Davis v Lloyds: the closure of the final Court route to challenge the conduct of banks’ IRHP FCA reviews?

The Court of Appeal has now closed another potential avenue for Interest Rate Hedging Product (IRHP) customers seeking to challenge the banks’ underlying conduct of their FCA reviews, in its judgment handed down on 16 April 2021 in Davis v Lloyds Bank PLC EWCA Civ 557.

The decision continues the trend of judicial reluctance to expand customers’ rights to challenge such processes through the Courts. It will be interesting to see whether this trend is maintained by the FCA itself, which is expected imminently to restart its consultation on duties of care, including a consideration of whether customers should be given further private rights of action in relation to regulatory breaches.

Background

Almost 9 years ago, in June 2012, the then FSA agreed with certain banks that each would conduct reviews of the sales of IRHPs from 1 December 2001 to certain customers, and provide appropriate redress (FCA reviews). This spawned a near decade of review, redress and overlapping and/or sequential FOS complaints and Court claims from customers eligible and non-eligible for the FCA reviews, alike.

Over time, dissatisfied IRHP customers have tried various avenues to challenge banks’ conduct of the FCA reviews through the Courts, including by:

• making complaints to the FOS (Mazarona Properties v Financial Ombudsman Service [2017] EWHC 1135 (Admin), in which the Court held that such complaints were outside the FOS’s jurisdiction);
• judicial review (R (Holmcroft Properties Limited) v KPMG LLP [2018] EWCA Civ 2093, in which the Court of Appeal held that KPMG, the FCA-appointed Skilled Person overseeing Barclays’ FCA review, was not amenable to judicial review); and
• alleging banks’ breaches of contractual and/or tortious duties of care in conducting the FCA reviews (Elite Property Holdings Ltd & Anor v Barclays Bank plc [2018] EWCA Civ 1688 and CGL Group Ltd & Ors v The Royal Bank of Scotland Plc & National Westminster Bank Plc & Ors [2017] EWCA Civ 1073, in which the Court of Appeal held that, contrary to prior suggestions in the IRHP case law (see Suremime Limited v Barclays Bank plc [2015] EWHC 2277 (QB), no such duty of care arose).

Davis v Lloyds

In Davis v Lloyds, Mr Davis pursued a different route - that:

• his complaint to Lloyds constituted a ‘complaint’ within the meaning of DISP (the FCA’s complaint handling handbook); and
• Lloyds consequently owed him a statutory duty under DISP 1.4.1R to assess the complaint in accordance with the terms of the 2012 FSA agreement.

This argument would have allowed Mr Davis essentially to enforce the terms of that agreement, despite being disallowed by the Court of Appeal’s prior decisions from relying on a relevant contractual or tortious duty in relation to it.

The Court of Appeal held, agreeing with the first instance Judge, that Mr Davis’s complaint was not a ‘complaint’ within the meaning of DISP, and therefore that the second question did not fall to be considered. Lewison LJ, giving the judgment with which Phillips LJ and Warby LJ agreed, examined whether Mr Davis’s complaint to Lloyds in connection with its reviews of his IRHPs was, in substance, either a complaint about the sale of one of those IRHPs, or a complaint about the eligibility of that sale to be considered by Lloyds’ FCA review. The complaint concerned the latter, so was unable to be a ‘complaint’ within the meaning of DISP. This is because it was neither a complaint:

• about the provision of a financial service, being instead a complaint about the FCA review;
• within the jurisdiction of the FOS, being a complaint about the FCA review; nor
• alleging that the complainant had suffered or may suffer loss, as Mr Davis had simply asked the bank to consider whether “if at all” the relevant IRHP had “eroded” his “net worth”.

Comment

The decision, and the factual history between Mr Davis and Lloyds that it rehearses, demonstrate some of the challenges which have underpinned banks’ FCA reviews, including those relating to:

• effectively communicating with customers about complex products and processes;
• defining and enforcing the parameters of review schemes, when any parameters inevitably lead to results potentially difficult for customers to understand (e.g. a customer such as Mr Davis who has two IRHPs, one eligible, and one ineligible, for review); and
• proactively reviewing products which would not necessarily have been complained about were it not for a review, leading to circumstances where, such as here: (1) a customer is not even sure whether the product in question has been loss-causing; and/or (2) the dividing line between hindsight-led dissatisfaction with the product – e.g. Lewison LJ’s example of an insurance policy against fire not being needed because no fire transpired – and actual dissatisfaction with the product because it was not the right product in relation to the risk, can be difficult to explain.

Overall, the decision falls squarely within the trend of decisions in this area, and should give banks comfort that Courts have so far been unwilling to assist claimants to find additional routes of challenge, where overall customer-friendly review and redress schemes are in place (and even when those schemes are, probably inevitably to some extent due to their scales, complexities and inherent challenges, unlikely to be perfect in design or execution).

It now remains to be seen both whether:

• (and how much) criticism will next be aimed at the FCA in relation to the review schemes, as Jonathan Swift QC’s independent review of the FCA’s own intervention in IRHPs, commenced in July 2019, is apparently now drawing to a close (see the FCA’s 11 March 2021 update); and
• the FCA has more appetite than Courts have had to attempt to further banks’ duties of care to customers and customers’ direct routes of challenge, with the FCA’s delayed consultation on duties of care expected to restart next month (see the FCA’s page on FS19/2). The FCA has confirmed that the next stage of its considerations will focus in part on a risk/benefit analysis in relation to introducing a private right of action for breaches of its Principles (if not also/instead of the introduction of such a right in relation to any ‘new duty’ itself).