UK: Scotland: FSMA, companies, banks and mis-selling claims

Section 150 of the Financial Services and Markets Act 2000 provides that a "contravention by an authorised person of a rule is actionable at the suit of a private person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty". "Private person" is not defined in the 2000 Act but a definition is given by regulation 3 of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001. Regulation 3 provides, amongst other things, that "private person" includes "any person who is not an individual, unless he suffers the loss in question in the course of carrying on business of any kind". A company can, therefore, be a private person if it can establish that the loss was not incurred in the course of carrying on business of any kind. In Titan Steel Wheels Ltd v The Royal Bank of Scotland Plc [2010] EWHC 211 (Comm) the trial judge accepted the argument that "carrying on business of any kind" should be given a wide interpretation. This approach was accepted as correct earlier this year in Camerata Property Inc v Credit Suisse Securities (Europe) Ltd [2012] EWHC 7 (Comm), the trial judge rejecting the argument that Titan Steel had been wrongly decided.

The approach in these English authorities was endorsed today in the Scottish courts by Lord Hodge, delivering his opinion in Grant Estates Ltd. v Royal Bank of Scotland plc [2012] CSOH 133, which concerned an unsuccessful action by a company against a bank for the alleged mis-selling of an interest rate swap derivative. Lord Hodge rejected the view that "carrying on business of any kind" should be interpreted as encompassing only transactions which were an integral part of a person's business. He also rejected the argument that a narrow construction was required by the Markets in Financial Instruments Directive 2004/39/EC (as implemented by Directive 2006/73/EC). The argument that a common law duty of care was owed by the bank to the company in respect of the advice was also rejected, Lord Hodge declining to accept the view that such a duty could exist on the basis of the Conduct of Business Rules. Moreover, in Lord Hodge's view, the relative youth and inexperience of the company's directors was not a relevant ground for departing from the principle that a person will generally be bound by the terms in a document whether or not he has read them. In this regard, Lord Hodge noted that company law expected directors to achieve an objective standard of competence and knowledge under section 174 of the Companies Act 2006.

A brief summary of Lord Hodge's opinion has been published on the Judiciary of Scotland website: see here.