Striking out parts of a swaps claim (Ventra Investments v Bank of Scotland)

A recent decision discusses whether aspects of a claim relating to the purchase of replacement interest rate swaps could be struck out.

Original news

Ventra Investments Limited (in creditors voluntary liquidation) v Bank of Scotland plc [2017] EWHC 199 (Comm)

Ventra purchased four replacement interest rate swaps from The Bank of Scotland (BOS). Ventra alleged that it was induced to enter into these trades by alleged negligent and fraudulent misrepresentations or negligent misstatements and negligent failure to provide an adequate explanation of the nature and effect of the swaps. BOS sought to have parts of Ventra's particulars of claim struck out.

What are the practical implications of this case?

This case is important for derivatives practitioners in setting out another instance whereby derivative transactions are alleged to have been inappropriately sold. In addition, it highlighted the issue of striking out aspects of the particulars of claim that were deemed immaterial, and considered when the court is likely to do this, as opposed to permitting the defaulting party to amend its particulars.

What was this case about?

Background to the case

Prior to the events giving rise to the claim, Ventra operated a successful property investment and letting business. As of February 2008, the value of the portfolio was in excess of £86m. When it entered into administrative receivership on 16 May 2011, Ventra owned some 99 properties and was indebted to BOS in the amount of almost £94m. Ventra is now in liquidation.

BOS began providing lending services to Ventra in 1997 and between 2004-2008 made available ten loan facilities.

In connection with these facilities, Ventra entered into a number of interest rate swaps with BOS. These original trades were replaced between 2008 and 2009.

Ventra's claim
Ventra's main claims were:

  • that it was induced to enter into the replacement trades by BOS making negligent misrepresentations to the effect that

there was significant value in the original trades that could only be accessed if Ventra embedded that value in the replacement trades, and

it wanted to increase its borrowings and BOS would be more inclined to agree to this if Ventra entered into the replacement trades

  • that BOS negligently failed to provide a full and accurate explanation of the nature and effect of the replacement trades and, in particular, as to the long-term effect of a fall in interest rates on the replacement trades, and
  • that BOS induced Ventra to enter into the replacement trades by making fraudulent or negligent misrepresentations in relation to LIBOR

What was the main focus of the case?

The main focus of the case was on the first allegation that Ventra made—that it had been induced to enter into the replacement trades by BOS making negligent misrepresentations.

Ventra alleged that as a result of entering into the replacement trades, it suffered loss and damage and that it ultimately led to its failure because it could not follow the termination strategy that it would have done had it not have entered into them. It alleged that it paid about £5.5m more to BOS under the replacement trades than it would have done had it adopted the termination strategy set out in the original trades and that it suffered further consequential losses of just under £75.5m.

BOS denied any liability to Ventra. BOS denied that it did made the alleged misrepresentation to Ventra and that Ventra was induced to enter into the replacement trades by these alleged misrepresentations. BOS also denied any claim of negligence or fraudulence. BOS also stated that if it did owe any liability to Ventra, it should be able to set off the sum of around £30m that is still owing from Ventra in relation to its borrowing.

Why did BOS think the case should be struck out?

BOS contended that Ventra's particulars of claim were very wide ranging and general, especially about the effects of the global financial crisis on BOS, its acquisition by Lloyds Banking Group (LBG) and measures taken to remove riskier assets from LBG's balance sheet. BOS contended that these issues were irrelevant to the central issues of whether the alleged representations were made to Ventra or not. BOS argued that dealing with these allegations would be very burdensome both in terms of time and cost would significantly increase the length of the trial, without assisting the court to resolve the factual issues between BOS and Ventra. BOS was also concerned that the general nature of Ventra's application might be used as a springboard for introducing new causes of action in the future on the basis that the new claims arose out of the same or substantially same facts and thus fell within CPR 17.4. Ventra denied the allegations of irrelevancy.

In support of its application, BOS relied on CPR 16.4(1), which requires the particulars of claim to include 'a concise statement of the facts on which the claimant relies' and on paragraph C.1.1(a) of the Admiralty and Commercial Courts Guide, which states that statements of case must be 'as brief and concise as possible'.

What did the judge decide?

CPR r 3.4(2) provides situations where a court may strike out a statement of case (or part of it). The judge considered case law as to striking out parts of statements of case for irrelevancy. Ventra argued that striking out for irrelevance was only available where the allegation complained of was wholly irrelevant to the pleaded allegations. BOS argued that the first question was to ask if the allegation was relevant, and if it was not to weigh the consequences as to whether the inclusion was tactical or would confuse and complicate the claim. Ms Sara Cockerill QC was persuaded by neither argument, and concluded that the court's duty was to simply weigh the complaints against the particular pleading and the facts of the case and decide whether an allegation is sufficiently irrelevant or incomplete or in breach of the rules, such that it is appropriate to order its removal from the pleadings.

The judge found that certain paragraphs could not remain in the pleading in their current form as they were irrelevant and incomplete. Some of the allegations formed by Ventra were embryonic and not properly pleaded. The judge considered ordering amendment or particularising of certain matters rather than striking them out but decided that was not a satisfactory solution in this case. Ventra was not clear as to whether it could plead knowledge and falsity at the relevant dates and so the judge determined that the best solution was for certain paragraphs to be struck out.

Case details

Court: High Court of Justice, Queen's Bench Division, Commercial Court

Judge: Ms Sara Cockerill QC

Date of judgment: 3 March 2017

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