First reported case on swaps mis-selling resolved in bank’s favour

First reported case on swaps mis-selling resolved in bank’s favour

Banking & Finance analysis: What can be learned from the decision in Thornbridge v Barclays Bank Plc? David Bowden, freelance independent consultant, outlines the case and talks to Lisa Lacob, a barrister at 3 Verulam Buildings, about the consequences of this case.

Original news

Thornbridge Ltd v Barclays Bank Plc [2015] EWHC 3430 (QB)

The Mercantile Court in Manchester heard a contested trial over five days in which it was alleged that a bank had mis-sold a business customer an interest rate swap product. In a lengthy reserved judgment HHJ Moulder QC dismissed the claim and ruled in favour of the bank. This is the first reported case against Barclays Bank involving alleged mis-selling of an interest rate swap which has gone to trial.

Briefly, what was the background to this case?

David Bowden (DB): A company borrower claimed damages from the bank for losses arising from alleged:

  • negligence
  • breach of contract, and
  • breach of statutory duty

regarding information and advice given in respect of an interest rate swap the borrower had entered into in connection with a loan from the bank.

The bank required the borrower to execute an interest rate hedge, or accept a fixed interest rate. The borrower’s director (Mr Harrison) discussed hedging with a representative (Mr Burgess) of the bank. Mr Burgess also sent Mr Harrison a written presentation entitled ‘Interest Rate Risk Management Strategy’. The parties entered into a five-year vanilla interest rate swap agreement in May 2008.

The swap was intended to protect the borrower against interest rate rises. However, interest rates then fell to historically low levels and the borrower was unable to benefit from the falling rates. The swap proved expensive. The borrower alleged that the bank failed to provide adequate information regarding break costs, including by failing to give examples of the break costs applying when interest rates were very low and by failing to advise it that the swap may restrict its ability to refinance its lending. The borrower also alleged that the

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About the author:

Miranda is a solicitor specialising in leveraged and acquisition finance. She trained at Hogan Lovells International LLP and qualified into the international banking and finance team. During her time at Hogan Lovells she worked on a variety of domestic and cross-border transactions, acting for both borrowers and lenders. She also experienced secondments to Barclays Bank PLC and Kaupthing Bank hf.