Kays Hotels Ltd (T/A Claydon Country House Hotel) v Barclays Bank PLC (2014)
The claimant was a family-run company which operated a country house hotel. In 2005 it entered into a loan agreement with the defendant bank to borrow GBP 1.34 million repayable over 20 years at an interest rate of 1.5% above the defendant's base rate. It also entered into an interest rate hedging product, which was a collar with a ten-year term. If the Bank of England base rate increased above 5.5%, as it did in 2007, the bank would pay the claimant. If the rate fell beneath 4%, as it did in 2008, the claimant would pay the bank. If the rate remained between 4% and 5.5%, neither party would make payment.
In November 2012, the claimant issued proceedings alleging that it had been mis-sold the product. The bank alleged that the claims were time-barred and applied for strike out. The claim was, however, stayed pending review of the sale as part of a wider process agreed between the FSA and banks in 2012 in relation to the sale of interest rate hedging products to non-sophisticated business customers, as a result of which the defendant paid compensation to the claimant. The stay expired and the bank renewed its strike-out application. In relation to the claim concerning the bank's common law duty of care, the claimant relied on section 14A of the Limitation Act 1980 for a three-year time extension to bring proceedings, on the basis that it had not had the requisite knowledge to enable it to bring an action before November 2009 (i.e. three years before proceedings were in fact issued). The bank argued that the claimant knew or ought to have known that it had a claim before proceedings were issued, since by that date it had made substantial payments to the bank in relation to the product over a considerable period of time.
The Court considered the case law regarding the knowledge required for the claimant to rely on section 14A. It held that the test was whether the claimant had been alerted to the factual rudiments of its claim and whether it knew the facts needed to know how to take advice and mount proceedings if so advised. To start time running, it had to know the essence of the negligent act or omission to which its damage was attributable. Where a claimant acted on professional advice, and suffered loss, it must have had some reason to question the advice and to think that something must have gone wrong with it. The crucial moment was when it knew enough to make it reasonable to begin to investigate whether or not it had a case.
The claimant alleged that the bank had not explained the risks of the product as a whole; that it had not told the claimant that the product was not suitable for the claimant, who was not a professional or sophisticated investor; that it had said that the claimant was required to take out the product if there was to be a loan or draw down under the loan; and that it had not adequately explained how the product worked. The present claim was one of mis-selling, key to which was the suitability of the product. The claimant knew that there would be some risk associated with the product, but its complaint was that there was excessive risk, and so the mere fact that there had been some loss (as indicated by the claimants having been required to make payments to the bank) was not enough to indicate to the claimant that the product was unsuitable. The Court held that the claimant had a real prospect of establishing that it could rely on section 14A for a time extension and its claim could not be summarily dismissed as bound to fail on the basis of limitation. Furthermore, the issue whether the claimant had the relevant constructive knowledge to start an investigation was dependent on the facts and required a full consideration – at trial – of the claimant's circumstances.
The full text of the judgment can be found here: http://www.bailii.org/ew/cases/EWHC/Comm/2014/1927.html
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