High Court rejects application to include conspiracy allegations in IRHP misselling claim and gives guidance on meaning of "exceptional circumstances" in past business review undertakings given to the FCA

The latest in the line of recent judgments concerning interest rate hedging product ("IRHP") misselling allegations concerns an application by the claimants to introduce economic tort claims for wrongful interference, conspiracy to injure and/or conspiracy to use unlawful means: Elite Property Holdings Ltd & Anor v Barclays Bank plc [2017] EWHC 2030 (QB). The High Court comprehensively rejected the claimants' application. It follows an earlier decision in the same proceedings, in which the Court struck out the majority of the claimants' claims relating to the sale of their IRHPs and ordered the claimants to particularise properly their claims for conspiracy (see our e-bulletin on that decision here). The combined effect of these judgments is likely to bring an end to the proceedings in question, subject to the claimants' pending applications for permission to appeal both decisions.

In the instant case, the Court rejected the claimants' application for permission to amend the particulars of claim on the basis that the claims sought to be introduced had no real prospect of success. Underpinning the proposed amendments was an allegation that the defendant bank (the "Bank") had unlawfully foreclosed the claimants' loan facility in breach of an undertaking given by the Bank to the FCA. The undertaking was given in the context of the Bank's past business review ("PBR") relating to the sale of IRHPs, and provided that the Bank was not entitled to foreclose or adversely vary customers' facilities unless there were "exceptional circumstances". The Court found that there could be "no serious argument" that the circumstances were not "exceptional".

The Court also noted that, had it been necessary to determine the point, it would have found the claims were compromised by a settlement agreement entered into between the parties in 2014. This approach to settlement agreements in IRHP misselling cases is in line with other recent authorities (see e-bulletin here).

While the new Elite decision turned on its particular facts, it does serve as a warning as to the dangers of insufficient pleadings in cases involving allegations of conspiracy or similar, and adds to the growing body of case law providing certainty for banks in IRHP misselling cases. In particular, the Court provided some guidance by way of a postscript as to the way in which claims in conspiracy ought to be pleaded, which is of general application. The Court's discussion of the meaning of "exceptional circumstances" in the PBR undertaking is also likely to be of wider interest to banking institutions, particularly those who have given similar undertakings as part of their PBRs.

Background

The Bank provided loan facilities to the two claimant companies ("Elite" and "Decolace", respectively), which were secured over properties including three elderly care homes owned by Elite. In connection with those facilities, between 2006 and 2008, the claimants entered into three structured collars with the Bank. The claimants subsequently alleged that those collars had been mis-sold; the Bank then agreed to restructure their loans. As part of that restructuring, the parties agreed to enter into a settlement agreement in relation to the collars.

In 2012, in common with several other banks, the Bank agreed with the FSA (now the FCA) to undertake its PBR in relation to its sales of IRHPs to small and medium-sized enterprises, which included the provision of appropriate redress. As part of that agreement with the FCA, the Bank agreed that it would not foreclose on or adversely vary existing lending facilities (except with prior consent) until a final determination had been reached in relation to the redress owed to the customer, "except in exceptional circumstances".

The Bank also agreed with the FCA to appoint KPMG to the role of the "skilled person" to the PBR, to act as an independent reviewer and oversee the PBR. Part of this role involved KPMG overseeing the Bank's approach to its undertaking to the FCA by confirming whether "exceptional circumstances" existed.

During 2012 and 2013 various events took place, causing the Bank to allege that Elite had breached its loan facility agreements, triggering its right to foreclose under the "exceptional circumstances" carve-out of the undertaking. These events (listed at paragraphs 20-28 of the judgment) included the following:

• Elite twice defaulted on its cashflow to debt requirements under its loan facilities (for which the Bank sent reservation of rights letters).
• HMRC made a demand on a company associated with Elite, which operated the care home business and provided security for the underlying loan, Health and Homes Limited ("H&H"), for corporation tax of approximately £700,000. HMRC subsequently issued a winding up petition against H&H as payment was not made.
• Without the Bank's consent (which was required), H&H and Elite agreed to transfer the care home business to another company in the same group.
• H&H submitted a proposal for a company voluntary arrangement, stating that it was unable to pay its debts as they fell due. This was rejected by HMRC and H&H was placed into creditors' voluntary liquidation.
• The Bank became aware that both claimants had been struck off the BVI Companies Register (although it was later confirmed that they had each been restored).

The Bank sought confirmation from KPMG that these constituted "exceptional circumstances" under the undertaking to the FCA. It indicated that it wished to appoint BDO as administrators and LPA receivers over both claimants. KPMG granted the Bank's request.

In September 2013, the Bank made a formal demand on the claimants. The demand against Decolace was withdrawn following confirmation that it had been restored to the BVI register (as the striking-off had been the central basis for that demand). Subsequently, the Bank commenced enforcement action by appointing administrators over H&H, which was followed by the appointment of LPA receivers over the assets.

At this time, Elite and Decolace were also taking part in the Bank's PBR. This led to the Bank making offers of "basic redress" to the claimants (which excluded consequential losses). The claimants separately submitted claims for consequential losses, which the Bank ultimately rejected. The claimants then issued proceedings to recover those alleged losses.

The claimants' particulars of claim alleged: (a) mis-selling of the relevant swaps; (b) breach of duty on the Bank's part in conducting the PBR; and (unusually for these claims) (c) conspiracy. In a judgment dated 16 December 2016, the Court struck out the claimants' claims relating to parts (a) and (b), and ordered the claimants to particularise fully and properly their conspiracy claims. It is that order which gave rise to the claimants' application to amend the particulars.

Application to amend particulars of claim

The claimants sought to add claims relating to wrongful interference by unlawful means, conspiracy to injure and/or conspiracy to use unlawful means. In particular, they sought to allege that:

• The Bank combined with BDO to engineer "a position whereby the Bank could foreclose on or adversely vary the Claimants' existing facilities".
• The Bank's foreclosure and adverse variance to the facilities (carried out by BDO as LPA receivers) amounted to unlawful means and an unlawful interference in the claimants' business.
• In the alternative, that the Bank's combination with BDO amounted to a conspiracy to injure the claimants.

The proposed amendments set out lengthy factual particulars relating to the allegations made, which appear at paragraph 45 of the judgment. The "unlawful means" alleged for both the tort of wrongful interference and conspiracy to use unlawful means, was that the Bank was in breach of its undertaking to the FCA not to enforce, because the circumstances were not "exceptional".

Decision

To determine whether to allow the claimants' proposed amendments, the Court applied the test of whether the proposed claims had a real prospect of success. To meet this test, claims must carry "some degree of conviction", albeit that the Court ought not to "embark on a mini trial to see whether there is a real prospect". The Court rejected each of the amendments sought, reasoning as follows:

Wrongful interference by unlawful means

• In relation to the tort of wrongful interference by unlawful means, the Court found that there could be "no serious argument" that the circumstances were not "exceptional". The Court found that it was conclusive that KPMG as the skilled person had approved the Bank's designation of the circumstances as "exceptional circumstances", noting that it was not open to a customer to "second-guess" what constituted "exceptional circumstances". Because there was no unlawfulness to begin with, this would dispose of both the wrongful interference by unlawful means claim, and conspiracy to use unlawful means claim.
• The Court also held that the claim should fail on the basis of the reasoning in OBG v Allan [2007] UKHL 21:"Unlawful means therefore consists of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant. It does not… include acts which may be unlawful against a third party but which do not affect his freedom to deal with the claimant." (emphasis added). The Court found that the unlawful acts (if any) against the FCA (the third party) in the present case, did not interfere with the FCA's (the third party's) freedom to deal with the claimants. The Court concluded: "This is all far removed from paradigm cases of wrongful interference where, for example, a trade competitor of the victim of the tort acts unlawfully as against the third party so as to stop the third party from dealing in some way with the victim in order to diminish the victim's business, and so on."

Conspiracy to injure

• In relation to the tort of conspiracy to injure, the Court noted that there must be a "predominant intention on the part of the conspirators to injure the claimant". The Court concluded that there was no such intention in the present case and, in the absence of a motive, found that the conspiracy to injure plea was "hopeless" and "should never have been made".

Conspiracy to use unlawful means

• Given that the only unlawfulness relied upon was breach of the undertaking (and the Court ruled that there was no real prospect of establishing such a breach), this plea also failed.

While not required to determine the point, the Court went on to consider whether the claims sought to be introduced by the claimants were barred by virtue of a settlement agreement entered into in 2014. The Court found that each of the wrongful interference and conspiracy to use unlawful means claims were caught by that settlement agreement, and that there was a "strong case" to say that the conspiracy to injure claim also fell within the scope of the settlement agreement.

By way of a postscript, the Court made the following general observations in relation to the pleading of cases in conspiracy or similar. Specifically:

• While noting that claims in conspiracy or similar are "notoriously difficult to plead", the Court found that the particulars ought to have been pleaded in a more "structured way", with a separate section for each plea giving "proper particulars of each constituent element of the tort".
• The Court noted that it was "vital", particularly in cases involving conspiracy to injure, to plead both the nature of the injury which it is said was intended, and the motive for that alleged injury. The Court observed that, unless both elements are pleaded, there is a risk that a court will be "puzzled by the plea as it was here".

Conclusion

While this case turned on its own facts, it provides both helpful general guidance on the appropriate approach to pleading claims based in conspiracy, and more specific guidance on the meaning of "exceptional circumstances" in undertakings given to the FCA not to foreclose on customers in the context of IRHP mis-selling. The case also reminds claimants of the appropriateness of making allegations of conspiracy.