Stephenson Harwood LLP - Finance litigation update - December 2020

FINANCE LITIGATION UPDATE – DECEMBER 2020 2 Financial mis-selling claims: a checklist for carrying out initial analysis of their prospects Overview In this article, we have set out an initial check list that can be used to assess whether a prospective or intimated financial mis-selling claim would be able to overcome certain key hurdles before any further time and cost is spent on some of the more detailed aspects of the claim. The financial crisis of 2007-2008 triggered a relatively large number of financial mis-selling claims which worked their way through the English court system in the years that followed and generated a body of case law on the issues that arise. It is fair to say that the claimants in these cases faced significant hurdles and the court tended to find in favour of the banks. The principles that emerge from this case law can now be used to analyse a prospective or intimated financial mis-selling claim to come to an initial view as to its prospects. It remains to be seen whether the current economic climate will trigger a further wave of financial mis-selling claims and, even if it does, whether these claims will have any prospect of getting off the ground given the principles that have been established by the courts. The term “financial mis - selling claims” is an umbrella term describing the nature of these claims although no specific cause of action exists for them. Depending on the facts in each case, a financial mis-selling claim tends to be brought as a claim in negligence and/or misrepresentation and/or breach of statutory duty. The availability of these causes of action is discussed further below. In this article, we have set out an initial check list that can be used (from the perspective of either claimant or defendant), to assess whether a prospective or intimated financial mis-selling claim would be able to overcome certain key hurdles before any further time and cost is spent on some of the more detailed aspects of the claim. Initial check list At the outset of the analysis of a prospective or intimated claim, consider these key questions: 1. Is the claim governed by English law and do the English courts have jurisdiction over it? Alternatively, is there an arbitration agreement providing for English law to apply in any arbitration? 2. Is the claim within the statutory limitation period? The standard limitation period for a negligence claim or for a misrepresentation claim under section 2(1) of the Misrepresentation Act 1967 is 6 years from the date on which the cause of action accrued. For a financial mis-selling claim, this is likely to be the date on which the relevant contract by which the product was “sold” was entered into. This can often mean that the limitation period started to run quite a long time ago and that the 6 year limitation period has already elapsed or will soon do so. As an alternative, for negligence claims, a claimant may be able to rely on section 14A of the Limitation Act 1980 which provides for a period of 3 years from the date on which the claimant had knowledge of the material facts about the damage. However, with a financial mis-selling claim, it is possible that, in legal terms, the acquisition of the “knowledge of the material facts about the damage” also occurred some time ago. Accordingly, limitation can be an important factor in assessing the prospects of a financial mis-selling claim as the claim may be out of time even if the claimant’s alleged “loss” has only been suffered more recently. 3. Is the claimant a “private person” or a “non - private person” under the Financial Services and Markets Act 2000 (“FSMA”)? Under section 138D of FSMA, a breach of an FCA rule is actionable at the suit of a private person (essentially, an individual) who has suffered loss as a result of the breach. Thus, a private person can sue a bank on the basis of a breach of statutory duty without having to show that the bank owed it a common law duty of care or that the bank had told the claimant something that was untrue or misleading.