect to Counsel. I will return later as necessary to more of the arguments in the present case after the factual analysis later below

I can state at the outset that in my judgment, insofar as there was a manifest conflict between clause 5 of the Terms of Business specifying duties of advice, and Part 5(2) of ISDA negating the same, the latter must prevail, as a comprehensive, subsequent and specifically applicable set of contractual terms relating to the Swap.

Clause 2.2 of the Terms of Business states that an ISDA or other agreement as regards specific transactions should prevail if in conflict with the Terms of Business. ISDA Part 5(2) was in wholesale conflict with the application of clause 5 of the Terms of Business to the effect alleged by Marz as importing a duty of care in providing information, recommendations, suggestions or advice needed to decide on the suitability of the Swap required by BoS and traded by it with Marz.

Similarly, the reference in ISDA Part 5(2) to deemed representations by either party (in this case by Marz) as to Non-reliance, Assessment and Understanding and Status of Parties, is not affected by the qualification “absent a written agreement between the parties that expressly impose affirmative obligations to the contrary for that transaction”. There was no such separate written agreement for the Swap by way of the Terms of Business or at all.

The Terms of Business cannot constitute such an agreement because, by the definition of their scope in clause 2.2, they do not apply to the Swap governed by the ISDA Master Agreement. There is thus no paradox or circularity, as was submitted on behalf of Marz. This would make for commercial nonsense. The Swap was governed by the confirmation dated 17 June 2008 and the ISDA Master Agreement. The obvious meaning of the parties’ agreement relating to the Swap was that any provision in the Terms of Business contrary to the deemed representations in ISDA Part 5(2) was inapplicable and ineffective.

I can also address shortly at this stage Marz’s contention that even if Part 5(2) was effective to oust any duty of care as regards “advice” or “recommendations” under clause 5 of the Terms of Business, its wording did not cover “suggestions” by BoS as also referred to therein.

That has more than a whiff of chop-logic about it and I dismiss it as entirely contrary to the sense of clause 2.2 and Part 5(2) and the objective expectations of any businessman entering into a subsequent ISDA transaction. It would be irrational for the parties to agree on a transaction or relationship underlying a transaction which prevents a risk of liability for carelessness as regards advice or recommendations but allow for it as regards lesser “suggestions”.

Also by way of preliminary, mention might be made of Henderson v Merrett Syndicate & Others [1995] 2 AC 145, in which Lord Goff approved of Oliver J’s landmark decision in Midland Bank Trust Co v Hett Stubbs & Kemp [1979] Ch 384 and agreed, in the words of the Supreme Court of Canada, that:

Marz claims that (a) BoS gave it advice on the merits of entering into the Swap and purported to explain the available hedging products in such a way as to enable Marz to take an informed decision and therefore (b) owed common law duties of care in relation to its advice and/or its explanation of the options, which included the features of swaps and caps – alternatives under the hedging condition required by BoS to make its loan - which it says made the latter more suitable for Marz.

The initial source of the duties alleged by Marz, to take care when giving advice and/or an explanation which is fit for its purpose of enabling an informed decision, is said to be found in the speech of Lord Morris in the House of Lords decision in Hedley Byrne v Heller & Partners [1964] AC 465, 502-503:

Hedley Byrne (at 510 and 530) also affirmed Woods v Martins Bank [1959] 1 QB 55, 71 to the effect that although banks do not generally owe their customers any duty to advise on the merits of investments which their customers may be proposing to make, if they choose to do so in the course of business then they owe a duty to advise with reasonable skill and care.

A bank which undertakes to explain the nature and effect of a transaction owes a duty to take reasonable care to do so as fully and properly as the circumstances of the case demand: see Cornish v Midland Bank Plc [1985] 3 All ER 513 (CA). This gives rise to the question of whether the bank has assumed a so-called “mezzanine” or “intermediate” duty falling between the “low-level” duty not to make negligent misrepresentations (generally regarded as the effect of Hedley Byrne and admitted by BoS in the present case) and the more extensive duty owed by an advisor recommending, or guiding a client in, the selection of a suitable product.

In the present case, Marz contends that BoS owed it that “intermediate” duty - as held by Tim Kerr QC (as he then was) in Crestsign Ltd v National Westminster Bank Plc [2015] 2 All ER (Comm) 133 – in explaining those products which the bank wished to sell. Under the Hedley Byrne principle, the scope of the duty depends on the nature of the task undertaken, and Marz maintains that - notwithstanding statements to the contrary in other first instance cases - such a duty may be owed by a person who is not an adviser.

Some of the other relevant principles are less contentious as regards advice and recommendations as adviser, without distinguishing a lesser duty as regards other information or explanation:

Marz stressed various distinctions between its differing ways of putting its claim in contract and by reference to tortious duties to take care as regards advice and/or (at a “mezzanine” level) information or explanation. It says among many other things that: (a) in a contract claim under the Terms of Business, BoS owed a duty of care as regards any “suggestion” even if it did not provide recommendations or advice; and (b) a finding that BoS’ explanation of the Swap itself was adequate would not necessarily mean that it was suitable.

This last point is supported by the Court of Appeal’s comments in Saville v Central Capital Ltd [2014] CTLC 97 at [46], [58] that:

Marz also sought to rely on the regulatory framework and requirements for financial services under the Financial Services and Markets Act 2000 (“FSMA”) and the FSA’s Conduct of Business Sourcebook (“COBS”) mentioned in clause 1 of the Terms of Business.This was partly to assist in its construction of the relevant documents and also to rely on the FSA-approvals for Messrs Miller and Massey of BoS, as discussed among the Arguments.

Among other things, by COBS 9.2.1R, a regulated firm must take reasonable steps to ensure that a “personal recommendation” on a decision to trade, is suitable for its client; and by COBS 9.2.2R, when making the personal recommendation, the firm must obtain the necessary information regarding the client, so as to enable it to make the recommendation, which is suitable for him.

A claim for breach of statutory duty as regards any contravention of these requirements under section 138D(2) of FSMA generally lies only at the suit of a private person, that is an individual who suffers loss other than in the course of a business, and is therefore not available to Marz. Green & Rowleyv Royal Bank of Scotland [2012] EWHC 3661 (QB), [2013] EWCA Civ 1197 suggested that these COBS 9.2R duties are or may still be relevant in the case of an advisory relationship, but perhaps not otherwise.

Marz submitted nonetheless that “advice”, “recommendation” and “suitability” have a particular meaning in the financial services context as influenced by regulation, and that since BoS in fact engaged in the regulated activity of advising Marz on the merits of buying the Swap as an investment under the FSMA or at least provided information which should have been sufficient for Marz to make an informed decision as to the suitability of the product offered.

A “personal recommendation” for the purpose of FSMA is indeed defined as “a recommendation that is advice on investments … and is presented as suitable for the person to whom it is made, or is based on a consideration of the circumstances of that person”.

The FSA’s Perimeter Guidance Manual suggested as at 2008 that there was no need for a recommendation or advice to be expressed in an overt form: a recommendation might be conveyed by providing information “on a selected, rather than balanced, basis which would tend to influence the decision of the recipient”.

By a similar token, it was said in Walker v Inter-Alliance Group Plc [2007] Pens LR 347 by Henderson J at [30], that “any element of comparison or evaluation or persuasion is likely to cross the dividing line” between advice and information. Even if the adviser believes that he or she is only providing information, it may in fact be advice.

That distinction was enunciated in Rubensteinv HSBC [2011] 2 CLC 459, [2012] 2 CLC 747 (CA) at first instance at [81]-[83] as follows:

The fact that the adviser knows or reasonably believes that the recipient may consult or seek advice from others before acting on his advice and/or issues a disclaimer saying that it should not be relied upon, do not in themselves deprive the advice of its character as such: see Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282 Carnwarth J at [16], [34]:

However, much attention has been paid in bank mis-selling cases to whether or not, by reason of the applicable contractual terms (in this case including Part 5(2)), the parties are to be taken as having agreed that their relationship is not an advisory one and that the bank should not be taken to have provided advice relied upon by the customer so as to assume any duty of care.

In Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] 2 Lloyd’s Rep 511 and Springwell Navigation Corp v JP Morgan Chase Bank [2010] 2 CLC 705, the Court of Appeal appeared to endorse in this context the doctrine of so-called contractual estoppel, under which the parties to a contract are bound by agreeing that a certain state of affairs should form the basis for the transaction, whether that state of affairs is in fact the case or not, and cannot deny the existence of the state of affairs upon which they agreed.

First instance cases in which (i) customers have alleged breaches of duty against banks in relation to sales of derivative products (including interest rate swaps) and (ii) those banks have successfully relied on contractual terms identical or akin to ISDA Part 5(2), sometimes when an advisory relationship was in fact in place, include Titan Steel Wheels Ltd v Royal Bank of Scotland Plc [2010] 2 Lloyd’s Rep 92, David Steel J; Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] 1 CLC 701 and Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm), Hamblen J; Barclays Bank Plc v Svizera Holdings BV [2015] 1 All ER (Comm) 788, Flaux J; Thornbridge v Barclays Bank Plc [2015] EWHC [2015] 3430 (QB), HHJ Moulder; and Property Alliance Group Ltd v Royal Bank of Scotland Plc [2016] EWHC 3342 (Ch), Asplin J.

In Svizera, Flaux J referred with approval to the Scottish case, Grant Estates Ltd v Royal Bank of Scotland Plc [2012] CSOH 133 at [73], in which Lord Hodge expressed the main principles on the basis of the English cases to date in the following way:-

Counsel for Marz contended that the propositions that it is open to contracting parties to decide the basis of their transactions and agreed terms such as ISDA Part 5(2) may preclude any claims that a bank owed advisory duty to the customer, remain controversial and the authorities which support it are susceptible to challenge. And indeed some of the most recent decisions against its arguments – Thornbridge and Property Alliance Group – may be pending in the Court of Appeal.

Other cases were cited on behalf of Marz, including Credit Suisse International v Stichting Vestia Groep [2014] EWHC 3103 (Comm) and First Tower Trustees v CDS (Superstores) International [2017] 4 WLR 73 in support of the submission that where the contractual term is described as a “representation”, a contractual estoppel cannot arise absent detrimental reliance, although Titan Steel Wheels and Thornbridge at first instance and Peekay and Springwell in the Court of Appeal seem decisions to the contrary.

I deal further with the above cases and Marz’s attempts to distinguish them and narrow the application of the principle of contractual estoppel in the course of addressing the arguments in more detail, after the factual analysis below.

FACTUAL ANALYSIS

Without repeating the background summarised above, the key aspects of the factual evidence which I have mentioned, mainly the contemporaneous documents, some admissions in the testimony, and infererences when necessary, lead me to the following findings.

Mr Adil’s knowledge of hedging

By 2008, Mr Adil had considerable experience of hedging and was well aware of the main types of interest hedging products and their main features and risks. Marz’s disclosure of documents relevant to the earlier RBS Trigger Swap was piecemeal until after BoS issued an application on 8 June 2017, but it was clear at trial that Mr Adil was heavily involved in the negotiations and arrangements with RBS concerning the RBS Trigger Swap.

RBS made hedging a condition of its lending to the Adil Group (which included ACL), and in late 2002 provided explanations for three different types of product: a ‘vanilla’ interest rate swap, cancellable and trigger swaps, which were compared as “zero premium” structures with an interest rate cap, noting that “a standard 6.00% cap for 5 years would require £70,000 in upfront premium”. Mr Adil confirmed that if he read these explanations, which I find he probably did, he would have understood that a cap was an available product.

The further paper emailed to Mr Adil on 6 February 2003, which he accepted he read, provided explanations for a ‘vanilla’ swap, a cancellable swap and an interest rate cap; in relation to the ‘vanilla’ swap, it explained that such a product provides the customer with absolute certainty as to the future interest rate liability and for caps, it provided indicative premium costs with a range of strike rates; and

RBS required that ISDA terms applied to the hedge and explained to Mr Adil that:

Mr Bata identified as a concern the fact that the costs for breaking a swap were “unquantifiable until the event takes place” and by fax dated 12 September 2003 RBS explained to Mr Adil among other things that:

The trade was made by a telephone call on 26 September 2003 and on 15 December 2003 Mr Adil signed on behalf of ACL the ISDA Master Agreement dated 1 September 2003 and the confirmation for the RBS Trigger Swap dated 17 October 2003, which both contained ‘Non-Reliance’, ‘Assessment and Understanding’ and ‘Status of the Parties’ clauses in substantially the same terms as Part 5(2) for the later Swap with BoS.

According to a meeting note dated 11 June 2004 (see further below), Mr Adil told BoS about the RBS Trigger Swap, provided them with a copy of the documentation and said that he had not initially understood the product “but he and two accountants had ‘grilled’ the RBS representative about the product and how it worked.” Those accountants were probably Messrs Bata and Ekrem.

Mr Adil remained in regular contact with RBS up to and during the negotiation of the Swap with BoS, in particular in December 2005, May 2006 and January 2007, discussing among other things the risk and calculation of break costs.

Thus, contrary to Marz’s complaint against BoS: (a) there was no need for it to explain that the RBS Trigger Swap had a negative value; and (b) Mr Adil must have understood the risk of break costs (which had escalated to £180,000).

Mr Adil complained about the RBS Trigger Swap in a further meeting with RBS and noted various law firm details. On 15 October 2007, RBS made a further presentation to him referring to zero-premium options for restructuring, break costs, the requirement for an ISDA and confirmations post-trade, and a disclaimer to the effect that Mr Adil was acting on his own account. (Thus, again there was no need for Mr Adil to read, if as he claimed he did not read, BoS’ disclaimers.)

Mr Adil discussed other potential hedging transactions with BoS prior to negotiating the Swap. In July 2004, BoS provided facilities of £10.2 million to assist with the acquisition of some KFC franchises by Alderforce (of which Mr Adil was also a director and Mr Bata was company secretary). Although hedging was not a condition of this lending, Mr Adil had met with Tim Wright of BoS Treasury on 11 June 2004.

Mr Wright’s detailed note recorded that Mr Adil “displayed some understanding of hedging products and the associated risks and benefits”. He showed Mr Adil indicative rates and premium prices for a range of both interest rate swaps and caps, as set out in a separate document, but Mr Adil stated that he “felt that the cap premiums were too expensive”. In the event, Mr Adil chose not to enter into any hedging with BoS on that occasion.

Then in September 2004, Mr Adil met with Mr Massey also of BoS Treasury. Mr Massey’s note recorded that Mr Adil considered a “range of options”. He said in evidence that his practice was to give explanations for products including a cap, collar and swap, using graphs as aids, and to discuss and revise options based on the customer’s views, for example, as to payment of a premium for a cap compared with the risks of a swap.

Mr Massey then wrote to Mr Adil to the effect that Mr Adil understood the risks of exposure to interest rate fluctuations and might be interested in entering into a form of hedging, but that he was “not particularly attracted to paying a large upfront premium associated with any strategy” and attached a hedging paper which he recommended that Mr Adil “discuss … with [his] financial advisor or accountant”, saying that it was important for Mr Adil to confirm that he had correctly understood his requirements.

Among other things, this paper (a) included an explanation of an interest rate cap and set out indicative premium costs for 3-year caps of £5 million at two different strike rates; (b) warned of the potential for break costs if interest rate swaps were broken early; (c) stated that the customer would be required to enter into an ISDA agreement; and (d) contained a disclaimer, consistent with the covering letter, that “appropriate independent advice should be obtained before making any such decision”.

Having first claimed to recall that caps were not discussed, Mr Adil’s evidence was that he could not remember any of this and that he would not have paid any attention to Mr Massey’s explanations and documents. I do not believe that Mr Adil, no doubt a busy and forceful businessman, would have attended this and many other meetings with BoS Treasury salesmen, without paying attention; and if he cannot remember either way, I cannot rely on any positive evidence from him on the issue, to gainsay the contemporaneous documents.

About a year later, between September and November 2005, BoS agreed in principle to lend £8 million to Alderforce or a newly-incorporated Adil Group company to acquire a number of further Burger King franchises, on condition that 50% of BoS' aggregate exposure be hedged i.e. across Alderforce and the proposed Newco. Mr Massey’s note of the discussion records that Mr Adil was “aggressive towards hedging, and adverse to any premiums”; and that Mr Adil’s preferred hedging solution was an enhanced collar and swap strategy. Mr Adil again professed no recollection of this.

But again Mr Massey then wrote to Mr Adil outlining his understanding of their discussion and attaching another hedging paper recording among other things that (a) Mr Adil had “no interest in paying any premium, and therefore preference would be to adopt some form of ‘zero-premium’ strategy”; (b) a “disadvantage” of a swap was the “potential for economic costs if swap is broken … Economic costs may apply to the above hedges excluding floating debt and Interest Rate Caps if the hedge is terminated prior to maturity”; and (c) any trade would be documented by an ISDA confirmation, and Mr Adil should not make a decision without consulting an independent advisor.

I do not accept that, as Mr Adil repeatedly protested, such documents and explanations would have been of no importance to him. They establish, in the absence of any other explanation from Mr Adil, that he discussed and understood the key aspects of hedging options, risks and costs in 2004 and 2005, and in my judgment he retained a broad knowledge of such matters a few years later, when it came to negotiating the Swap.

In August 2007 or thereabouts Mr Adil approached BoS for lending to support the proposed acquisition of companies which together owned various KFC franchises, and on 8 October 2007 BoS provided Mr Adil with its outline offer of financing for this “Project Turner”. As with RBS’ offer to ACL and BoS’ offer to Alderforce, the offer carried a condition requiring the acquiring company to enter into “Interest Rate Hedging at 66% of the Total Senior Debt … Marz Ltd – strategy for Alderforce Ltd variable debt to be fully reviewed by BoS Treasury”.

Marz retained Smith Cooper, a firm of accountants and corporate finance advisers, in relation to this proposed acquisition and they reviewed the bank’s offer of financing and provided Mr Adil with their comments, including comments on the hedging condition and interest rate movements.

When Mr Adil forwarded this advice to BoS, he stated that he did not want hedging – and this seems to have remained his view throughout. Whilst Mr Adil was well able to express his own views on interest rate movements, he also had advisers with views on the topic, regardless of BoS’ stated views. He was far from unsophisticated, and I infer that neither were they, since he would not have otherwise paid them to assist him.

By early October 2007, Marz’s attention turned to the acquisition of the larger portfolio of KFC franchised restaurants owned by Marsdens, for an initial purchase price of around £26 million, dubbed Project Excel. By the time of Marz’s initial meeting with BoS on 9 November 2007 to discuss financing Mr Adil had appointed a new firm Wright Vigar to advise, although a specialist department of Smith Cooper was still retained to produce a financial model.

It would appear that Mr Adil met with Wright Vigar in early November 2007 to discuss their engagement. A handwritten note recorded that:

Wright Vigar’s formal terms of engagement dated 22 November 2007 provided among other things that they would be acting as

Wright Vigar said they would charge for their time spent providing their advisory services and estimated that such fees would amount to between £30,000 and £40,000 plus a success fee of a further £40,000 should the transaction complete – later estimated as totalling £110,000.

Wright Vigar’s role was not as limited and merely “reactive” as Mr Adil initially sought to portray. Thus the following exchange during the testimony of Mr Adil:

The meeting on 9 November 2007 was attended by Mr Adil and Mr Ekrem on behalf of Marz together with Mr Shelbourne and Mr Jack O’Hern of Wright Vigar, and Mr Orr, Mr Harfield and Mr Shirley on behalf of BoS. Mr Adil was wrong to say that BoS’ funding for Marz was approved at this meeting. Its purpose was to obtain the information required by BoS to submit the application to credit. BoS rejected the credit application made after the meeting, as Mr Adil was informed on 30 November 2007.

It also cannot be right that BoS informed Mr Adil at the meeting that Marz would have to hedge £12.5 million. The credit application made after the meeting suggested BoS would require £15 million of the proposed loan of £24 million to be hedged. Despite this, Mr Adil refused to accept that his recollection must be wrong.

Finally, Mr Adil said that Mr Shirley suggested at this meeting that he use the RBS Trigger Swap to make up £5 million of the hedging condition but this is contradicted by three written accounts of this meeting - one from BoS and two from Wright Vigar (handwritten and typed up). None of them makes any mention of the RBS Trigger Swap or a possible novation, which does not appear in any BoS documents until 4 April 2008 nor any email exchange in the interim.

At the meeting on 9 November 2007 Mr Adil introduced BoS to his “team” from Wright Vigar and Mr Ekrem. I accept BoS’ submission that, metaphorically, Mr Adil and his “team” were on one side of the room, and BoS on the other, while he was seeking the best terms to obtain £24 million.

The BoS attendees at the meeting were relationship managers, not involved in selling hedging products and unlikely to have volunteered a novation of a product with another bank or an explanation of hedging products.

I reject Mr Adil’s claim that BoS should have explained to him at this initial meeting that the RBS Trigger Swap had a negative value (whatever he claimed under cross-examination he meant by that) and in any event Mr Adil had recently been informed by RBS of the amount of those break costs in excess of £180,000 (see above). On the contrary Mr Adil later volunteered in evidence that it was he who told Mr Shirley what the break costs for the RBS Trigger Swap were.

It is thus also unlikely that as Mr Adil also claimed Mr Shirley told him at the meeting that a swap would benefit his business. Mr Adil’s evidence was not supported by Mr Ekrem or by Mr Shelbourne, whose evidence was consistent with Mr Orr’s unchallenged account to the effect that if hedging were mentioned at all, it was merely floated as a possibility.

Following the meeting of 9 November 2007, BoS prepared an initial credit proposal which was submitted to the bank’s credit division in late November 2007 for reasons including concern about the level of gearing. The terms of the acquisition were then amended so that the total lending need went down from £24 million to £18.5 million. Credit approval was granted for that on or about 7 December 2007. BoS then provided Mr Adil with formal Outline Terms and Conditions for the Project Excel financing on 10 December 2007.

These Terms and Conditions provided for a £18.5 million loan and a £500,000 overdraft facility. Mr Adil confirmed that he read them carefully. They contained specific references to interest rate hedging:

The Terms and Conditions provided that (a) BoS was only prepared to lend on the condition that Marz hedged £12.5 million of debt, to be satisfied within 2 months of drawdown; and (b) Marz could satisfy this condition by either an interest rate swap or a cap, and break costs might be payable in the event that the hedge were terminated early.

On the same day Mr Shirley stated by email that whilst hedging was a condition subsequent to be entered into within 2 months of drawdown, BoS might be willing to extend that to 3 or 4 months. Mr Adil responded that he would “consider further with my advisors” and added Mr Ekrem to the email chain in addition to Mr O’Hern of Wright Vigar.

Mr Adil referred to this group of advisers in his evidence as his “team”:

The parties negotiated further, and on 22 January 2008 improved terms were offered to Marz but with the same hedging condition. Marz accepted these improved terms, Mr Adil having agreed that his advisers would then discuss the hedging options directly with someone from BoS’ Treasury team.

On 7 February 2008, BoS notified Mr Adil that it had classified Marz as a retail client, attaching the Terms of Business. Whilst Mr Adil’s claimed that he remembered reading the Terms of Business and discussing them with Mr Shelbourne, and relied on the apparent ‘promise’ that BoS would only put forward suitable products, I do not find that credible in the light of all the evidence. Mr Shelbourne stated that he did not think he discussed the Terms of Business with anyone.

In any event, Mr Adil admitted that any hedging transaction he entered into with BoS would probably be governed by ISDA terms:

As requested by Mr Adil, the initial discussion took place between Mr Millar and Mr Shelbourne by telephone call on 28 January 2008 and Mr Millar then provided Mr Shelbourne with the hedge profile for the 7-year swap so that he could add this to his model. It was reasonable for Mr Millar to believe, as he probably did, that Mr Adil would be informed and assisted by Mr Shelbourne in matters raised between them.

I accept that in all likelihood, Mr Millar gave information to Mr Shelbourne, for example in relation to the pricing of a range of products, and expected that Mr Adil and his team would then decide on what hedge Marz should enter into, so long as it satisfied BoS’ conditions for funding.

On 11 February 2008, Mr Shelbourne provided Mr Shirley with Marz’s business forecast revised from drafts prepared in December 2007 in order to “include the new interest assumptions following [Wright Vigar’s] recent discussions with HBOS Treasury”. The forecasts included projected profit and loss accounts for the next 5 years, including projections for Marz’s interest costs.

BoS’ internal compliance checks identified that Wright Vigar was not registered with the FSA to provide advice on options and derivatives, and BoS brought this to Mr Adil’s attention but he confirmed that Wright Vigar should still be “BOS Treasury’s point of contact re: Swap”. Although there was some consideration in February 2008 as to whether Marz could give Wright Vigar a power of attorney, it was decided instead that the hedging transaction would be entered into by Marz directly through Mr Adil.

On 19 February 2008, Mr Millar and Mr Adil had a telephone call, which was recorded in Mr Millar’s contemporaneous note to the effect that Mr Adil raised questions about the interest rate market at the time, including the possible impact of the sub-prime mortgage issues, and the differences between LIBOR and base rate. Mr Adil was indeed monitoring interest rates and later claimed he had a view about the 5-year horizon for interest rates based on his interpretation of apparently lower rates in continental Europe.

In the light of this and the evidence as a whole, I must reject Mr Adil’s claim that he was relying on BoS in relation to possible interest rate movements – on the contrary, he told the bank what his view was, and when he “asked about the mechanics of a collar & cap …[he] ultimately wanted to keep the solutions simple and was leaning towards the Swap”.

BoS claimed that Mr Adil told Mr Millar in the telephone conversation on 19 February 2008 that “he did not want to pay any cash upfront for a hedge and that he would not be willing to pay a premium for a cap”. That is not spelt out in Mr Millar’s note and I am hesitant to find that it occurred in that call, but I am satisfied that that was part of Mr Adil’s reasoning when he decided on a swap rather than cap as regards compliance with BoS’ Hedging Condition.

I take account of Mr Millar’s evidence as to his normal practice at the time, which he said was to explain in simple terms how the products worked and their key features, that a cap necessitated a premium, irrespective of the future movement of interest rates and a swap carried a risk of break costs in the event of an early termination in an amount depending on market conditions at the time; and probably giving some examples of price comparisons between a swap and a cap.

But in the absence of any specific recollection by him or more details in the contemporaneous record, whilst that is plausible, I cannot attach too much weight to it. For his part, Mr Adil said that he could not recall this discussion or raising the points recorded in Mr Millar’s note but was nevertheless “confident” that Mr Millar did not discuss the benefits of paying a premium for a cap. I cannot rely on that as regards the series of conversations: with the passage of time and this dispute, any confidence in Mr Adil’s avowals to that effect would be misplaced.

On the following day, 20 February 2008, Mr Shelbourne emailed Mr Millar to enquire as to the current rates for a 7-year swap on the full loan; but within a week, on 26 February 2008, Mr Shelbourne contacted Mr Millar again to say that that Mr Adil had decided that he wished to hedge the minimum amount (£12.5 million) for the shortest period of time – perhaps as short as 3 years.

Later that day Mr Shelbourne sent an email directly to Mr Adil (not copied to BoS) which referred to the need to finalise the hedging terms and the indicative terms for a 7-year swap and stated:

It is to be inferred as likely from this email that Mr Adil was to revert to BoS with his decision about hedging only after consultation with Mr Shelbourne, and during his cross-examination Mr Adil’s negative response to this suggestion was unconvincing. Mr Shelbourne initially sought to confine his role to “passing on information” but then accepted that he wanted to make sure that Mr Adil understood the choices presented by BoS and that he advised Mr Adil carefully to consider the implications of the proposed swap.

After his email to Mr Adil, Mr Shelbourne reported back to BoS that he had discussed the matter with Mr Adil and that Mr Shelbourne had said he should “consider this carefully before committing to it”. Every appearance was being given to the bank that Mr Shelbourne was helping Mr Adil consider what to do about hedging.

On 27 February 2008, BoS sent Mr Adil the ISDA Master Agreement and Schedule for his “perusal and approval” on the basis that (a) the ISDA would cover the future transactions between Marz and BoS; (b) “the schedule adds to and amends its terms principally so that various choices can be made”; and (c) he should ask his lawyers to review it.

I am unable to accept Mr Adil’s position that he would have read the Terms of Business, but not the ISDA or even the Schedule, unless he already knew their main terms and made a decision to remain ignorant of the details, in which case he created something of an artifice by seeking to uphold the earlier against the later documents.

Whilst lawyers are known sometimes to neglect their own affairs, Mr Adil was now a businessman not a lawyer giving priority to clients rather than his own company’s affairs. Moreover, Mr Adil had no reason to treat the Terms of Business more seriously than the documents which he knew would apply to Marz’s hedging,

Even then, Mr Shirley’s email a week later mentioned that Mr Adil had comments on hedging documents, obviously referring to the draft ISDA and Schedule. And Mr Adil answered affirmatively to the key question in cross-examination:

Accordingly it is inherently implausible that Mr Adil did not at some time and to some extent at least cast an eye over these documents, and he must have trusted himself and the solicitors acting for Marz as sufficiently knowing the terms (that is including Part 5(2)) and prepared to make the decisions without more ado.

At about the time that the draft ISDA and Schedule was provided to and considered by Marz, the terms of its BoS borrowing facilities were finalised. The term loan facility executed by Mr Adil on behalf of Marz on 3 March 2008 provided for (a) Tranche A, for £8 million with interest charged at 3 month LIBOR plus 1.50% and repayable in total at the end of the 7 year term; and (b) Tranche B, for £10.5 million with interest at 3 month LIBOR plus 2.50% repayable in quarterly instalments over a 7 year term. The parties also agreed the £500,000 working capital facility letter.

Clause 3 of the term loan facility letter included a hedging condition namely:

Clause 2 of Schedule 1B to the term loan facility letter provided that it was a condition subsequent that within two months of drawdown Marz sign the “Hedging Documents” and enter into “Interest Rate Hedging arrangements covering a minimum of £12.5m of the Term Loan for a minimum period of five years.”

The “Hedging Documents” referred to in the hedging condition were defined as “the form of ISDA master agreement, schedule and associated confirmations used from time to time by BoS for entities like the Borrower together with all other documents referred to in, or supplemental to, such documentation.”

The sale of Marsdens to Marz completed on 3 March 2008. Mr Adil accepted in evidence that he needed the BoS loan to purchase the Marsdens business; and that he appreciated that he was then under an obligation to satisfy the Hedging Condition.

In late March 2008, the parties took steps to arrange a meeting to discuss how Marz would do this. Mr Adil was insistent that Wright Vigar and Mr Bata should attend this meeting. He was asked about this in cross-examination:

Mr Adil insisted to BoS in an email of 31 March 2008 that he required Mr Shelbourne to attend the meeting with him to “advise him in relation to the Treasury piece”, and I do not accept his attempts in cross examination to suggest this did not refer to hedging.

On 4 April 2008, Mr Millar sent Mr Adil an email attaching an interest rate swap Product Profile for discussion with Mr Adil later in the day. The Product Profile contained an explanation of the workings of an interest rate swap, with a list of advantages and disadvantages, including the fact that there would be no participation in lower interest rates, and a warning of significant potential break costs, all of which Mr Adil confirmed he read and understood. A rough worked example made the obvious even more obvious - that if prevailing rates dropped below the swap rate, the customer would pay more in interest.

The Product Profile also contained a disclaimer, referred to at the bottom of each page in bold:

Mr Adil said in evidence that he would have noted the disclaimer but not have read it:

In Mr Millar’s emails that day he referred to the “potential saving” should Marz enter into an interest rate swap at current rates. Mr Adil claimed that he understood this to be advice that a swap would offer Marz savings; but it was a simple comparison of current rates (of LIBOR at 6% versus indicative swap at 5.34%) with no suggestion that LIBOR would or even could remain fixed for 7 years.

On the contrary, the emails stated in terms that “the whole point of hedging is not to speculate on what could potentially happen to rates but to be able to forecast for future costs and protect you from paying higher costs”. In my judgment, references to a “great opportunity” and ““staggering” or “huge” potential savings, at least in context, did not constitute in themselves “advice” rather than sales talk.

Mr Millar’s evidence, consistently with these documents, was that he spoke with Mr Adil by telephone on 4 April 2008 and explained his calculations, that the interest rate pattern meant that long-term swap rates were below current LIBOR rate, and in broad terms that the financial impact on potential break costs if interest rates moved up or down, depended on the market rates at the time. Mr Adil originally claimed to have no recollection of this call but he was then certain that no such explanations were proferred. But I consider that it is more likely that they were, at least along those lines.

It is also likely that at this stage Mr Adil raised the possibility of using the RBS Trigger Swap hedging the interest on £5 million, to count towards BoS’ £12.5 million hedging requirement from Marz. Mr Adil had had a prior call that day with Mr Berwick of RBS to discuss the restructuring of the RBS Trigger Swap and knew the break costs, probably from that call. Anyway, Mr Millar provided Mr Adil with a further copy of the ISDA “as requested” by forwarding BoS’ original email of 27 February 2007, and confirmed that he would start the process for novating the RBS Trigger Swap.

On 23 April 2008, Mr Adil, his father and his accountants Messrs Bata and Ekrem, met with Messrs Orr and Shirley and others to discuss banking issues and requested an extension of the two-month deadline (expiring on 3 May 2008) to 90 days for Marz to put in place the hedging required. By an email dated 25 April 2008, Mr Shirley agreed the extension.

RBS then provided Mr Adil with copies of the original RBS Trigger Swap confirmation; and a proposed agreement which Mr Berwick explained was needed “in order to complete this novation”, to govern the novation of the rights, liabilities and obligations of the RBS Trigger Swap from RBS and ACL to BoS and Marz. This agreement included similar wording to Part 5(2). Mr Adil accepted that he would have read this agreement.

On 1 May 2008, a meeting took place at Marz’s offices in order to discuss Marz’s options for hedging, attended by Mr Adil, his father, Mr Bata and Mr Shelbourne on behalf of Marz, and Messrs Millar and Arnold on behalf of BoS. Mr Adil was adamant that his advisers attend and Mr Shelbourne stated in evidence that Mr Adil wanted “strength in numbers” and to “keep a team around him” at this meeting. Mr Bata said:

Mr Millar presented a “Solutions Paper” prepared in advance of the meeting, which was claimed at trial to be the longer of such documents disclosed, with references to collars, compared with the version which it subsequently emailed to Mr Adil on 16 June 2008.

This is probably correct. The longer version which BoS says was presented on 1 May set out indicative pricing and the main advantages and disadvantages of a ‘vanilla’ interest rate swap, an interest rate collar, an extendable interest rate swap and an interest rate ratio collar. The shorter version emailed on 16 June 2008 referred to interest rates prevaling later, and not around 1 May 2008.

Mr Millar claimed to recall explaining on 1 May 2008 the concept of a collar, which encompasses the concept of a cap, and thought that the 1 May 2008 document was later updated to reflect prices on those products in which Marz had expressed an interest.

Mr Adil had no clear recollection as to what document was presented on 1 May 2008; and Mr Shelbourne exhibited the longer form to his witness statement, although he said in his oral testimony that he was not sure whether that was the one that was presented.

In respect of a simple swap, the 1 May presentation provided rates for 5-year and 7-year products and stated:

It also contained a disclaimer:

From the next day, 2 May 2008, BoS provided Marz in accordance with Mr Adil’s request with regular updates on the pricing of “the two hedging options you were interested in (i.e. interest rate swap & extendible interest rate swap)…”. I find that BoS explained a range of products on 1 May 2008 including collars and Marz chose swaps for BoS to price. He did not thereafter seek information in relation to caps, collars or any other products.

In this regard it is likely that Mr Adil’s decision against caps was driven at least in part by his views and those of his advisers on questions of risks and costs. Whilst swaps may have produced profit for BoS, simple caps would have involved premium costs for Marz, and collars would have also impinged on benefits from interest rate falls. Whilst no doubt information from Mr Millar was taken into account, there was no reliable evidence that Mr Adil’s decision as to which products were most suitable for Marz were dictated by Mr Millar’s sales presentations.

Throughout May 2008, Mr Adil continued to consider Marz’s options with his advisers while monitoring the movements in swap rates. Because he thought rates would fall in the short term, Marz’s solicitors formally requested an extension to 90 days for meeting the Hedging Condition, expressly referring to the Hedging Documents defined in the facility letter.

On 22 May 2008, Mr Adil informed Mr Millar by telephone, as noted, that he had “not yet decided about the hedging & timeframe” but that he would be “meeting with Akbar (Accountant) tomorrow afternoon”; and confirmed that Marz would ensure that the requisite hedging was put in place by 15 June 2008. On 3 June 2008, Mr Bata stated that he and Mr Adil would give their decision that week or next.

On 9 June 2008, Mr Adil instructed Mr Millar to proceed to arrange for the RBS Trigger Swap to be novated. As part of that process, Mr Millar sought Mr Adil’s confirmation that he was happy with the ISDA and that he would sign it within 30 days of the BoS Swap trade: on 13 June 2008 Mr Adil gave that confirmation by telephone and Mr Millar gave the figure for the negative mark-to-market value and completed a BoS-internal “Request to trade without ISDA” form. The RBS Trigger Swap novation accordingly took place.

The Swap itself was executed on 17 June 2008. The novated RBS Trigger Swap was cancelled and a new 5-year “vanilla” swap for a notional of £12.5 million at a fixed rate of 6.83% was executed, which incorporated the cost of closing out the novated swap.

The trade took place by telephone call (of which no recording survives) and was confirmed to Mr Adil and Mr Bata by an email at 15:32. I cannot rely on Mr Adil’s evidence that he told the BoS representative on the call that he did not understand the trade. He had had daily pricing for the hedging products he had been considering since 1 May 2008, and there was no articulation, nor any contemporaneous document, to suggest what it was that he allegedly did not undertsand.

Shortly following the trade, Marz was sent two formal swap confirmations, both containing similar wording to Part 5(2), in respect of (a) the novated RBS Trigger Swap, sent on 17 June 2008 and then signed by Mr Adil and his father and (b) the Swap itself, which was sent on 23 June 2008 and signed by Mr Adil and Mr Bata. Mr Adil accepted he knew these would follow the trade call and he would have read them before signing.

In the second half of 2008, a financial crisis swept the world and interest rates plummeted. By December 2008, LIBOR had fallen from around 6% at the time of the Swap to barely 2% but the hedged part of Marz’s loan remained effectively fixed at what had become far above the market rates. There were accordingly a number of discussions between Marz and BoS with a view to restructuring the Swap in order to reduce the burden of the fixed rate.

BoS’ position was that if Marz terminated the hedge, it would be liable to pay a substantial break cost of about £2 million by December 2008. Mr Adil expressed his dissatisfaction, stressing that Marz had reluctantly had to comply with the Hedging Condition, but made no complaint that Mr Adil did not understand how the Swap had operated nor that he had not known that Marz might face a substantial break cost after the market had moved against it nor that BoS had given bad advice.

In the meantime, Marz failed to sign and return the ISDA, despite repeated requests and by January 2009, Mr Adil suggested that he would not sign the ISDA, and that he was meeting with his lawyer to discuss it. However, in September 2009, by which time LIBOR had fallen further to around 0.5%, Mr Adil did sign and return the ISDA.

Mr Adil said that even at this stage he did not read the ISDA:

Mr Adil had no satisfactory answer to the point that he read both Confirmations before signing them, and they clearly provided that Marz was not relying on any information provided by BoS as advice or a recommendation and that it was acting for its own account.

From this and his other evidence, there is no alternative as a matter of logic and common sense but to infer that Mr Adil was fully aware of Part 5(2) and if he did not read the ISDA it was because (a) he regarded himself as already sufficiently familiar with it and made a decision that there was no further need or point; (b) he knew that it was contrary to Marz’s case that BoS had acted as an adviser to Marz in respect of its compliance with the Hedging Condition; and (c) he knew that Marz was bound by it and that without it, BoS would not have made the loan requested by Marz.

Consistent with this, Mr Adil did not raise any suggestion that BoS had been Marz’s adviser or that Marz had relied on BoS’ advice until Marz served a letter of claim on 11 March 2013. (At around the same time, ACL made a complaint to RBS about the RBS Trigger Swap which primarily related to whether the ‘trigger event’ had indeed taken place and also suggsted mis-selling but this was not taken further and no claim was pursued against RBS.)

Thus, towards the end of Mr Adil’s oral evidence, he said this under cross-examination:

I have to say that I am unable to accept his attempt to modify this evidence in the light of further questioning a few minutes later, as follows:

It was obvious that Mr Adil never wanted to enter into a hedge with BoS and only entered into the Swap after prolonged delay because, as he said, his “hands were tied” by BoS as lender, and not because he was persuaded in any way that it would indeed achieve “quite staggeringsavings” or otherwise be good for his business. He was throughout sceptical of BoS’ sales talk and had his own views and advice as regards interest rate movements and hedging, but decided that he should comply with the conditions for Marz’s loan of £18.5 million.

It may also be noted that the total interest sums due from Marz from time to time in relation to the Marsdens acquisition, according to its Annual Report and Financial Statements, appear to have been as modelled by Mr Shelbourne prior to the transaction completing. I refer to this and other interest projections in more detail towards the end of this judgment below.

ARGUMENTS - BoS’ DUTIES

I do not deal with the parties’ myriad arguments at anything like the length with which they were advanced, but it is convenient to summarise the main points for their effect on the above analysis so far.

Banks do not ordinarily owe any duty to advise customers who borrow money as to the advisability of taking out the particular loan or the soundness of the transaction that they propose to finance: Williamsand Glyn’s Bank Ltd v Barnes [1981] Com LR 205; Barclays Bank Plc v Khaira [1992] 1 WLR 623, 637. Mr Shelbourne was retained to advise Marz in the commercial negotiations with BoS, which was clearly not advising its customer as regards the loan terms which it proposed and required.

Thus Marz has no claim against BoS in law for the fact that it agreed to buy an interest rate hedging product to protect a minimum notional principal of £12.5 million for a minimum of 5 years. It must establish that, although the parties had opposed interests as regards the loan, by that requirement and the terms of the product then bought and sold, BoS assumed responsibility as an adviser in respect of the choice and terms of the latter.

Bank salesmen frequently offer statements of opinion and ‘advice’ without assuming legal responsibility for such advice. I have already referred to this as part of Lord Hodge’s summary in Grant Estates, above. Gloster J emphasised the point in Springwell in observations at [36], [374], [449], repeated in Crestsign at [110] and in Thornbridge at [70]) as follows:

It follows that, in order to establish a duty of care in advising and providing explanations and information leading to Marz’s selection of the Swap as suitable, Marz must do more than point to statements by BoS’ salesman which were allegedly inaccurate or inadequate. First the basis for, and subject and scope of, the alleged duty of care must be made out; then the particular failures alleged must be demonstrated to breach such duty; and in each case the fact that BoS was a counterparty with its own opposing interests must be borne in mind.

Marz’s legal attack on the denial by Messrs Massey and Millar of any advisory role as regards Marz or more generally, was based first on their FSA approvals. In particular it stressed that:

Secondly, Marz emphasised that BoS’ Terms of Business expressly contemplated that its employees might recommend or suggest particular products to clients and that if that happened reasonable steps would be taken to ensure that the products were suitable, the wording of clause 5.4 mirroring COBS 9.2.1R(1) - “A firm must take reasonable steps to ensure that a personal recommendation … is suitable for its client” - which in turn necessarily involved advising on investments.

Thirdly, BoS’ internal Treasury Compliance and Briefing Note, August 2007 and Treasury Division Compliance Manual: Sales, Trading and Funding, March 2008 (especially section 18 “Suitability and Understanding”) made it clear that employees were responsible for ensuring that the products they presented to customers were “both suitable and understood”.

Mr Massey stated in evidence that:

Marz argues that Mr Millar’s description of his role in selling heding products to customers was in substance a description of the process of recommending suitable products in the same way as an investment adviser:

Marz conceded in its opening that it had no statutory duty claim, but submitted that the regulatory context required BoS’ salesman to ensure that recommendations made were suitable. But the requirement to ensure suitability only applies where an authorised person has made a “personal recommendation” (COBS 9); whereas for non-advised sales (i.e. where the authorised person does not make a personal recommendation), the obligation is a much lower standard, to assess that the product is appropriate for the customer (COBS 10).

The regulatory context does not therefore indicate whether advice as to suitability was to be and was in fact provided by BoS in the present case: the rules did not require BoS to advise. Similarly BoS’ internal Treasury compliance manual was a general document covering all its products and did not “cross the line” between the parties.

Both Mr Massey and Mr Millar stated their understanding that the compliance manual imposed an internal requirement on BoS’ sales force to consider and record their view on suitability as part of the sales process, rather than being an obligation imposed to advise the client. Whilst this may be seen as a “party line” it made sense. I am not satisfied with Marz’s claim that Messrs Massey and Millar were in fact providing investment advice to BoS customers on a regular basis without recognising it, a lack of understanding which it says should be concerning.

Marz claims that investment advice from Mr Millar to Marz included his emails enclosing “my attached hedge profile for project Excel” and stating “as discussed the 7 years fully hedged is probably the most suitable for the customer” and extolling the “quite staggering” and “huge” savings Marz could potentially make if it entered into a swap, which “we think will be of great benefit”.

It also relies on Mr Shirley’s email of 25 April 2008 urging Mr Adil to “take the guidance of our colleagues in HBOS Treasury with regard to the preferred tenor” and claims that Mr Millar presented a limited number of products (which he said in evidence, were selected in the light of Marz’s “objectives and wishes expressed previously”) and gave “professional advice” at the meeting on 1 May 2008 as recorded by emails the following day, that it was a good time to enter into a swap because swap rates were low relative to LIBOR.

Thus marshalled rhetorically together on behalf of Marz, these features and communications established to my mind that Messrs Massey and Millar could have assumed an advisory role, but not that they did so or were or should be treated as doing so in the particular context, that is this hedging by Marz, represented by Mr Adil and his advisers, on the basis of the Loan and Swap documents.

The allegation that BoS assumed a duty to advise Marz needs to be assessed, objectively, in the context of the relationship between the parties as a whole, including (a) the relevant contractual framework and (b) the communications between them. In my judgment, none of the instances relied on by Marz in the context of the other material amounts to a positive ‘advice’ or ‘recommendation’ to enter into the Swap or any particular hedging product.

It is difficult to divorce this question from the contractual disclaimers in Part 5(2) and the Confirmations. But on their own the non-contractual disclaimers, in the Product Profile and the Solutions Paper, do not in my view determine the question of BoS’ alleged advisory role. The first of these disclaimers relates, as Marz observes, to a generic Fact Sheet which is not alleged to be inaccurate. The second contains mistaken or inappropriate phrases, according to Marz, in saying that it was “published” and “written with market professionals in mind” and without having “considered your objectives, financial situation or needs”.

However, I consider that the non-contractual disclaimers are consistent with my overall assessment of the relationship between the parties as not giving rise to a duty of care (putting it into shorthand) in advice or information going to suitability and the customer’s decision as to what product was suitable for it, which I consider below.

In particular, the 4 April 2008 email and the alleged recommendation of a product on the basis of a statement that there was a “great opportunity” for “quite staggering” “potential savings”, was and must have been taken as obvious sales-talk. The attached Product Profile contained no recommendation but did carry a disclaimer inconsistent with the proposition that BoS was advising Marz that the product was suitable.

As for the 1 May 2008 presentation, that referred to four distinct products without any obvious recommendation for any one of them. When questioned, Mr Adil could not provide any support for his allegation that Mr Millar recommended the swap:

After the 1 May 2008 meeting, the options were narrowed down, such that BoS provided indicative prices for three options - a 5-year swap, a 7-year swap and an extendable swap - until the trade date. There is no document in which BoS positively advised Marz to enter into any one of those three particular options. Marz made up its own mind.

Mr Adil referred to his email to Mr Shirley on 2 May 2008 and his expression “all the prof advice” as evidence that BoS was advising him about interest rates and that he was relying on it. But the email shows that he was obtaining information about interest rates elsewhere and disagreed with what he now says was ‘advice’. As he later said: “I absolutely had my own view about interest rates”.

That Mr Millar purported to put forward prospective advantages to the borrower/buyer dealing with BoS and was represented as a “professional… giving guidance”, did not transform his role from saleman to adviser, at least regarding an experienced corporate customer with its own advisers (albeit unregulated).

Marz’s fine distinction to the effect that even if Mr Millar did not provide “advice” or “recommendations” to Marz, he made “suggestions” as to how it might hedge its interest rate risk, adds little if anything. The basic question is whether Mr Millar was to be treated as an investment adviser or as a salesman of hedging products. The regulatory context for financial services, in my judgment, does not necessarily impose duties of care on a lending bank when the commercial transaction with its corporate customer gives rise to a need for the customer to buy a related interest rate hedging product.

There was no documented advisory agreement between Marz and BoS; and no advisory fee paid to BoS. In Springwell at [440] Gloster J stated that “…the absence of any written advisory agreement is a significant pointer against the existence of an advisory obligation on the part of Chase”.

Similarly in Thornbridge at [96] HHJ Moulder stated that “… Barclays did not receive a fee in this case for any advice in relation to the swap. … it is a relevant factor against finding an advisory relationship. It is common practice for bankers doing mergers and acquisitions to charge a fee for their involvement as advisers. This is a very different situation where the bank is selling a product and making its money through the profit earned on the transaction.”

In contrast, Marz retained Wright Vigar to advise it pursuant to a formal Retainer Letter, which set out the scope of its advisory services and agreed to pay up to £80,000 for that advice, and appears to have paid closer to £110,000.

In addition to Mr Shelbourne and Mr O’Hern of Wright Vigar, Marz had other paid advisers - Mr Bata, Mr Ekrem, and a firm of solicitors - and their advice clearly went to the hedging requirement and both Marz and BoS proceeded on that basis.

Marz presented itself to BoS as capable of instructing and consulting with external advisers to assist it in reaching a decision about hedging. This was obvious from the outset and recorded in BoS’ credit application.

Mr Adil accepted that Mr Shelbourne was a corporate finance adviserand, Wright Vigar’s retainer letter set out a broad advisory role, beyond being a mere “accountant”. Although not FSA-authorised, he assisted Mr Adil in reaching decisions about the hedging. In cross-examination Mr Shelbourne accepted this:

It was clear from the oral evidence that BoS considered that Wright Vigar were indeed advising Marz about hedging notwithstanding that they were not formally authorised by the regulator to provide advice on investment products and to transact on behalf of clients. Messrs Bata and Ekrem also both attended meetings, were copied to emails and obviously provided assistance in relation to hedging. Mr Ekrem was a paid adviser and I did not accept his evidence that he was attending meetings and was copied to emails purely as an “observer” or “for information”.

From BoS’ point of view, Mr Massey suggested that just because advisers were not authorised, it did not means that they were not able to assist their client. He said

Reliance

The evidence as a whole satisfied me that far from considering BoS to be an adviser to Marz, Mr Adil (and his real advisers) considered BoS to be on the other side of the transaction. This is unsurprising given their opposing economic interests. Far from relying on BoS’ salesman for their “advice”, recommendations or suggestions, Marz repeatedly rejected their proposals of the sort which it now seeks to charaterise as such.

For example, on 4 April 2008 Mr Millar proposed that Marz should enter into a hedge quickly in order to take advantage of low rates but Mr Adil was not persuaded that the hedge proposed in the Product Profile would save him money, since he did not agree to enter into a swap on those terms; and he waited over two months before finally agreeing to enter into a different (shorter, lower notional) form of hedge.

Again as regards the 1 May 2008 meeting, if Mr Adil really thought he was being advised that it was best to conclude a swap straightaway, he rejected that idea and waited another six weeks.

Marz alleged that BoS was originally advising it to enter into a 7-year swap for the full amount of the loan. Yet Mr Adil rejected this proposal following a discussion with Mr Shelbourne, as was clear from the following exchange with Mr Adil in cross-examination:

In short Mr Adil was his own man; he was negotiating with BoS and had his own advisers; if he did not remember reading any particular documents from BoS, he was nonetheless well versed in the process. He did not consider that he needed further explanations from BoS.

BoS denied that it owed any separate “information duty” of the sort claimed by Marz.

The court in Crestsign found at [153]-[155] that whilst the bank “came under a duty to explain fully and accurately the nature and effect of the products in respect of which [it] chose to volunteer an explanation”, this did not extend to “a ‘duty to educate’ in the sense of giving a comprehensive ‘tutorial’ and satisfying ‘itself’ that [the claimant] understood every aspect of each product”.

In Thornbridge at [125]-[128] the court considered and rejected the submission that the bank owed an “information duty”:

“…a positive duty would exist only in the context of an advisory relationship or (absent any undertaking to inform) if it rendered inaccurate or unreasonable the information provided. It is not in my view authority for a wider or broader duty to provide information in the absence of an advisory relationship… Each case must depend on its facts but to the extent that the Deputy Judge [in Crestsign] was making a point of more general application, it seems to me that the Deputy Judge would in effect have elevated the duty of a salesman to that of an adviser. As I have already indicated in relation to the issue of whether the Bank assumed an advisory relationship, the authority of Springwell reminds the court of the distinction between an adviser and a salesman and in my view the duty of a salesman is not to mislead but in the absence of an advisory relationship, a salesman has no obligation to explain fully the products which it is trying to sell…”.

This analysis was approved by Asplin J in Property Alliance Group at [196]:

“… It seems to me therefore…that the potential duty of care under consideration is wider than a duty not to misstate, is fact dependent and as HHJ Moulder pointed out was being contemplated as a duty falling on the advisory spectrum. Accordingly, if the decision in Crestsign was intended to go further, and to suggest that once information is provided by a bank, a salesman is always under a duty to explain fully the products he wishes to sell without a broader advisory relationship having arisen, I decline to follow it. As HHJ Moulder pointed out, to take such an approach is to blur the line between a salesman and an advisor….

Asplin J held on the facts of that case at [199]-[202] that the bank did not owe a duty “falling on the advisory spectrum” having regard to the facts that: (a) the claimant was not unsophisticated and had its own views on interest rates;(b) it had retained a series of financial advisers (even if they were not specialists in hedging or derivatives); (c) the bank had provided warnings about the risk of break costs but there was no market practice to do so; and (d) the parties had agreed contractual terms which precluded an advisory duty.

I agree with Asplin J on the relevant principles. With respect to Mr Kerr as he then was (and to Kerr LJ in the 1985 case of Cornish cited above, if they tended to that effect), in the absence of an advisory relationship I do not consider that a salesman, if he provides any information, has to explain fully the products he wishes to sell, including alternatives and comparisons.

Reverting to the discussion of “suggestions” above, it seems to me that the provision of information, explanations, recommendations and suggestions may all be seen as facets of advice. A particular relationship may limit what is done or said by one person to assist another to the provision of facts alone rather than any overt opinion. But these tasks may all involve judgment and be ranked as varying levels of advice, in a continuum from identifying, selecting and focussing on relevant facts to expressing a view as to the means of attaining an objective with varying degrees of strength.

Positive duties of care in tort which attach to a particular function by way of providing assistance to achieve an aim, whether factual or opinion, all depend on the responsibility assumed and relied on in the situation and separating the jurisprudential bases for imposing the duty in each case does not seem to me to provide a more sound or helpful analysis.

ISDA AND UCTA

Derivatives transactions, often between market participants, are often entered into over the telephone and the confirmation (setting out the terms of the individual transaction) provided after the call. BoS has referred to textbooks in this regard such as Firth,Derivatives: Law and Practice (Sweet & Maxwell 2003) at [3.003], [3.036]; and Henderson on Derivatives (LexisNexis 2010) at [17.19], [17.23], [17.24].

Marz argues that Part 5(2) cannot validly “rewrite history” to exclude liabilities between a bank and a retail customer, relying on the note about Part 5(2) on the ISDA website, which reads in part:

It contends that Part 5(2) is an exclusion clause rather than a “basis” clause, by which the parties merely define the scope or basis of their relationship. The former but not the latter is only enforceable if reasonable under section 2(2) of UCTA.

If construed as an exclusion clause, BoS would have the burden of proving that Part 5(2) is reasonable and in this case Marz says that it was unreasonable, since:

BoS relies on a strong line of recent authorities for the proposition that Part 5(2) and similar provisions containing deemed representations as to the relationship and duties between contracting parties in derivatives sales are “basis” rather than exclusion clauses. Some of these can be summarised as follows.

In IFE Fund SA v Goldman Sachs International [2007] 1 Ll Rep 264 at [68]-[69] (affirmed by the Court of Appeal at [28]) Toulson J explained the difference between an exclusion clause and a basis clause in the context of liability for misrepresentation:

In Raiffeisen Zentalbank Osterreich AG v Royal Bank of Scotland Plc [2011] 1 Ll Rep 123 at [314]-[315]Christopher Clarke J added this gloss to Toulson J’s example:

In other recent bank/derivative mis-selling cases, terms equivalent to Part 5(2) were held to be basis clauses rather than exclusion clauses. Thus in Titan Steel Wheels cited above, at [98]-[104] David Steel J held that section 2 of UCTA did not apply to such terms because they did not exclude or restrict liability, but rather defined the basis of the relationship between the parties.

In Svizera cited above, at [61] Flaux J held that:

In Crestsign cited above, at [112]-[117] Mr Kerr held that:

In Thornbridge cited above, at [105], [111], HHJ Moulder held that:

Marz launched an ambitious double-barrelled attack on BoS’ attempt to rely on Part 5(2), by contending that the underlying doctrine of contractual estoppel remained controversial and that such clauses, at least if only agreed after the transaction which allegedly resulted from a breach of duty, were attempts to exclude a liability which had already arisen rather than agreement as to the basis of the relationship under which such duty and breach could not arise. I will deal in turn with each of Marz’s main arguments.

First, Marz claimed that the cases relied on by BoS to gainsay UCTA were wrongly decided, in conflict with section 13 of UCTA and high authority hostile to contractual devices purporting to bind parties to statements that the other party knows to be untrue, or seeking to deploy “the ingenuity of the draftsman” in order to sidestep UCTA.

Marz refers in this regard to Smith v Eric S Bush [1990] 1 AC 831 (HL) as the leading case and to Lord Jauncey’s statement at 873 that:

Marz submits that this covers a disclaimer which prevents a duty coming into existence and thus where a duty would have been held to exist “but for” the relevant clause, the clause is to be treated as an exclusion clause to which UCTA applies. It also claims that:

In Springwell cited above, at [181], Aikens LJ held that certain clauses (very similar to those in this case) by which Springwell agreed that it was a sophisticated investor that had placed no reliance on advice from the bank, defined the basis on which the bank was willing to transact as “… terms on which Chase is agreeing to contract with Springwell [which] therefore fall outside the scope of section 3” of UCTA.

On the other hand, Marz relies on Springwell regarding a note in that case which stated: “the Holder has not relied on, and acknowledges that neither CMSCI nor CMIL has made, any representation or warranty with respect to the advisability of purchasing this Note” and which Aikens LJ in the next paragraph [182] considered by way of contrast “… an attempt retrospectively to alter the character and effect of what has gone on before and so is in substance an attempt to exclude or restrict liability…”.

This aspect of Springwell was followed recently in First Tower Trustees Ltd v CDS (Superstores) International Ltd [2017] 4 WLR 73, Michael Brindle QCstating at [31] that Aikens LJ’s judgment

Nonetheless I consider that Marz’s argument in this respect, founded essentially on section 13 of UCTA, is incorrect. Part 5(2) defines the parties’ relationship, rights and duties, as a matter of contract. This is not a matter of mere representation; whilst the phrase “contractual estoppel” is used in the authorities as a label for the applicable doctrine, Springwell makes it clear that in distinction to other forms of estoppel, detrimental reliance is not necessary for its application.

The present is therefore not a case in which (a) it is merely a non-contractual notice which is relied on by BoS as excluding an advisory duty in negligence or (b) BoS made previous representations on which Marz relied.

In my judgment Part 5(2) clearly stated the basis of the relationship between the parties such that UCTA should not apply, in the light of (a) the many cases subsequent to Eric S Bush in which it has been developed and applied and the facts that (b) the Swap was an ISDA-governed transaction and (c) there were no previous representations by BoS which would tend to vitiate that within the principle followed in First Tower Trustees.

However, rather than amplify further on this debate, I will proceed on the assumption that a consideration of whether reliance on Part 5(2) by BoS is reasonable for the purpose of UCTA is necessary in this particular case, without treating its “basis” character as determinative.

I would only add my view, for what it is worth, that generally the question of whether a term is an exclusion clause or a basis clause should not depend on a detailed factual finding as to the position had the term not been agreed and applicable; and ISDA Part 5(2) clearly defines the basis on which the parties are willing to transact (and should thus be treated as attempting to avoid a later dispute about whether sales talk had “crossed the line” into the provision of advice).

Secondly, Marz seeks to distinguish the contractual estoppel cases on the grounds that they related to notices or terms of business or other documents relied on by the defendant which preceded the relevant contract.

Thus in Peekay cited above, Moore-Bick LJ stated at [56]-[57]:

However, says Marz:

However, in short, I am unable to accept that this gives rise to any distinction as regards the facts of the present case, since Mr Adil was fully aware of the terms of Part 5(2) and the Confirmations and accepted that he knew that they would govern the proposed transaction well in advance of 17 June 2008.

I should also, thirdly, refer to Marz’s additional argument, for which it emphasised the distinction drawn in Credit Suisse International v Stichting Vestia Groep [2014] EWHC 3103 (Comm) by Andrew Smith J at [287]-[303], to the effect that the provisions in clause 3 of ISDA were representations, not warranties, and quoted back at BoS its opening submission that:

Marz argued that since under ISDA, if a “representation … made or repeated or deemed to have been made or repeated by the party … in this Agreement … proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated”, that constitutes an Event of Default under clause 5, it must necessarily follow that the party to whom the incorrect or misleading representation has been made must be entitled to “deny the existence of the state of affairs” as represented.

I reject that argument as spurious. Whilst Part 5(2) contained representations by Marz, they were not of the sort which were capable of being treated as “incorrect” or “misleading” so as to cease to have contractual effect; and the fact that there was one contractual consequence, or remedy, prescribed does not create any “entitlement” to deny them – that is, in this context, to treat them as rescinded or otherwise terminated.

I do not consider that as a matter of contract or by reason of the regulatory regime or by reason of any “advice” from Mr Millar, Mr Adil on behalf of Marz had any legitimate expectation that BoS was acting as its adviser or that he should rely on it contrary to Part 5(2).

On the contrary, in the present case, Part 5(2) did not “rewrite history” or “retrospectively…alter the character and effect of what has gone before”: BoS had not assumed any advisory duty to Marz. The 4 April 2008 Fact Sheet and 1 May 2008 Solutions Paper, for example, both stated what Mr Adil already knew: that BoS should not be relied upon as regards Marz’s objectives and needs, and that Marz should consult its own advisers and refer to the formal transaction documentation of which it was already aware.

Moreover:

Finally, it cannot be sensibly considered that Marz was in a comparable position to the unsophisticated buyer of say a car in the example used in IFE Fund and Raiffeisen. Mr Adil was a businessman with a track record of successful acquisitions and experience of interest rate hedging products (as well as having practised as a qualified lawyer). He was assisted by a number of professional advisers in the negotiations with BoS and was more than capable of agreeing the formal documented basis on which Marz was contracting.

Given the extent of the comparisons in submissions with other recent cases, I might add that this is a stronger case against the claimant than Crestsign - and even there, when the Court found that (if it ignored the contractual documents) the bank’s sales-person would have been treated as assuming an advisory duty, it was nevertheless “unable to resist” the conclusion that the relevant provisions precluded the claim for breach of an advisory duty.

Part 5(2) is enshrined in the industry standard ISDA as well known to Mr Adil of Marz and I have little doubt that it was reasonable as between these parties for the purpose of UCTA, taking account of the relevant factors specified thereunder, the facts found above, and the previous cases, even if (against my findings) it was an exclusion rather than “basis” clause.

From the above narrative and bearing in mind the arguments already summarised, I am driven to find that:

I turn to consider so far as necessary the specific failures of care on the part of BoS which are said to have resulted in the Swap as opposed to the “Alternative Arrangment”. Given that (as I find) BoS was not an adviser or advising Marz, it nonetheless presented options to enable Marz to make its decision as to how it should comply with the Hedging Condition.

Marz’s case was that BoS failed to inform it sufficiently of other available products and in particular the Alternative Arrangement and to explain its features, benefits and risks, as well as the other available products, by comparison with the Swap and each other.

The Swap complied with the Hedging Condition in the loan documentation and, as required, provided certainty of interest costs for the hedged part of the loan. The financial modelling done by Mr Shelbourne and taken into account by the parties prior to the transaction completing (using different interest assumptions) forecast total interest costs which were on a par with those which were actually incurred.

However, a key part of Marz’s claims is that BoS failed sufficiently to explain the comparative merits of caps as opposed to swaps in various scenarios (in particular if interest rates fell) and failed to propose the “Alternative Arrangement” which is now relied on as the most suitable product, given that although it would not be needed if and to the extent that interest rates fell, it would not lock Marz into a higher-than-market fixed rate.

I accept that suitability must usually involve comparison between a range of different products, as in –

It is difficult to assess the extent to which Mr Millar gave thought to Marz’s interests as opposed to those of BoS, but Marz submits that (a) he treated his role and objective as one of persuading it to hedge as much as possible for as long as possible; and (b) the errors and omissions in the documents he created or oversaw, demonstrate a repeated lack of care.

If Mr Millar owed Marz a duty to collect all the relevant information about its financial circumstances and investment objectives, and then to analyse the alternatives in order to find the best match, it is alleged that he should have considered by at the latest the 1 May 2008 meeting, all of the different ways in which Marz could increase its hedging from the £5 million under the RBS Trigger Swap to the £12.5 million required under the BoS loan.

Mr Millar does not appear to have considered any alternative that did not involve breaking the RBS Swap and absorbing the break costs into a new swap or enhanced collar. Nor did he maintain much understanding of the proposals for Marz’s debt and repayment – the 1 May and 16 June 2008 versions of the Solutions Paper had incorrect and different figures for the Total Debt and he seemed to have ignored the fact that the loan would reduce over time, so that Marz would be substantially over-hedged for the last 6 months of the 5 year term, even if the cash sweep mechanism - which he also ignored - was not used).

However these criticisms have to be considered in their legal context. As I find, Mr Millar did not assume an advisory role and was not relied upon by Mr Adil for Marz as providing all the information needed by him for deciding on which interest rate hedging product was most suitable.

BoS imposed the Hedging Condition and Mr Millar was their salesman for the product which best served them, not necessarily their counterparty/borrower. Marz was on the “other side of the table” with its own experience, opinions and professional advisers working on the choices in its interest.

In essence, Marz’s legal case required it to challenge the Hedging Condition – which mirrored Mr Adil’s central complaint historically, that he had not had a choice but to comply with BoS’ requirements as a condition of lending. Thus Marz emphasised among other things that (a) BoS did not call any witness to explain the Hedging Condition; and (b) BoS’ credit paper had spoken of its need to protect against exposure on the combined debts of Marz and Alderforce as a “group”, but the hedge was never spread in that way.

Marz went so far as to submit (with the support of its hedging expert Mrs Bowie) that the Hedging Condition was manifestly excessive and unnecessary, even irrational, such that Mr Millar should have raised this “discrepancy” with BoS’ lending division, in which event there is no reason to believe that the hedging condition would not have been adjusted at least to allow the notional to amortise and (as Mr Orr of BoS surmised) to “devise a notional profile which kept the level of hedging as a percentage of the debt at the same level as at inception (68.5%)”.

BoS submitted that it was necessary for Marz to prove that a bank in its position would not reasonably have considered the Swap to be a suitable product for Marz, and that BoS did not take reasonable care to discharge its alleged duties and that it was not enough to show that the Alternative Arrangement was more suitable than the Swap.

One of the main factual obstacles for Marz was however that the Alternative Arrangement did not comply with the Hedging Condition. It was required to enter into a hedging product in order to satisfy the Hedging Condition. Its alternative case (that is, alternative to the hopeless contention that BoS should have advised Marz not to enter into a hedge at all) was that, with the suitable Alternative Arrangement, the Hedging Condition would have been amended to allow for an amortising notional amount. This would at a stroke simply undo the loan terms agreed between the parties.

In evidence, Mrs Bowie accepted that the Hedging Condition would always be the “starting point” and that an arrangement would not be suitable if it caused the customer to be in breach of a condition of his lending. This must especially be the case where the customer has already drawn down and spent the money.

It also ignores Marz’s own pleaded case that BoS’ duty was to advise Marz or provide information “specifically for the purpose of enabling the Claimant to make a properly informed decision as to how to comply with the hedging condition in the facility letter”. This reduces to the absurd: if BoS had proposed the Alternative Arrangement it would still have been a breach of duty because it would not have enabled Marz to comply with the Hedging Condition.

These problems all arise from the relationship of BoS and Marz as commercial counterparties. Another way of putting the point is that (a) if the alleged over-hedging at the end of the 5-year term arose from compliance with the minimum stipulated hedging condition, that cannot make it unsuitable; (b) Marz’s expert argues that the BoS salesman “would have needed to raise this with the lending division … the discrepancy…looks to be non-deliberate” but (c) Marz did not plead, and expressly disavowed, any duty of care on BoS’ part as regards advising on those conditions or retrospectively revising them.

In any event, the proportion of alleged “overhedge” was relatively small - 106.8% of loan at the end of 5 years, or if the overdraft was taken into account as Mr Croft said was rational and acceptable from a bank’s credit perspective only 102.5%, and only exceeding 100% in the last quarter. This small proportion could not by itself make the Swap unsuitable, still less make the Hedging Condition “irrational”.

Moreover, Marz also had lending from BoS for Alderforce in connection with the Marsdens purchase. The total interest sums due from Marz including that loan, were what Mr Shelbourne modelled prior to the transaction.Although this interest was rated at base rather than LIBOR, this was another potential interest rate exposure against which the Swap might offer protection. Taking that into account, there was no overhedging at all; at the end of the 5 year term, the Swap notional would amount to 95.5% of Marz’s total debt.

Mrs Bowie’s assertion that hedging conditions are usually (or even always) expressed as a percentage of the loan did not prevent BoS from specifying a fixed notional or any other commercial conditions (as Mrs Bowie accepted in evidence). This does not render the Hedging Condition a mistaken “discrepancy”. The evidence was that BoS (and indeed RBS) took account of other lending including debt from connected companies when setting hedging conditions.

I accordingly reject Marz’s and its expert’s theory (as did BoS’ hedging expert Mr Croft) which is not only speculative but also against the weight of the evidence. I refer further to aspects of this in the context of BoS’ defences below.

It also appears to me that Marz’s theory exposes a fundamental misconception in its case: that the customer can found a claim in negligence against a lending bank on the basis that it owes a duty as regards lending conditions, which can then provide the bootstraps for a duty at least to inform the customer in its interests as to the suitability of the product (which it sells to satisfy such conditions) in best meeting its needs and objectives, amending the lender’s conditions so as also to suit the same.

I consider that similar and further fallacies underlay Marz’s other criticisms of Mr Millar’s failure (as it would say, properly) to consider Marz’s “attitude to risk” and work through the consequences of its prospective choice. Thus it is said for example that:

These arguments rely on 20:20 hindsight vision, and the proposition that Marz through Mr Adil depended and was entitled to depend on Mr Millar for BoS to ensure that it made the right decision as to how to comply with BoS’ Hedging Condition in the safest and least costly way. As between commercial counterparties, and given Mr Adil’s experience and advice as to what to choose in Marz’s interests against BoS’, that would make no sense.

It is also said that whilst Mr Adil was entitled to exercise judgment about any product that was “recommended” or “suggested” as suitable by Mr Millar (for example by asking for a shorter tenor and a lower notional), what he could not do – and nor could Messrs Bata, Ekrem or Shelbourne without FSA authorisation – was to compare Mr Millar’s recommendations with other products that Mr Millar had either not mentioned at all or mentioned without quoting any prices or producing any written material for Mr Adil to consider.

But that was Marz’s risk, not BoS’. BoS did not assume a duty, and was not in fact relied upon, to take care to ensure that Mr Adil’s decision was the most suitable product in Marz’s interest. To succeed in tort, Marz would have to show that his decision to chose a product less suitable than would have been the case, resulted from some other specific failure of care owed to Marz on BoS’ part.

In this respect, Marz’s contentions as to the commercial context are close to topsy-turvy. It concludes that that:

But in my judgement that is exactly what Mr Adil did not do. He did not rely on BoS to recommend a product which would best meet Marz’s objectives and wishes – BoS was a lender which he considered he had to deal with, but with opposing commercial interests. Marz’s objectives and wishes were his concern, not Mr Millar’s.

Marz goes into further detail but to no great significance in the result. It says for example that the Solutions Paper merely stated that there was “Potential for economic costs if swap is broken”, which was meaningless without quantified examples. (It makes another comparison here with Crestsign in which a similarly vague warning was criticised at [121], but the addition of the words “Please note that such break costs may be substantial” was held sufficient to avoid a breach, at [165]).

Marz’s next contention, that BoS’ credit line should have been disclosed, was rejected in Crestsign at [157], the experts in that case (who included Mrs Bowie for the claimant) agreeing that the credit line was “an internal measure not normally disclosed to a bank’s customers”.

In O’Hare cited above, Kerr J held that “the required extent of communication between financial adviser and client to ensure the client understands the advice and the risks attendant on a recommended investment” was governed by the legal test of materiality (as enunciated by the Supreme Court in a medical negligence case, Montgomery v. Lanarkshire Health Board [2015] AC 1430) namely:

It was submitted by Marz that (a) a reasonable person in its position would be likely to attach significance to BoS’ internal assessment of the risk of loss in the event of default; (b) BoS’ common law duty to supply information was reinforced by COBS 14.3.2R which requires a “general description” of various matters including “any margin requirements or similar obligations, applicable to designated investments of that type”; and (c) BoS also failed to provide the Swap at the best possible price in breach of clause 4 of the Terms of Business.

These varying refinements highlight Marz’s upside-down view of its relationship with BoS, its lending counterparty. These alleged failures did not relate to advice, BoS was not subject to related regulatory requirements and the Terms of Business did not apply to the Swap. Marz agreed to an ISDA-governed transaction which did not oblige BoS to assist its buyer in these respects.

I agree with Marz’s submission that, in characterising opinions expressed by Mr Millar as those of a salesman, it would be wrong to make too strong a comparison with Springwell, in which the claimant (a) was “sophisticated, aggressive, greedy, and … in many ways at the forefront of investing in emerging markets” and (b) alleged that the defendant was “… responsible for selecting and constructing Springwell’s entire portfolio and providing on-going investment advice about it, on what became effectively a daily basis, throughout all of Springwell’s dealings…”.

Moreover, analogies with car or dress salesmen vaunting their products is a long way from the sale by banks of complex regulated products with serious financial implications to inexperienced customers, especially involving hyperbole such as a potentially “quite staggering” annual saving.

However, the cause of Marz’s alleged loss was the unprecedented, persistent fall in interest rates, so that Marz incurred a higher fixed interest cost than it would have done had it paid variable interest depending on the market: Mr Adil accepted in evidence that Marz understood at the time that that was the inherent risk of fixing interest rates, as mentioned further below.

Before turning to BoS defences to these other criticisms, I examine further the reasons for its contention (as supported by Mr Croft’s expert opinion) that the Swap not only allowed Marz to satisfy the Hedging Condition, the Swap was indeed a suitable product, by reference to Mr Adil’s expectations on its behalf.

The Swap can be described as a simple ‘vanilla’ product which was easy to understand. Mr Adil accepted in cross-examination that he understood the operation of swaps at least in broad terms. He had previously negotiated and maintained a more complicated interest rate swap - the RBS Trigger Swap.

BoS’ central allegation was that the Swap provided more protection than the Alternative Arrangement and met the Hedging Condition without a premium, to which Mr Adil expressed an aversion.

Mr Adil seemed a well-informed observer of the market: Mr Millar’s note of the 19 February 2008 call recorded his questions about historic lows of LIBOR and how sub-primes impacted on LIBOR/Base rate differences. But his views on the likely movement of interest rates in the short term, which delayed the Swap, were unlikely to remain constant during the period of massive financial turmoil between the collapses of Bear Stearns in March 2008 and Lehman Bros in September 2008.

Marz’s concern about interest rate risk was apparent from its cash flow modelling following the Marsdens acquisition and Mr Adil confirmed in cross-examination that interest costs were when preparing forecasts for the business. The Swap achieved one of its major functions in limiting Marz’s exposure to interest rate risk.

Mr Adil’s claims that the Swap had a “crippling” effect on his business, created “a huge drain on [Marz's] cash flow” and meant the company was under financial strain from the day rates dropped. But in fact, as Mr Adil well understood before it was concluded, the Swap created a fixed rate liability for Marz in the way intended; and as interest rates fell, Marz was paying less on its borrowing but had to make net payments to BoS under the Swap, thereby achieving the fixed rate overall.

The experts agreed that, in the (unlikely event) that interest rates had remained at their June 2008 level for the five-year term then the Alternative Arrangement would have been cheaper than the Swap (although they disagree by how much). But if interest rates increased after June 2008 and stayed high, the Alternative Arrangement would have been more expensive.

Reverting to the topic of Wright Vigar’s model (mentioned at the end of the factual analysis in section (4) above), this assumed a fixed rate interest liability for Marz and provided figures for its annual interest costs. Revised to use rates provided by Mr Millar, it forecast that Marz’s total interest costs in calendar years 2009 and 2010 would be £1.47 million and £1.35 million respectively. Marz’s actual interest costs for financial years ending 31 March 2010 and 2011 showed Marz incurred costs of £1.37 million and £1.26 million respectively.

So Marz must have anticipated interest costs slightly higher than those in fact incurred. But Mr Adil would not accept that, and disclaimed the documents which demonstrated it:-

I am afraid that Mr Adil’s explanations in relation to this topic are not credible. In order to secure the BoS loan he relied on projected interest costs in broadly the same amounts as Marz in fact later incurred, to show that it could meet the various loan covenants, including cash flow. I accept BoS’ submission that the Swap performed its main function: it provided a fixed rate of interest, which Marz could forecast, in order to obtain the BoS loan.

Apart from its main claim that the Swap was not suitable, Marz’s Amended Particulars of Claim allege a number of overlapping breaches of duty by way of failure to explain (a) the availability of a cap instead of a swap; (b) break costs and the ‘value’ of the novation; (c) the inter-relation with the amortising loan; and (d) BoS’ internal contingent liability assessment and/or profit. I can deal with these briefly in turn.

BoS’ alleged failure to advise Marz to enter into a cap instead of a swap could only be a breach of an information duty if that duty extended to a requirement to ‘educate’ as to other products, as to which even Crestsign is clear.

In any event, Marz was aware that it could enter into a cap:

As to the suggestion that Marz should have been offered a deferred premium cap, this was an unusual product and would have required Marz to borrow additional sums from BoS to fund the premium instalments. There is no reason to suppose that BoS would have agreed to this extra risk.

Marz’s claim that BoS failed to explain the risk of break costs in entering into a swap is again contradicted by the evidence. The documents provided to Mr Adil included explanations and warnings about the risk of break costs (a) by RBS in 2003; (b) by Mr Massey of BoS in 2004 and 2005; (by) by RBS again in 2007; and (d) by Mr Millar in 2008 - including the risk of “significant” costs in the event of an early termination.

In any event, although Mr Adil claimed in cross-examination that he was “absolutely clueless” as to what the costs for breaking a swap would be, he conceded that he understood the risk of substantial break costs:

Nor could there have been any confusion regarding the “value” of the novated swap, since Mr Adil knew that the RBS Trigger Swap had a negative market value at the time of the novation and knew the likely break cost amount. In his discussions with RBS about possible restructuring, Mr Adil was told that there would be a substantial break cost to terminate the swap - £180,000 by January 2007. Mr Adil stated in evidence that he knew on 1 May 2008 that the cost (to Marz) of closing the RBS Trigger Swap would be incorporated into the new deal.

Marz’s complaint that BoS failed to explain that while its loan would amortise with repayments, the £12.5 million notional amount of the hedge was fixed, is unintelligible. Mr Adil knew full well that BoS’ credit department had imposed a condition for the loan that Marz maintain a hedge of £12.5 million for at least the first 5 years of the loan and Mr Adil understood that the loan was amortising.

Finally regarding Marz’s complaints that BoS failed to disclose various internal considerations, BoS’ contingent liability assessments were “worst case scenarios” which were never disclosed to its borrower customers. Mr Croft described this as a “relatively severe stress test of the possible loss and not a measure of the most probable or a forecast of the expected amount of any break costs/gain.”

There are indications in Thornbridge, at [177]; and Property Alliance Group at [201] that there is no obligation on a salesperson to explain either the amount of income, or to provide information about the mechanics of its internal risk assessment of the transaction. Mrs Bowie agreed in evidence that banks would not disclose their contingent liability assessments to their customers. Even if BoS owed the duty alleged by Marz, the ‘failure’ to explain these internal matters would not constitute a breach of that duty.

Mrs Bowie considered the pricing of the 0.40% ‘spread’ added to the Swap as “extraordinarily high” while Mr Croft considered it was within the range of spreads for interest rate hedging products, albeit above the typical spread for a product of this type.

The issue on the pleadings is whether the pricing made the swap unsuitable, and whether it should have been explained to the customer. Mr Adil admitted that he knew that BoS was making a profit on this transaction and claimed that this was why he did not expect to pay an advisory fee.

There is no pleaded allegation that banks ordinarily disclose their profit margin on such transactions and no evidence that Mr Adil ever asked the bank what its profit margin was. Marz could have sought competing quotations from other banks if it wished to compare prices, but it seems Mr Adil did not do this, and was prepared to proceed on the basis of the prices being presented to him by the bank, subject to his reluctance to hedge at all.

In my view it was for BoS to decide what spread it could charge on this transaction, subject to its accountability to the regulator and its “best execution policy” which, in relation to over the counter derivatives, obliged it only to take care that

In any event Marz accepts that any breach was not causative of its losses.

In the light of my decision that BoS did not owe to Marz or breach the duties of care alleged, I can deal shortly with the damages claimed, only in case I am wrong.

Marz’s primary claim was that if BoS complied with its duties of care, it would not have entered into any hedging transaction at all, but would have agreed to abandon the Hedging Condition. Whilst I appreciate Mr Adil’s animosity to the Hedging Condition, that is a wholly unrealistic position. Not only was BoS entitled to impose hedging as a condition of lending but Marz accepted it (albeit reluctantly) and as Mr Adil was fully aware through previous dealings with RBS and BoS, such a condition was common in the market at the time.

Marz’s alternative claim was that had BoS complied with its duties of care, it would have entered into the “Alternative Arrangement”, that is, it would have retained the novated RBS Trigger Swap and entered into a 7% cap on an amortising notional of £7.5 million with a premium for the cap payable in deferred instalments.

However, even if Marz would have chosen to enter into a cap presumably with a deferred premium if available, I am not persuaded that BoS would have agreed, retrospectively, to vary the Hedging Condition so that instead of hedging £12.5 million, Marz would only have had to hedge 66% of the amortising value of the outstanding loan. As for quantum, Marz’s net payments under the Swap totalled approximately £3,355,660. On its alternative case, the difference between the net actual payments and the payments that would have been made under the Alternative Arrangement (the £5 million swap and £7.5 million amortising cap) was either £1,872,14 according to Marz or £1,833,888 according to BoS.

On this I prefer BoS’ case. The difference of £38,253 between the experts’ calculations was largely due to (a) the amount of the periodic premium payments required to purchase the cap under Marz’s hypothetical arrangement, on which Mr Croft had historic data; and (b) whether BoS would have been entitled to charge Marz – as I find it would - an annual credit charge of 0.09% for novating the RBS Trigger Swap and then leaving it in place (rather embedding it within a new swap).

I should mention lastly on this topic that, following closing submissions, Marz sought to adduce further evidence in writing from Mrs Bowie by way of an alternative, alternative calculation on the basis that the £7.5 million notional principal for the cap was not amortising. Had it mattered, I would not have allowed this.

In Wani v Royal Bank of Scotland [2015] EWHC 1181 (Ch) Henderson J held that the claimant in another swaps mis-selling case was required to provide proper pleaded particulars of any counterfactual case for which they contended and refused permission for them to do so.

The circumstances were similar to the present case except that an application to amend was made some 8 weeks before the trial. The bank opposed the late amendment on the basis that if the claimant was to allege that it would have entered into a cap “this would of course have to be clearly pleaded, including as to the precise notional amount, duration, strike rate and alleged premium of such cap”. Henderson J agreed with this at [54]-[57] and, referring to an earlier unreported case in the Commercial Court, dismissed the application.

In the present case, BoS drew Marz’s attention to Wani in October 2015 (in advance of the first CMC) and as a result Marz pleaded the Alternative Arrangement relied on until closing submissions. To allow it to add a further alternative thereafter would be to flout the principle, with which I respectfully agree, that claimants should plead the specific counterfactual which they allege, upon which factual and expert witnesses can be examined at trial.

As it happens, much of Marz’s case at trial concentrated on the allegation that, as Mrs Bowie put it, “a suitable hedge would have had an amortizing profile matching that of the loan”, and the unpleaded late ‘Alternative Alternative’ without that feature would, according to her proposed further evidence, have required a significantly larger premium. These are matters which no court could properly and fairly investigate without resuming the trial after closing submissions, a wholly unacceptable procedural course.

Fortunately or unfortunately the dismissal of Marz’s claim on liability (and were it necessary, causation as pleaded) means that further considerations of quantum are unnecessary.

To summarise my above findings: Marz’s sole director Mr Adil was a capable and successful businessman surrounded by a “team” of accountants. Both from the contractual and the business context, it was unrealistic to blame BoS as Marz’s opposing counterparty by claiming that it assumed and breached a responsibility to advise or better inform him in relation to the relevant transaction.

He understood what interest rate swaps, caps and collars were and broadly how they worked and what risks they involved, both from his previous experience, his advisers and the documents presented by BoS. Marz accepted the loan in order to purchase Marsdens knowing that BoS required hedging and that its terms excluded any advisory relationship or liability in that respect.

Mr Adil’s real complaint was that BoS’ Hedging Condition for the loan should not have been imposed and maintained. That he “…. always knew I should not have taken the swap but my hands were tied…” was on the face of itincompatible with his believing that BoS were responsible for the suitability of the products they offered him.

He did not rely on any “recommendation”, “suggestion”, “information” or “advice” from BoS to enter into the Swap; rather, he was sceptical of the claims made by BoS’ salesman, for example, as to the tenor and size of the hedge, and, as he saw it, was forced into the Swap against his will.

It might be thought that as a matter of logic and common sense, if the duties of care alleged against BoS as regards the Swap were not contained in the applicable contractual terms, those terms likely excluded them. They were not duties obviously to be expected of a lending bank which required interest rate protection from its borrower-customer.

The contractual documents and the facts of this specific case result in that conclusion. From Mr Adil’s point of view, Benjamin Franklin’s aphorism holds true: “Necessity never made a good bargain”. In order to obtain the funds to buy Marsdens as Mr Adil wished, Marz had to buy an interest hedging product. It bought one on terms offered by BoS. That bargain did not give or allow it the rights later claimed against BoS when the risks involved in the Swap went against it.

I do not regard the principle in Hedley Byrne as necessarily extending in a non-advisory relationship to the imposition of a duty of care to provide adequate information to enable the recipient to make an informed decisions (as to for example suitability of a product bought and sold) which is a matter of his or her own choice. The decisions at first instance to that effect with respect seem to me right, or certainly not manifestly wrong.

As for contractual estoppel, Springwell is authority binding on me. I myself would regard this more as a matter of contract rather than estoppel, the parties being bound by an agreement that there is no advisory relationship between them and the claimant is making his or her own decision without reliance on any advice from the defendant.

The fact that information was selected and offered does not give it the status of advice, bringing with it a duty of care, when the parties have contracted otherwise, whether before or after the statement concerned. Sales and other commercial transactions might give rise to all sorts of unmanageable and unforeseeable obligations if the parties were not free to exclude the same by express agreement as to the nature of their relationship or transaction.

This would in effect transfer the risk of the bargain, so that in this case BoS would be underwriting any loss suffered by reason of changes in the market - precisely what it required for its own (adverse) benefit when it offered the loan to Marz as bank-lender on the condition that the borrower Marz, not the bank, bought interest rate protection. The fact (as was to be expected) that BoS made a profit on the Swap as well as on the lending is no reason to reverse the burden of that risk.

In conclusion, for the above reasons, Marz’s claim fails as a matter of both law and fact, including the following in summary:

Marz’s claims against BoS are accordingly dismissed.

As regards the costs of the action, the Defendant is entitled to its costs, having succeeded and there being no reason to depart from the general starting point, that the burden of costs falling on the party that has lost and in favour of the party who has prevailed.

The Defendant applies for costs to be assessed on the indemnity basis, saying that this is a case out of the norm, first because of the offer that it made which could have been accepted in early 2016, to make a payment of £500,000. (As I understand it, that offer was not made under CPR Part 36 because it it was accepted, it would have left the Defendant open to having to pay an additional amount for claimant’s costs, because the Defendant had been notified of funding in favour of the Claimant by way of a CFA. That would mean that the Defendant’s liability for the Claimant’s costs would not have been assessed in the usual way but on a basis of which it was not sufficiently informed to be able to take such an open risk - referred to by it as amounting to a blank cheque). It is said that the refusal of that offer, the making of a far greater counter-offer and then further attempts to settle, take this case out of the norm.

Secondly, it is said that this case was misconceived in law, and that that was apparent from certain other authorities and became more obvious, says the Defendant, as time proceeded and further decisions in other matters were published.

Thirdly, it is said that the claimant has not only failed on the facts but its directing mind, Mr Adil, the Claimant’s director, was found to have to be close to evasive if not actually evasive in his evidence.

I do not consider that any of those reasons alone or in combination take this case out of the norm or would necessitate an indemnity basis for assessment - that is a basis which reverses the normal burden so that instead of the Defendant having to justify its costs, the Claimant who is responsible for them would have to establish that items were unnecessary and unreasonable. In a case where under modern practice there have been costs budgets agreed or approved, this may or may not still be an important distinction.

The Defendant says that these various factors would justify the court in marking or recognising the various deficiencies on the part of the Claimant and its case by making an indemnity order. But expressing some form of disapproval in this way is not the function of the debate and the judgment speaks for itself in the reasoning for the rejection of the claim both in law and in fact is concerned, and the process of offers, counter-offers and attempts to revive offers or negotiations is all part of the usual cut-and-thrust in commercial claims and indeed other claims.

As regards the other orders sought by way of interest and a payment on account of costs, there is no argument in principle. The budgeting process resulted in agreement as regards the defendant’s budget in the sum of 1.245 million-odd. The current practice is to treat approved or agreed budgets as something of a presumption, and, unless something can be put forward to suggest that the approved budget will not in fact result in a final assessment in that sum or more, then there is no reason why a payment on account under Marz Technology and other authorities should not be close to the full budgeted sum.

In Thomas Pink v Victoria’s Secret, Mr Justice Birss ordered payments on account of 90 per cent of the budgeted sum. That is indeed not an invariable rule but it is difficult to disagree with his logic in finding that the agreed or approved budgeted sum was a form of presumption. The entire purpose of the modern budgeting process is to try and avoid unnecessary and lengthy arguments and delays, otherwise the additional costs and trouble of having to go through budgets and consideration and approval or argument as to budgets will just add to rather than to assist in reducing the parties’ burdens and expense and time spent on those matters.

90 per cent-odd is therefore, in my judgment, a reasonable figure, certainly in this case where there is nothing to suggest that the approved budget is substantially excessive and no particular points have been put forward as regards the process of development of the case which would suggest that there is a possibility of a significant discount when the final assessment is done. I will round down very slightly 90 per cent - because it is not an exact science - to arrive at a figure of 1.1 million, to which I have referred in the argument.

As far as the interest is concerned, I agree to the corrections in the draft order taking out the reference to compounding interest and am happy if counsel are happy to include the reference to future interest under the Judgments Act even though that may not be necessary.

Subject to any further arguments, I am minded, albeit with considerable hesitation, to grant permission to appeal, and I am also minded not to limit it or impose conditions.

On my judgment, the matter is relatively straightforward although (as always in these cases) there were various details which had to be sorted out, and the parties were very far apart as to what matters and the relevance of the various points. But it seems to me that on the construction point, as it is put - ground one of the proposed appeal - judges can differ and it does affect the reading of the relationship between the parties and some of the other considerations that came into play.

I am not sure that my factual findings as regards what could and could not be regarded as recommendations or advice, questions of reliance, the sophistication of the customer, his use of other advisers, his awareness of the disclaimers, factual questions as to suitability of causation and the like, might be affected in some way - not necessarily as regards the primary facts found and whose evidence I believed and disbelieved, but more as to characterisation, nuance, relevance and significance in the light of the legal position.

As regards the alleged intermediate or mezzanine duty and the question of basis clauses and the applicability of UCTA, it seems to me these are important legal issues. There may or may not be already pending before the Court of Appeal those legal issues, although some of them, I believe, are, and others are perhaps nonetheless suitable for their consideration.

I am not saying that on any of those three main legal points - the construction point, which is a mixture of law and fact in the light of the various documents which Mr Edwards has re-highlighted to me today, and the intermediate duty and the basis clause UCTA point, the Claimant has any great prospect of success from where I sit, after considering the matter and formulating the legal position in my judgment. But it does seem to me that, in the light of the authorities and the arguments drawn to my attention, they are fit for appeal.

I have no wish to impose on the Court of Appeal a case which may be hopeless as regards fact even if Ms Phelps is right in leading on the question of the contractual terms, but it would be, to my mind, wrong if this case was ultimately decided against Marz on an incorrect legal basis. Even if my factual findings as based on the trial evidence are or are largely upheld, I am not satisfied that success on the part of the claimant on arguable issues of law would not get it home in whole or in part.

That may be unlikely in the light of Ms Phelps’ list of the principal points in the order that she expressed them, which I found against Marz on the facts, but I am sufficiently troubled, balancing the interests of the parties and justice, and always conscious that a trial judge should not lightly impose an appeal on such a busy appellate court, this is a case which causes me sufficient concern as regards for me to clarify or develop the relevant legal principles for me to feel compelled to grant permission to appeal and not to limit it as I considered doing at an earlier stage.