A High Court judgment, which rejected claims Barclays had mis-sold an investment product, failed to take into account rules set out by Mifid and the Financial Services Authority, a barrister has claimed.
In November last year, the High Court threw out a claim brought against Barclays by property investment business Thornbridge, over the sale of interest rate swaps.
Thornbridge claimed Barclays had been negligent and sought damages for losses it allegedly suffered following the collapse of interest rates in the banking crisis.
Judge Moulder decided Thornbridge’s claims were brought with the benefit of hindsight following the banking crisis, with banks heralding the judgment as an important marker for mis-selling claims.
But Paul Marshall, a barrister specialising in commercial and company law at Birmingham-based No5 Chambers, said the judge had overlooked a “fundamental point” concerning the boundaries between advice and execution-only sales.
Judge Moulder placed emphasis on the “execution-only” nature of the role taken on by Barclays, therefore rejecting Thornbridge’s claims the bank had assumed an advisory role.
But Mr Marshall pointed out execution-only sales of interest rate swaps had been banned by rules under article 19 of Mifid and the FSA’s Conduct of Business Sourcebook by the time the transaction had taken place in May 2008.
Rules introduced across the European Union in November 2007 made it clear the seller has to ensure the product is “appropriate” for the person purchasing it, meaning the seller has to take into account the customer’s understanding and interests.
Mr Marshall therefore said the sale of the swaps should not have been an execution-only sale, which had been identified by the judge.
He said: “It seems to me that the changes in the regulatory regime introduced under Mifid and the Conduct of Business Sourcebook with effect from November 2007 were not properly considered in the course of the trial.”
He also argued the interface between common law and financial regulatory law needs to be worked out, suggesting the judge took the view that financial regulation is an entirely separate issue.
It is likely the “hard-edged distinction” between the two legal frameworks does not reflect parliament’s intention, Mr Marshall stated. “Some medium sized-enterprises find litigation against banks very daunting and many have been destroyed by the mis-selling of swaps.”
In 2009, Barclays was fined by the FSA for failing to comply with reporting obligations for traded swaps that were introduced under Mifid.
Mr Marshall argued the execution-only sale identified by the judge was consistent with that failure.
When approached, Barclays declined to comment on Mr Marshall’s comments.
In February, the High Court dismissed a judicial review application over KPMG’s role in compensating a different company, Holmcroft Properties, which was allegedly mis-sold interest rate products by Barclays.
katherine.denham@ft.com
