Thornbridge Ltd v Barclays Bank Plc

The claimant was a private limited company. The directors were James Harrison and his wife, Emma Harrison but James Harrison was principally responsible for its management. The claimant was a property investment business. In March 2008 the claimant sought a loan from the defendant to purchase a property known as "Queens House" in Sheffield. The property was at the time let to an entity known as Capita but there was only 12 months left on the lease and the intention was that the property would be let to A4E, a company specialising in the retraining of the unemployed with several government contracts which was founded by Emma Harrison who was both a director and owner.

Discussions took place with representatives of Barclays over the loan and the level of security that would be required including the cover that the rental income could provide. It was estimated that the annual rental value at £665,000 would provide 111% rental cover.

The loan agreement was entered into on 16 April 2008 (the "Loan"). The material terms of the Loan were that it was for an amount of £5,652,000, a term of 15 years and an interest rate calculated by reference to Barclays’ base rate plus a margin of 1.5% payable quarterly (p205). The monthly instalments on the Loan were stated in the loan offer letter to be £50,069.75 comprising capital and interest payable in 180 monthly instalments from the drawdown date of the loan.

It was a condition of the loan stated in the offer letter that before the loan was drawn down the claimant “shall either execute an interest rate hedge acceptable to the Bank which shall limit the aggregate interest cost of the Borrower in respect of at least 100 per cent of the Loan for a minimum period of 5 years or alternatively the interest rate is to be on a fixed basis for the first five years on the whole amount of the borrowing.”

It was anticipated that the lease with A4E would provide the income to service the loan.

The relationship manager for Barclays, Mr Marsh put Mr Harrison in touch with Barclays Capital, the investment banking division of Barclays to discuss interest rate hedging. Several discussions took place over the telephone between Mr

Following these discussions on 30 May 2008 the claimant entered into a swap agreement with the defendant: the agreement was made orally over the telephone in a conversation between Mr Harrison and Mr Tuesley of Barclays Capital and

The material terms were that the swap had an effective date of 30 May 2008 and a termination date of 30 May 2013. The initial notional amount was £5,652,000 (the same as the loan) which then reduced monthly as set out in the schedule attached to the swap agreement. Under the swap agreement Barclays paid to the claimant on 30^th of each month an amount calculated by reference to the weighted average of the base rate for that month and the claimant paid to Barclays a fixed amount each month calculated at the rate of 5.65% per annum (a slight reduction from the rate of 5.68% discussed on the phone call). Both the fixed and floating payments were calculated by applying the relevant interest rate to the relevant (declining) notional amount set out in the swap schedule for the relevant period. (p379)

The payments under the loan and swap commenced in July 2008. Barclays’ base rate reflects the Bank of England base rate. (It is common ground that Barclays base rate was aligned with the Bank of England base rate; the precise timing of changes to the Barclays base rate following a change to the Bank of England rate is unclear but of no relevance to the issues in this case). In 2008 there were a number of reductions in the Bank of England base rate. Even before the loan was drawn down, on 10 April 2008 there was a reduction from 5.25% to 5.00%.

From July through to November, the monthly payments under the loan agreement continued to be paid by the claimant in the amount of £50,069.75 but the swap payments due from the claimant to Barclays increased as the net amount increased. In other words although the swap amount payable by the claimant was fixed, as the floating amount payable by Barclays reduced with the falling base rate, the difference between the fixed amount payable by the claimant and the floating rate payment payable by Barclays increased.

The amounts debited were as follows: –

I note that counsel for the claimant in his written submissions sought to provide monthly totals by combining the payment under the swap at the start of the month with the loan payment at the end of the month. Whilst I accept the submission that the combined loan and swap payments were more than the figure indicated by Mr Burgess on 29 May 2008, namely £51,388, in my view the correct approach to the monthly totals is to take the linked payments and these are the payments falling in the case of the swap at the very end of the month and for the loan at the start of the following month as these represent the linked amounts.

In January 2009 Mr Harrison complained to Barclays about the increase in the claimant’s monthly payments. He was told that it was due to Barclays not making adjustments to the loan interest payments following the base rate falls and that as a result the excess of the monthly payments over the interest due had been allocated to principal repayments. 15. On 26 January 2009 Mr Harrison made a formal complaint to Mr Marsh: “Having taken out a policy that was insisted on by the bank to protect my company and the bank’s position I simply do not understand how this situation has been allowed to develop –the total cost of the mortgage now exceeds income expectations detailed in leases…”

In response to the complaint Barclays then made adjustments to the account, by crediting to the claimant’s current account an amount of principal of £23,575.69 effectively allowing the claimant to redraw that amount of the loan which had been repaid through the monthly overpayments and fixed the standing order payments to be made by the claimant at £51,292.85.

Between June and October 2009 the claimant requested a restructuring of the swap but was quoted an indicative breakage cost of £565,000 (p454). Given the size of the breakage costs, the claimant did not want to pay the breakage costs and the swap continued to maturity.

The claim in this case has been amended and restated over the months leading up to trial up to and including the application (largely rejected) to amend the pleaded case on the first day of the trial. The result is a lengthy pleading which is repetitive in parts and from which it is not easy to determine the precise case now alleged. Against that background it seems to me that the claim as set out in the ReRe-Amended Particulars of Claim is in summary as follows: the claimant alleges breach of Hedley Byrne advisory and information duties in that the defendant failed to advise the purchase of a suitable product and/or failed to take reasonable care to ensure information was not misstated by actual misstatement, omission or partial omission.

There are three grounds on which the claimant alleges the defendant failed to ensure the derivative product was suitable: the warnings as to break costs in the presentation dated 9 May 2008 and the telephone call of 29 May 2008 were inadequate; the defendant failed to advise as to the potential restrictions on the ability to refinance and the restrictions upon portability of lending.

Further the claimant alleges that the defendant had a duty to advise/provide information so that the claimant understood the financial consequences of the mismatch: that the combination of the loan and swap was wholly unsuitable in that in essence the swap profile remained fixed but the repayment profile of the loan varied dependent upon the relevant interest rate. This created overhedging. Further from February 2009 the swap payments were added to the balance of the loan and this had the effect that the loan balance was higher than it would otherwise have been and this resulted in higher interest costs.

The claimant also alleges that the written presentation failed to describe the advantages of the interest rate hedging products fairly, clearly and accurately.

The claimant contends that the bank owed it duties of materially the same scope in tort (negligence), in contract, and under the Financial Services and Markets Act 2000.

Did Barclays give advice in relation to the swap? Did the bank recommend an unsuitable product?

did Barclays provide inadequate information in relation to the swap? In particular were the warnings as to break costs inadequate; (assuming a duty to provide the information) did the defendant fail to advise as to the potential restrictions on the ability to refinance and the restrictions upon portability of lending.

did the bank fail to provide the claimant with the advice and information reasonably necessary to enable it to make an informed decision whether or not to enter into the swap.

did the bank fail in the written presentation to describe the advantages and disadvantages of the interest rate hedging products fairly clearly and accurately? (v) if there was a breach of the common law and/or contractual and/or statutory duty, has the claimant established that it would have entered into a cap instead of the swap?

If Barclays gave advice, did it assume an advisory relationship giving rise to a duty of care in that regard?

If the relationship was advisory is the claimant prevented from asserting such a relationship by the provisions of the terms in the swap confirmation?

If the relationship was not advisory, was there a duty to provide information which went over and above the duty not to give inaccurate or misleading information?

Did the terms of business applicable to the relationship between the claimant and the defendant give rise to an enforceable duty with regard to the alleged breaches? In particular did the words "subject to Applicable Regulations" have the effect of incorporating the relevant rules of the FSA into the contract between the claimant and Barclays.

Is there a direct right of action for breaches of the Conduct of Business Rules under section 138D of FSMA? By that section, a contravention by an authorised person of a rule made by the Financial Conduct Authority is actionable at the suit of a "private person" who suffers loss as a result.

The basis for the claim for breach of a duty of care is Hedley Byrne v Heller [1964] AC 465 at 510 that a bank does not generally owe a duty of care to advise on the merits of transactions but if they undertake to do so they owe a duty to advise with reasonable skill and care.

It is common ground between the parties that the question whether advice has been provided is an objective one.

Mr Coleman QC for the claimant relies on Rubenstein v HSBC [2011] EWHC 2304 (QB) at 83:

Counsel also referred to the Financial Conduct Authority’s Perimeter Guidance Manual which states at paragraph 8.28.4 G (3):

Counsel also referred to the decision of Timothy Kerr QC in Crestsign v Royal Bank of Scotland [2014] EWHC 3043 (Ch) at 88 to 89 and at 108 that advice can take the form of a recommendation that a client enter into a particular contract.

For the defendant, Mr Mitchell QC, submits that the claimant must establish that Barclays assumed a legal responsibility for giving advice in relation to the swap so as to give rise to a duty of care at common law in relation to that advice. Counsel submits that it is not sufficient to establish that advice was in fact given and refers to the dictum of Hamblen J in Standard Chartered Bank v Ceylon Petroleum Corporation [2011] EWHC 1785 (Comm) at 508: "there is a clear distinction between giving advice and assuming legal responsibility for that advice".

Mr Mitchell also referred to the following extracts from the judgment of Gloster J in JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EW HC 1186 (Comm):

At paragraph 48 of her judgment, Gloster J referred to the three tests confirmed by the House of Lords in Commissioners of Customs & Excise v Barclays Bank, the three tests which had been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort:

the assumption of responsibility test, coupled with reliance;

the "threefold test" i.e. whether the loss was reasonably foreseeable, whether the relationship between the parties was of sufficient proximity and whether in all the circumstances it is fair just and reasonable to impose such a duty; and 3 the incremental test.

On the basis of these authorities it seems to me that one cannot divorce the issue of whether a duty was owed from the context of the exchanges between the parties and therefore I am bound to look in detail at the exchanges in order to determine both the factual question of whether Barclays gave advice and whether if it did give advice, it assumed an advisory relationship giving rise to a duty of care.

the presentation described three types of products: an interest-rate swap, an interest rate cap and an interest-rate collar, however it "subtly reinforced the message" that the simplest and therefore the best option was the interest rate swap;

the letters of 14 and 20 May 2008 and the attached terms of business suggested that the defendant was giving advice -the telephone calls of 21 and 29 May

At this point I should express my views about the credibility of the witnesses of fact. The claimant relied on the evidence of Mr Harrison. The defendant relied on the evidence of Mr Rainford and Mr Marsh. Mr Burgess and Mr Tuesley were not called to give evidence. At the time the witness statements were prepared Mr Burgess no longer worked for Barclays. I am told that he has now re-joined Barclays but the defendant had not obtained a witness statement from Mr Burgess and did not anticipate having to call him, relying instead on the recorded telephone messages and email exchanges between the parties. Mr Rainford was based in London for Barclays Capital and responsible for the sales team in which Mr Burgess and Mr Tuesley worked although Mr Burgess worked in Manchester and his direct manager was Mr Atkinson. Mr Rainford was not party to any of the discussions between Mr Burgess and Mr Harrison. Mr Marsh was the relationship manager dealing with the overall relationship with the claimant and the loan side of the transaction.

In relation to Mr Harrison as a witness, I had the opportunity of observing him in the course of his cross examination as well as reading his witness statement. I also listened in my own time to the contemporaneous telephone recordings between him and Mr Burgess.

Listening to the tape-recorded conversations it struck me that Mr Burgess could not be said to be applying any pressure on Mr Harrison to purchase an interest-rate swap. His manner was very far from that of a “pushy” salesman. He was very understated in his approach.

Mr Harrison equally appeared comfortable in the exchanges, asking pertinent questions. Although Mr Harrison was asking questions he did not give the impression of a man who was unable to follow the conversation and on several occasions he stated expressly that he understood. Further it was obvious from his questions in relation to scenarios that he was following the conversation and understood the financial implications. He rejected offers of meetings.

In the witness box he appeared to answer frankly. There were two occasions on which it seemed to me he hesitated to give what seemed to be frank replies. The first is when he was asked about the correspondence that indicated that when delays occurred immediately before the loan was finalised, he threatened to take his business elsewhere. He appeared deliberately to misunderstand the question that was being asked and answered that he had no alternative bank to go to,

There were also instances where Mr Harrison had made assertions in his witness statement which were shown to be incorrect in cross-examination. In paragraph 51 of his statement Mr Harrison says "my own experience of break costs derived from other loans which would see me pay an administrative charge for coming out of the product and which I determined would be more than a normal loan but not significant. Burgess did not explain or clarify anything more about the level of break costs or how the same may be calculated..." It was put to him that Mr

I note that there were certain areas on which he was not cross examined as there was no evidence in his witness statement notably the significance to him of break costs in the context of a future refinancing.

Mr Rainford, I was told by counsel, has undergone major surgery and had been off work for five and a half weeks prior to the trial. Counsel made the point that he would find giving evidence tiring and the court was asked to make allowances for his ill health when he gave evidence. In the event he managed to give his evidence without any apparent ill effects from the surgery. However it did seem to me that he readily agreed with Mr Coleman's propositions when pressed and this may have been due to the fact that from a health perspective he was not as robust as he might otherwise have been. I therefore note the concessions that he made in the course of evidence upon which the claimant seeks to rely and whilst in no way doubting his integrity, I feel that he may have been less inclined to respond robustly to questions in cross examination and I take this into account in forming my overall conclusions. Further there were areas of his evidence in cross examination where in my view he was asked to comment on matters which strayed into the realm of expert opinion evidence and I approach his evidence bearing in mind that he was not there to give expert evidence but could only give evidence as to the usual practice and procedure within the investment bank and his team in particular. To the extent he expressed opinions which in my view went beyond his role as a witness of fact I disregard such evidence.

Mr Marsh has an ongoing banking relationship with Mr Harrison. Mr Harrison is a very wealthy individual with interests in a number of businesses and was the largest customer for Mr Marsh at the time. Barclays’ internal credit application submitted in March 2008 noted that Mr Harrison ran a number of businesses

Applying the approach set out in the authorities referred to above, it is clear that the focus has to be firstly on the detailed exchanges between the claimant and the defendant. The key discussions were the telephone conversations between Mr Burgess of Barclays Capital and Mr Harrison on 9 May, 21 May and 29 May 2008 together with the email exchanges on 9 May and on 21 May and the presentation sent by Mr Burgess to Mr Harrison with the email of 9 May.

There is no transcript of the first conversation on 9 May. In his witness statement Mr Harrison says it was reasonably long. At paragraph 36 he states:

Mr Mitchell acknowledged that there was a conversation on 9 May which preceded the email but submitted that it was not pleaded that in that conversation Burgess “sought to encourage me to seriously consider taking an interest rate swap product”. Nevertheless it is evidence which in my view the claimant can rely upon in relation to its case.

However the weight to be given to this evidence of Mr Harrison in his witness statement has to be determined in the light of the email evidence. Email of 9 May 52. In the email of 9 May 2008 from Mr Burgess to Mr Harrison, Mr Burgess wrote: "I mentioned in our telephone conversation that there are a number of structures/deals that can be used for protecting the business against higher interest rates and I have attached a short presentation that outlines three structures that are used by the vast majority of our client base. The decision regarding which type of structure to use may be based on a specific market view, if a certain budget rate is needed to be achieved or to keep things simple a fixed

Mr Coleman submitted that this email was “steering” Mr Harrison towards an interest rate swap. He stressed the use of the words “or to keep things simple a fixed rate deal” and submitted that this language was recommending an interest rate swap.

I do not accept Mr Coleman’s interpretation of the language. I note that this interpretation was put to Mr Rainford in cross-examination but Mr Rainford, although accepting that it was incomplete in not mentioning a cap or a collar emphasised that he did not have the context of the telephone conversation. It was not put to him that this amounted to advice or a recommendation.

I think the paragraph has to be read as a whole. It starts with Mr Burgess saying that “there are a number of structures/deals that can be used for protecting the business against higher interest rates” and in my view the second sentence “The decision regarding which type of structure to use…” is stating the options depending on the client’s perspective. So Mr Burgess states that if you had a view on where rates were likely to go this would influence your choice –from which I infer you might want to fix a ceiling and a floor to your exposure to interest rates ie a collar but the level at which you fixed the floor and ceiling would depend on your market views; alternatively if you wanted to achieve a certain budget rate from which I infer you wanted to limit future rises beyond a certain level in which case it would be a cap and thirdly if you want to fix the interest cost of the debt each month irrespective of market movements which I infer is a reference to a swap which would do exactly that ie limit payments to the fixed rate in the swap irrespective of market movements. Therefore in my view Mr Burgess is setting out the options; he is not steering Mr Harrison towards a swap. 56. The email continues:

Mr Rainford was asked about the middle paragraph of the email of 9 May set out above relating to what was likely to happen to rates and whether Mr Burgess was exceeding his role as a person who is not advising at this point. Mr Rainford disagreed and said he was giving the customer the Barclays’ view on what might happen to rates. He said it was common practice to give views of the overall market.

In my view there is nothing in those paragraphs which suggests that Mr Burgess is recommending a particular type of hedge. Further the terms of this email as I read it tends to negate in my view the assertion in Mr Harrison’s witness statement that in the phone call of 9 May Mr Burgess was encouraging Mr Harrison towards an interest rate swap. The terms of the email setting out the options suggests that Mr Burgess had not previously steered Mr Harrison towards a swap.

Mr Coleman QC referred to the sentence in the following paragraph “that businesses that “hold off” protecting the risk ….are not really going to see any advantage if the rate move does take place.” He submitted that this amounted to a recommendation to enter into a swap.

In my view that sentence has to be read in the context of the paragraph which is addressing market conditions rather than a particular hedging product. The paragraph starts "I know that you want to keep things straight forward, but ahead of looking through the structures available I think that it is worthwhile looking at the current market conditions…"

There is nothing in that paragraph which amounts to a recommendation as to a particular product and I agree with the evidence of Mr Rainford that Mr Burgess was not exceeding his role merely by giving a view on what might happen to rates.

In the penultimate paragraph Mr Burgess states: "….I have quoted market prices for five, 10 and 15 years based on the loan facility structure and one decision for you to make would be the period that cover should be taken for and this would be dependent on whether you expect early repayment of the loan."

The evidence of Mr Rainford was that the Corporate Risk Management team were not intended to have an advisory function and the sales force who were required to be registered with the FSA knew that their role was to present the customer with a range of products potentially appropriate for the customer and for the customer to determine whether they wished to enter into any of the products. It was not their role to provide advice and they did not charge a fee for any service.

In cross examination Mr Rainford explained that the name “corporate risk advisory” was a name used by the investment bank and the relevant sales team was moved from the bank to the investment bank in 2004 and came under the umbrella of “corporate risk advisory”. He agreed that it was potentially misleading to use it on emails, on the business card and presentation but said that “the actual experience and the dialogue between the customer and the sales people was never an advisory relationship”.

Looking then at the presentation sent with the email of 9 May, this was a 7 page presentation entitled “Interest Rate Risk Management Strategy". The words "Corporate Risk Advisory" appear at the top on the right-hand side of the front page. The next page is entitled "Overview" and states:

The pages that follow are headed "Known interest expense – interest rate swap", "Interest rate cap", "Interest rate collar", “Cancellation – scenario analysis" and a final page headed "disclaimer".

I reject the claimant’s submission that the presentation suggested that the simplest and therefore the best option was the interest rate swap. I do not accept that just because the interest rate swap was described before the alternative products this suggests any recommendation of the interest rate swap. There is no basis for such an inference. Further the title of the presentation was "Interest Rate Risk Management Strategy". The words "Corporate Risk Advisory" do appear at the top on the right-hand side of the front page but in my view are not of themselves enough to lead to an inference that this presentation was Barclays giving advice rather than Barclays setting out the options which were open to the claimant. The introductory words on the first page of the Presentation: “The ideas and indicative pricing that follow” are not in my view the language of recommendation or advice and I also reject the submission that there is an implicit recommendation of a swap. I think the presentation has to be read in the context of the telephone conversation and email and not viewed in isolation as a standalone document which it clearly on its face was not.

Mr Coleman relies on the phrase: “the one that is the simplest is the one I'll go for… and that's the first option in your email isn't it?" and the response "Yep. I was going to suggest that anyway to be honest" as evidence of a recommendation being given by Mr Burgess.

This is clearly an expression of an opinion by Mr Burgess but does it amount to a recommendation in the sense of attracting the duty of care which would attach to an advisory relationship? Mr Coleman relies on the FCA handbook and the section dealing with “Advice or information”. Para 8.28.1 states that in the FCA’s view:

In my view this is not a conversation in which Mr Harrison is being advised as to what to do. It is clear from the exchange on rates in which Mr Harrison rejects the lower rates that a longer term would provide, that Mr Harrison understands the options that he is being offered and decides on the one which he feels is appropriate for him.

Mr Burgess then follows that up in an email dated the same day (p314) in which he says: "in terms of market protection, rather than looking at cap and collar structures, I agree that the straightforward way is the best approach and so the main decision is for how long to fix your cost of borrowing.”

There is a further conversation on 29 May 2008 (p343) between Mr Burgess and Mr Harrison which goes through the financial implications of a swap in some detail. In my view the key elements of this conversation are as follows: Harrison: "… I think I know where I am at now… But let's go through it again… So we are looking at this interest rate swap at the current deal as of

In my view it is clear from this very detailed discussion on 29 May of the way in which the swap would work that Mr Harrison grasped the economics of the swap transaction and the effect that movements in base rate would have on the payments under the loan and the swap.

Mr Coleman accepts that Mr Harrison understood the basics of how the swap would work but submits that he was not experienced in derivatives and the relationship was an advisory one.

Having listened carefully to the telephone recordings Mr Burgess was clearly providing information to Mr Harrison as to how the swap would work but in my view he was not recommending or advising that Mr Harrison entered into the swap: he was explaining how the payment flows would work.

I have already rejected the submission that the Presentation implicitly recommended an interest rate swap. Mr Coleman for the claimant sought to derive support for his submission that Barclays were providing advice and recommending the interest rate swap from the terms of the Disclaimer on the final page of the Presentation.

He refers to the sentence in the first paragraph of the Disclaimer:

do not think that any support can be derived for the claimant’s argument from this paragraph. It does not state that Barclays is providing advice in relation to the derivatives which are the subject of the report. It merely states that it may do so and is in effect warning the reader that there may be a conflict of interest should Barclays act in these capacities.

He also refers to the sentence in the second paragraph "Any securities recommendations made herein may not be suitable for all investors" [emphasis added]

reject the submission that this lends support to the claimant's case that Barclays were recommending the hedging instrument. Firstly the sentence relates to "securities" and an interest rate swap does not fall within the normal meaning of "securities". Further the sentence does not indicate that a recommendation is being made, merely that it may be made.

Finally on the Disclaimer, the claimant advances the argument that that the fourth paragraph is clearly inappropriate. It states:

Mr Coleman relies on the letters of 14 May and 20 May 2008 from Barclays to the claimant stating that it had classified the claimant as a retail client. Although these letters have different dates they appear to be identical. (page 282). In this letter Barclays informed the claimant that it was required to notify the claimant of its client categorisation pursuant to the FSA rules prior to providing any services to the claimant and that it had categorised the claimant as a "retail client". Barclays enclosed a copy of its terms of business and asked the claimant to return a signed copy. The claimant signed the second one. Mr Coleman QC for the claimant submits that the statement in paragraph 3 of the letters that “[Barclays] may from time to time provide [the claimant] with advice for the purposes of clause 2.2 of our [terms of business]” leads to an inference that Mr Harrison would have understood this to be an acknowledgement by the bank that it was advising and would continue to advise.

The letters of 14 May and 20 May 2008 classifying the claimant as a retail client do not in my view constitute any notification that Barclays were providing the claimant with advice in relation to this transaction.

Paragraph 3 of the letter of 20 May 2008 stated: "please treat this letter as written notice that we may, from time to time, provide you with advice for the purposes of clause 2.2 of our Terms". Clause 2 of the "Terms of Business for Retail Clients" headed “Advice” provides: "2.1 Non-advised services: Except as set out in clause 2.2 below, we will not provide any advice to you in relation to a Transaction.…

Mr Harrison stated at paragraph 35 of his witness statement that he was "always under the impression that Marsh was putting me in touch with Burgess, as the expert who would be advising me in relation to the condition of hedging as required by the defendant.…"

At paragraph 38: "Hedging and derivatives were completely new to me, and it is not something I have ever come across or had any experience of previously. I placed considerable trust in the bank, whether it was Marsh, Burgess or anybody else that I spoke with.… I was always under the impression that the people I was dealing with were advising me either in my personal capacity or as director of the company, and recommending a product that was suitable.…"

Paragraph 39: “At no time did I seek any separate advice from any third party or accountant in relation to the product or the financing, relying upon my own knowledge of business and the bank's recommendation as to the suitability of the borrowing."

He viewed the product as an insurance policy (paras 49 and 58 of his witness statement).

In response to the assertion that Mr Harrison was relying on Barclays for advice Mr Mitchell submits the relationship between the claimant and Barclays was simply a commercial relationship and relies on the evidence that Mr Harrison was threatening to take his business elsewhere when there were problems immediately before the drawdown. An email from Mr Marsh sent on 19 May 2008 to other members of Barclays:

Mr Mitchell submits that this evidence suggests that in his actions in this regard Mr Harrison was tending to regard the bank as a supplier of banking services rather than as an adviser.

In my view there is no evidence to support Mr Harrison’s assertion that Mr Marsh introduced Mr Burgess as an expert who would advise him. Mr Marsh’s evidence in his witness statement at paragraph 26 and repeated by him in his oral evidence was:

There was also no evidence as to what other advice was available to the claimant. Mr Marsh was asked in cross examination about the other advisers which Mr Harrison had used and whether they would have been authorised to provide advice but Mr Marsh unsurprisingly had no knowledge of their position. Counsel for the claimant sought to raise this issue in examination in chief of Mr Walsh, the claimant’s expert witness from J C Rathbone Associates, but having heard the objection raised by the defendant, I ruled that the issue could not be raised with the expert in the absence of prior notice to the defendant so that Barclays could have had an opportunity to put evidence before the court. Without such evidence I am not prepared to exclude the possibility that Mr Harrison could have obtained evidence from his lawyers or accountants in relation to the swap should he have chosen to do so. Without evidence I do not accept the proposition of counsel that only a limited number of financial advisers could have provided advice on the swap and I doubt that to be the case. He was running a number of businesses and had the financial means to obtain advice, including it seems to me from firms of accountants and/or lawyers with experience in swaps, should he have chosen to do so.

As to Mr Harrison’s lack of experience in hedging and derivatives, I do not accept that he failed to understand the product. His description of an interest rate swap as insurance is an appropriate description for someone who was looking to protect themselves against rises in interest rates. The fact that (unlike insurance) no premium is payable and no loss has to be proved are important features from a legal perspective but the use of the term “insurance” does not point to any lack of understanding on the part of Mr Harrison as to how a swap would work to protect him against interest rate rises. Notwithstanding his lack of academic qualifications at a higher level, Mr Harrison was a very successful business man who would

Having considered all the evidence on this issue, I conclude that Barclays did not recommend the swap and even if advice was given by Mr Burgess on the calls, Barclays had not assumed an advisory duty. I have set out my detailed reasoning above but my conclusion is based on an assessment of all the factors which I now draw together for completeness. The following should however be read in conjunction with my earlier remarks.

The statements by Mr Burgess in the course of the telephone discussions on the likely movements in the interest rates were and would reasonably have been understood in my view by Mr Harrison to be at best, predictions or views rather than formal advice. Mr Burgess did express views as to the direction of interest rates, he did give explanations as to how an interest rate swap would fix the payments for the claimant and he appeared to endorse the suggestion of an interest rate swap. However even if this amounted to “advice” in my view it did not go beyond what Gloster J describes as the “the daily interactions between an institution’s salesforce and a purchaser of its products”. It is clear following the principles laid down in Springwell that one needs to look at all aspects of the objective evidence of the relationship between the parties. In this regard I note the distinction drawn in that case between the investment adviser retained to advise a client and the advice or recommendations given by a salesperson as part of the selling process. I note that Barclays did not receive a fee in this case for any advice in relation to the swap. Mr Coleman submitted this was a neutral factor. In my view 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.

The fact that Mr Burgess’ title was "Corporate Risk Adviser" and that this title appeared at the bottom of his emails cannot in my view be given any significant weight when weighed against the actual discussions which took place between Mr Burgess and Mr Harrison. It was a label which Mr Harrison acknowledged in cross examination that he did not rely on and looked at objectively this reinforces my conclusion that it was a label without significance in the circumstances. I also have regard to the evidence of Mr Rainford that the sales force was required to be registered with the FSA, Mr Burgess was very familiar with the distinction between execution only and advised transactions and the sales force would have been very aware of the fact that they were not authorised to give advice to clients; their job as he explained, was not to recommend to the customer but to discuss solutions which are most appropriate to their needs. In my view this is a fundamental distinction in the way that bankers as individuals are regulated and authorised to do business. I note that Mr Rainford in cross-examination was asked whether he was claiming that Barclays sales people never strayed from nonadvised sales into advised. He (fairly) replied that he could not answer for how each salesperson conducted their sale but only that the model is "definitely unadvised, non-advised, and that was very clear from compliance." For the reasons given above in relation to the detailed exchanges I do not think that Mr Burgess crossed the line into an advisory relationship.

I have set out above the reasons why in my view neither the Presentation, the Disclaimer nor the letters of 14 and 20 May taken with the Terms of Business support an inference that Barclays were providing advice or assuming an advisory relationship.

I have found on the facts and the evidence before me that no recommendation or advice was given and that Barclays did not assume an advisory relationship resulting in a duty of care in that regard. If I am wrong on that, the defendant relies on the contractual documentation as giving rise to a contractual estoppel and I turn now to consider that documentation. 98. The swap confirmation contained the following provisions:

Non-reliance . It is acting for its own account, and it has made its own independent decisions to enter into the Transaction and as to whether the Transaction is appropriate or proper based upon its own judgement and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into the Transaction: it being understood that information and explanations related to the terms and conditions of the transaction shall not be considered investment advice or as a recommendation to enter into the Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of the Transaction.

Assessment and understanding. It is capable of assessing the merits and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of the Transaction. It is also capable of assuming, and assumes, the risk of the Transaction.

Status of parties. The other party is not acting as a fiduciary for or an adviser to it in respect of the Transaction.

Purpose. It is entering into the Transaction for the purposes of hedging its assets or liabilities in connection with a line of business.[emphasis added]

For the claimant Mr Coleman submits that these representations are not contractual warranties and therefore contractual estoppel does not apply. Further Mr Coleman submits that the clauses are not “basis clauses” but clauses which exclude liability and submits that the representations seek to rewrite history and part company with reality. The claimant relies on the authority of Raffeisen Zentral Bank v Royal Bank of Scotland [2011] 1 Lloyd's Rep 123 at 313 – 315 that to the extent the clause seeks to change the character of the parties’ previous dealings, it will be treated as an exclusion clause. To the extent that the effect of such clauses is to exclude liability for negligence they are subject to the test of reasonableness in section 2(2) of the Unfair Contract Terms Act 1977.

Mr Coleman also submits that UCTA applies to any clause whose purported effect is to exclude a duty of care if, but for the clause, a duty of care would have been owed: Smith v Bush [1990] 1 AC 830 at 849,856-857 and 873.

Mr Coleman seeks to rely on the authority of Peekay v ANZ Banking Group

Counsel acknowledges that the decision in Titan Steel Wheels v RBS [2010] 2 Lloyd’s Rep 92 at 87 is against his submission for such a distinction but submits it is wrongly decided.

In my view the authorities do not support such a distinction: this issue was addressed in Springwell. In that case Springwell claimed that, notwithstanding certain contractual representations and acknowledgements of fact such as that Springwell was a sophisticated investor and the transaction had been conducted on an execution only basis, that Springwell had not received any advice from Chase in relation to the relevant transactions and had not relied on any advice from Chase, Chase was in fact advising it on a regular basis. Gloster J held that Springwell could not set these facts up against the agreed facts which had formed the terms of its contract with Chase. Gloster J held that the basis of a contractual estoppel is a contractual representation, warranty or agreement forming the agreed and binding basis on which the parties will conduct their dealings (para 567). She accepted Chase’s submissions that contractual estoppel is a separate species of estoppel from estoppel by representation, that it does not require detrimental reliance and it can arise from an agreement or representation about past facts (paragraph 556).

In relation to the submission that the representations seek to rewrite history and part company with reality, Mr Coleman relies in particular on paragraphs 313 – 315 of the judgement in Raffeisen Zentral Bank.

It seems to me that the passages on which the claimant seeks to rely have to be read as a whole and in my view the test is not whether the clause attempts to rewrite history or parts company with reality. The first step is to determine as a matter of construction whether the terms defined the basis upon which the parties were transacting business or whether they were clauses inserted as a means of evading liability. In that case Christopher Clarke J said at para 316:

Flaux J then went on [60] to quote Hamblen J in Cassa di Risparmio della Repubblica di San Marino [525]:

Flaux J concludes [61] that:

It seems to me that the authorities on this point are very clear. As a matter of construction the particular clauses in the Confirmation are in the nature of basis clauses and not exclusion clauses and this is supported by the approach taken in other cases where similar wording has been considered including the Barclays Bank v Svizera Holdings case referred to above. Mr Coleman referred me to the judgement of Aikens LJ in the Court of Appeal in Springwell at 181-182. In my view the sentences within those paragraphs however which were found to be subject to UCTA were those sections which did purport to exclude liability. It is not authority that basis clauses of the type being considered here are subject to

The submissions advanced on the basis of Smith v Bush were considered in detail in Titan Steel where the judge observed that “the decision may have been somewhat overtaken by later decisions in regard to the assumption of responsibility”.

In my view recent authorities have been very clear that parties may agree the basis on which they are entering into a relationship. The effect of such a clause is that the party is contractually estopped from denying to the contrary. This is so even where for example parties agree that one party has not made any pre-contract representations about a particular matter and both parties knew that such representations have in fact been made (see Hamblen J in Cassa di Risparmio

It follows from this that no question of reasonableness arises and as a matter of construction of the relevant provisions, even if I had concluded that recommendations or advice had been given, the claimant is contractually estopped from asserting that Barclays gave advice or a recommendation to enter into the swap transaction. The essence of the claim is that the claimant alleges that Barclays assumed an advisory relationship through its information and explanations. This is the specific matter which is addressed in paragraph (a) "nonreliance" in the confirmation and the claimant is therefore estopped from asserting this.

If I am wrong on this and the relevant provisions should be regarded as a clause which seeks to exclude liability for negligence in that they prevent a duty of care being owed where otherwise it would do so, then the provisions would have to satisfy the requirement of reasonableness under the 1977 Act. I bear in mind the factors listed in schedule 2 of the Act in particular the strength of the bargaining positions of the parties and whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties).

The claimant submits that there was a marked inequality in the parties’ bargaining power and knowledge and experience of swaps. Mr Coleman also submits that the market for derivative products was one in which the products were complex and poorly understood by inexperienced purchasers. Further that the bank knew or ought to have known that the representations were untrue; that expert advice was not readily available to Thornbridge; the terms of the representations were not negotiated and the bank did not bring them to Thornbridge’s attention until well after the swap was transacted.

Mr Mitchell submits that this was a principal to principal transaction in which the parties had different economic and commercial interests and it was perfectly reasonable in such circumstances to specify that Barclays would not act as an adviser; there was no relevant inequality of bargaining power in that Thornbridge could have gone to other banks; the Harrisons were shrewd business people with considerable experience in dealing with banks; the terms of the confirmation were consistent with the disclaimer in the presentation; the claimant could have sought advice from other sources and the terms were widespread in the banking industry.

I do not accept that there was an inequality of bargaining position on the basis that there were a significant number of banks which at that time could have provided Thornbridge with an interest-rate swap and Mr Harrison demonstrated his sense of equal bargaining power with Barclays in threatening to go elsewhere for the loan (even though he says in practice he did not have a bank lined up to do so). Although the disclaimer is not of itself determinative of whether objectively an advisory duty had been assumed, nevertheless the statement in the third paragraph of the disclaimer "investors should seek their own advice as to the suitability of any investments described herein for their own financial or tax circumstances." is in my view a clear statement which had it been a concern would or should have alerted the claimant to the issue. Although the claimant did not receive the Confirmation until after the trade was done, the issue of whether advice had been provided could nevertheless have been raised at that stage had it been a matter of concern. The claimant was not put under any pressure to deal with the documentation quickly and could have taken legal advice had he seen fit.

The fact that this is a standard provision in swap confirmations does tend to suggest that initially at least the claimant would have found a similar provision had it chosen to go to another bank. However the significance of its inclusion is to make it clear that the parties’ relationship is arm's-length, "execution only" and to remove any grey area between them. I do not accept that because the product was unfamiliar to the claimant, Barclays were required to provide advice or that in providing information to Thornbridge they were required to take on an advisory relationship. A bank entering into a swap with a counterparty has its own economic interest and this in my view was apparent to Mr Harrison. It is clear from the telephone conversations that he perfectly understood the financial implications of the swap and whether the swap payments increased in favour of Barclays or the claimant was dependent on movements in interest rates. There is no basis on which their interests can be aligned. Were Barclays to have acted as an adviser they would in my view have to provide that advice through an entirely different and separate part of the bank given the opposing and therefore conflicting commercial interests of the parties. As I have already indicated there is no evidence that Mr Harrison could not have taken his own advice. Accordingly in my view there is no reason why in the circumstances of this case, the provision should be held to be unreasonable and therefore to fall foul of the 1977 Act.

I have concluded that Barclays assumed no advisory relationship with the claimant and on the evidence did not recommend or advise on the merits of the interest rate swap. However the claimant submits, relying on the dictum of Mance J in Bankers Trust International plc v PT Dharmala [1996] CLC 518 at 533, that although a bank owes no duty to explain the nature or effect of the proposed arrangement, "if the bank does give an explanation or tender advice, then it owes a duty to give that explanation or tender that advice fully, accurately and properly. How far that duty goes must once again depend on the precise nature of the circumstances and of the explanation or advice which is tendered."

The claimant also referred to the judgment in Crestsign at 135 -155 where the Deputy Judge held that a bank that undertook to explain certain hedging products owed the duty described by Mance J above.

Mr Mitchell submits that the duty of care in respect of information supplied in “execution–only” deals is no more than to take reasonable care to ensure that the information provided is accurate and not misleading. Mr Mitchell refers to the decision of Tomlinson LJ in Green v Royal Bank of Scotland[2013] EWCA Civ 1197 at 17. Mr Mitchell accepts that it is a question of fact in each case as to what positive information (if any) is required in such a situation.

Mr Mitchell also notes that in Crestsign the judge rejected the claimant’s

The passage quoted above from the Bankers Trust case covers two situations: where the bank gives an explanation or tenders advice. The duty however on the facts of that case was held to be lacking. The focus of the conclusion of Mance J at 555 is on the role of Bankers Trust as an adviser rather than on any intermediate duty and he does not find any intermediate duty on the facts. He said: "in the circumstances as I have found them, most of the basis for the suggested duty to explain fully and properly the questions of terms, meaning and effect of swap 1 is lacking. It is true that there was a disparity in expertise between BTCo the one hand and DSS on the other. Nevertheless Mr Thio and Mr Kong were experienced in financial matters and deliberately interested themselves in a transaction which, in my judgement, they must well have understood to be speculative. They did not ask and they were not entitled to expect BTCo to act as their advisers generally. Nor did BTCo and BT I make a particular statement giving rise to any particular advisory duty at the meeting or in their letter of 19

In reaching that conclusion Mance J considered the argument that BTI should have disclosed the current market value of derivatives which they were proposing to sell. Mance J concluded at 554:

In relation to the allegations that BTI represented that its products were safe and could be replaced at no cost, he concluded they are "likewise points that could be significant in the context of an advisory relationship, or if they rendered inaccurate or unreasonable the actual forecast provided.…"[emphasis added]

Accordingly it seems to me that the principle which can be derived from that case is that 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.

The Deputy Judge in the Crestsign case came to the conclusion that the banks had chosen to provide information and therefore owed the broader duty. He referred to the dictum of Mance J at 533 which I have cited above and from that concluded that although the banks owed no duty to explain the nature and effect of the proposed transactions to the customer, in that case they had chosen to do so and accordingly that the banks had a duty to explain fully those products which they wished to sell. At 153 he says:

In arriving at that conclusion the Deputy Judge accepted (at 150) that the bank needed to provide information about the products on offer in order to sell one of them to Crestsign and in doing so the bank had a duty not to mislead but stated that the bank must provide the explanation fully and accurately so that the customer was sufficiently aware of the nature and effect of the hedging products

As I have stated it seems to me that the dictum of Mance J relied on by the Deputy Judge is not as extensive as it might appear taken in isolation. Each case must depend on its facts but to the extent that the Deputy Judge 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.

In relation to the Court of Appeal decision in Green, the Deputy Judge in Crestsign distinguished the case on the basis that it did not appear to have been argued that a common law duty of care in relation to the provision of information could arise independently of the COB rules. He noted that the Bankers Trust case did not appear to have been cited or to form any part of the reasoning. He also stressed that the decision in Green was in the context of the facts and submissions before them.

In my view the dictum of Tomlinson LJ is relevant regardless of any argument as to whether a common law duty of care could exist independently of the COB rules. The significance in my view of the dictum of Tomlinson LJ at 17 is that he sets out the extent of the Hedley Byrne duty and in so doing addresses the issue in this case, namely whether the Hedley Byrne duty extends beyond a duty to take reasonable steps not to mislead. He states:

I note that in Crestsign the Deputy Judge noted on the facts that there was no “realistic prospect of timely access to adequate expert advice" and this was a relevant factor in reaching his conclusion. That is a matter which on the facts of this case I have dealt with above and in my view it cannot be said in this case that there was no such realistic prospect.

The claimant contends that the bank owed it duties of materially the same scope in contract, in tort (negligence) and under the Financial Services and Markets Act 2000.

In relation to the alleged duty in contract Clause 1.4 of the Bank’s terms of business provides:

FSA Rules or any other rules of a relevant regulatory authority;

the Rules of the relevant Market; and

all other applicable laws, rules and regulations."

Counsel for the claimant relies on the authorities of Brandeis Brokers Ltd v

In the case of Brandeis Toulson J was concerned with contracts with metal traders which made reference to the rules of the Securities and Futures Authority. The contracts consisted of a letter from the applicant which enclosed a document entitled "terms of business letter". The terms of business letter provided that: “These Terms apply to all our dealings with you and any arrangements entered into on the basis of these terms shall be legally binding.

In my view the case of Brandeis can be distinguished. The wording in Brandeis is different even though the words “subject to” appear. The provision in this case reads

In my view therefore for the reasons stated above there is no contractual right in existence for the claimant in respect of the Bank’s obligations to comply with the FSA rules.

The claimant submits that it can establish a direct right of action for breaches of the Conduct of Business Rules (the “COB rules”) under section 138D of FSMA. By that section, a contravention by an authorised person of a rule made by the Financial Conduct Authority is actionable at the suit of a "private person" who suffers loss as a result.

"Private person" is defined in regulation 3 of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 and the relevant paragraph states:

Counsel for the claimant refers to the debate in the House of Lords concerning the legislative intention and states that the objective was to exclude litigation between market professionals. However he acknowledges that this argument was rejected by the courts in a number of cases most recently in MTR Bailey Trading Limited v Barclays Bank plc which relied on the decision in Titan Steel v Royal Bank of Scotland. I note that the decision in MTR Bailey is subject to appeal to the Court of Appeal on this point.

On the basis of the current law it seems to me there is no direct right of action for any alleged breach of the COB rules by way of direct action.

Having considered the nature and scope of the duties owed by the claimant at common law, in contract and under statute, I turn then to consider the particular facts in this case. I have dealt with the issue of advice and the advisory relationship and set out my conclusions above. The claimant further submits that Barclays were in breach of duty in three respects: –

providing inadequate information concerning break costs, ability to refinance and restrictions on portability.

failing to explain in the written presentation fairly clearly and properly the competing advantages and disadvantages of the hedging instruments (iii) failing to provide information so that the claimant understood the unsuitability of the swap.

On the basis that I have concluded that there is no right of action for any alleged breach of the COB rules either under contract or by way of direct action I do not propose to consider the alleged breaches of COB rules in detail. However in broad terms there is considerable overlap between the alleged breaches of the COB rules and the conclusions reached on the three main heads of alleged breach of the common law duty set out below.

Providing inadequate information concerning break costs, ability to refinance and restrictions on portability.

In his telephone conversation on 29 May Mr Burgess was clear that if the claimant was to break the swap it would be expensive and he explained how the break costs would be calculated. He said:

Mr Coleman submits that the following statement of principle by Lord Reid in Morris v West Hartlepool Steam Navigation Ltd is of more general application: "it is the duty of an employer, in considering whether some precautions should be taken against a foreseeable risk, to weigh, on the one hand, the magnitude of the risk, the likelihood of an accident happening and the possible seriousness of the consequences if an accident does happen, and, on the other hand, the difficulty and expense and any other disadvantage of taking the precaution."

Counsel for the claimant further submits that the Conduct of Business rules point to a requirement that the Bank would provide the claimant with such information about break costs as would enable it properly to understand the risks of the transaction; to understand its advantages and disadvantages as compared with the other products presented in the written presentation; and to make a fully informed decision as to whether or not to enter into the swap. However given that I have found that there is no actionable right in relation to the COB rules, in my view this does not reflect the duty at common law as discussed above and this view is consistent with the decision in Green v The Royal Bank of Scotland. 147. Counsel referred to the Financial Conduct Authority’s written submissions in Green v The Royal Bank of Scotland to the effect that to the extent there are potentially very substantial costs involved in the exercise of an exit or break terms, these should be disclosed to the customer in a way that is fair, clear and not misleading and which would enable the individual customer to understand the nature of the risks involved. Whilst the generic nature of the risk is a financial one, the true nature of the relevant risk cannot be understood without having regard to its potential magnitude.

Mr Coleman acknowledges that Mr Burgess did say that break costs could be "expensive", however the only illustrations given in the written presentation and during the telephone call on 29 May 2008 were for payments of £70,000£100,000. In the expert witness report of Mr Walsh dated 21 July 2015 he gives a summary of indicative break costs. Based on this, Mr Coleman submits that the Bank would have been aware when the swap was entered into, that break costs of about £225,000 could have resulted in the event of a 1% fall in the market's expectations regarding future interest rates and the potential liability in the event of 2%, 3%, 4% and 5% falls might be as much as £440,000, £650,000, £870,000 and £1,090,000 respectively.

Mr Coleman submits that the Bank failed to provide full or proper illustrations of the break costs that might be payable in the event of a fall in interest rates. He submits that the information was easily available to the Bank and was of obvious importance to anyone in the claimant's position. He submits that the Bank valued its own potential exposure under the swap at £440,000.

Mr Coleman in his submissions refers to the paragraphs in the report dated 24 September 2015 of Mr Croft, the expert retained by the Defendant, that "although in hindsight the fall in rates since 2008 has been very large indeed, the a priori statistical probability based on the recent history of sterling interest-rate movements of a shift in rates of more than 2% over a five-year period was small and in my view below a 3% probability." (p937)

The defendant submits that no question of breach arises because the alleged "information" duty was not owed. Further Mr Mitchell submits that Barclays provided ample information to enable Mr Harrison to appreciate the level of potential break costs.

Mr Mitchell points out that the claimant's loan agreement required the claimant to enter into a hedging contract with a minimum of five years. He submitted that it is therefore critical that the claimant could not have broken the swap prior to its scheduled maturity unless the loan was repaid within the first five years thereby removing the need to have in place a swap. The defendant submits

Mr Mitchell submits that Barclays could not have predicted with any certainty the breakage costs that Thornbridge might have incurred. The illustrations provided by Mr Burgess are not alleged to have been inaccurate. Barclays used its own proprietary models at the time rather than the Bloomberg models which have been used by the expert witnesses in preparing their reports in this case. If Mr Harrison had wanted details going beyond 1% he could and should have asked for more detail but given the probability of the rate dropping more than 2% was less than 1% Barclays cannot have been required to supply information to Thornbridge about so remote a possibility. An illustration based on a parallel shift (as the experts have done) does not reflect what would happen in practice. Mr Mitchell rejected the suggestion that the CEE limit reflected Barclays' own estimate of the break costs in the transaction.

Mr Mitchell also rejected the reference to the submissions made by the FCA in Green. He submitted that the position in those submissions is controversial, irrelevant and has never been judicially approved.

Dealing with the submissions, I have already stated that there was no duty at common law on the bank to provide full information but the bank was under a duty not to mislead when it provided examples of break costs. 156. At paragraph 77 of his witness statement, Mr Harrison stated:

However in my view this statement does not fit with the surrounding circumstances. There was no evidence before me that the claimant might wish to refinance the 15 year loan within the five-year term of the swap agreement and accordingly the issue of break costs was very unlikely to arise. I do not accept the claimant’s submission that it was open to the claimant to replace the swap with a cap during the five year period: in my view this could not have been done unilaterally given that a hedge was a condition of the loan and the swap obligations were secured on the property. I therefore accept the defendant’s submission that on the facts of this case break costs would have been of little concern to the claimant.

Nevertheless the bank had a duty not to mislead and to the extent that Mr Burgess provided information on break costs, he had a duty not to mislead. I accept that as things turned out, the break costs could have been (and were as quoted in 2009 to the claimant) substantial (and the break cost figures calculated by Mr Walsh, the claimant’s expert, are broadly accepted by Mr Croft); however I note that the particular figures relied on by counsel for the claimant and quoted above are for a termination of the swap agreement on the start date of the swap agreement. It is of course implausible that the swap would have been terminated on the start date of the agreement and thus amounts of that magnitude are inherently unlikely to have been incurred (p913). I accept however that the estimated break costs for a termination after one year remain substantial-a 1% fall shows indicative costs of c£190,000 and a 2% fall c£360,000. However it has to be borne in mind that the indicative costs produced by Mr Walsh are based on the yield curve as at the trade date whereas the actual break costs will reflect the yield curve at the date a swap was broken and therefore the illustration provided can be no more than that.

Further and more significantly in my view, Mr Croft, at paragraph 12 of his report, notes that the table of break costs prepared by the claimant's expert, Mr Walsh, only illustrates downward shifts in interest rates. Mr Croft states that this "is not realistic since, based on the conventional statistical approach used in the industry, the a priori probabilities of a move upwards would have been considered to be approximately equal to the probability of a move downwards. My experience of the mid-2008 period is that there was a view among some market participants that the liquidity that was being injected into the financial markets as a response to the financial crisis would lead to inflationary pressures which would lead to higher interest rates. Some indication of this can be seen from the five-year swap rate, which increased from around 5% to 6% during the second quarter of 2008, although it declined after the second quarter. Increases in the swap rate would have led to break profits rather than losses." [emphasis added]

Looking at Mr Croft’s experience he has substantial experience in capital markets: in particular he worked for Citibank/Citicorp from 1983 to 1998, for ING Bank from 2000 to 2004 and American Express Bank from 2005 to 2008. His roles in those institutions included Director, Financial Markets Risk Management at American Express Bank and his roles at ING Bank included Global Head Market Risk and Financial Markets Risk. It seems to me therefore that Mr Croft is well placed to express both a market view and a financial statistical view and I accept his evidence.

Mr Coleman cross examined Mr Croft on the state of the financial markets and global economy in May 2008. Mr Croft accepted in cross-examination that as at May 2008 the financial markets were in a state of turmoil. He was asked whether in the light of that turmoil there was some prospect that some event or change or policy or government action might take place in the foreseeable future which would have a material effect on interest rates. He replied:

Mr Coleman put to Mr Croft that this was implicitly acknowledging that there were other market participants who thought interest rates would fall. Mr Croft accepted that there were two schools of thought.

He was asked about the statement in his report that the probability of movements of a shift in rates of more than 2% over a five-year period was small and in his view below a 3% probability. Mr Coleman asked whether the approach based on a priori statistical probability would not factor in the unique circumstances prevailing in the financial markets that is the turmoil in May 2008. Mr Croft accepted that this was not a robust analysis however he pointed out that whilst accepting that it was a period of unique turmoil and therefore the volatility was not going to be the same in the future as it has been in the immediate past, it did not tell you anything about the direction of rates

He was taken to the history of rate movements going back to the 1970s and in particular to rises in 1977 from 5% to 10% by June 1978 and in 1988 from 8.875% to 14.875% by October 1989 and 3.55 in July 2003. Mr Croft responded that they were quite different eras and they were both periods of uncertainty. He said: "I would hate to try and tell you what the consensus view in the market was in 2008. Some people thought it was largely over at that stage.”

Mr Coleman also referred Mr Croft to the fact that the US base rate fell to about 1% in 2003 while Japan's base rate had not risen above 1% since 1995. Mr Croft observed however that he did not agree with Mr Coleman's comparison across countries and across eras. He agreed that you could not rule out the possibility of rates going down to half a percent in the foreseeable future but concluded: "even amongst the people who thought interest rates would go lower, I very much doubt that there were any that thought it could go to one and then half a percent."

He accepted that some would have thought that it might go below 3% but had no idea how many.

I accept the evidence of Mr Croft concerning the views held in the market at the relevant time including the view that there could be higher interest rates as a result of the liquidity injections and that the statistical probability of more than 2% movement over a five-year period was small. Notwithstanding the turmoil in the markets there was no evidence to support the contention that a reasonable person would have predicted falls of the scale that actually occurred and many thought that rates would rise. That the market view at the time was that rates would rise is in my view supported by the fact that, even within the limited period of the discussions on this transaction, swap rates rose slightly. In the call of 21 May Mr Burgess said "the rates have gone up a fair bit, because we don't expect base to come down, as it did a few weeks ago" although he acknowledged that "in the longer term, there is a possibility the rates will come down." At 21 May the fiveyear swap rate quoted was 5.39. By the time of the conversation on 29 May the rate quoted had gone up to 5.68. This (albeit slight) increase in rates indicates that the overall market perception at the time was that market rates would increase over the 5 year period.

Accordingly on the evidence in my view Barclays cannot be criticised for failing to give illustrations showing greater falls in interest rates. It is only with the benefit of hindsight that one can suggest that such low rates were reasonably to have been foreseen. Mr Croft rejected the comparison with earlier periods and across countries and I accept his view that such comparisons are inappropriate as they depend on the particular economic and political conditions prevailing at such times and in the relevant countries. Given this and the view that interest rates might rise, it cannot therefore be said to have been misleading for Mr Burgess not to give illustrations of the possible effects of more significant falls in interest rates.

In relation to the CEE limit it was common ground between the parties that Barclays had an internal limit but Mr Marsh was unable to say how it was calculated. In his original witness statement at paragraph 32 Mr Marsh sought to explain the CEE limit. He stated:

Mr Rainford in his evidence said that "CEE" stood for "credit equivalent exposure". He said that it was determined by putting it into a model which he described as "a black box that determines an output based on historical market rates, future market rates, the transaction, the type of transaction, the length of the transaction, future volatility."

He was asked whether he accepted that the CEE figure broadly corresponded to the break costs that the claimant would pay. Mr Rainford responded "possibly in extremis”, that it was not a calculation of the estimated break costs at the point that it was done. He said that it was a limit which the bank uses to manage its own book as opposed to the customer. He said:

In the absence of further evidence I cannot reach a conclusion on the relevance of the CEE limit to the scale of the potential break costs. Without further explanation it cannot be inferred that the scale of break costs as at May 2008 was equivalent to the CEE limit such that the figures provided by Mr Burgess can be said to have been misleading.

In conclusion for the reasons stated above, I find on the evidence that there is therefore no basis for concluding that it was misleading for Barclays to give the examples of break costs which it provided on the call. In my view this is an allegation with the benefit of hindsight as illustrated by the following exchange that took place between Mr Burgess and Mr Harrison in January 2009 (P410): JH: "well I mean well it's true .. I mean this thing was put in place, the swap was put in place to protect Barclays if you like against and my business against interest rate rises which meant that the company wouldn't be able to afford the mortgage based on the rental income because the rental income is fixed and Andrew said well we need to put this in place in case interest rates rise in which case we covered off when in actual fact it's costing me an absolute bloody fortune.”

This exchange, albeit at a time when rates had moved against the claimant but before litigation was contemplated, encapsulates the position. In my view in the circumstances of Barclays’ knowledge at the time there was no requirement on Barclays to give examples of the effect of greater falls in interest rates.

In his closing submissions Mr Coleman submitted that the allegations as regards refinancing and transferring the loan were implications of the break costs problem. In cross examination, Mr Rainford was asked about the advantages and disadvantages of swaps compared with a cap. Mr Rainford was asked whether he would agree that one of the advantages of a cap is that a swap may give rise to problems with refinancing, particularly if interest rates go down, because the security is charged with the swap and one would have to pay break costs in order to refinance with another lender. Mr Rainford agreed that swaps were less flexible because of what Mr Coleman had outlined. Mr Coleman further put it to Mr Rainford that this is all information that a customer in the position of Thornbridge would need to understand in order to make an informed choice as between a swap and a cap. Mr Rainford replied:

Since I have already concluded that the Hedley Byrne common law duty of care was limited to a duty not to misstate information and does not extend to a positive duty to provide information, there can be no justified complaint in relation to the absence of any discussion between Mr Burgess and Mr Harrison of the implications of break costs of the swap on refinancing or transferring the loan. Even if I were wrong on that, it seems to me that Mr Rainford was not being asked the question in the context in which Thornbridge was looking to fix its borrowing namely that it was a requirement of the loan that it had a hedging instrument in place for the first five years. On the basis that a hedge needed to be in place and there was no evidence to suggest that Mr Burgess was aware of any desire on the part of Thornbridge to refinance the loan during the initial five-year period, it seems to me that in the circumstances there would have been in any event, no requirement or obligation on Barclays to point out to Mr Harrison what would happen if he wanted to refinance and transfer the swap during the five-year term. There is no evidence that Mr Harrison had in mind to transfer the loan within the initial five-year period. It was a 15 year loan agreement supported by a long lease. It was not inconceivable that the claimant might choose to refinance the loan at some point in the future but this was not an issue which Mr Harrison raised and there was no duty on Barclays in the circumstances to identify this as a possible concern and address this point.

The claimant alleges that the Bank failed to explain in the written presentation fairly, clearly and properly the competing advantages and disadvantages of the hedging instruments in that it wrongly stated break costs were payable in relation to the cap; it used obscure words which suggested that a cap and collar would only be attractive if the customer was concerned about the difference between the interest rate under a cap and the interest rate under a swap and did not mention the ability to benefit from falling rates; it failed to mention that with a cap there were no issues as to refinancing and portability.

Mr Coleman submitted that Mr Rainford essentially admitted failing to explain in the written presentation fairly clearly and properly the competing advantages and disadvantages of the hedging instruments.

Mr Mitchell rejected the evidence of Mr Rainford as amounting to opinion evidence.

In my view the short point made by Mr Mitchell is a good one. Mr Rainford was not called as an expert witness. His views on whether the presentation therefore fairly set out the competing advantages and disadvantages of the hedging instruments amount to opinion evidence and of little weight. It is a question for the court to determine as a matter of construction and applying the relevant standard of care whether in the circumstances this presentation was misleading so as to amount to a breach of the Hedley Byrne duty of care. In any event it seems to me that Mr Coleman places undue reliance on the evidence of Mr Rainford. The relevant exchange was as follows:

It seems to me that the evidence of Mr Rainford is that he accepts that these other factors identified by counsel are not mentioned but Mr Rainford points out, rightly in my view, that the presentation has to be read in the context of the surrounding discussions which Mr Burgess had with Mr Harrison.

Mr Coleman continued in cross-examination, putting it to Mr Rainford that the statements were incomplete and therefore not fair. Mr Rainford responded: "no, because this is just one part of the sales process and, again, you know, I'd find it would be very surprising if John hadn't had the conversation with the customer about the different products.”

In my view the evidence of Mr Rainford was that this document viewed in isolation did not set out the advantages and disadvantages of an interest-rate cap. However it was being put to Mr Rainford that the document was incomplete and Mr Rainford was making an assumption that there was a duty on the bank to explain fully the advantages and disadvantages of the alternative products. In the light of my finding that in the circumstances of this case there is no such actionable duty either at common law or in contract or under statute, as alleged by the claimant, then the evidence is of little assistance. The scope of the duty in this case as I have found, is a Hedley Byrne duty in essence not to mislead or misstate; there was no duty to give full information about the competing advantages and disadvantages of the products. It was not an advisory relationship. Mr Harrison accepted in cross examination that the three products had been discussed on the telephone call on 9^th May and then the email was sent attaching the presentation. The presentation has to be read not as a freestanding information guide on derivative products but a written document to supplement the telephone conversation that had gone before.

On that basis the Bank had a limited duty of care at common law and in my view the only misleading statement was the statement at the bottom of the page headed "Interest Rate Cap" that stated "mark to market gains/losses will apply if the hedge is exited early."

I will consider below the issue of causation and whether this particular statement was causative of the claimant's alleged loss.

The claimant submits that Mr Burgess failed to provide adequate information so that the claimant understood the unsuitability of the swap and the swap was unsuitable because the payments under the swap and the loan were not constant; in other words the swap and the loan did not limit the claimant's contractual obligations to £51,000. The significance of the sum of £51,000 is that the bank wanted to ensure that the rent from the property (£55,416 per month) gave sufficient coverage to service the loan.

Mr Coleman submitted that the failure of the loan and the swap to interact such that a rise in the liability under the swap was not automatically offset is not consistent with the claimant's pleaded investment objective which was protecting cash flow and profit against adverse movements in rates. The objective could only be achieved through the restructuring which took place in 2009.

He further submitted that the claimant did not have a right to make a change in the monthly payments and that therefore the Bank could have required the claimant to make payments in the amount of £50,069.75 until the loan was repaid. 190. He relies on the evidence of the email of 22 January 2009:

Alternatively Mr Mitchell submitted that the loan instalments were not fixed: it was open to the bank to alter the instalments. He submitted that a contrary interpretation would mean that if interest rates had increased, the claimant was not required to pay the increased interest rate but only to pay the fixed instalments with the result that the loan would not be repaid within the 15 year term. Similarly he submitted that if the instalments were fixed and could not be changed then, if interest rates fell, principal would be paid off more quickly and the claimant, if it was obliged to make the 180 instalments expressly provided for in the Loan Agreement, would have overpaid Barclays.

As the claimant points out, condition 3.3 is only relevant where the Bank has agreed that interest on the loan is to be capitalised. I am not satisfied on the evidence before me that Barclays had agreed to capitalise the loan interest from the outset. I asked Mr Marsh how interest was calculated and he was unable to assist the court. I therefore proceed on the basis that interest was not being capitalised and the Bank was not able to adjust the payments under the loan under condition 3.3.

However I do not accept the contention that the instalments were fixed irrespective of movements in interest rates. Mr Coleman accepted that if interest rates fell with the result that the claimant paid off the principal of the loan more quickly, it was open to the claimant in those circumstances to reduce the number of instalments. He also accepted that the Bank was entitled to be repaid so it was open to the Bank to increase the instalments to ensure the amount was repaid at the prevailing rates. I see no basis on the face of the document for accepting an implied right on the part of the claimant to reduce the number of instalments to avoid overpayment of principal if rates had fallen and an obligation to increase the instalments if the rates increased, but no implied right or obligation to reduce the amount of the instalments if the rates fell.

I do accept that the fixed instalment amounts specified in the loan agreement did not take account of base rate movements and as a result the payments under the loan had the effect of paying off principal more quickly than anticipated.

In my view however, even if I am wrong on the implied terms of the loan, this does not mean that the swap was unsuitable. The issue of the aggregate payment exceeding £51,000 arose because the loan payments did not reduce when the base rate fell. When Mr Burgess was explaining the mechanics to Mr Harrison in his conversation on 29th May, he calculated the monthly payments under the loan and swap as £51,388 split as to £49,249 payable under the loan and £2,139 under the swap. He gave the example of base rates going down to 4.5% in which event he said the claimant would be paying £47,707 but under the swap the claimant would be paying £3,681. If the loan payments had reduced when the base rate reduced then this would have compensated the claimant for the increased payment under the swap.

That this is what should have happened to the loan is borne out by the evidence of the telephone conversation between Mr Harrison and Mr Burgess on 20 of January 2009 when Mr Burgess called Mr Harrison to discuss the payments that had been going through the accounts. (p407)

Mr Burgess initially says that it was the result of the interest rates changing so quickly and that there is a lag between the interest rate swap and the loan payments being adjusted. Later in the conversation he states :"I think it's just it's just fallen out of line because … the interest rate moves had not been adjusted on the loan."

I think the swap did what it was supposed to do: it limited the claimant’s liability to rising interest rates so the amount of interest it would have to pay under the loan was protected through the swap. If interest rates had gone up, the

In his email of 22nd January Mr Burgess stated (p416): "it isn't a mis-sell because in placing the swap we have managed his interest costs for five years and now we need to agree with him how he wants to manage his cash flows after the unforeseen aggressive interest rate movements because it would be impossible to manage these flows until knowing retrospectively when base had moved. The problem with swaps is always going to be that the cash flows can only be calculated based on the fixed rate or base rate when the deal is placed. "… I believe that he already understands the position that in straightforward terms, as base falls lower, he is paying capital off the loan at a faster pace without the offset to the reset payments under the swap deal. This is not at a cost, but is a cash flow issue and the discussion needs to take place on how he wants this to happen going forward should the level of base change again.… I understand the issues that he currently faces because in January he will see a loan charge of £39,326 and a swap reset of approximately £19,000 and so a monthly gross cost of approx. £58,000. The question to Jim is whether he wants to eat into the capital now with a loan repayments set at £39,326 or should the loan repayment be reduced to offset the swap payment currently being charged in preparation for 2013 when the swap falls away when you can increase the loan repayments to ensure that the loan is repaid to nil at maturity? So in other words, Jim is looking at paying an extra £6000 for the next 4 1/2 years at a fixed rate and then if rates stay constant until maturity of the loan he will see a loan cost of £39,326 – does he want this to match income flows?

I think that this email from Mr Burgess correctly sets out what had happened. Mr Burgess did not incorrectly state the position to Mr Harrison in his telephone conversation in May 2008. The liability of the claimant under the swap and the loan was limited as he explained. However as the loan instalments were not adjusted this had the effect that the claimant was paying off more principal than had been intended.

The restructuring in 2009 was to allow the claimant to redraw the principal of the loan which had been paid as a result of the instalments being maintained at the same level and then to adjust the payments to fit the claimant’s payment schedule going forward. The restructuring was not the result of any unsuitability in relation to the swap and does not demonstrate that the swap was unsuitable when entered into.

Turning then to the issue of causation, there is the issue of causation in relation to the failure in the presentation to make it clear that break costs did not apply to the cap as well as the broader issue of causation which falls to be considered only if I am wrong on my conclusions on either the extent of the common law duty of care or the existence of a contractual or statutory right of action. There is an overlap in relation to the arguments advanced but I will deal with it separately as there is an additional argument which is relevant only to the presentation.

Mr Coleman submits that the claimant would have entered into a cap rather than a swap if properly advised and informed. Mr Coleman relies on the evidence of Mr Harrison at paragraph 55 – 59 of his witness statement and in particular at paragraph 57 and 58:

Mr Coleman submits that the Bank did not challenge Mr Harrison's evidence that the claimant wanted the most straightforward product. He submitted that if the Bank had performed its obligations in relation to the written presentation and presented the advantages and disadvantages of the hedging products fairly clearly and accurately, the claimant would have been clear of the following advantages of a cap over a swap: the claimant would benefit from any falls in interest rates: there would be no liability to pay break costs under a cap; break costs under a swap could restrict the claimant's ability to refinance the loan, a problem that would not arise with a cap. As a result the claimant submits that if the presentation had fairly, clearly and accurately described the advantages and disadvantages of the products, Mr Harrison would have formed the view that the cap was the most straightforward product and would have chosen it.

Further Mr Coleman submits there was a strong financial case for a cap over a swap namely that if interest rates had remained the same or fallen over the life of the hedging product, a cap would have been cheaper. When base rate was at 5% at the commencement of the swap, the claimant was paying £3000 per month which would have been £180,000 over the life of the swap as compared with an upfront premium of £110,137 for the cap. That gap would widen as interest rates fell. Interest rates had to rise for the gap to narrow and a cap would have protected the claimant against rises above 6%.

Mr Mitchell submits that the claimant would not have bought a cap on the basis that the claimant had to enter into a hedging contract, the money markets expected, and were pricing in, a rise in base rate over five years, the claimant had no particular view on how the base rate was likely to move, its concern was only to obtain protection against rises in the rate in order to ensure that it could continue to meet its loan repayments from its anticipated rental income. A swap enabled the claimant to fix its interest rate and gain protection from rate rises and no premium was required. A cap would also have provided protection from rate rises but on the claimant's case, only when the base rate was at 6%. A premium would be payable upfront of £110,137. Mr Mitchell therefore submits that it would only make sense for the claimant to buy a cap if, contrary to the prevailing view in the market, it was of the opinion that the base rate was likely to fall so far and for such a period of time that the claimant would recoup the premium by being able to pay loan interest at the prevailing base rate.

Mr Mitchell further submitted that Mr Harrison had only read the page of the presentation concerned with interest-rate swaps and as a result was not misled by any “obscure” wording for example on the page dealing with caps.

Following the conclusion of the oral submissions the parties have made (unrequested) written submissions to the court on causation including points on the pleadings. I do not see any merit in the points raised by the claimant on the pleadings. The claimant was given permission on the first day of the trial to amend its pleading to include paragraph 2.8(2) in essence an allegation that the defendant failed in the written presentation to describe the competing advantages and disadvantages of the hedging products fairly clearly and accurately and Mr Harrison was cross examined on the presentation in the light of that amended pleading.

Dealing first with the question of whether Mr Harrison read the presentation. Paragraph 37 of Mr Harrison's witness statement states:

Paragraph 46: "From Burgess’s initial email of 9th May 2008 onwards, I considered that he was advising me to take the swap. On the back of this, I didn't even give any thought to the other products that may have been available, not that I was really aware of any, and Burgess certainly didn't bring these to my attention or discuss them in any detail…" [emphasis added]

Mr Coleman submits that the fact that Mr Harrison was not interested in the rest of the document does not mean that he did not read it.

Mr Mitchell relied on the words "having read this" in paragraph 37 of the witness statement as implying that Mr Harrison had only read page 2 of the presentation relating to swaps. Whilst I acknowledge that this is a possible interpretation it is far from clear and in my view the most likely interpretation is that he is referring to the presentation as a whole.

Looking carefully at the transcript of Mr Harrison's cross-examination it does not seem to me that Mr Harrison clearly said that he only read the page of the presentation concerned with interest-rate swaps, however it is clear that his evidence was that he paid no attention to the other products and therefore cannot be said to have been misled by any failings which might exist.

The relevant exchanges are as follows:

I do not think this can properly be taken as confirmation that Mr Harrison did not read the rest of the presentation but it is clear that he paid no attention to the other products. There is no evidence that he was misled into thinking that there were breakage costs in relation to the cap and that he would have entered into the cap had he not been misled into thinking that there were breakage costs. In my view there is no causative link on the evidence between any misrepresentation or omission in the presentation in relation to the information on the cap, including the statement suggesting break costs were payable in relation to the cap, and the decision to enter into the swap.

In relation to the other points raised, I have already referred to paragraph 77 of his witness statement in which Mr Harrison stated:

In relation to the submission that with a cap, the claimant could have benefited from falling interest rates, I have referred to the relevant extracts of the cross examination of Mr Croft above: Mr Croft did accept that there were two schools of thought but his primary view was: “there were many different views, although I have to say I think there was a strong view amongst many participants in the market that interest rates would go up."

Both a cap and a swap would have provided the claimant with protection from an increase in interest rates. If interest rates fell, under a swap the claimant would have fixed his liability so would have had to make a net payment to the Bank whereas with a cap no payment would have been due under the cap. However the evidence was that Mr Harrison had no personal view on the direction of rates and as I have found above, on the evidence the predominant market view was that rates would rise. A swap does not require a view on rates whereas with a cap this would only be taken out if you thought rates would rise, had a view on where to place the limit on how high rates would rise and were prepared to pay the premium. If you did not know what would happen to rates a swap gave you protection against the risk of a rise in interest rates without having to pay a premium. As stated above, the downside risk in the sense of the potential liability for break costs was in the circumstances of this case unlikely to have been a concern. Accordingly in the circumstances of this case it cannot be said in my view that a cap was the most straightforward product such that if it had been explained in greater detail the claimant would have entered into a cap.

The alternative submission made by Mr Mitchell that it would have been irrational for the claimant to have purchased a cap is of wider application to the issue of causation. Given my findings in relation to the scope of the duty at common law and the absence of a duty in this case in contract or under statute, it is not necessary for me to decide the point. However if I am wrong on the scope of the duty at common law or the absence of a duty in contract or under statute, and assuming a breach of any such duty, the issue of causation would be relevant.

Mr Coleman submits that the "new case on causation" was not clearly put to Mr Harrison in cross-examination. Mr Coleman’s assertion is that had interest rates “remained the same or fallen over the life of the hedging product” a cap would have been cheaper.

Given the economic situation in May 2008 which is common ground, it is unlikely in my view that rates would have remained the same over the 5 year period of the swap. With hindsight it is clear that rates fell and to such a level that the claimant would have recouped its premium but as I have set out above on the evidence of Mr Croft and the statements of Mr Burgess on the call of 21 May, this was not the view in the market at the time, of the direction of rates over the term of the swap.

The key point on causation is, in my view, to be found in the cross examination of Mr Harrison: