Outer House case concerning RBS’s sale of an interest rate swap agreement to Grant Estates Limited (a property development company) in 2007.  RBS put Grant into administration in February 2011 after Grant had suffered financial difficulties during the economic downturn. Grant claimed that RBS had mis-sold the agreement, which the bank had represented as a device to protect Grant from a rise in interest rates. In actual fact, when interest rates fell sharply and remained low, the agreement prevented Grant from benefitting from those lower interest rates it would have otherwise paid on its borrowing. Grant maintained that, were it not for the agreement, it would not have gone into administration.

Although Grant had accepted RBS’s terms of business which, amongst other things, expressly stated that RBS was not providing advice on the merits of the transaction and advised Grant to obtain independent financial legal advice, Grant contended that:

1      the agreement breached the Conduct of Business Sourcebook issued by the FSA and the Markets in Financial Instruments `Directive (2004/39/EC);

2.1   RBS had entered into a contract to give it advice on financial products and had given negligent advice on those products; and

2.2    the agreement was entered as a result of fraudulent or negligent misrepresentation by RBS.

Grant sought reduction of the agreement and repayment of the sums paid under it together with damages in respect of the breach the Sourcebook and Directive.

Lord Hodge rejected Grant’s arguments.

Conduct of Business Sourcebook
In terms of the Financial Services and Markets Act 2000, breaches of the Sourcebook and Directive are only actionable by “private persons”. As a limited company acting in the course of business, Grant was barred from raising an action.

Negligence and misrepresentation
There had been no contract to provide advice. Although Grant argued that, when they had asked for financial advice and been given it by RBS, a contract arose by implication, Lord Hodge found that the terms of business contradicted any such implied contract and there was no evidence of an express agreement to depart from the terms of business. If Grant had relied on the statements by RBS as investment advice, that reliance had not been reasonable in the face of the contractual arrangements the parties had entered.

The full judgement is available from Scottish Courts here.