Braintree Leisure Ltd v Nationwide Building Society

MR JUSTICE FLAUX: This is an application by the claimants, some nine weeks before the trial, to adduce expert evidence from a derivatives expert, the intention or the purpose of which is to support the claimants’ case that the relevant interest fixing arrangement under the loan agreement between the parties was in truth a swap, which was therefore required to comply with FSA rules and regulations in a manner with which the claimants submit the bank has failed to comply.

The central issues in the case are clearly factual ones and I agree with Mr Hubble QC that if one is looking simply at the wording of option 2 in the application to fix for commercial loan of the bank, that provides:

“That Nationwide agrees it will act in good faith and in accordance with its usual practice when setting the fixed rate.”

What that is looking at is what is the usual practice of the bank and not at some objective test of what ought the usual practice at the bank to be, and it does seem to me that much of the expert report of Mr Sachdav, interesting though it is, essentially suffers from that fundamental misapprehension as to what the wording of the contractual provision is.

I also have in mind the point that Mr Hubble makes, that the court should be reluctant to allow expert evidence to be adduced in circumstances where it may not be relevant and the court in effect has to protect itself against unnecessary expert evidence. Having said all that, I have to confess (as I am sure will be apparent to both sides) a certain amount of reluctance. It does seem to me that the claimant should be entitled to adduce this expert evidence, not least because it does seem to me Mr Downes is right in two ways. First of all, it seems he is right that it does actually go to a pleaded issue, that it is a pleaded issue as to whether this was a swap or simply a fixed rate contract is actually a pleaded issue. That much is clear from question 3 of the agreed list of issues:

“Was there any agreement between the claimant and the defendant as to the provision of fixed/floating interest rate swap or for the provision of some other fixed-rate product?”

Secondly, it seems to me that at least on one interpretation of the evidence Mr Humphries adduced on behalf of the bank, he is expressing an opinion that this was not a swap. That is a matter on which Mr Downes would wish to cross-examine him and it does seem to me that if there is to be equality of arms in terms of that cross-examination and presentation of the claimants’ case at trial that he should at least have the opportunity to adduce this expert evidence.

I will give permission to adduce the expert evidence. However, as I have indicated, I do so with a certain amount of reluctance and record that it may very well be that at the trial, the trial judge, having had his attention drawn to the reluctance that I have expressed, may conclude that certain consequences should follow as a matter of costs.

In relation to the proposed amendment by the claimant, I am not 100 per cent convinced, but it does seem to me that this pleading is arguable and it does seem to me at least some aspects of it are probably implicit in the pleading in paragraphs 31 of the particulars of claim and some aspects of the proposed amendments are almost certainly open to Mr Downes to ask questions about in cross-examination. In one sense, what he would actually be doing is giving Mr Humphries and Ms Donnelley advance notice of what they are going to be taxed about at trial in terms of how the particular rate of interest came to be fixed, so I will give permission to amend, despite my initial indication that I was not happy about it.