CJ AND LK PERKS PARTNERSHIP & Ors v NATWEST MARKETS PLC

A bank does not assume responsibility to advise on an interest-rate hedging product merely because it explains products, supplies information or expresses a view. The question is fact-sensitive and depends on the particular relationship, communications and contractual basis of dealing.

Where a bank provides an explanation, it must be accurate and sufficiently complete within the responsibility it has assumed. A claimant cannot ordinarily advance unpleaded allegations requiring factual or expert evidence. Under FSMA 2000 and COBS 9, a personal recommendation must be assessed substantively. A steer may amount to a recommendation even where accompanied by disclaimers, but causation remains essential.

The claimants alleged that NatWest Markets, formerly RBS, mis-sold interest-rate swaps entered into in 2007 and 2009, failed to explain material risks, breached common-law duties and COBS rules, and participated in an unlawful-means conspiracy during the later transfer of the business to GRG.

The trial concerned liability only. The principal issues were whether representations or advice had been given, whether relevant risks had been explained, whether the Partnership was a private person entitled to rely on section 138D of Financial Services and Markets Act 2000, whether any breach caused loss, and whether the conspiracy allegations were established.

1. 2007 swap. The alleged representation that interest rates would rise was not proved. The contemporaneous documents, the subsequent disclosures and the inherent probabilities contradicted the claimant’s recollection. In any event, the Partnership would have entered the swap because hedging was a condition of the loan.
2. The common-law failure-to-explain claim failed. The allegations concerning substantial break costs, the contingent obligation and restrictions on property sales were unpleaded and could not fairly be advanced at trial. They also failed on the merits. The documentation explained the nature and risks of swaps, including break costs and the possible effect on security. The alleged bank “fee” was not an undisclosed upfront premium.
3. The Partnership was not shown to be a Scottish partnership with separate legal personality. Its property-owning and rental activities constituted business of any kind. It was therefore potentially a private person for section 138D purposes. The COBS claim nevertheless failed because the relevant allegations were unpleaded and, independently, no further explanation would have altered the decision to enter the swap.
4. No common-law advisory duty arose in relation to the 2007 swap. The communications were sales or information-giving communications, not advice. The absence of an advisory agreement, availability of other advice, contractual execution-only terms and the absence of a specific recommendation all pointed against assumed responsibility. COBS 9 was not engaged because no personal recommendation of a particular product was made.
5. 2009 swap. The break costs and the longer commitment were sufficiently explained. The 10 June email expressly stated that the new swap would lock the Partnership in for five years, while the existing swap would expire in 2012. The 12 June call explained that the existing break costs were blended into the new rate and gave an approximate range.
6. During the 12 June call, the bank representative gave a steer towards option 1. Objectively, this crossed the line from information into advice or a personal recommendation for COBS 9 purposes. The contractual disclaimers could not prevent the regulatory obligation. Nevertheless, the breach caused no loss: the claimants had already concluded that option 1 was preferable and would have entered the 2009 swap in any event.
7. Conspiracy. The transfer to GRG and the later restructuring had rational commercial reasons arising from defaults, insolvency risk, inadequate cash generation and security concerns. No unlawful means, combination, intention to injure or causative loss was established. The claims were dismissed.
8. The claims failed on liability. RBS was entitled in principle to sums owed by the Partnership, but quantification was reserved for later determination.