The conduct of RBS’ loan workout unit GRG in the aftermath of the GFC was highly controversial, attracting media and Parliamentary attention, and resulting in a series of inquiries and reports (discussed here and here), as well as litigation by unhappy borrowers.
Some of the judgements have provided insight into the inner workings of bank restructuring teams, such as the claims pursued by PAG (discussed here), and most recently, a case in which the borrower claimed conspiracy on the part of the Lender arising from the involvement of a borrower-side adviser (the Adviser) engaged and paid by the borrower but nominated by the lender.
The claims were brought by a chiropractor and his wife, and various associated entities which operated sixteen chiropractic clinics and owned property (the Claimants).
Banked by RBS since 1999, control of the account was transferred into GRG in 2009, and shortly thereafter GRG proposed a strategy which included the engagement of the Adviser.
A range of measures were tried, including a restructure in 2011, but none were successful. In February 2013 RBS appointed administrators following an attempt by the chiropractor to liquidate the companies, and in due course the Claimants commenced action for damages in respect of three claims alleging:
- Mis-selling of an interest rate swap in 2007 which locked in a base rate of 5%, resulting in an interest cost £100,000 per year higher it would have been with a variable rate.
- Mis-selling said to arise from the 2009 restructuring of the 2007 swap.
- Conspiracy to exploit a claimed “breach by [the Adviser] of her duties of loyalty.”
A contrast in witness credibility
The Court found that the chiropractor “had become obsessed with blaming the Bank for the collapse of his business…[which] meant that it was difficult for him to give evidence comprising his best recollection…[some parts were] at best wishful thinking, mis-recollection and bluster, and at worst (as the Bank submitted) an obvious lie.”
By contrast the Court found that the Adviser was “an impressive witness” whose evidence was comprised of “honest and (usually) brief and clear answers to questions,” and that it was “easy to see why…[she] had been held in high regard by RBS.”
In CJ & LK Perks Partnership & Ors v NatWest Markets Plc  EWHC 726 the Court found, in relation to the mis-selling claims:
- There was no complaint by the chiropractor at the time when advised that loan approval was subject to interest rate hedging.
- There was no evidence to support the conclusion that a claimed misrepresentation – that interest rates were going to rise – was made at all; and there was no evidence that the chiropractor relied upon it, because the chiropractor “wanted to expand the business and wanted the loan which RBS was proposing” and he was “happy to enter a swap if that is what the Bank wanted.”
- There was no misstatement in the information provided by RBS, who in fact had warned him of significant risks which were associated with the swap.
- There was no evidence to support the existence of other purported unadvised risks, and no evidence that those purported risks had actually impacted the Claimants – but even if there had been, the chiropractor would still have entered the swap, because he wanted the loan.
- A claim for improper advice also failed. Not only had the RBS banker recommended that the chiropractor seek independent advice, but there was no causation grounds because the chiropractor “would still have entered into the swap, because [he] wanted the loan.”
- The more limited claim in respect of the 2009 swap was also unsuccessful because there was “no substance to the case that the [relevant] risks…were not sufficiently explained.”
In relation to the conspiracy claim, the Court held:
- There was no evidence whatsoever to support the allegation that the transfer to GRG “was driven by an ulterior motive on the part of RBS.”
- A payment default was “obviously a serious matter” and together with clear evidence that the business would not be able to meet future obligations, justified transfer to GRG.
- It was true that the Adviser had put moderate positions to RBS, but that was because she recognised that a favourable outcome for the businesses required the agreement of RBS, and that “it was unproductive to take positions which were likely to be rejected.”
- Not only was there “no substance in the case of conspiracy” it was appropriate to “exonerate” the Adviser and the RBS staff, who had “acted with integrity.”
The Claimants were unsuccessful.