Cameron Developments (UK) Ltd v National Westminster Bank Plc & Anor

This is the judgment following the hearing on the defendants’ application dated 1 June 2017 for strikeout or summary judgment. The defendants seek strikeout/summary judgment of the claims asserted in respect of the review carried out by the defendants into a swap sold by the first defendant to the claimant on the basis that any such claims were compromised by a settlement agreement.

In the alternative the defendants seek strikeout or summary judgment in respect of the contractual claim brought in respect of breach of the alleged contract between the parties to assess the claimant’s consequential loss claim in respect of the swap.

In support of the application I have witness statements dated 1 June 2017 and 4 July 2017 of Paul Smith and Barney Connell, respectively, both of the firm DLA Piper UK LLP, solicitors for the defendants in the action and in reply a witness statement of Craig McAdam dated 22 June 2017, of Slater and Gordon Lawyers LLP, solicitors for the Claimant.

The claimant is a property development and letting business which has brought a mis-selling claim against the Bank relating to an interest rate swap entered into by the claimant and the Bank on 10 March 2010. In this judgment references to the “Bank” are to the relevant defendant. References in [ ] are to relevant page of the bundle used at the hearing.

It is common ground that in June 2012 the Financial Services Authority (the “FSA”) (now the Financial Conduct Authority) was concerned about the manner in which a number of banks had sold interest rate hedging products to small businesses and sought to take action to ensure that such businesses were granted speedy and appropriate redress. Publishing its pilot findings in March 2013, the FSA said that the review in 2012 found “serious failings” in the sale of interest rate hedging products to small businesses and as a result the FSA reached agreement with the banks over the action the banks would take according to the type of product which had been sold: in the case of the claimant the agreement was to review the sale of the swap as a non-sophisticated customer to determine whether redress was due. Each bank entered into an agreement with the FSA although it is the claimant’s case that this did not preclude the existence of an agreement directly between the Bank and the claimant in relation to the carrying out of the review.

The rationale for the review was explained in the press release issued by the FSA on 29 June 2012 [7/51], the material part of which read:

“the FSA has today announced that it has found serious failings in the sale of interest rate hedging products to some small and medium-sized businesses. We believe that this has resulted in a severe impact on a large number of these businesses. In order to provide as swift a solution to this problem as possible we have today confirmed that we have reached agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate redress where mis-selling has occurred.

…

Not all businesses will be owed redress but for those that are, the exact redress will vary from customer to customer, but could include a mixture of cancelling or replacing existing products, together with partial or full refunds of the costs of those products. This exercise will be scrutinised by an independent reviewer at each bank appointed under the FSA’s powers.

Martin Wheatley, managing director of the Conduct Business Unit, said:

“For many businesses this has been a difficult and distressing experience with many people’s livelihoods affected. Our work has focused on ensuring a swift outcome for these businesses…

I am pleased that [the banks] have agreed to do the right thing by the customers and offer redress or review of past sales.…

I am particularly pleased that the CEOs… have provided a personal assurance that they will have responsibility for oversight of this work and will ensure that complainants are treated fairly…””

The agreement entered into between the Bank and the FSA was originally confidential but has now been made public. It provided for the Bank to give an undertaking to the FSA to carry out a review in accordance with the terms set out. The relevant provisions, so far as the claimant is concerned, were that the Bank undertook to carry out a past business review of sales taking account of the evidence and individual circumstances of the customer and if a breach of the regulatory requirements had occurred, determining and if relevant, providing appropriate redress on the basis of what was fair and reasonable in the circumstances.

The agreement with the FSA contained a provision that a person who was not a party to the agreement had no rights under the Contracts (Rights of Third Parties) Act 1999 or otherwise to enforce any term of the agreement.

As to the process for the review which applied in the case of the claimant, it is common ground that the review was split into two phases. The first phase was a determination as to whether an offer would be made to provide “basic redress,” that is the difference between the actual payments made on the swap and those that the customer would have made if the breaches of relevant regulatory requirements had not occurred [14/183]. The basic redress amount would attract interest at 8% per annum to reflect opportunity costs. The second phase was to determine whether an offer would be made to provide redress to compensate the customer for any additional loss including consequential losses.

In the case of the claimant a letter was sent to the claimant on 30 July 2014 [12/105] by the Bank which set out the outcome of the review, identified that the sale may not have complied fully with the standards agreed with the FCA and that based on the information held by the Bank, the Bank believed it was reasonable to conclude that redress was owed to the claimant. The offer was to cancel the existing swap and replace it with a vanilla cap and in addition to refund the difference between the net payments made on the existing swap and those that the claimant would have made had it purchased the cap. The provisional redress payment also included interest at 8% per annum which as explained in appendix 3 to that letter, incorporated compensation for loss of profit or loss of opportunity. The letter stated that the offer did not include redress for any additional losses which the claimant may have incurred as a result of the swap which it was sold and that where the claimant wished to provide further information in relation to additional losses these should be submitted within 28 days of the date of the letter and the final redress payment would take into account the Bank’s assessment of any claim for additional losses.

The letter of 30 July 2014 did not require any action to accept the offer but a letter was sent on 29 September 2014 which made an (updated) offer to the claimant and this offer was capable of acceptance by returning an acceptance form.

The letter of 29 September stated in material part:

“Subject to your agreement, our Offer is to cancel the existing IRHP and replace it with a vanilla cap. In addition, we will refund the difference between net payments made on the existing IRHP and those that you would have made had you purchased the proposed alternative IRHP.…

If you wish to accept this Offer, please sign and return the attached Offer acceptance form…

Additional losses not included in the Offer

The Offer shown above includes interest but no redress in relation to any additional losses you may have incurred as a result of the IRHP you were sold. Where you have already provided information in relation to any additional losses you may have incurred as a result of the IRHP you were sold, we will consider it…where you would like to provide further information in relation to additional losses, you may have incurred as a result of the IRHP you were sold, we set out at appendix 3 generic guidance for all customers… for you to read, after which you will need to let us know if you wish to make a claim.…

Please submit details in writing and within 28 days of the date of this letter. Any information that you provide will also be assessed by the independent reviewer. The final redress payment will take into account our assessment of any claims for additional losses you may have.…

If you decide to accept the Offer, subject to the New Bank entering into an agreement to both cancel the future cash flows on the existing IRHP and replace them with those of the proposed alternative product, and to the qualifications contained in the tax and additional loss sections above permitting you to claim for (1) additional losses incurred as a result of a difference in your tax position… and (2) consequential losses you have incurred as a result of the IRHP you were sold, this will represent full and final settlement of any claims, actions, liabilities, costs or demands that you may have against the us (sic) and the New Bank arising under or in any way connected with the sale of this IRHP as identified above. For the avoidance of doubt this applies to any past, present or future claims, actions, liabilities, costs or demands, regardless of whether or not you are aware of them at the date of this letter. However, there are some causes of action (e.g. a claim for fraud), which as a matter of law you will always have available to you.” [Emphasis added]

The claimant signed the acceptance form dated 10 October 2014 stating that it accepted the offer set out in the offer letter of 29 September 2014 and did want to make a claim for additional losses. [12/130 – 131]. The acceptance form reproduced the settlement wording set out in the main letter and it was not argued before me that the settlement wording was not binding on the claimant; rather the application before me goes to the scope and effect of such agreement.

The claimant submitted a claim for consequential losses in November 2014 but by letter of 16 April 2015 the Bank rejected the claimant’s consequential loss claim of £3,946,000. This was challenged by the claimant but the Bank maintained its position that the consequential loss claim was not recoverable. The calculation of basic redress was updated and the actual payment made to the claimant was £73,599.77.

The claims in these proceedings include claims for negligence, misrepresentation and negligent misstatement in respect of the original sale of the swap to the claimant. The Bank accepts that the claimant is entitled to bring these claims in order to claim consequential losses allegedly incurred as a result of entering into the swap. However in light of the settlement agreement entered into in October 2014 (on the terms set out above) it is common ground between the parties that the claimant is not entitled to recover any direct losses resulting from the sale of the swap.

In addition to the claims relating to the original sale, the claimant also seeks to advance claims relating to the way in which the Bank dealt with the review of the claim in respect of the sale of the swap. In essence the claims are firstly, that the Bank owed the claimant a common law duty of care in agreeing to consider the claim within the review process and breached that duty of care (the “common law claim”) and, secondly that the Bank entered into a contractual agreement with the claimant to assess its claim for consequential loss and breached the terms of that contract (the “contractual claim”).

It has been agreed that since a judgment of the Court of Appeal is currently awaited in the case of CGL Group Limited v Royal Bank of Scotland plc [2016] EWHC 281 (QB) which is expected to resolve whether or not it is arguable that a bank owed its customer a duty of care at common law, this court should proceed for the purposes of determining this application on the basis that the Bank owed a common law duty of care in relation to the review.

There are therefore two issues before the court:

As this is an application for strikeout/summary judgment I accept that the burden rests with the Bank to establish that CPR 3.4 and/or 24.2 is made out and further note that the applicable test is whether there is “some” chance of success, more than one which is false, fanciful or imaginary.

I also note that where a summary judgment application gives rise to a point of law or construction the court should decide that point if it has before it all the evidence necessary for a proper determination and it is satisfied that the parties have had an adequate opportunity to address the point in argument (see authorities referred to in the notes to the White Book [2017] at 24.2). It was submitted for the claimant that the court could not be confident that it has received all relevant evidence on the issues to be determined and counsel for the claimant referred to Bank recordings of meetings which would inform “the surrounding circumstances known to both parties” as envisaged by Lord Neuberger in Marks & Spencer plc. Further it was submitted that no evidence has been served as to the role performed in this case by the independent reviewer, KPMG. The witness statement of Craig McAdam makes reference to correspondence as forming part of the relevant background knowledge surrounding the acceptance form. In particular he refers to a meeting held on 16 September 2014. Although the contents of the meeting were recorded by both parties, Mr McAdam notes that they have not received the electronic recording. Given that the meeting on 16 September 2014 was recorded by both parties and no pleaded case has been advanced, nor particular submissions made in this application, in reliance upon that meeting I cannot see that this correspondence has particular relevance to the issues which I have to decide, relating it would appear to the discussions which were held with the Bank in support of the claimant’s claim for consequential loss and the submissions referred to the decision in Marks & Spencer plc which is relied on in relation to the implication of terms and which, for the reasons set out below, I do not need to consider. Further I do not see that the absence of the electronic recording of the meeting (if held by the Bank as asserted) precludes me from proceeding to determine the issues before me given that the parties had their own records.

Accordingly, in my view, this is a case where the court has all the necessary evidence to determine the matters at issue and it was not argued that the parties did not have an adequate opportunity to address the points in argument. This is not a case therefore where the decision-maker at trial will have a better grasp of these issues because of the added benefits of hearing the evidence tested or receiving more developed submissions. I have reserved judgment and thus have had the time in which to digest and reflect on the materials such that this is not an obstacle to a decision at this stage which disposes of these issues.

The first issue for the court on the application is one of construction. The legal principles are not in dispute and it is common ground that the normal principles of construction apply equally to a settlement agreement: BCCI SA v Ali [2002] 1 AC 251. Lord Bingham of Cornhill at paragraph 8:

“… In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the term of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties intentions the court does not of course enquire into the parties subjective states of mind but makes an objective judgment based on the materials already identified…”

The relevant wording, so far as material to the submissions with regard to the scope of the settlement agreement, reads:

“subject … to the qualifications contained in the … additional loss sections above permitting you to claim for (1) additional losses incurred as a result of a difference in your tax position… and (2) consequential losses you have incurred as a result of the IRHP this will represent full and final settlement of any claims, actions, liabilities, costs or demands that you may have against the us (sic) and the New Bank arising under or in any way connected with the sale of this IRHP as identified above. For the avoidance of doubt this applies to any past, present or future claims, actions, liabilities, costs or demands, regardless of whether or not you are aware of them at the date of this letter.” [Emphasis added]

It is common ground for the purposes of this application that (contrary to the position adopted by the parties in Elite Property Holdings Limited v Barclays Bank plc [2016] EWHC 3294) as a matter of construction, the contractual claim and the common law claim do not fall within the carveout for “consequential losses” and therefore for the settlement agreement to preclude the common law claim and the contractual claim in respect of the review of the claim for consequential loss, it has to fall within the general wording as constituting

The arguments which were advanced are in summary the following:

Counsel for the claimant further submitted that express words would be needed to exclude the claims in respect of the review from the settlement. He relied on the House of Lords decision in BCCI referred to above and in particular, whilst accepting that a party may agree to release claims or rights of which he is unaware and which could not on the facts known to the parties have been imagined, this would only be the case if appropriate language is used to make that plain and there is no explicit mention of the claims in respect of the review being released.

In BCCI the facts were that the respondent, Mr Naeem had accepted a settlement on redundancy

“in full and final settlement of all or any claims whether under statute, common law or in equity of whatsoever nature that exist or may exist and, in particular, all or any claims rights or applications of whatsoever nature that the applicant has or may have or has made or could make in or to the industrial tribunal, except the applicant’s rights under [the bank’s] pension scheme.”

Mr Naeem then sought to bring a claim for damages suffered by him by his association with BCCI, the stigma of the association having handicapped him in obtaining other employment. The settlement was entered into in July 1990 but the damage only became apparent some time after that.

Both counsel accept that the facts of BCCI are very different to the present case. For the defendants, counsel submitted that the wording in that particular case had no express limitation so the court felt it necessary to impose a limitation. By contrast he submitted that here the settlement is expressly limited to matters connected with the sale of the swap so it is not necessary for the court to seek to narrow its scope.

Counsel for the claimant submitted that at the time of entering into the settlement agreement the claimant did not have a cause of action and was unaware that it was giving up a claim in relation to the review for consequential loss. Accordingly he submitted that it is not reasonably arguable that the parties contemplated the release of causes of action relating to the treatment of a future consequential loss claim when the consequential loss claim had not by that stage even been made and the facts underpinning those causes of actions had not occurred. Counsel submitted that it would require clear language to make it clear that claims in respect of the review were to be within the scope of the settlement and that as there is no explicit reference, any reference would have to be implied and he submitted it was not necessary for such a term to be implied.

Finally it was submitted for the claimant that it is irrational to interpret the settlement such that a duty of care would be owed in relation to the review and the basic offer of redress but by accepting such offer of basic redress, the claimant was no longer owed a duty of care in relation to the review of consequential loss.

Counsel for the defendant submitted that it is not irrational, he submitted that the parties were unaware that any duty of care at common law existed and it remained open to the claimant to bring a claim at common law for consequential loss suffered as a result of the mis-selling of the swap in the courts (as indeed it now does in these proceedings).

Counsel for the claimant submits that the right to bring a claim for damages for consequential loss resulting from the mis-selling of the swap is not an answer to the interpretation of the settlement agreement, given that there may be defences open to the Bank in such an action which would not apply in an action based on the review itself.

The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The words used “in any way connected with” the sale of the swap given their natural and ordinary meaning are very broad. There is nothing in the language or in the letter as a whole to suggest that the parties intended to limit this to claims or liabilities which were legally or causally connected to the sale of the swap. The words “in any way” serve to reinforce a broad interpretation to the words “ connected with”. In my view a claim that the Bank has not discharged its obligations in relation to carrying out the review of the consequential loss incurred by the claimant as a result of being sold a swap, is a claim which is, in the ordinary sense of the words, “connected with” the sale of the swap. No review would be necessary unless the claimant fell within those category of customers who had been sold a swap. The review arises only as a result of having entered into a swap and the purpose of the review is to determine whether any compensation is due in respect of the (alleged) losses suffered as a result of the sale. The claim that the review was carried out in a way which breached the claimant’s rights is a challenge to the assessment of the loss suffered as a result of the sale and is therefore “connected with” the sale of the swap on a literal reading.

The literal reading is not determinative and it is necessary to place the clause in the context of the contract as a whole and to consider whether the wider relevant factual matrix gives guidance as to its meaning in order to consider the implications of the rival interpretations.

The context of the review is apparent from the press release quoted above: the review was to provide a swift outcome for small and medium sized businesses. If a breach of the regulatory requirements was found to have occurred, the agreement with the FSA required the Bank to provide appropriate redress on the basis of what was fair and reasonable in the circumstances. A claim in respect of the review is not a claim which falls outside the nature of the settlement in the way that a claim for personal injury or libel was regarded as outside the scope of the clause in BCCI. The review was a process and mechanism for dealing with the alleged damage which the claimant had suffered as a result of the sale of the swap. It was not something unconnected in the sense that a claim for personal injury or libel would be unconnected with a claim for stigma damages or a claim arising out of employment.

It is true that the parties had not addressed their minds to the issue of the common law claim or the contractual claim at the time of entering into the settlement and to that extent it could be said that the claimant was surrendering rights and claims of which it was unaware and could not have been aware. (The possibility of a claim in negligence in relation to the review mechanism has not yet been determined by the Court of Appeal and although it is to be assumed to exist for present purposes, it is reasonable to infer that it was not in the contemplation of the parties.) However if the language is sufficiently clear it seems to me (as is evident from the decision in BCCI and referred to above) that the court can infer that the claimant intended to give up rights and claims of which he was unaware. Here the language expressly states:

“For the avoidance of doubt this applies to any past, present or future claims, actions, liabilities, costs or demands, regardless of whether or not you are aware of them at the date of this letter.” [emphasis added]

The language of the settlement refers not only to future claims but also to future liabilities and I accept the submission that this means a liability which is not presently in existence but arises in the future, that is after the settlement has been entered into, so would extend to matters which occur in the future and give rise to a liability in the future (subject to the limitation that the future liability which then arises is connected to the sale of the swap). Given the express reference to future liabilities, I reject the submission that the provision should be construed as confined to causes of action which existed at the point of release.

Looking at the commercial context and the practical consequences of the rival interpretations it seems to me that the purpose (as evident from the description on the FSA website) of providing through the review mechanism an alternative, speedy and cheaper alternative to litigation is consistent with an interpretation that the settlement agreement was to bar out a future challenge to the review process.

In my view for the reasons set out above the common law claim and the contractual claim are precluded by the language of the settlement agreement and the claims should be struck out.

In the light of my conclusion on the construction of the settlement agreement, it is not necessary to decide whether the alternative application would succeed. However for completeness and should the matter be taken further I will address the position.

Counsel for the claimant submitted that it is arguable that there was a contract in existence between the Bank and the claimant to determine the consequential loss. He submitted that although the evidence was unclear, the determination of consequential loss (stage II of the process) did not happen unless the claimant accepted the offer of direct loss. He therefore said it was an “if contract” in that, if the claimant accepted the offer for basic loss, the Bank agreed to go on and to consider the claim for consequential loss. Counsel for the claimant submitted that the court can then imply into such a contract, terms such as using reasonable skill and care in the carrying out of the determination.

Counsel for the defendants submitted that the consideration of consequential losses was irrespective of the acceptance of the direct losses. He referred to the initial letter of 30 July 2014 (which was not an offer of basic redress capable of acceptance) in which the Bank stated in relation to additional losses not included in the offer, where a customer had already provided information the Bank “will consider it” and where the customer wished to provide further information, “you will need to let us know if you wish to make a claim.” The letter continues:

“please submit details in writing and within 28 days of the date of this letter. Any information that you provide will also be assessed by the independent reviewer. The final redress payment will take into account our assessment of any claims for additional losses you may have.”

Counsel for the claimant further submitted that the agreement was supported by real consideration because the claimant had given up something of value that is the right to bring future claims for negligence. He referred to the authorities of Marshall v Barclays Bank plc [2015] EWHC 2000 (QB) and Marsden v Barclays Bank plc [2016] EWHC 1601 (QB) but submitted that the facts and circumstances of both cases were very different. At paragraph 54 of Marshall HHJ Stephen Davies took the view that the case based on contractual obligation “could not run” on the basis that there was no consideration which could give rise to contractual relations.

“The reality is that Mr Marsh was simply the beneficiary of the review. He did not give anything away nor did he suffer any detriment nor agree to do anything different as a result of being afforded that review.”

Counsel for the claimant submitted that no argument was advanced in that case that it was an “if contract”.

Counsel for the claimant submitted that the authorities on the issue of whether or not a contract was in existence between the Bank and its customer in relation to the review is affected by the view of judges that this was an area where the banks were not accountable to their customers and did not intend to contract. He submitted that it made no sense to conclude that the customer could not complain about the way in which the review was conducted.

It seems to me that on the evidence before me the Bank’s undertaking to carry out the determination of consequential loss is not an obligation which flows from any contract entered into with the customer. As referred to above the agreement entered into between the Bank and the FSA [6/35] provided for the Bank to give an undertaking to the FSA to carry out the review and if a breach had occurred, determine and provide appropriate redress. Whilst I accept the submission that a separate contract could nonetheless have been entered into between the customer and the Bank, neither the wording of the letter nor the factual matrix support that conclusion. The letter of 30 July 2014 [12/107] deals with consequential losses under the heading “Additional losses not included in the Offer”. That section of the letter invites customers to make a claim for consequential losses should they wish to do so and to submit details within 28 days of the date of the letter. It is clear that the review of claims for additional losses is not conditional or dependent on acceptance of the basic offer and the letter clearly states that the customer will be sent an agreement in order to accept the Offer but need take no action in response to that letter to accept the Offer.

The offer is made by letter of 29 September 2014. It is clear that the “Offer” comprises the refund of the difference between the net amounts payable on the original swap and the net amounts that would have been paid on the alternative cap together with a refund of fees and interest at 8%. It is clearly stated in the letter that additional losses are not included in the Offer. The letter states that in order to accept the Offer the claimant is to sign and return the acceptance form and that acceptance of the offer represents full and final settlement of any claims or actions (as set out fully above). There is no link between acceptance of the offer and the review of a claim for consequential loss.

The inclusion of the third-party rights clause referred to above in the agreement between the Bank and the FSA made it clear that no rights were intended to be conferred on individual customers through that agreement. The material on the FSA website setting out an explanation of the redress process has several features which tend to negate any suggestion of a contractual relationship: in particular the FSA did not require the banks to tell customers how they had calculated the redress offers as the calculations were reviewed by the independent reviewers; Customers are told to “consider carefully” before using lawyers as the review process is overseen by independent reviewers and such costs are unlikely to be recoverable. [14/184]. The FSA website further stated in relation to claims for consequential loss [14/186] that all customers who “receive” a basic redress offer have the opportunity to make a claim for consequential loss. There is no requirement that they should accept such offer of basic redress in order to make a claim for consequential loss.

Accordingly as in my view it is not arguable that a contract has come into existence, I do not have to consider whether the terms which the claimant seeks to imply into such a contract meet the test as set out by the Supreme Court in Marks & Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72.

Had it therefore been necessary for me to decide the application to strike out the contractual claim, for the reasons set out above I would have granted the application on the basis that the claimant has no real prospect of establishing that a contract was formed between it and the Bank in respect of the review.