Settlement release precludes swap mis-selling claim

2nd November 2015

In what was no doubt a common occurrence post the 2007/08 financial crisis, the claimant in Marshall v Barclays [1] entered into a settlement arrangement with his bank, the defendant, when he ran into financial difficulties. The claimant had borrowed some £1 million from the defendant and, amongst other dealings, had entered into an interest rate swap agreement. Despite being aware that he had a potential mis-selling claim in respect of the swap [2], the claimant concluded a settlement and release with the defendant, which ended all banking arrangements between them. Following the Financial Services Authority’s (FSA) findings that there had been serious failings on the part of several banks, the claimant took part in a review exercise with the defendant, the outcome of which was that the claimant was not entitled to any redress. The claimant then looked to pursue a mis-selling claim after all, and the question for the court was whether this was precluded by the settlement agreement.

The settlement agreement included a widely drafted release. The claimant had agreed to “release and waive irrevocably any claims, complaints or rights of action against the Bank in relation to this matter and your banking relationship and arrangements with the Bank… whether direct or indirect, foreseen or unforeseen, contingent or actual, present or future, and which arise, or may arise, out of or are in any way connected with this matter.”

High Court decision – of interest to banks

The High Court ordered that the claim be struck out. The judgment covers several issues which will be of interest to banks and these are summarised below.

• The release was drafted sufficiently widely to cover, and therefore to bar, the claim.
• Contrary to the claimant’s assertions, the bank had not been guilty of any “sharp practice” [3] which might nevertheless undermine the wide release and enable the claim to proceed.
• The defendant had been under no obligation to notify the claimant of the FSA investigation – it was an arrangement between the FSA and the bank. Regardless, the claimant was aware of the investigation and took part in a consequential review with the defendant.
• In any event, the FSA investigation and subsequent review process amounted to nothing materially different than that which the claimant already knew he had – that is, a potential mis-selling claim against the bank – at the time he entered the settlement and release.
• The claimant could not raise a public policy argument effectively saying “if the original swap agreement itself was void because it was illegal or otherwise contrary to public policy, then both parties were operating under a mistake when they entered into the Settlement Agreement… and that on that basis the Settlement Agreement could and should be set aside” [4].
• Similarly, the claimant could not successfully argue “I may have known in general terms that I was entitled to challenge the swap, but, because I did not know the specifics as to how I could do so, nor did I know just how bad the Bank’s conduct was in relation to the mis-selling of the swap, both to me and to others, I can escape from the wide terms of this release” [5].
• The fundamental point was the claimant’s actual knowledge of the potential for him to bring a mis-selling claim at the time he entered the settlement and release.No amount of legal argument and ingenuity could circumvent that.

WM Comment

Banks and other financial institutions should ensure that as wide-a release as possible is negotiated into any agreement that is entered into as part of the settlement of any ongoing disputes, or simply when customers wish to extricate themselves from ongoing commercial/banking arrangements. Prior to completing any such release, firms should take expert advice so that they get the balance right between not unnecessarily tipping off as to any potential claims against them, and not engaging in the sharp practice of obtaining a release by unacceptably failing to disclose material matters.

Whilst every case will turn on its own facts, this decision may well assist financial institutions when any party seeks to revisit and undo any prior settlement and release. Please contact any member of Walker Morris’ Banking Litigation team if you would like further advice or assistance.

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[1] Gary Ronald Marshall v Barclays Bank plc [2015] EWHC 2000 (QB)
[2] Evidence to this effect was adduced in the case.
[3] This is a reference to the sharp practice argument noted in Bank of Credit and Commerce International SA v Ali & Ors [2002] 1 AC 251.  In that case Lord Nicholls stated that for a party to whom a release was given to proceed, knowing that the other party had or might have a claim, knowing that the other party was ignorant and yet failing to disclose the existence of the claim or possible claim, could be unacceptable “sharp practice”, for which the law should provide a remedy.
[4] Para. 46
[5] Again, para.46