High Court grants summary judgment (in part) in latest IRHP mis-selling claim, but leaves limitation issues for trial

In the latest of a long line of judgments considering claims for the alleged mis-selling of interest rate hedging agreements (IRHPs), the High Court has allowed in part a bank's application for summary judgment, finding that there was no reasonable prospect of the claimants successfully showing that representations as to hedging requirements had either the meaning contended for, or that they were false; but that other claims were not suitable for summary judgment on the basis of the limitation issues involved: Taylor & Anor v Bank of Scotland plc [2023] EWHC 3185 (Ch).

This decision sheds light on the court's approach to assessing the merits of misrepresentation claims at the summary judgment stage, demonstrating that the court is prepared to knock out claims without the need for a full trial in appropriate circumstances. The decision will also be of interest to financial institutions for its guidance on the interpretation and application of the Limitation Act 1980 (the 1980 Act), specifically s.32 which provides that the period of limitation will not begin to run until a claimant has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

The judgment follows hot on the heels of the Supreme Court's seminal judgment in Canada Square Operations Ltd v Potter [2023] UKSC 41, which clarified the elements that a claimant must establish in order to rely on the “deliberate concealment” gateway in s.32(1)(b) of the 1980 Act (see our blog post here). The present decision focuses on a separate aspect of s.32 of the 1980 Act, namely the requirement of "reasonable diligence" in discovering the fraud or concealment.

The claimants sought to rely on s.32 of the 1980 Act to postpone the date on which the limitation period began to run until 28 July 2014 (the date on which the Financial Conduct Authority (FCA) published its LIBOR investigation report). The court said the inquiry into whether the claimants could with reasonable diligence have discovered the falsity of the representations alleged would involve consideration of: (a) the actual position and resources of the claimants to carry out investigations; and (b) the steps that could have been taken to obtain the information needed to bring the claim. The court's analysis underscores the fact-sensitive nature of this inquiry and suggests that the courts will be reluctant to grant summary judgment where there are factual issues on limitation which cannot be determined without witness evidence.

We consider the decision in more detail below.

Background

Between 2008 and 2009, a company entered into a loan agreement and two IRHPs with the defendant bank. The company was subsequently placed into administration and then liquidation.

In 2020, the former shareholders of the company (the claimants) brought proceedings against the bank for misrepresentation, alleging that the company was induced to enter into the IRHPs by false representations made by the bank on: (a) the LIBOR rate; (b) the expected rise in interest rates (the interest rate rise representation); and (c) it being a condition of the loan facility that it be fully hedged for a certain period before funds could be drawn (the hedging requirement representation).

The claimants relied on s.32 of the 1980 Act to postpone the date on which the limitation period began to run until 28 July 2014. This was the date on which the FCA published its LIBOR investigation report.

The bank applied for summary judgment on the interest rate rise representation and the hedging requirement representation. The bank's case was that the interest rate rise representation was time-barred under s.32 of the 1980 Act; in particular, the claimants had no real prospect of showing that they could not have with reasonable diligence discovered the conduct on which that claim was based. As to the hedging requirements representation claim, the bank submitted that the claimants had no real prospect of succeeding on the merits of the claim or under s.32 of the 1980 Act.

Decision

The High Court found in favour of the bank on the hedging requirement representation claim and granted its summary judgment application on this particular claim. However, the court found that the interest rate rise representation claim was not suitable for summary determination. The key issues which will be of interest to financial institutions are examined below.

Interest rate rise representation

Summary judgment on this claim was sought only on the basis of limitation, ie that the claimants had no real prospect of successfully postponing the limitation period under s.32 of the 1980 Act. As a reminder, s.32 provides that where the action is based upon the fraud of a defendant (or the defendant has deliberately concealed any fact relevant to the right of action), the limitation period will not begin to run until the claimant has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

The court noted that the key issues for determination in the claim were whether the company could with reasonable diligence have discovered: (a) the falsity of the interest rate rise representation; and (b) that the bank made it with full knowledge of or recklessness as to its falsity.

The court referred to numerous authorities which have considered s.32 of the 1980 Act, focusing on the meaning of the phrase: "could with reasonable diligence" have discovered the fraud/concealment/mistake. The court said that this refers to an objective standard informed by the position of the actual claimant, and not by reference to some hypothetical claimant (per OT Computers v Infineon Technologies AG [2021] EWCA Civ 501). The court emphasised the fact-sensitive nature of the inquiry under s.32, referring to the Court of Appeal's judgment in DSG Retail Ltd v Mastercard [2020] EWCA Civ 671, which confirmed that "whether the claimant could with reasonable diligence have discovered the relevant concealment is a question of fact in each case". The court commented that the fact-sensitive nature of the inquiry is illustrated by the fact that the majority of the authorities cited by the parties on this section were decisions following a trial.

In the present case, the court said the inquiry into whether the claimants could with reasonable diligence have discovered the falsity of the interest rate rise representation would involve consideration of: (a) the actual position and resources of the company/claimants to carry out investigations; and (b) the steps that could have been taken to obtain the information needed to bring the claim.

In the court's view, neither of these fact-sensitive questions were apt for summary determination. In particular, although the claimant relied upon publicly available documents to support this claim (eg 2008-2009 Bank of England Inflation Reports predicting lower interest rates than the floor rates in the IRHPs), it could not be assumed that the claimants could with reasonable diligence have become aware of these reports prior to July 2014.

Further, the court said that the claimants' evidence as to what they in fact did was relevant to deciding what they reasonably could have done. Finally, the court noted that the claimants identified the FCA LIBOR investigation report as a trigger – it prompted them for the first time to consider whether the bank had been dishonest. In the court's view, it could not be said that the claimants had no real prospect of showing that it was reasonable of them to assume that the bank and its employees were honest until evidence suggested otherwise.

Accordingly, the court declined to grant summary judgment on the interest rate rise representation claim on the basis that it was time-barred.

Hedging requirement representation

The claimant alleged that these representations were made by the treasury division of the bank (including the company's relationship manager) and that they were representations as to conditions required by the bank's credit sanctioning division for the loan agreement to be entered into.

The court allowed the bank's application for summary judgment on the merits of this claim, finding that the claimants had no real prospect of showing that the various hedging requirement representations either had the meaning contended for, or that they were false. In particular, the court refused to draw a distinction between conditions imposed directly by the credit sanctioning division and those proposed by the bank's treasury division and accepted by the credit sanctioning division. In the court's view, regardless of the origin of the conditions, they were conditions which the bank required to be met for the loan agreement to be entered into.

Notwithstanding the court's conclusions on the merits of the hedging requirement representations claim, it proceeded to consider whether this aspect of the claim was barred by limitation, finding (obiter) that it would have refused summary judgment on this basis.

The court again undertook a fact-sensitive inquiry to determine whether the claimants (with reasonable diligence) could have discovered that the hedging requirement representations were false before 28 July 2014. For example, the court pointed out that the internal bank documentation relied upon by the claimants was provided to them following the regulatory findings or following the commencement of the claim in 2021/2022 – either way, the claimants could not be treated as having knowledge of the contents of these documents before they were provided. On this basis, the claimants had a real prospect of showing they were entitled to rely on s.32 of the 1980 Act to postpone the date on which the limitation period began to run.