Humpty Dumpty is broken: “unsuitable” and “inappropriate” swaps transactions

Sun, 07 Dec 2014

An article by Paul Marshall, published in the December issue of Butterworths Journal of International Banking and Financial Law, can be downloaded below. 

In this Part 1, Paul Marshall questions the jurisprudential foundations underpinning the judge’s finding in Crestsign v Natwest and RBS [2014] EWHC 3043 (Ch) that a bank’s standard form disclaimer can exonerate it from liability for negligent advice. Part 2 will consider Bailey and MTR Bailey Trading Ltd v Barclays Bank plc [2014] EWHC 2882 (QB).

Key points:
  • In Crestsign the judge considered an interest rate swap sold by Natwest and RBS, to their retail client, Crestsign, in 2008 – shortly after the amendments under the Conduct of Business Sourcebook (COBS) that gave effect to MiFID.
  • Rejecting the banks’ contentions otherwise, the judge found that an advisory role had been voluntarily assumed by the banks in recommending the swap. He further held that the banks had negligently advised Crestsign.
  • Nevertheless, on the basis of the banks’ documentation, that included standard form disclaimers, he held Crestsign was “estopped by contract” from claiming damages against the banks. A common law principle thus appears to facilitate breach of the prohibition and restriction under COBS 2.
  • It is suggested that the application of the dubious “estoppel by contract” principle is an unsound basis for displacing what would otherwise have been the outcome in law.

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