Claim that interest rate swap agreement mis-sold rejected
11 September 2012
Grant Estates Ltd v The Royal Bank of Scotland PLC  CSOH 133
Lord Hodge rejected a claim that a bank had mis-sold an interest rate swap agreement to a customer. The action was held to be fundamentally irrelevant.
The pursuer, a small property development company, claimed that it had been mis-sold an interest rate swap agreement by its bank. The pursuer claimed that the bank had breached the requirements of the Financial Services Authority’s “Code of Conduct Sourcebook” (“COBS”), the Markets in Financial Instruments Directive (“MIFID”), and that the swap agreement had been entered into as a result of fraudulent and negligent misrepresentations by the bank’s employees.
Lord Hodge rejected the pursuer’s arguments and held that the entire case was fundamentally irrelevant.
The Court held that there was no legal basis for the civil proceedings, concerning alleged breaches of COBS, to be commenced by the pursuer. This was due to the fact that the pursuer was a private limited company. Accordingly, it was not a “private person” in terms of section 150 of the Financial Services and Markets Act 2000 and had no right of action in terms of the COBS rules. The Court also held that MIFID does not require a member state to provide protection to a customer by means of a direct right of action against the authorised person. The regulatory regime provided alternative means of redress and there was no automatic requirement for a civil action to be available as a remedy.
The Court rejected the pursuer’s argument that there was an “implied contract” for advice. A contract will only be implied from the parties’ conduct where it is necessary to do so to give business reality to a transaction. In the present case there was already a contract between the parties which regulated the scope of the services that would be provided. The pursuer had been advised that the bank would operate on an execution only basis and would not provide advice to the customer. The pursuer was warned to obtain its own advice. In these circumstances, there was no necessity to imply a contract. The contractual terms meant there was no implied contract and no duty of care at common law.
The Court rejected the pursuer’s claim of negligent misrepresentation. The case of fraud was departed from by the pursuer in submissions. However, the Court took the opportunity to emphasise that fraud is not lightly to be inferred.
Alistair Clark QC and John MacGregor, of Axiom Advocates, acted for the bank in successfully resisting the claim.
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