Interest rate swap founds an interesting case
In a case that seems to counter, somewhat, the recent spate of mis-selling decisions against banks, John Green Paul Rowley v Royal Bank of Scotland Plc provides a useful analysis of certain circumstances in which a banking deal can be done, and financial arrangements can be discussed, without there being a breach of the Hedley Byrne duty of care in relation to the making of statements and the giving of advice.
The claimants were themselves lenders, but they had an existing loan liability to the defendant bank of £1.5 million. The loan was repayable over 15 years, on an interest-only basis, at 1.5 per cent above base rate. The claimants had a meeting in 2005 with two of the bank’s employees, at which the bank provided information about an interest rate swap. The swap operated such that if interest rates fell below 4.83 per cent, the claimants’ loan repayments would decrease, but they would have to make a corresponding payment to the bank. Other matters concerning the operation of the swap, and its early termination, were also discussed. Following the meeting, the claimants agreed to the swap. Some time later, in 2009, the claimants were struggling to service loan repayments and the swap (following significant interest rate falls) and the claimants wished to restructure their partnership…
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