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Application too late for disclosure of bank’s regulatory benchmark documentation and training materials in mis-selling claim

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Nitish Upadhyaya

Senior Innovation Manager

London

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27 May 2015

In Peniuk & ors v Barclays Bank plc [2014] EWHC 2946 (QB), 8 August 2014, the High Court rejected a late application for specific disclosure at a pre-trial review in order to maintain the trial date despite it being clear that the documents sought were very important to the claimants. The judgment sets out some useful guidance on what documents may, in principle, be disclosable in such mis-selling cases where a regulatory investigation has already been undertaken and highlights the importance of bringing an application for specific disclosure in good time. The decision is particularly important in light of the number of civil claims brought against the background of regulatory investigations.

The claimants, some of whom were individuals, alleged that that the defendant had mis-sold them certain swap transactions. They were all retail customers of the defendant and had been categorised as “non-sophisticated” customers. The claimants sued the bank against the backdrop of a Pilot Review conducted by the Financial Services Authority (now the Financial Conduct Authority) in or around June 2012 of sales by major banks, including the defendant, of interest rate hedging products. The principles applied in the Pilot Review were fine-tuned in or around January 2013 to arrive at a final set of principles to be applied by the banks in their own examination of all swaps within the scope of the regulatory review. In April 2014, the defendant made Offers of Redress to the claimants but, as at August 2014, the parties had not yet agreed on a final figure.

Bank’s benchmark and training documents sought

The claimants sought disclosure of three categories of documents arguing that, without this evidence, they would be handicapped in cross-examining the defendant’s expert who had experience of applying the benchmarks underpinning the regulatory review:

(1)     Benchmark” documentation: Documents evidencing the agreement reached between the regulator and the defendant regarding the regulatory review. This would include the defendant’s own report to the regulator of how the bank had been able to conduct its part of the Pilot Review which had then informed the fine-tuning of the principles to be applied for the remainder of the review.

(2)     Training and compliance manuals: Counsel for the claimants submitted that these documents demonstrated the standard of practice which the defendant used to guide training of its sales personnel in its Corporate Risk Management Divisions throughout the country.

(3)     Employees’ records of training: Such records were only sought for the two sales personnel involved in the transaction, one of whom was to be a witness at the trial.

Were the categories of documents disclosable?

“Benchmark” documentation: HHJ Havelock-Allan QC looked at the approach taken at the pre-trial review in Graiseley Properties Limited & ors v Barclays Bank [2013] EWHC 67 (Graiseley), a case which concerned alleged negligent mis-selling of interest rate hedging products, in which Flaux J was also faced with an application by the claimants for disclosure of Benchmark documentation. Flaux J found that the evidence of the Benchmark documentation was relevant to the issue of whether the bank’s standard of conduct satisfied t been voluntarily disclosed and the application related to the balance of the documents.

HHJ Havelock-Allan QC concluded that the Benchmark documentation would be informative and provide guidance as to the “irreducible minimum standard of conduct” which ought to have been observed in selling the swap transactions. The Benchmark documentation was therefore disclosable in principle, albeit the court accepted that the standards that had been applied in the regulatory review may not be the standards the court regards as appropriate to apply in a civil case.

Training and compliance manuals: The court regarded this category as demonstrative of the standard of practice which the defendant used to train its sales personnel. Such material would assist the court in understanding useful background and, although not determinative of what standard of conduct was sufficient to comply with the regulatory regime, the court decided it was, in principle, disclosable.

Employees’ records of training: Although less convinced on this category of documents, HHJ Havelock-Allan QC still regarded them as disclosable in principle.

Despite finding that these categories of documents were disclosable, the court went on to reject the specific disclosure application.

Disclosure application rejected as being too late

Although the court accepted that it was sometimes very difficult to identify the need for further disclosure until very shortly before a pre-trial review hearing, in the vast majority of cases disclosure should be dealt with at an earlier point in the proceedings. An overarching concern for the court was the stage the proceedings had reached – the trial was due to commence six weeks after the application hearing. Allowing disclosure would inevitably lead to a further round of expert evidence in the form of supplemental reports. The court was keen to maintain the trial date and recognised that doing this and making an order for disclosure was incongruous. It was not persuaded by the submission of counsel for the claimants that the application could not have been made any earlier, and ultimately rejected the application for having been submitted too late. The court also noted that the disclosure would result in a considerable amount of further costs at a stage when parties should be preparing for trial.

Counsel for the defendant argued that the confidentiality of the agreements between the banks and the Financial Conduct Authority should be respected. The court highlighted that confidentiality is not a ground upon which disclosure should be refused. Any order made for disclosure would include relevant safeguards to ensure that confidentiality is respected. Indeed, this was the case in Graiseley where the disclosed Benchmark documentation was destroyed after settlement was reached.

COMMENT

The judgment is consistent with recent case law, showing the court’s reluctance to grant an application where to do so would interfere with the trial timetable. In Scriven v Scriven & ors [2013] EWHC 4223 (Ch), for example, the judge refused an application from the defendants to vacate the trial date a few weeks before the trial to address the claimant’s amendments to its particulars. Against the background of the Jackson Reforms and recent cases on relief from sanctions and time extensions, it is clear that parties wishing to make an application should do so in good time or risk having relief refused when it may otherwise in principle have been granted. Further, both this case and Graiseley highlight the increasing importance placed on regulatory communications in civil proceedings. In mis-selling cases, it seems likely that the courts will regard such communications as relevant to determining whether the bank has met the requisite standard of conduct in selling specific swap transactions, although such standards will not be determinative of the standard ultimately applied by the court in civil proceedings. Judgment handed down in August 2014, but only published in March 2015.