The High Court judgment in the swaps mis-selling case Thornbridge Limited vs Barclays Bank PLC [2015] EWHC 3430, in which Thornbridge’s claims were comprehensively rejected, was heralded by banks and their solicitors as an important marker for swaps mis-selling claims.

But a leading barrister practising in commercial and company law at No5 Chambers has suggested that the judgment overlooked a ‘pretty fundamental point’ and that there were a number of questions not addressed by the judge in her decision that will require to be considered in similar cases in the future.

Paul Marshall commented: “the judge placed a good deal  of emphasis on the ‘execution-only’ nature of the role assumed by Barclays in connection with the sale of the swap thereby rejecting claims by Thornbridge that the bank assumed an advisory role.” But he points out that the ‘execution-only’ sales of interest rate swaps had become obsolete – indeed prohibited by the FSA under COBS- by the time of the transaction in May 2008.

Mr Marshall has written a critical evaluation of the Thornbridge judgment in the May issue of Butterworths Journal of International Banking and Financial Law – (2016) 5 JIBFL 266. In it, he explores a fault line that he suggests exists in English financial law at the difficult and uncertain boundary between the common law and financial regulatory law. He suggests that in this instance the wrong questions were asked, insufficient attention having been given to the changes introducted by MiFID (Art. 19) and the FSA’s Conduct of Business Sourcebook (COBS) from November 2007.

Thornbridge is a property investment business run by a Mr and Mrs Harrison. In March 2008, Thornbridge sought a loan to purchase a commercial property and Barclays offered a 15-year loan of £5.6m and also required Thornbridge to hedge its borrowing.

Barclays Capital, Barclays’ investment banking division, had several discussions with Mr Harrison by phone and by email, and sent a written presentation setting out the hedging products available. As a result of these discussions, Thornbridge entered into a 5-year (base rate) swap with a swap rate fixed at 5.65%. 

The swap was alleged by Thornbridge to have been mis-sold when it turned out to have been disastrous for Thornbridge following the collapse of interest rates in the banking crisis. The judge, Her Honour Judge Moulder sitting as High Court Judge in the Manchester Mercantile Court, rejected Thornbridge’s contentions, concluding that the claims were brought with the benefit of hindsight following the banking crisis.  In doing so, the judge accepted evidence from Barclays and submissions by its counsel, that the transaction was treated by the bank as an execution-only transaction.

Marshall concludes: 

•    “What is perhaps remarkable – and unfortunate – is that MiFID, and the recent changes that it had effected in the regulation of the sale of derivatives [by 2008], is not referred to in the course of the judge’s judgment” and that “It appears not to have been pointed out to the judge that by the time of the sale, the distinction [between execution-only and advised sales]– to which she plainly attached importance – had ceased to exist under MiFID in relation to the sale of interest rate derivatives.” and

•    “While there are numerous references in the judgment to the FSA’s pre-November 2007 Conduct of Business (COB)…  there is not a single reference to the post-November 2007 Conduct of Business Sourcebook (COBS) rules or to MiFID and the changes that it effected in the sale of regulated products, including the swap sold to Thornbridge.”

•    It is noticeable that in 2009 Barclays had been subject to a regulatory fine by the FSA for failing to give proper effect to MiFID in relation to its reporting obligations for traded products – including OTC derivatives. The FSA concluded that the bank was in breach of Principle 3 in failing to take reasonable care to organise and control its affairs responsibly and effectively, and Principle 2 in failing to conduct its business with due skill, care and diligence – in an environment of heightened awareness of MiFID.

The full article ‘Fault lines in English financial law: Thornbridge v Barclays Bank’ can be read in the May 2016 edition of Butterworths Journal of International Banking and Financial Law (JIBFL).

Paul Marshall is a member of the Banking, Finance and Financial Regulation Group at No5 Chambers.  He recently acted for the successful claimant in Purrunsing v A’Court (a firm) and Anr. [2016] EWHC 789 (Ch)  a “landmark decision” (New Law Journal) in which, for the first time, the High Court has held that both the vendor’s and purchaser’s conveyancers were liable to the defrauded purchaser (P) for breach of trust, refusing relief under the Trustee Act 1925, in a Dubai-based identity conveyancing fraud.