Swaps – where are we now?

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Swaps - where are we now?

10 Jan 2014

We have recently concluded some swaps cases for clients of ours with encouraging six-figure settlements. So where does the law currently stand on the mis-selling of swaps?

The Court of Appeal recently rejected an appeal by Mr Green and Mr Rowley (“GR”) in their case against RBS.  The court held that they had not been advised to purchase their swap and RBS therefore did not owe them a duty of care.

GR were business partners and issued a claim against RBS in 2011 alleging that they were mis-sold a swap in 2005.  They claimed RBS had not told them about the potential breakage costs attached to the swap.  They had taken out the swap to protect their position against interest rate fluctuations for an existing RBS loan of £1.5m.  Initially GR profited from the swap due to the base rates arising above the 4.83% swap rate.  In late 2008 when rates dropped the swap payments increased and they were unable to benefit from the historic low rate of 0.5%.  In 2009 they enquired about terminating the swap early but were told by RBS the break costs would be £138,000.

It was found that they had been provided with information as to the suitability of the product but not a recommendation or advice and that this was critical in order to establish a duty of care.

The Court of Appeal concluded that as no advice was provided by RBS then no common law duty of care could arise.  It dismissed the suggestion that a common law duty arose to ensure that GR understood the nature of the risks involved before entering into the swap.

The case is fact specific but does have important lessons.  A crucial factor in this case was the Bank was able to advise on contemporaneous documentation supporting its submissions that advice was not given.  GR did not have such documentation to advance their case and this shows the importance of good record keeping.

Although the case is an unsatisfactory outcome to those with swaps it has to be borne in mind that it is fact specific and does not necessarily mean that other swap holders with contemporaneous documentation and more favourable facts will not succeed in their claims.

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