Sivagnanam v Barclays Bank Plc (Rev 1)

A person’s status as a private person under section 138D of the Financial Services and Markets Act is insufficient by itself. The claimant must also fall within the class of persons whom the relevant regulatory rules were intended to protect. Where products were sold to a company, the company is the relevant customer or client.

A shareholder cannot recover loss which merely reflects loss suffered by the company, including diminished company funds or unpaid shareholder or director loans, where the company could pursue the underlying loss. This remains so where the company has settled for less than it might have claimed. Summary judgment is appropriate where the pleaded claim has no realistic prospect of success and there is no compelling reason for trial.

Barclays applied to strike out or obtain summary judgment on a claim brought by the sole shareholder and director of WHL. WHL, rather than the claimant, had entered into three interest rate hedging products with Barclays between 2006 and 2008.

The claimant alleged contraventions of the Conduct of Business Rules and Conduct of Business Sourcebook rules, relying on section 138D of the Financial Services and Markets Act. WHL had accepted approximately £2.4 million from Barclays under a voluntary redress procedure in full and final settlement of claims connected with the products. The issues were whether the claimant was within the protected class and whether his pleaded losses were reflective of WHL’s losses.

1. Claim dismissed by summary judgment. Barclays satisfied the requirements of CPR 24. The claim had no realistic prospect of success and there was no compelling reason for a trial.
2. Section 138D provides a cause of action subject to the defences and other incidents applicable to breach of statutory duty. Those incidents include the requirement that the claimant belong to the class intended to be protected by the relevant legislation or rule. Although the claimant was an individual and therefore a private person in the ordinary statutory sense, the pleaded rules were directed to the customer or client of the regulated firm. That customer was WHL, not its shareholder or director. The claimant had not pleaded any breach of duty owed to him personally.
3. The conclusion was reinforced by Diamantides v JP Morgan Chase Bank & Ors [2005] EWHC 263 (Comm), where a sole shareholder could not use his personal position to claim the protection applicable to a private investor when the company was the bank’s customer. The same underlying reasoning applied here.
4. The claimant’s losses were reflective of WHL’s losses. The pleaded diminution of shareholders’ funds and inability to repay loans represented losses suffered by WHL. Under the principle stated in Johnson v Gore Wood [2002] 2 Appeal Cases 1 and summarised in Gardner v Parker [2004] EWCA Civ 781, reflective loss is not confined to reduced share value or dividends. It includes other payments the shareholder might have received from the company, including repayment of loans, and may apply where the company has settled for less than it might have claimed. The rule also protects the proper priorities of shareholders, creditors and employees.
5. Claims concerning two of the three products were accepted to be time-barred under the Limitation Act. The remaining product was not time-barred, but that distinction did not overcome the claimant’s difficulties on statutory protection and reflective loss.