The Appeal in Green and Rowley v Royal Bank of Scotland [2013] EWCA Civ 1197


One of the difficulties encountered when advising clients as to the merits of their claim that they have been mis-sold an Interest Rate Hedging Product (IRHP), usually an Interest Rate Swap, is the paucity of decided case law concerning the sale of such products.

There have been only two reported decisions concerning the (mis) selling of Interest Rate Swaps, the Scottish case of Grant Estates Limited v RBS [2012] CSOH 133 and the solitary English decision of Green and Rowley v RBS [2012] EWHC 3661. In both cases the claims of mis-selling against the Banks were dismissed.

Green was subsequently taken upon appeal, heard in July 2013, and the findings of the Court at first instance were upheld. Although the decision was known in July, the Court of Appeal has only recently handed down formal judgment on the 9th October 2013. As this decision represents the solitary appellate authority within the field of Swap mis-selling, the formal reasoning behind the Court’s judgment has been keenly awaited by both Claimant and Defendants alike.

Green and Rowley- The decision below

On the 25th May 2005, the Claimants entered in to an Interest Rate Swap with the Defendant upon the basis of a notional amount of £1.5 million and agreed interest rate of 4.83%  (the prevailing base rate at the time being 4.75%).

For the first few years, when interest rates rose, the Claimants did well out of the arrangement. Indeed they were subsequently described by Tomlinson LJ as having been “in the money”. However, as rates began to fall dramatically thereafter down to an historical low of 0.5% by March 2009, as with many borrowers with such products, the Claimants found that they had to pay out considerable additional sums under the Swap agreement.

In 2009 the Claimants wished to restructure their property partnership and this involved, amongst other matters, reviewing and restructuring the Swap agreement. At that stage (and it is worth noting that the catalyst for the review of the Swap was not the Claimant’s incredulity at the amounts that they were being required to pay under the Swap) they were informed that the break cost to exit the Swap was some £138,650.00. These exit costs were described as having come as a “shock” to both the Claimants and their Bank Manager, a Mrs Gill.

On the 25th May 2011, exactly six years to the day since the execution of the Swap, the Claimants issued proceedings. In summary, the claim was brought upon the following footings;

The “Information Claim”- comprising an allegation of negligent mis-statements given at a meeting on the 19th May 2005, as the nature of the cost and in particular the cost of exiting the same, based upon the well known principles of a duty of care between advisor and client to be found in Hedley Byrne and Co Ltd v Heller and Partners [1964] AC 465

The “Advice Claim”- under which it was alleged that the Bank’s representatives had gone beyond the mere provision of information and had advised the Claimants to enter in to the Swap. Such advice carried with it a duty of care which had been breached upon the basis that the Swap was not suitable for the Claimants;

The Claimants also pleaded a third claim founded upon a breach of the (then applicable) FSA Conduct of Business (COB) Rules. At trial it was conceded that, as the focus was upon the contents of the 19th May 2005 meeting that had occurred over 6 years before the issuing of the claim form, the direct action for breach of the COB Rules, under Section 150 of the Financial Services and Markets Act 2000 (FSMA 2000) was time-barred.

Notwithstanding this, the Claimants contended that although this aspect of their action was time-barred, breach of the COB Rules (being Rule 2.1.3R[1] and Rule 5.4.3R[2] respectively) remained relevant as the existence of the same gave rise to what was termed a concurrent duty of care on the Bank (reflecting and indeed incorporated within the Hedley Bryne principles) to comply with the COB Rules and this had been breached by the Bank in the context of both the Information and Advice claims.

Although the description of the Court that this was a “highly fact-sensitive case” is of relevance, the Court comprehensively rejected each of the Claimants’ arguments holding that Hedley Bryne principles did not include a duty to give information unless without that information a statement would have been misleading. Furthermore the Court held that neither COB Rule 2.1.3R nor Rule 5.4.3R were incorporated within the Hedley Bryne duty. Having rejected the Information Claim the Court then rejected the Advice claim upon the basis that the Bank had given no advice as to suitability or recommendation either before or at the meeting of 19th May 2005.

Undeterred the Claimants appealed.

The Appeal

The Appeal got off to what was characterised in the judgment as a “distinctly unpromising start” with the concession by Leading Counsel for the Appellant that the prior concession that the s150 breach of statutory duty claim was time-barred, was “likely to be wrong”, as any breach in relation to the arrangement and execution of the transaction would run until the date that the transaction was executed- being 25th May 2005. Whilst this concession (of the concession) may not have represented the most auspicious start for the appeal it did at least accord with established principles that where advice has been given to enter in to a transaction, the loss occurs (and by extension time begins to run), on the day that the transaction is effected- see Shore v Sedgwick Financial Services Limited [2008] EWCA 863. However having offered the concession, the Appellants then (somewhat surprisingly) made no attempt to formally resile from the prior concession made below.

The appeal focused on two grounds;

Ground One:- Whether the statutory duties on the Bank under the COB Rules gave rise to a concurrent duty of care co-extensive with those duties to be found within the COB Rules;

Ground Two:- Whether, if a concurrent duty arose, what was the quality and extent of the explanation that the Bank was under a duty give to the customer (explicitly in relation to break costs), so as to satisfy the duties the Bank was under owing to COB and/or the concurrent duty.

The Court of Appeal roundly rejected Ground One of the appeal. The primary difficulty for the Appellants was that the Court remained unpersuaded that the Bank had gone further than merely providing the Appellants with information alone, allowing them to make a decision for themselves- i.e. the Bank had not advised the Appellants to enter in to the swap. The Court upheld the view of the Judge at first instance that in such non-advisory circumstances (and save for the obligation not to mislead found as part of the obligations under COB Rule 2.1.3R) the balance of the duties under COB 2.1.3R and the entirety of COB 5.4.3R comprised obligations well outside the scope of the duty to be derived from the Hedley Bryne principles. As such, absent the situation where the Bank was giving advice (as opposed to merely providing information) there was no basis for the imposition of a common law duty of care co-extensive with the pre-existing remedy for breach of the COB Rules, i.e. an action under FSMA 2000, Section 150.

Furthermore, the contention by the Appellant that the breach of the regulatory requirements under the COB Rules gave rise to a concurrent common law duty of care (reflecting the obligations under the COB Rules) where either the purpose of the statute was to confer protection upon a defined class or otherwise where the statutory duty has been carelessly executed, likewise did not find favour with the Court of Appeal. It was considered that the mere fact that the regulatory obligations under the COB rules existed[3], could not be used to justify the existence of a co-extensive common law duty of care by the simple act of arguing that a breach of the duty would cause loss. This was particularly the case where, as in the current matter, Parliament had provided a clear and direct remedy for breach – namely by making a breach of the COB Rules actionable under Section 150 FSMA 2000.

Finally the Court accepted the Bank’s submission that nothing within either COB 2.1.3R or COB 5.4.3R could be said to provide any “pointer” to the assumption of a duty of care to advise, since both of the COB Rules in question imposed statutory duties on firms even where they were acting in a non-advisory or execution only role with their customer.

Having dismissed Ground One of the Appeal, and concluded that there was no basis upon which a concurrent duty of care could be imposed the Court (with the acquiescence of the Parties) heard no submission and passed no judgment with respect to Ground Two of the Appeal. As such arguments as to the nature and scope of the explanation that the Bank was required to give, in particular with respect to break costs, remain undetermined.

Commentary- The Broader Implications

The view one takes of the effect of Green on the broader picture for Swap mis-selling litigation depends very much on which side of the equation you are acting for. For Defendants, the decision both at first instance and then the confirmation on Appeal provide considerable grounds for confidence when faced with such litigation. Beyond the legal principles that may be drawn from the case itself, the fact that the only reported decision before the English Courts has resulted in a resounding success for the Banks undoubtedly has the non-legal benefit of creating a perception of likely judicial hostility towards these claims- a perception that will undoubtedly inform the decision making of potential Claimants in considering whether to bring such a claim or alternatively (provided the same is on offer) accept redress through the FCA mandated review of these products.

However taking a step back from the decision itself, whilst Green undoubtedly represents a set-back for Claimants (and provides a timely reminder of the difficulty in establishing such claims) it is perhaps not the fatal blow to Swap mis-selling claims that some quarters have suggested. In reflecting upon the decision, and the wider points to arise out of Green, the following general observations may be made.

Firstly, the Court at first instance was at pains to highlight that this was a “highly fact-sensitive case”, and as such merely because there were factual difficulties in Green (the Claimants’ evidence was less than comprehensive in marked contrast to the witness from the Bank), there is no reason to suspect that the same issues would arise in another case.

The distinction between information only and advisory roles

Secondly, and no doubt compounded by the evidential difficulties with the Claimants’ witnesses, the Claimants were hamstrung by the fact that they could not persuade the Court, either at first instance or on appeal, that the Bank had strayed from providing information alone in to an advisory role. The Court clearly found that, on the facts, the Bank had not given advice and therefore no advisory duty arose.

This, as it may be recalled was important as, contrasting markedly to the position where the Bank was providing information alone, it was accepted by the Court (both at first instance and then on appeal) that had the advisory duty been triggered the scope of the duty owed under Hedley Bryne principles would have been informed by the contents of both COB 2.1.3R and COB 5.4.3R[4] and accordingly the Claimants would have been able to rely indirectly on the obligations to be found in the COB Rules even though their direct claim was time-barred.

Not only was this an important issue within Green explicitly, it undoubtedly has wider implications. The finding of the Court on this point throws in to sharp relief the importance to be placed on analysing correctly the nature of the role that the Bank is playing, and explicitly whether the Bank is merely providing nothing more than information to their customer and thereafter executing a decision made by the customer alone, or whether it can be said that the Bank has gone further and has provided advice that has given rise to the decision and subsequent execution.

For where the Bank has merely provided information alone, then unless the customer has a direct right of action for breach of the applicable Rules (COB or COBS) under s150 of FSMA 2000, the regulatory requirements of the Rules will provide no protection to the customer, as absent a right of action under s150 the putative claimant will not be able to “import” the regulatory standards of the Rules in to their claim.

This issue is a consideration for more claims than might be originally thought. The cause of action afforded under s150 of FSMA 2000 is afforded solely to a “private person”. A private person for the purposes of this statutory section is defined by reference to Regulation 3 of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (the “2001 Regulations”). Importantly the definition extends to a “person” who is not an individual unless they suffer the loss sought in the course of “carrying on business of any kind”. Who falls in, and more importantly out, of the scope of that principle was considered by the High Court in Titan Steel Wheels v Royal Bank of Scotland [2010] EWHC 211.

Titan were a manufacturer of wheels for the “off-highway” vehicle industry and the subsidiary of a large engineering group. They brought a claim for mis-selling against RBS in respect of two currency swap derivative products sold in June and September 2007. Titan claimed, inter alia, that RBS had breached their regulatory obligations under the applicable COB Rules to deal “fairly” with Titan including a duty to ensure that communications or descriptions of the products sold were accurate and not misleading. The cause of action for the alleged breach of the Rules was founded on Section 150 of FSMA 2000- which gave rise to the immediate preliminary point of construction as to whether Titan could be considered to be a “private person” within the meaning of the 2001 Regulations.

Titan contended that the key question for the Court, when construing the phrase “carrying on business of any kind” was that of whether currency trading such as that which occurred under the Swap was an integral as opposed to incidental part of Titan’s business. In support of a contention that it was merely an incidental part of the business, and therefore was not a loss sustained in the course of “carrying out business of any kind”, Titan highlighted the fact that their business was not involved in currency trading and they were otherwise not involved in the financial services industry, it lacked the specialist software and personnel to understand such complex products and that whilst it used currency trading for hedging purposes it did not use it for trading purposes. 

The Court, placing greater emphasis on the facts of the case than the arguments of interpretation advanced by Titan, readily found that even on the narrower interpretation of the Regulation it had contended for, Titan did not satisfy the test of being a private person and therefore the avenue under s150 of FSMA 2000 was closed off to it. In particular the Court considered that the currency trades formed part of a “regular chain of transactions and thus (could) be treated as an integral part of the business”. The trades themselves were a “necessary concomitant of Titan’s trading”, and therefore Titan has sustained loss in the course of carrying on a business and was not a private person within the meaning of the 2001 Regulations.

The decision in Titan has relevance outside claims by large companies regularly involved in cross border sales. If the applicable test is the scale and moreover frequency in which hedging products are taken out there must clearly be an argument that property developers or hoteliers, who regularly need to raise finance as an intrinsic part of their business, run considerable risk of being found (like Titan) to have sufficient and regular experience of such products so as to be considered to be outside the scope of s150 of FSMA 2000 and therefore unable to directly enforce the applicable FCA Rules.  

The exclusions from the definition of “private person” to be found in Titan, are compounded in light of the decision in Green that, where the Bank is considered to have merely provided information as opposed to providing advice, a consequence is that the regulatory duties (and therefore regulatory protections) enshrined in the COB/COBS Rules do not inform the duties to be founded upon the principles in Hedley Bryne.

In such circumstances, the Claimant who has either (a) been involved in a sale when the Bank acted in a non-advisory capacity executed more than six years ago or (b) has entered in to the product in the “course of business of any kind” may avail itself of neither a direct cause of action for breach of the regulatory rules (owing to it falling outside s150 of FSMA 2000) nor the argument that the regulatory duties inform the Hedley Bryne duty of care. Such a position has the clear potential to leave a considerable body of consumers in a position where they cannot, either directly or indirectly, rely upon a breach of the relevant regulatory principles. 

Upon that basis it is perhaps not surprising that the distinction in the role that the Bank plays, between the execution only and an advisory role, was described being “fundamental”[5]. Yet notwithstanding this it is a distinction that is often poorly understood (if at all) by customers at the time that they are dealing with their Bank and is difficult to accurately distinguish when considering the case many years later.

Guidance as to whether the Bank is acting as purely to provide information and execute a transaction, or whether an advisory role is being undertaken is given within Rubenstein v HSBC [2011] EWHC 2304[6] where the Court opined that the

The key to the giving of advice is that the information is either accompanied by a comment or value judgment on the relevance of that information to the client’s investment decision, or is itself the product of a process of selection involving a value judgment so that the information will tend to influence the decision of the recipient. In both these scenarios the information acquires the character of a recommendation.

To attempt any greater definition of the giving of advice in an investment context would be unwise and is probably impossible. I suggest, however, that the starting point of any inquiry as to whether what was said by an IFA in a particular situation did or did not amount to advice is to look at the inquiry to which he was responding. If a client asks for a recommendation, any response is likely to be regarded as advice unless there is an express disclaimer to the effect that advice is not being given. On the other hand, if a client makes a purely factual inquiry such as What corporate bonds are currently yielding X%? or How does this structured product work?, it is not difficult to conclude that a reply which simply provides the relevant information is no more than that.

The test is an objective one… The question is whether an impartial observer, having due regard to the regulatory regime and guidance, and to what passed between the parties, would conclude that advice had been given

Whilst the above guidance undoubtedly assists, there remains a considerable disconnect between the examples of advice/information provided within the judgment and the reality experienced by many customers. What, for example, to make of the Director of an SME who is summoned to a meeting by his Bank and told, due to hitherto unexpressed concerns with the company’s exposure to fluctuating interest rates, the Bank requires that the Company enter in to a form of interest rate protection. There thereafter follows a presentation by a specialist representative of the Bank’s Capital Markets division setting out the myriad of different options that such protection may take including IRHPs in various guises, including Swaps. The information conveyed in the presentation has not been produced in response to an explicit request for advice from the customer- indeed often the impetus has come from the Bank. As such the Bank would no doubt argue that they are merely acting in an information only execution role.

However the reality may well be that the customer will often not have sufficient understanding of the products being outlined so as to be sufficiently informed to ask for a recommendation between products. Furthermore, there is evidently an argument to be made that in circumstances where the Bank initiated the meeting and summoned the client upon the basis that interest rate protection was required, before setting out the various forms that such protection might take, that the Bank (at the very least by implication) is acting in an advisory role with respect to their client namely that the forms of protection being outlined in the presentation are suitable and furthermore that the same ought to be taken.

The outcome for the above argument, with the necessary consequence of whether the regulatory rules play any part, may have profound consequences for any claim brought by that company. For that reason, time spent upon the initial assessment of a potential claim, in order to establish the true nature of the position between customer and Bank and in particular the role that the Bank was playing in the transaction is time spent that will undoubtedly repay dividends.


Thirdly, at least part of the difficulties encountered in Green were self-inflicted, in that the concession that the Claimants could not rely directly on a breach of the COB Rules under Section 150 of FSMA 2000 ought not, upon reflection, have been made. The fact that it was, thereby committing the Claimants to an attempt to shoehorn the COB Rules in to the claim “by the backdoor”, introduced an unnecessary obstacle to the claim both at first instance and on appeal. 

However it is important not to overstate the wider effect of the tactical decision to concede this limitation point in this particular case. Bearing in mind the passage of time and the fact that the majority of Swaps were being executed in the period up to 2006, it is highly likely that the transaction dates in cases being considered now are likely to pre-date the six year limitation period for the bringing of a claim under s150 of FSMA 2000 and therefore Claimants bringing their claims now are likely to have no choice but to address the limitation difficulties that the Appellants in Green, albeit “voluntarily”, faced.

The notable exception to the six year limitation period, is that provided by Section 14A of the Limitation Act 1980. Under Section 4(b) a three year period of limitation runs in actions for negligence from the date upon which the claimant had both the knowledge required for the bringing of the action and the right to bring the action. As explained in Chandra v Brooke North [2013] EWHC 417[7] the “start” date from which this period of time runs is triggered when the Claimant acquires three essential pieces of knowledge

•      Section 14A(6)(a): Knowledge of the material facts about the damage in respect of which damages are claimed;

•      Section 14A(8)(a): Knowledge that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

•      Section 14A(10)(b): Facts ascertainable by the claimants with the help of appropriate expert advice, which it was reasonable for the claimants to seek.

Chandra provides useful guidance as to the operation of s14A within the context of financial instruments, albeit that it relates to a claim in negligence brought against a solicitor. In analysing when the date of knowledge arose the Court opined that the key date was that “when did the claimants first know that [the Defendant’s] negligence had exposed them to huge and unquantifiable liabilities.” Although there are no reported decisions in the context of IRHP’s (and the break costs of the same in particular), the most appropriate date in such claims would likely be the point at which either the customer began to make significant payments under their agreement (i.e. when rates fell dramatically) and/or thereafter when the customer, in attempting to extricate themselves from the agreement, first sought to break the product with their Bank and was informed of the magnitude of the cost of doing the same.

Whilst there remains clear utility in an argument under s14A, in that it provides an opportunity for potential claimants where primary limitation period has expired a second opportunity to bring their proceedings s14A it ought not be considered to be a panacea of all limitation ills. In particular it is important to note that there is nothing to prevent the primary limitation period (i.e. the ordinary 6 year period) from running in parallel with the secondary 3 year period under s14A. In such circumstances the secondary period may well expire before the primary period and therefore it would be incorrect to characterise the limitation period under s14A as an “additional” limitation period- it is merely an alternative.

Furthermore, whilst each case will turn on its own facts, experience shows that the majority of customers who wished to break their swaps did so during the period when interest rates were precipitously declining in the latter part of 2008 to March 2009. By this stage rates had declined from 4.5% down to 0.5%, and (in such a low rate environment) the position of the customer under the Swap would have become very poor. Likewise it was in that environment that the customers were most likely to have approached their bank and sought to exit the product, thereby learning of the magnitude of the break cost. In either factual case, it does not involve much of an intellectual stretch to suggest that courts examining these facts for the purposes of deducing the s14A date of knowledge, are likely to conclude that either of these dates represent the appropriate date of knowledge. As these dates are likely to have fallen within the window October 2008-March 2009, an additional three years from that date will not assist in bringing proceedings for negligence which have, at the time of writing, have yet to be commenced.

Breakage Costs

Finally, the crucial issue of the nature and extent of the obligation on Banks to explain the exit costs of the Swap product was not considered in, and therefore was unaffected by, the appeal in Green. For Claimants this is important. Experience shows that in a very significant number of cases concerning swap mis-selling it is the break costs, and moreover a failure to explain the same, that lies at the heart of the client’s complaint. Furthermore it is often the case that the magnitude of such break costs, and the Byzantine way in which they were to be calculated, was either entirely unexplained or otherwise poorly explained to the customer at the time.

In Green at first instance, when the Court considered the exit costs from the Swap it found that even if COB 2.1.3R and 5.4.3R had been relevant to Hedley Bryne duty not to misstate, the Bank would have complied with the same with respect to adequately explaining the likelihood and magnitude of exit costs to the Claimants.[8] The obligation on the Bank was, per COB 5.4.3R to take reasonable steps to ensure that the customer understood the nature of the risks in taking out the product. This encompassed, in the view of the Court, saying “something about the ancillary matter of Break Costs”[9]. The Court was satisfied that the Bank’s representative had told Messrs Green and Rowley that there could be a cost (or indeed a benefit) upon the early termination of the Swap and rejected their assertions that they were told that such costs would be affordable or minimal.

Guidance as to the extent of the obligations imposed under 5.4.3R is provided by the evidential provision (denoted by the suffix “E”) and explicitly at 5.4.4E. The contents of the provision make it clear that the requirements contained within the same form part of the reasonable steps that one would expect the Bank to take, but for the avoidance of doubt do not comprise the entirety of what constitutes “reasonable” steps.

The fact that the rules themselves envisage more than simple adherence to the “pointers” provided at 5.4.4E tends towards the conclusion that the Court in Green, particularly, at first instance, somewhat “undercooked” generally the obligations placed upon the Bank under 5.4.3R, and explicitly in the context of break costs.

In particular, doubt must remain about the finding in Green at first instance, and not considered by the Appeal, that a mere mention to the customer that there might be a cost upon exiting the swap was sufficient so as to ensure compliance with the obligation on the Bank to ensure that reasonable steps were taken to ensure that the customer understood the risks involved. In particular it is suggested that “part and parcel” of ensuring that the customer understands the risks includes ensuring that they understand the risks (and moreover risk of substantial exit costs) should they wish to terminate the Swap early. Although COB 5.4.3R is not explicit on the point, there would appear no intellectual distinction to be drawn between the need for the customer to understand the risks that might be incurred by reason of entering in to a product and the risks that might be incurred should one wish to exit the product.

In particular, the Court does not appear to have considered it necessary for the Bank to set out actual figures for the likely break cost. Self evidently such costs can only be truly known at the point at which the Swap is broken (and the market to market cost calculated), but there would appear little to prevent some illustrative examp