Mr Marsden was in the business of buying, restoring and selling pubs and hotels, financed by loans from Barclays. In July 2006 he entered into an interest rate swap with the bank to hedge floating rate loans of £1.6 million advanced to buy two pubs in Suffolk and Derby (£750,000 and £850,000 respectively). The swap was terminated by Mr Marsden in July 2007 and he received a cancellation payment of £30,000 as interest rates had risen above the fixed rate.
In May 2007 he sold the Suffolk property and repaid the £750,000 loan. The Bank lent him a further £1.4 million (in addition to the remaining loan of £850,000) to buy another pub in Shropshire. Further swaps were entered into as a hedge against the interest rate risk under the outstanding loans at a fixed rate of 5.63%.
After a fall in interest rates in 2008, like many similar borrowers Mr Marsden began having to make payments to the bank under the swaps. By 2009 he was in financial difficulty. In August 2009, he complained to the Financial Ombudsman Service that the bank had mis-sold him the swaps. The FOS did not notify the bank of the complaint until May 2010. Payments to the bank stopped for a period in 2010. In July 2010 the parties met to discuss a restructuring of the indebtedness. The bank said it would not agree a restructuring whilst the FOS complaint remained unresolved. In September 2010, Mr Marsden withdrew the complaint.
Following further negotiations the bank offered a new loan in January 2011 to consolidate the liabilities. It was a condition of the offer that the swaps were broken. Mr Marsden accepted the offer in February 2011, and in March a settlement agreement was signed. In it he acknowledged that the settlement was “in full and final settlement of all complaints, claims and causes of action which arise directly or indirectly, or may arise, out of or are in any way connected with the Swaps“.
Despite the restructuring, the business continued to struggle and in May 2012 Mr Marsden was declared bankrupt.
In June 2012 the FCA announced that the bank (along with four other banks) had agreed to review past sales of interest rate hedging products to certain categories of customers. The bank subsequently offered Mr Marsden redress totalling £608,601.14 including interest. The offer provided that Mr Marsden could make a claim within 40 days for consequential losses, should he wish to do so.
Called to the bar
Mr Marsden sued alleging breach of statutory duty, negligence, breach of contract and misrepresentation in the sale of the swaps. The bank argued that these causes of action had been compromised by the 2011 settlement agreement.
Mr Marsden also brought claims for (i) restitution, on the grounds that the swaps were contrary to public policy and/or failed to comply with “statutory preconditions”; (ii) deceit; and (iii) breach of contract in conducting the review. The bank argued that, as well as being compromised by the settlement agreement, these claims were hopeless. The bank applied for summary judgment. The claimant argued as follows:
- That the bank gave no consideration for the settlement agreement. But the judge concluded that the new loan agreement and the cancellation of the swaps were “part and parcel of the same overall transaction as the Settlement Agreement” and as such there was adequate consideration for the release of future claims against the bank.
- That the bank’s refusal to restructure the lending until he withdrew his FOS complaint and signed the settlement agreement amounted to duress. The judge re-iterated the ingredients of duress: “…pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the Claimant to enter into the contract”. It was held that the settlement agreement “was part of a commercial negotiation of the terms on which the Bank would provide a large new loan to a defaulting debtor“. There was no obligation on the bank to lend further to Mr Marsden while there was a complaint outstanding. As such, the settlement agreement was signed due to commercial considerations and not duress.
- The scope of the settlement agreement was not wide enough to cover (or was incapable of covering) alleged misconduct, breach of regulatory duties, fraud, “sharp practice” (whereby the bank was aware of claims not known to the claimant), and breach of contract in respect of the swaps review. The court cited case law on the construction of settlement agreements, including Lord Bingham’s statement in Bank of Credit and Commerce SA (In Liquidation) v Ali (No.1): “A party may, at any rate in a compromise agreement supported by valuable consideration, agree to release claims or rights of which he is unaware and of which he could not be aware, even claims which could not on the facts known to the parties have been imagined, if appropriate language is used to make plain that this is his intention“. It was held that the settlement agreement release clause was wide enough to cover all possible future claims, whether known or not. It was highlighted that even the widest wording would not normally exclude future fraud claims. As Mr Marsden had already made a misrepresentation claim, the settlement agreement was viewed as wide enough to cover deceit claims. In any case, the judge found no “sharp practice” by the bank.
The bank was awarded summary judgment against on the basis that the settlement agreement had compromised any possible claims in relation to the swaps. The claims had no realistic prospect of success. The judgment is reported as Marsden v Barclays Bank Plc  EWHC 1601 (QB).
One for the road
This decision reasserts in the swaps mis-selling context that borrowers will be held to their agreements, including settlement agreements. It will remain very difficult indeed for a borrower that has signed up to a commercial settlement to unwind that agreement later by making creative allegations like economic duress, lack of consideration or that it can avoid the release it gave by alleging sharp practice. Banks can take comfort in the enforceability of settlements they agree (although remembering the limits on settling unknown or future fraud claims). They can also take heart that it is still possible to get fundamentally weak claims dismissed on a summary basis without the costs of a full trial.