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Pie in the sky? Another claim for swaps misselling is rejected

The latest judgment handed down in a swaps misselling case (London Executive Aviation v RBS) represents another victory for the banks. In part, this is an inevitable reflection of the fact that the most egregious examples of misselling will have been settled or, in the case of smaller customers, dealt with under the Financial Conduct Authority (FCA) Review of Interest Rate Hedging Products (IRHPs). But it is also due, as explained in the judgment, to the fact that the courts have mostly rejected claimants’ attempts to expand the limits of banks’ duties of care. In particular, the courts are reluctant to import concepts from the regulatory sphere into the common law.


In the present case, the claimant was London Executive Aviation (LEA), which, as its name suggests, operates a business chartering private aircraft.

As with so many of these cases, the action took place across 2007 and early 2008. At that time, LEA decided to buy more private jets to widen its client base, finance those purchases with substantial new loans, and hedge those loans with structured collars. Shortly after, rates plummeted and LEA was stuck paying nearly 5.5% plus margin on its loans, whilst, simultaneously, “senior and middle ranking executives no longer felt justified in incurring the expense of chartering a private jet for their business travel”.

LEA brought this claim alleging they were missold the hedging products in question. Specifically, LEA alleged that the defendant’s Mr Brindley had negligently advised them to enter into the hedging products. LEA sought rescission for misrepresentation or, alternatively, damages in lieu, in the sum of £3.8 million.

Relevant principles

At paragraphs 159 – 172 of her judgment, Rose J provides a helpful tour through the recent authorities in the area, distilling five key points:

  • The court has often stressed that these cases are fact sensitive. Attention should be concentrated on the detailed circumstances of the particular case and the particular relationship between the parties. (Standard Chartered v Ceylon Petroleum.)
  • Claimants will often face the hurdle that their contract with the bank expressly states the relationship between the parties is not an advisory one. This may prove fatal to the claimant’s case. (See Crestsign v NatWest.)
  • Following  on from the above point, the court will take a pragmatic and commercially sensitive approach to analysing the dealings between a bank’s representative and the customer. It can be dangerous to dissect individual phone calls or emails from the large volume of material that passes between the parties over many months in order to extract advice or personal recommendations. (See Wilson v MF Global UK.) The court should distinguish between what is said by an advisor and what is said by a salesman. (See Green & Rowley v RBS.)
  • The question of whether advice was given is one of fact. The question of whether the bank assumed responsibility for that advice if it was negligent is one of law. But the analysis required in these cases defies tidy compartmentalisation. (See JP Morgan v Springwell Navigation.) In some cases the court has concluded that even if advice was given, it was not of a kind to attract a duty of care on the part of the bank.
  • The  courts are cautious about importing concepts from the regulatory rules and guidance (such as the Financial Conduct Authority’s Conduct of Business sourcebook (COBS)) into the discussion of the scope of the common law duty of care or the circumstances in which it arises. The authorities are alive to the need to keep separate the causes of action which arise under the common law duty of care and for breach of statutory duty under section 138D of the Financial Services and Market Act 2000 (FSMA).


On examining the hedging products alone, it might seem the claimant had a reasonably strong case. The claimant was significantly overhedged, and the products in question were structured collars. If the claimant had been eligible for the FCA Review, these would have been automatically deemed non-compliant sales.

But, as noted above, these cases are fact sensitive, and the difficulties with the claimant’s case soon become apparent on the facts as found by Rose J:

  • LEA’s CEO had trained, and worked for 10 years, as a chartered accountant. His wife, Isabel Margetson-Rushmore, whilst not an employee, director or shareholder of LEA, assisted him due to her background (she had qualified at Linklaters and then moved into a 15 year banking career in leveraged finance before retiring in 2000). Rose J found that:

    “it is clear to me not only that she was knowledgeable about how hedging products worked but also that she was keen to convey to Mr Brindley the message that he was dealing with someone who was able to form her own views and could drive a hard bargain.”

  • In particular, Mrs Margetson-Rushmore had led the phone call during which the trades were executed on LEA’s behalf.
  • The claimant’s attempt to “portray [the bank’s employees] as hard-nosed, money-grasping and cynical bankers” was entirely rejected by the court.
  • The court found the bank had explained the products well: for example, “[i]t is and was obvious what would happen if interest rates fell either within or below the range [stipulated by the hedging products]; this was explained extremely clearly by Mr Brindley”.

The claimant also faced the obvious hurdle that there was no written advisory agreement between the parties. Consequently, the court’s holding that the evidence fell far short of establishing there was any advisory relationship should not come as a surprise. Rose J also rejected the claimant’s arguments based on the bank’s alleged failure to fully explain the hedging products (sometimes called a “mezzanine claim”) and claims in deceit.


This case provides further confirmation that claimants in swaps misselling cases face an uphill struggle. This trend is likely to continue, with the authorities disclosing no appetite on the part of the courts to expand banks’ duties of care toward their customers.

39 Essex Chambers David Hopkins

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