In a case of massive importance to all small businesses with Interest Rate Swap Products, Josiah Hincks acted in the High Court case of Kays Hotels v Barclays Bank.
In Kays Hotels Limited v Barclays Bank Plc, the Defendant bank applied for summary judgement/
strike out of the Claimant’s claim on the basis that it was issued outside of the 6 year time limit for
limitation purposes. The Commercial Court HELD that the Claimant had a real prospect of
establishing that it could rely on s.14A Limitation Act and its claim could not be summarily
dismissed as bound to fail on limitation grounds. Furthermore, the issue of constructive knowledge
was particularly fact-dependent and required a full consideration of all the circumstances of the
person whose knowledge was in issue. That full factual picture would emerge at trial.
Facts
The Claimant had taken out a structured collar interest rate hedging product with the Defendant
bank in 2005. The effect of the product was that if interest rates remained between 4 and 5.5 per
cent, as they did from 2005 to 2007, neither side paid. If interest rates rose above 5.5 per cent, as
they did in 2007, D made payments to C. Rates then fell again and no payments were made. In
2008, when rates fell below 4 per cent, C started making payments to D. C issued proceedings in
November 2012 alleging that the product had been missold.
The sale of the product was reviewed as part of a process agreed between banks and the
Financial Services Authority in relation to the sale of interest rate hedging products to nonsophisticated
business customers. D paid some compensation to C as a result of the review. The
claim was in the interim stayed pending the review process. D applied to strike out the claim as
statute-barred. C relied on the Limitation Act 1980 s.14A on the basis that it had not had the
requisite knowledge to bring an action before November 2009. D contended that C knew or should
have known that it had a claim before proceedings were issued since by that date it had made
payments totalling £36,000.
HELD: The principles relevant to the knowledge required for the purposes of s.14A were set out in
the authorities. The test was whether the claimant had been alerted to the factual rudiments of his
claim, sufficient for him to take advice and put proceedings in train, Spencer-Ward v Humberts
[1995] 1 E.G.L.R. 123 followed. What he had to know to set time running was the essence of the
act or omission to which his damage was attributable, the substance of what ultimately came to be
pleaded as his case in negligence, Haward v Fawcetts (A Firm) [2006] UKHL 9, [2006] 1 W.L.R.
682 followed. Where a claimant acted on professional advice he must have had some reason to
question the advice and to think that something must have gone wrong with it. The determinative
moment was when he had reason to begin to investigate, Broadley v Guy Clapham & Co [1994] 4
All E.R. 439 followed. Distilling the essence of C’s claim it was one of misselling. It was said that D
had not explained adequately how the product worked and the risks involved over the whole life of
the product; that D had not considered its suitability for C; and that C had been required to take out
the product. C knew that there would be some risk, but its complaint was of excessive risk. The
fact that there had been some loss because C had been required to make payments to D did not
indicate a lack of suitability. The issue of suitability was not limited to the risk of having to make
payments. In the light of the authorities D’s approach to the requisite knowledge was too narrow. C
had a real prospect of establishing that it could rely on s.14A and its claim could not be summarily
dismissed as bound to fail on limitation grounds. Furthermore, the issue of constructive knowledge
was particularly fact-dependent and required a full consideration of all the circumstances of the
person whose knowledge was in issue. That full factual picture would emerge at trial.
Comment
This is the second case before the Commercial Court which the author has had in respect of
potentially time barred claims for the misselling of interest rate hedging products. Both cases
ended with the same result; the bank’s application being dismissed as not being suitable for determination on summary assessment.
