Crestsign Ltd v National Westminster Bank Plc & Another  EWCA Civ 986
On 24 September 2015, the transcript of a judgment of the Court of Appeal on the renewed application for permission to appeal in Crestsign Limited v NatWest & RBS was published (co-defendants, referred to together as the ‘bank’).
By way of background, on 26 September 2014 the High Court dismissed Crestsign`s interest rate swap mis-selling claim on the basis of contractual limitations – preventing certain duties to arise – but nonetheless elaborated on significant duties which would have arisen otherwise. The appeal seeks to challenge the contractual limitations and widen the duties.
The outcome has the potential to make or break most of the mis-selling cases, as the issues raised in Crestsign lend themselves to general application: similar contractual limitations are found in most standard agreements in order to minimise exposure to liability. For instance, it is market practice to include limitations of a similar nature in the ISDA Master Agreement.
On 16 December 2014, Crestsign had secured permission to appeal the first ground regarding contractual limitations, but was refused permission on a second and third grounds covering the duties of the bank. By way of the renewed application for permission to appeal, Crestsign sought and succeeded to include the remaining grounds.
Ground 1 Contractual limitations
The High Court accepted the bank`s position that the parties` relationship could not be treated as that of adviser and advised party, since the documents expressly stated the contrary via basis clauses.
The first ground of appeal goes to whether the judge was right to preclude any duty of care from arising on that basis. Should the Court of Appeal adopt the reasoning of the High Court on this question and reach the same conclusion, the two other grounds below would be somewhat theoretical for Crestsign but would remain of interest to the market.
Ground 2 Scope of duty when giving information
The High Court held that when giving information about the swap, the duty of the bank was limited to explaining fully and accurately the nature and effect of the products in respect of which it chose to volunteer an explanation, in addition to correcting any obvious misunderstandings communicated by the client and answering any reasonable question he might ask.
The second ground of appeal goes to whether this duty should be extended and have required the bank to inform and explain the different types of available interest rate hedging products, including in particular an interest rate cap.
Extending the duty could materially reduce the gap between non-advised sales and advised sales.
Ground 3 Application of the duty when giving information
Applying the duty when giving information to the particular facts of the case, the High Court held that the bank was not in breach as the explanations provided were not misleading and were adequate to comply with the bank`s duty.
In particular, the description of the break costs as “substantial” was found to be adequate, although there was no illustration as to what they might be in a variety of unpredictable scenarios such as a substantial drop in the interest rate.
The third ground of defence goes to whether the bank discharged its information duty in relation to the break costs.
The appeal is set to be heard around April 2016.
[Update: the case was settled on 19 February 2016, on confidential terms]Contact Us