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Darby Properties Ltd v Lloyds Bank plc

Is expert evidence needed in Interest Rate Hedging Product (‘IRHP‘) mis-selling disputes?

To replace existing IRHPs the claimant company entered into a number of new such products with Lloyds, some having very long terms. In due course a claim in the Chancery Division was brought against Lloyds alleging breach of contract, negligence and/or misrepresentation in respect of advice, recommendations, explanations and/or information provided by the bank.

The Bank defended, arguing that the products were properly explained and had been understood by them: the Claimants’ objective had been to reduce their interest costs and the IRHPs had provided short term relief from the existing arrangements.

To support their claim that the products were inherently unsuitable, the claimants sought permission to bring expert evidence on a number of points: characteristics of and the market for IRHPs, the suitability of the products and the adequacy of the information provided by the bank.

Master Matthews (the judge in this case) summarised the general principles of English law: evidence of fact is admissible in court whereas evidence of opinion is not. The exception to this is that evidence of opinion is allowed if there is an acknowledged body of knowledge and expertise on the issue in question which is “governed by recognised standards and rules of conduct and capable of influencing the court’s decision.” The judge acknowledged that where IHRPs are concerned there were no particular professional or regulated bodies which had a recognised bank of expertise and so any expert evidence produced to address the suitability of a product or the adequacy of information would by its nature be an expression of subjective opinion which would thus be inadmissible. He agreed that the products were complex and that a court might benefit from a “tutorial” about them and how they work in practice. That, however, would be factual and therefore parties to a claim would have no need to seek permission.

The only source of knowledge is experience.”
Albert Einstein

With regard to this case, and having reviewed the pleaded issues, the Master decided they were mainly matters of fact and information and that expert evidence was not needed to make a decision. The claimants were refused the permission they sought.

It will be interesting to see how the position evolves on the question of expert evidence in these cases. On the one hand, banks will be pleased that technical explanations can be included in statements of fact as this will save the time and expense involved in formal reports. On the other hand, judges will have to ensure that expert evidence and opinion does not creep into cases without having met strict evidential rules. This judgement is also to ignore the fact that there is considerable body of knowledge about the investment principles involved in the use of derivatives to mitigate risk. To take the logic applied here to its natural conclusion, it would mean that it would not be possible to have expert evidence adduced in any case where the principles on which opinions are based are new or in their infancy. This would appear counter productive to the fair administration of the law.

Link: Darby Properties Ltd & Anor v Lloyds Bank Plc [2016] EWHC 2494 (Ch)

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