Grant Estates Ltd v Royal Bank of Scotland (Scottish case)

Posted on 21/08/2012 · Posted in Expert Witness, Financial Litigation, Interest Rate Swap

Mis-selling of interest rate swaps

The Claimant, Grant Estates Limited, entered into a loan agreement with the Defendant, the Royal Bank of Scotland plc. To fulfil a condition of the loan, the Claimant also entered into an interest rate swap with the Defendant. The Claimant subsequently encountered financial difficulties and was unable to meet its obligations under its finance arrangements with the Defendant. As a consequence the Defendant placed the Claimant into administration.

In an attempt to reduce its liabilities and obtain damages, the Claimant contended that it had been mis-sold the swap. However, the Claimant was unsuccessful.

First, the Court held that the Claimant had no direct action against the Defendant for breaches of COBS. Section 150 FSMA 2000 gives a “private person” the power to sue for breaches of COBS. However, under Regulation 3 SI 2001 No 2256 the category “private person” does not include non-individuals “carrying on business of any kind”. Relying on Titan Steel Lord Hodge concluded that “carrying on business of any kind” is a wide phrase, not limited to businesses where the relevant transactions are an integral part of the business.

Second, the Court held that the Defendant was not in breach of contract. In Lord Hodge’s view, terms relating to skill and care are not implied into the contract by virtue of advice being given as this is not a matter of necessity and on the facts was contrary to expressly agreed terms. Moreover, COBS would not automatically be incorporated.

Third, the Court held that the Defendant did not give negligent advice or negligent misrepresentations. Lord Hodge made the following points: that a duty of care would not simply arise because there was an “advisory relationship”; that the absence of any written advisory agreement would point against the existence of an advisory obligation; that parties should use contract to define the basis of their relationship and allocate risk; and that the contract could preclude a party from raising a claim on something he accepted as true (retrospective or otherwise).

Finally, the Court held that the contractual term stating that no advice was being given was not an exclusion clause but a clause defining the parties’ relationship.

Link: Grant Estates Ltd v Royal Bank of Scotland 2012 CSOH 133

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