Source: https://iclg.com/practice-areas/financial-services-disputes-laws-and-regulations/england-and-wales
Timestamp: 2019-08-22 23:02:59
Document Index: 620954659

Matched Legal Cases: ['art 19', 'art 19', 'art 6', 'art 36', 'EWCA ', 'EWCA ', 'EWCA ', 'EWCA ']

Financial Services Disputes 2019 | England & Wales | ICLG
ICLG.com Practice areas Financial Services Disputes England & Wales
England & Wales: Financial Services Disputes 2019
A non-exhaustive selection of the more common causes of action taken by or against financial institutions and service providers are:
1. Breach of contract for express or implied contractual terms.
2. Negligent misrepresentation under s. 2(1) of the Misrepresentation Act 1967 (and/or negligent misstatement in tort).
3. Other claims in the tort of negligence, for example relating to the provision of advice.
4. Claims under s. 138D of the Financial Services and Markets Act 2000 (FSMA) which creates a right of action for ‘private persons’ who have suffered loss as a result of breaches of specified rules made by the Financial Conduct Authority (FCA) / Prudential Regulation Authority (PRA).
There are a range of remedies available to the English courts. The main ones likely to be awarded in financial services disputes are:
1. Damages – compensatory in nature.
2. Injunctions – require a party to do or refrain from doing a specified action.
3. Restitution – reverses an unjust enrichment by returning any benefit or enrichment to the claimant.
4. Rescission – restores the parties to the position they were in before the contract was entered into.
An individual and a commercial entity have the same rights of action in financial services disputes although the claims available may be different (e.g. the right of action under s. 138D of FSMA is only available to ‘private persons’, which means individuals (with limited exceptions)).
Third-party litigation funding has become increasingly common over the last 10 years. This allows a claim to be progressed without any financial expenditure by the claimant receiving the funding. The funding arrangements can also incorporate protection against adverse costs orders in the event a claim is unsuccessful. The funding is usually provided on a non-recourse basis, meaning that the funder will recoup its funding and receive any return only out of the damages recovered on the conclusion of a successful claim; where there is no recovery there is no repayment to the litigation funder.
The conduct of the litigation must remain with the claimant, being the party who has received the funding. In accordance with the rules of champerty and maintenance, if a professional funder attempts to exercise control over the litigation or is in a position to recover disproportionate sums, a court can hold the funding agreement to be unenforceable.
There are various forms of litigation insurance. After the event (ATE) insurance is an indemnity for future adverse costs awards in a civil dispute that has already arisen. Before the event (BTE) insurance is taken out in order to cover the legal costs of various legal scenarios before they arise. An insurer may agree to a deferred premium arrangement, where it is only paid a premium if the funded case is successful.
Litigants can also manage the costs and risk of litigation using:
conditional fee agreements (CFAs) under which the lawyers make some or all of their fees conditional upon success, in return for an additional uplift payable upon success (calculated as a percentage of the fees incurred); and
damages-based agreements (DBAs) under which the lawyers’ fees are limited to a share of the proceeds of successful litigation.
Broadly speaking, class actions (or collective actions as they are more commonly known) in the UK are opt-in regimes which mean that a claimant has to take active steps in order to join any collective action.
Various types of collective actions are available under the Civil Procedure Rules (CPR) which govern court proceedings although the primary procedural mechanism is the Group Litigation Order (GLO). A GLO is an order under CPR Part 19 which provides for claims which give rise to common or related issues of fact or law to be case-managed together. There are other options available under CPR Part 19 such as representative actions (claims begun or pursued by representatives who are considered to have a shared interest in the claim with those they represent, on an opt-out basis) and more informal procedures such as test cases, the ability to name multiple claimants and consolidation of multiple individual claims.
Collective Proceedings Orders (CPOs) are available in the Competition Appeal Tribunal. A CPO is a form of collective action for infringements of competition law. CPOs can be ordered either on an opt-in or opt-out basis.
As a result of the increasing use of litigation funding, collective actions are becoming more common in financial services disputes.
Contractual estoppel is one of the main defences to claims (particularly mis-selling-type claims) brought by customers against financial services providers. Estoppel can operate to prevent a customer from asserting anything that is inconsistent with its previous agreement/actions.
There are frequently clauses in contracts between financial services providers and customers which purport to exclude or restrict liability or set out an agreed basis upon which the parties are contracting. For example, this may involve the customer representing that they are a sophisticated investor and have not relied on any information given to them by the financial services provider as investment advice. Such clauses may cause a customer to be estopped (i.e. prevented) from asserting that the true facts were different. This would operate as a bar to a successful claim even if there was advice and it was negligently given.
The time limits for bringing financial services claims are the same as those for any other type of civil dispute. These time limits are prescribed by the Limitation Act 1980.
Subject to certain exceptions in each case, for claims in respect of a contract a claimant has six years from the date of the breach to bring a claim, and for tortious claims, the claim must be brought within six years from the date the damage caused by the tortious act was suffered. The issuing of a claim form at court is the procedural step which determines whether a claim has been brought within the relevant period.
Parties in dispute are able to enter into a standstill agreement the terms of which suspend the running of the limitation period for an agreed period. The commencement of a regulatory process does not ‘stop the clock’.
There are two forms of legal professional privilege available to parties in civil litigation in England & Wales:
Legal advice privilege applies to confidential communications between a client and a client’s lawyer and which have come into existence for the purpose of giving or receiving legal advice about what should be done in the relevant legal context.
Litigation privilege applies to communications between a lawyer (acting in their capacity as a lawyer) and a client, or between either of them and a third party, made at a time when litigation is reasonably in contemplation and for the dominant purpose of litigation.
If litigation privilege is to apply in the context of an investigation conducted by a regulated body, the investigation must be considered sufficiently ‘adversarial’ (i.e. the dominant purpose of any documents created in the course of the investigation was to defend the expected litigation).
Standard form master agreements are used in England & Wales by financial institutions for dealings with counterparties. By way of example, ISDA Master Agreements are commonly used for derivatives transactions and Global Master Repurchase Agreements for repo transactions. Other industry standard form agreements are commonly used, such as LMA agreements for loan facilities.
Courts are generally slow to deviate from the express terms of master agreements and other industry standard form agreements by implying terms into them. This is in order to ensure certainty of terms across markets.
There is no general fiduciary duty owed by a financial services provider to its customer. However, financial service providers which conduct regulated activities will be subject to rules prescribed by the FCA.
A financial service provider may also owe a duty of care in tort in respect of any advice it gives to customers, in certain circumstances. The extent of this duty of care will depend upon the facts of any case including the extent of the relevant customer’s/s’ own experience and sophistication. A financial service provider will generally also owe a duty of care not to make negligent misstatements.
Parties cannot contract out of the rules imposed on them by regulatory bodies such as the FCA. However, it is possible to include non-reliance clauses and/or limitation/exclusion clauses in the parties’ contracts. The extent to which such clauses may be deemed to be reasonable is context-specific. Nevertheless, English courts have been shown generally to be keen to uphold such clauses on the basis that commercial, sophisticated parties should be free to contract as they wish/ensure certainty of terms.
Claims involving financial services matters are primarily commenced in the Commercial Court. The Commercial Court is a specialist court which is part of the Business and Property Courts of the High Court of Justice. The Commercial Court specialises in complex national and international business disputes, including cases which involve banking and financial services.
The Financial List was introduced in 2015 as a specialist cross-division list set up to address cases involving financial matters. Cases will be accepted in the Financial List if they relate to complex finance or banking matters worth more than £50 million or equivalent, need expert judicial knowledge of the financial markets or raise issues of general importance for financial markets.
The method of service of legal proceedings does not differ for financial services litigation; the same provisions of the CPR and Practice Directions (PDs) apply. Part 6 of the CPR sets out the rules for service of claim forms and all other court documents upon defendants inside and outside of the jurisdiction of the courts.
There are some differences between the conduct of proceedings started in the Commercial Court and those in other divisions of the courts. For example, in the Commercial Court an acknowledgment of service must be filed within 14 days of service of the claim form (rather than 14 days after service of the particulars of claim which is the default rule). Proceedings in the Financial List are generally subject to the procedural rules of the Commercial Court.
Litigation in England & Wales will typically have the following phases, although there is considerable flexibility given to the parties and the court as to how legal proceedings are conducted. The CPR does not prescribe any specific differences for the conduct of financial services litigation.
1. Consideration of alternative dispute resolution (ADR) options – mediation (settlement facilitated by the assistance of a neutral third party) and Part 36 offers to settle.
2. Consideration of limitation issues, the guidelines relating to pre-action conduct in the Practice Direction on Pre-action Conduct and Protocols and any relevant pre-action protocol. There is no specific pre-action protocol for financial services disputes but there is one for Professional Negligence claims.
3. Funding and insurance – consideration of options as outlined at question 1.4 above.
4. Issuing and serving the claim form – the claim form filed and served by the claimant will contain a precise statement of the claim and remedy sought as well as a value for the claim.
5. Statements of case – following the issuance of the claim form, the claimant will prepare the particulars of claim which details their claim in full to which the defendant will respond with a defence. The claimant may then respond to the defence with a formal reply. A defendant may also file a counterclaim. Various other interim applications may be prepared and there will be Case Management Conferences at which case management directions will be made.
6. Evidence (experts and witnesses) – the parties will need to adduce evidence to support their claim(s)/defence. This evidence will comprise (a) contemporaneous documents, (b) statements taken from factual witnesses, and (c) expert evidence where necessary to assist the court.
7. Disclosure – parties make available documents (very broadly defined) which either support or undermine any party’s case. This is often the most time-consuming and expensive stage of litigation.
Any non-compliance with any of these steps and/or the relevant rules pertaining to each under the CPR, including the late filing of any necessary documents at court or service on the parties, could be taken into account by the court when making case management directions or orders as to costs. Breaches of the CPR may also result in certain documents not being permitted to be filed/served or relied on in the proceedings.
There are no ADR regulations that apply to financial services disputes specifically.
ADR is one of the aims of the pre-action protocols and the English courts may look for evidence that the parties have considered it. However, ADR clauses are not typically included in financial services contracts. The terms of the ISDA, GMRA and LMA agreements do not, for example, make it compulsory for parties to explore any form of ADR before commencing proceedings. However, it is common for mediation to be used pre-trial to attempt to settle financial services disputes.
Mis-selling claims are often brought against financial services providers. Mis-selling is not in and of itself a cause of action but is rather an umbrella term for a wide range of claims which may arise in the context of investments/financial products.
Mis-selling claims encompass various causes of action, broadly: (i) claims for breach of statutory duty (such as claims under s. 138D of FSMA); (ii) claims in contract or tort (such as negligent misrepresentation or other claims in the tort of negligence) relating to advice provided by the financial service provider; and (iii) claims arising from statements made in the selling process (misrepresentation; breach of duty not to misstate negligently).
Contractual estoppel is a common defence to claims of mis-selling.
The two main types of contract term which the courts consider may be unfair are limitation and exclusion clauses. The extent to which any contract term is considered to be reasonable/fair is decided by reference to the following legislation:
Unfair Contract Terms Act 1977 (UCTA) – from 1 October 2015 when the Consumer Rights Act 2015 (CRA) came into force, UCTA does not apply to consumer contracts (i.e. contracts between individuals acting outside that individual’s business/trade/profession and traders). It only applies to non-consumer contracts, which means that the defendant must be acting in the course of business and it is only relevant to business liability.
UCTA provides that a business cannot exclude or restrict its liability for negligence except insofar as the term or notice satisfies the requirement of reasonableness. In s. 11 of UCTA there is guidance on whether the requirement for a term to be ‘reasonable’ has been satisfied. UCTA would be the relevant legislation for terms contained in a financial services contract between sophisticated financial parties.
Misrepresentation Act 1967 – this provides that a contract term which would exclude or restrict any liability to which a party may be subject by reason of any pre-contract misrepresentation (or any remedy flowing from it) is of no effect except insofar as it satisfies the UCTA reasonableness test.
Unfair Terms in Consumer Contract Regulations 1999 (UTCCRs) – until 1 October 2015 UCTA was supplemented by UTCCRs. UTCCRs (alongside UCTA) continue to apply to consumer contracts concluded before 1 October 2015.
CRA – on 1 October 2015, the CRA was introduced in order to consolidate and update consumer law in the UK. The CRA only applies to contracts between a trader and a consumer; business-to-business contracts are not caught.
Data protection/freedom of information is dealt with in the context of financial services litigation (as it is in any other context in the UK) under the terms of the EU General Data Protection Regulation (GDPR).
Under the GDPR, a data subject has the right to obtain confirmation from a controller of data as to whether or not the controller processes personal data relating to them. If the controller does process the data subject’s personal data it must provide the data subject with access to the data.
In the context of discovery/disclosure, sensitive or confidential information that is irrelevant to the issues in dispute can be redacted before it is disclosed to another party. The extent of and rationale for such redaction may be subject to challenge.
Parties have the right to ask for permission to appeal any decision of a lower court (and this is no different in the case of financial services disputes). The parties can ask the lower court whose decision it wishes to appeal for permission to appeal. If that request is refused, there is a right to ask the appellate court for permission to appeal. However, the granting of permission to appeal is at the discretion of the courts and there is no absolute right of appeal.
Appeals from the High Court will be heard by the Court of Appeal (save in rare cases where appeals from the High Court ‘leapfrog’ directly to the Supreme Court).
Costs are dealt with in financial services disputes as they are in all civil disputes in England & Wales. The general rule is that the losing party pays the successful party’s legal costs. Costs will be assessed on the standard basis or indemnity basis. Where multiple issues are being determined, and a party is only successful in relation to certain issues, it is possible for the court to make an issues-based costs order.
On the standard basis the court will only allow the recovery of costs which are reasonably incurred, reasonable in amount and proportionate to the matters in issue. Any doubt which it may have in this regard will be resolved in favour of the paying party.
On the indemnity basis there is no requirement for the costs to be proportionate in order to be recovered. They must still be reasonably incurred and reasonable in amount but the court will resolve any doubt which it may have in that regard in favour of the receiving party. The indemnity basis is intended to be punitive in nature and is only ordered by the court in certain circumstances.
Once a costs award is made, the receiving party can either agree the amount to be paid with the paying party or apply to the court for costs to be assessed.
Jurisdictional issues – there are broadly two sets of rules which determine whether the English court has jurisdiction in a civil dispute – the European regime (Recast Brussels Regulation alongside the 2001 Brussels Regulation, 2007 Lugano Convention and 1968 Brussels Convention) and the common law rules. Where the European regime applies, it takes precedence over the common law rules. The European regime will apply in circumstances where the defendant is domiciled in the EU as well as in certain other circumstances. Where there is an exclusive jurisdiction clause in favour of the English court, the EU regime will apply under the Recast Brussels Regulation regardless of whether or not either party is domiciled in the EU.
Save in limited circumstances, the permission of the court is required to serve English proceedings outside of the jurisdiction, which will generally be necessary where the defendant is domiciled outside the jurisdiction and does not have a branch or establishment in the jurisdiction.
A party sued in England that wishes to contest the English court’s jurisdiction should do so by making an application following the service upon it of the claim form.
Applicable law – in a cross-border dispute, it may be necessary to determine which law should be applied to the parties’ contractual obligations and any civil dispute arising from that contract. The rules set down under Rome I and/or the Rome Convention apply in such circumstances; the former with respect to contracts concluded before 17 December 2009 and the latter on or after 17 December 2009. Both Rome I and the Rome Convention give effect to an express choice of law by the contracting parties and provide rules and assumptions as to applicable law in the absence of express choice.
Data transfer – the disclosure obligation in civil proceedings means the parties will often have to collect, review and disclose large amounts of data. This can give rise to issues relating to data protection and confidentiality. In cross-border disputes there may be issues around the transfer of data in circumstances where data needs to pass between borders if different rules apply to the processing and storage of that data.
The English courts will make all reasonable efforts to co-operate with foreign courts in order to resolve a civil dispute.
The English courts may do this in a variety of ways, such as responding to letters of request (a request by a court in one jurisdiction to a court in another to take evidence, and transmit the evidence to the requesting court for use in judicial proceedings) or in certain circumstances staying proceedings in favour of other EU and international courts.
The most common circumstance in which the courts of England & Wales will exercise extra-territorial jurisdiction is ordering a worldwide freezing order (WFO). That is, in certain circumstances, the courts of England & Wales have jurisdiction to grant freezing injunctions in respect of overseas assets. In considering whether to grant a WFO, the courts will need to establish the basis of the court’s jurisdiction and how it would be enforced, as well as any potential risk of oppression.
In exceptional circumstances the courts will appoint receivers in respect of overseas assets to facilitate the enforcement of unsatisfied English judgments.
Unilateral jurisdiction clauses, also known in England as asymmetric jurisdiction clauses, will generally be upheld by English courts. Such clauses are common in English law finance documents (including LMA agreements), where they provide that the borrower can only sue the lender in a specific country whilst the lender can sue the borrower in a court of its choosing.
The main regulatory bodies in the UK are as follows:
Bank of England (BoE) – The BoE has two main purposes which are to ensure monetary and financial stability.
The FCA / The PRA – The PRA and the FCA are the lead bank regulators in the UK. The PRA (which is part of the BoE) is the prudential regulator and the FCA is the conduct regulator.
Financial Ombudsman Service (FOS) – The FOS has responsibility for handling complaints from retail banking customers, subject to a financial limit.
The UK’s banking regulatory bodies will not ordinarily intervene in civil proceedings. However, the FCA has a wide range of enforcement powers to protect consumers and to take action against firms and individuals that do not meet their standards.
The FCA’s disciplinary process generally involves an investigation followed by the issuance of a statutory notice. The warning notice outlines to the entity in question the action which the FCA proposes to take, the decision notice is issued in circumstances where the FCA has decided to take action and a final notice is issued when the FCA takes action. The FCA can issue public statements and censures as well as impose financial penalties. Alternatively, it might issue a non-statutory private warning. The FCA also has a range of other disciplinary measures at its disposal such as variation or cancellation of a firm’s permissions to carry out regulated activities or withdrawal of an individual’s status as an approved person.
The PRA has similar enforcement powers to the FCA but is only able to impose penalties on PRA-authorised firms.
The PRA is part of the BoE and exercises its functions through the Prudential Regulation Committee. The BoE also has various powers in the context of crisis management under a special resolution regime and in its role as overseer of financial market infrastructures.
Yes, the decisions of regulatory bodies are binding on the party in respect of which the decision is issued.
A party may challenge the decision of the FCA, PRA or BoE by appealing to the Upper Tribunal (Tax and Chancery Chamber).
Yes, most decisions/notices of the FCA/PRA are publicly accessible online – however, this will depend upon the type of notice that has been issued and type of action the regulator has chosen to take. A private warning, for example, will not be publicly available. The FOS also publishes its decisions online.
The financial crisis did lead to an increase in claims brought against financial services providers, both as a direct result of the conduct of certain financial services providers in that period and the increased regulatory scrutiny resulting from the crises. In several different contexts, regulatory findings have served as the evidential springboard for civil claims. There has also been a significant expansion of the regulatory framework in the financial services sector as a result of the financial crisis.
Another significant practical trend arises out of the liberalisation and growth of the litigation funding market in England & Wales. This has made it possible for practitioners to identify claims arising from particular conduct by financial services providers or financial products and then seek to attract groups of potentially affected individuals and/or companies to bring those claims on a no- or low-risk basis.
Financial institutions are often able to avoid and resist claims through use of exclusion and limitation of liability clauses. However, the UK provides a robust regulatory environment with significant protections for retail customers in particular.
The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006 – this Court of Appeal decision overturned a controversial High Court decision in which the judge had concluded that certain internal documents created by the appellant, Eurasian Natural Resources Corporation Ltd (ENRC), during an SFO investigation were not protected by litigation privilege, as they had not been brought into existence for the dominant purpose of resisting or avoiding contemplated criminal proceedings against ENRC. The High Court judge had ordered that the documents be provided to the respondent, the SFO, for inspection. The Court of Appeal instead concluded that litigation was in reasonable contemplation when the SFO initiated its investigation and that the documents created by ENRC in the course of the investigation were privileged. The High Court decision had potentially significant implications for those subject to regulatory investigations and enforcement and its reversal has been widely welcomed.
UBS AG and UBS Limited v Kommunale Wasserwerke Leipzig GmbH and others [2017] EWCA Civ 1567 – the Court of Appeal found that the High Court was correct to have rescinded certain credit protection agreements between a bank and its customer on the basis of a corrupt arrangement between the bank and the customer’s advisor. The High Court held that a bribe paid by the customer’s advisor to a director of the customer was paid by the advisor as the bank’s agent (even though the bank did not know about the bribe). The Court of Appeal did not consider that the bribe was paid by the advisor as an agent of UBS but held that the bank’s conscience was nevertheless sufficiently affected by the bribe that it would be inequitable for the credit agreements to be enforceable. This introduces an arguably novel principle that where a third party dishonestly sets out to undermine a fiduciary relationship, equity may fix that third party with responsibility for a bribe paid by the fiduciary that it was not aware of. This decision demonstrates that the courts are willing to apply equitable principles creatively in order to avoid what they perceive to be substantial injustice.
Property Alliance Group Ltd v The Royal Bank of Scotland Plc [2018] EWCA Civ 355 – this was a much anticipated Court of Appeal judgment in this interest rate swap mis-selling and LIBOR manipulation test case. Whilst the appeal was dismissed in full (such that the customer’s claims failed), the Court of Appeal’s decision clarified a number of aspects of the law in this area. The Court of Appeal found that in selling the LIBOR-linked swap products, The Royal Bank of Scotland Plc (RBS) had made an implied representation that it was not seeking to manipulate the LIBOR reference rate and that it did not intend to do so in future. However, the Court of Appeal held that Property Alliance Group Ltd (PAG) had not proved that the representation was false, in particular because although RBS had admitted that it had manipulated Yen and Swiss Franc LIBOR, there was no such admission in respect of GBP LIBOR and insufficient evidence to provide manipulation. The Court of Appeal also disapproved of the concept of a bank owing an ‘intermediate’ or ‘mezzanine’ duty of care (more than a duty not to misstate/mislead, less than a full advisory duty).
First Tower Trustees Limited & Intertrust Trustees Limited v CDS (Superstores International) Limited [2018] EWCA Civ 1396 – although not itself a financial services decision, this is an important decision in relation to contractual estoppel, which is one of the main defences arising in financial services disputes. The dispute concerned misrepresentations by the appellant landlords to a prospective tenant in relation to asbestos issues in the properties to be leased. The leases contained non-reliance clauses to the effect that the tenant had not relied on any representations made by the landlords before entering into the leases. The High Court decided that the landlords were liable and the landlords appealed. The Court of Appeal dismissed the appeal, holding that the non-reliance clauses fell within s. 3 of the Misrepresentation Act 1967 such that they were of no effect except insofar as they satisfied the requirement of reasonableness under UCTA, which they did not. The Court of Appeal did not accept that clauses excluding reliance on pre-contract representations could be characterised as ‘basis clauses’ (defining the basis of which the parties were contracting rather than excluding liability) – if, but for the clause, there would be liability then the clause is an exclusion clause subject to the statutory controls. In light of other recent decisions, this one potentially marks a shift in the attitude of the courts.
The historic low interest rate environment which has followed the financial crisis led to significant regulatory scrutiny and claims relating to the pre-crisis sale of interest rate derivatives, particular to retail customers. There has also been growth in English litigation as an export product, with parties (either when contracting or subsequently) choosing the courts of England & Wales as their dispute resolution jurisdiction despite the lack of an obvious connection between the dispute and the jurisdiction.