Bailey & Anor v Barclays Bank Plc

At the summary judgment and strike-out stage, a claim must have a realistic, more than fanciful prospect of success. The court may determine a pure point of law where the necessary material is available.

COBS rules concerning suitability, appropriateness and best execution must be applied according to their distinct purposes. Best execution concerns the mechanics of implementing an investment decision, not the merits of entering the transaction. A company carrying on business generally falls outside the statutory definition of a private person under the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001.

A bank-customer relationship is not ordinarily fiduciary. A fiduciary relationship requires a legitimate expectation that one party will act in the other’s interests. A true novation creates a new contract and does not carry forward an equity of rescission from the original contract.

The claimants alleged that Barclays had mis-sold a ten-year interest-rate swap to Mr Bailey in 2007. In 2011, the swap was transferred to MTR Bailey Trading Limited in connection with a proposed restructuring of Mr Bailey’s borrowings.

The Bank applied to strike out or obtain summary judgment on the Company’s claims, including claims for breach of fiduciary duty, a declaration of unenforceability under Financial Services and Markets Act 2000, and rescission. The Company applied to amend its particulars of claim to add claims based on COBS breaches, economic duress, misrepresentation, unjust enrichment and the alleged survival of Mr Bailey’s equity of rescission.

The central issues were whether the proposed amendments had a realistic prospect of success, whether the 2011 transaction was a true novation, and whether the Company could obtain statutory or equitable relief.

1. The Company’s application to amend was dismissed. Its proposed COBS claims had no realistic prospect of success. COBS 2.1.1R did not assist because the alleged unfairness arose from the Company’s voluntary assumption of an existing liability, while the Bank had acted on a non-advisory basis. COBS 9.2.1R required a personal recommendation, which was neither pleaded nor realistically supported by the evidence.

2. COBS 10.2.1R concerns appropriateness, meaning the client’s knowledge and experience sufficient to understand the risks, rather than suitability or whether the transaction was advantageous. The Company’s own case accepted that Mr Bailey understood the relevant risks. COBS 11.2.1R concerns best execution. It regulates how an order is executed, not whether the underlying investment decision was wise.

3. The Company was not a private person under regulation 3(1)(b) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001, because the alleged loss was suffered in the course of carrying on business. The proposed alternative reliance on regulation 6(2) and (3)(a) also disclosed no arguable breach of the relevant COBS rules. The Retail Client Agreement did not incorporate the COBS rules as contractual terms, and the rules could not indirectly establish a breach of the contractual duty to exercise reasonable skill and care.

4. The claims based on economic duress, undue influence, unconscionable conduct and misrepresentation were unarguable. The Bank was entitled to insist that Mr Bailey perform the swap or procure an equivalent assumption of liability by the Company. The Company had not been threatened and had no pre-existing liability under the swap.

5. The Bank’s construction of the ISDA provision concerning a transfer to another entity was correct. A transfer from the principal obligor to a credit-support provider could engage the provision. In any event, the contractual documents showed that the 2011 transaction was a true novation, not an assignment, assumption and release. The 2007 contract was cancelled and replaced by a new contract. Mr Bailey’s equity of rescission therefore did not pass to the Company.

6. The unjust-enrichment claim had no realistic prospect of success. The swap remained subsisting, a poor hedging outcome did not amount to failure of the basis, and payments made under a valid contract could not be recovered merely because the transaction had proved disadvantageous.

7. The Company’s fiduciary-duty claim was dismissed summarily under CPR r 24.2. A commercial banking relationship and reliance on a bank’s advice did not establish the necessary legitimate expectation that the bank would subordinate its interests to the customer’s. The circumstances surrounding Mr Bailey in 2007 did not establish such a relationship with the Company in 2011.

8. The claim for a declaration under section 27 of the Financial Services and Markets Act 2000 was struck out under CPR r 3.4(2)(a). Mr Standley was the Bank’s employee and agent, not a third party carrying on a regulated activity in breach of the general prohibition. Section 27 was therefore not engaged. The Company’s claims failed and were dismissed.