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Inside Disputes

Light at the end of the tunnel?
Inside Disputes

Inside Disputes

Author
Ian Bean
Date
09 December 2015

In June 2012, a number of clearing banks in Britain agreed with the Financial Conduct Authority ("FCA") (then known as the Financial Services Authority) to undertake a review into the sales of certain Interest Rate Hedging Products ("IRHPs") to customers that were classified as "non-sophisticated".


Light at the end of the tunnel?

In June 2012, a number of clearing banks in Britain agreed with the Financial Conduct Authority ("FCA") (then known as the Financial Services Authority) to undertake a review into the sales of certain Interest Rate Hedging Products ("IRHPs") to customers that were classified as "non-sophisticated". The purpose of which was order to determine whether those products had been mis-sold and whether customers who had acquired them should be entitled to financial redress (the "Review"). It was also agreed that an independent reviewer (typically from one of the large accountancy firms) would be appointed in relation to each case in order to ensure that the relevant bank was acting in accordance with the methodology of the Review.

A number of customers that were included as part of the Review have been highly dissatisfied by the outcome; this is particularly true in relation to the position adopted by a number of the banks on the extent of the consequential losses to be included in any redress offer made (i.e. the losses suffered as a result of the customer having entered into the relevant IRHP(s)).

After a number of setbacks, recent activity before the courts appears to indicate that there may be light at the end of the tunnel for customers who are aggrieved by the offer of redress put forward by the relevant bank.

In April of this year, in the matter of R (on the application of Holmcroft Properties Limited) v. KPMG LLP, the Administrative Court granted Holmcroft permission to bring an application for judicial review in respect of the Review. The application arose out of concerns held by Holmcroft that KPMG (as independent reviewer) and Barclays Bank PLC (the bank which sold the IRHPs to Holmcroft) had not given proper consideration to Holmcroft's claim for consequential losses. As part of its reasoning, the Administrative Court considered that there was at least a reasonable prospect of arguing that KPMG’s role within the Review was part of a wider statutory framework.  This framework could be said to give KPMG's role a sufficiently public function to make it susceptible to judicial review. The full hearing of this application for judicial review is due to take place on 25 January 2016. If the Court considers the approach of KPMG during the Review to be irrational, outside of its powers, or unfair, it may order KPMG and Barclays to revisit the redress offer originally provided to Holmcroft and issue a new redress decision. In turn, this could set a precedent for other dissatisfied bank customers to follow.

More recently, the case of Suremime Limited v. Barclays Bank Plc outlines a possible alternative route to follow for customers in circumstances where an unacceptable offer of redress has been made. The court in this case allowed Suremime to amend its claim to include reference to a duty of care owed by Barclays in the course of conducting its review of the relevant IRHPs and making a redress offer. It is now for the Court to consider whether a duty of care arises in these circumstances and whether that duty has been breached.

If either or both cases are decided in the customer's favour, they could open new doors for others who are dissatisfied with an offer of redress that has been made and/or those who have been prevented from advancing claims in respect of mis-sold IRHPs on the basis of legal time-bars.

Watch this space…