GRG claim against RBS: company succeeds in the first round of bad faith argument

Liina Tulk

At the moment there is no shortage of claims against banks. It seems that every other week another swap misselling or GRG claim rears its head. Some claimants have already received favourable decisions and others are still in the process of pulling together their claims. There has yet to be, however, a decision finding that a duty of good faith can be implied into the loan agreements between banks and their customers. That may now change, writes Liina Tulk.

High Court allows an implied duty of good faith argument to proceed

At the end of last month the High Court rejected RBS’ and NatWest’s (together referred to as the “Bank”) application to strike out swap misselling and GRG claims brought against the Bank by Mr and Mrs Hockin. The Bank tried to prevent the case going to a final evidential hearing and submitted, amongst other things, that there was no reasonable argument to support Hockin’s claim that a duty of good faith had been implied into the performance of the terms of the £55 million loan facility (the “Loan Facility”) the Bank had provided to the Hockin’s company, London & West Country Estates Ltd (“LWE”).

The implied duty of good faith argument focused on a specific clause in the Loan Facility that dealt with assignation. That was particularly relevant because the Bank had put LWE into GRG and had thereafter assigned the Loan Facility to Isobel, a joint venture between the Bank and Blackstone. Isobel subsequently placed LWE into administration.

While the High Court accepted that the threshold for implying a term into a commercial contract is high, it held that it was not in a position to reject the Hockin’s claim without a detailed factual background being first considered. As such the case was allowed to proceed to trial where the detailed factual evidence would be examined.

A fight to the death or a confidential settlement?

From experience, we have seen two approaches being taken by the banks. If they feel that they have a strong case or that the particular case is so fact sensitive that even if there is a decision against the bank there is no risk of floodgates opening, then the banks tend to press ahead with litigation. On the other hand, if the banks become seriously concerned about a case going against them and worse, creating a precedent other claimants can rely on, then they will usually look to settle.

So what is likely to happen with the Hockin’s case? Only time will tell but it does seem that RBS may need to think twice about proceeding to trial. There are class actions being prepared against GRG based on its treatment of customers and a High Court decision finding that a duty of good faith can be implied into the loan facilities will not help RBS. If a claimant can get over the high threshold of proving that the bank owed him a duty of good faith, then proving that such a duty was breached, especially by GRG, may not be that hard.

While there has been a lot of talk about an FCA investigation into GRG, there is no indication when, if ever, such a report will be published. It seems even less likely the report will make findings against GRG and ask it to compensate customers who were treated badly by GRG. For those reasons, it is only a question of time when an implied duty of good faith argument will be heard in court.

GRG claim against RBS: company succeeds in the first round of bad faith argument

  • Liina Tulk is a senior solicitor at MBM Commercial.
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