It is not yet clear what will be on the table under the compensation scheme agreed between the FSA and banks over the interest rate swaps mis-selling scandal. There has been some indication that the banks will do no more than put businesses in the position they would have been in had they signed up to a fixed rate product instead of a derivative that increased liability as interest rates fell. If that is the case, it is likely that there will be considerable exit costs. After all, any business which today faced a fixed rate at an interest rate comparable to the market rates when the loan was taken out (i.e. before the collapse) would simply move elsewhere to benefit from the lower rates unless there were such exit costs.
Whether or not the compensation scheme turns out to be adequate, however, it is vital that providers do not hesitate in seeking professional advice. The most important reason for that is that claims that are issued more than six years after the loan agreement was signed are likely to be time barred under the Limitation Act 1980. Whilst the banks are attempting to reassure businesses that they won’t be excluded from the compensation scheme on the basis of when they entered into the agreement, that will be cold comfort if it later emerges that the scheme offers inadequate redress.
We can help by issuing a claim on a protective basis and agreeing a stay of the proceedings with the bank until you have reached a view of the adequacy of the compensation scheme. Alternatively, we can reach an agreement with the bank that we will withhold from issuing for the time being on the express condition that the bank contracts out of the statutory limitation period.
The issue of limitation periods is just one example of how businesses can go seriously wrong if they seek to navigate the path to redress alone. It may be untactful to say so, but businesses will by now realise that it was a failure to take proper advice that led to these problems in the first instance.
We can help you by advising you on the merits of a claim, managing the limitation period, assessing the adequacy of the compensation scheme and advocating your case for redress either through the scheme or by litigation if necessary.
There is a lot of good news for providers. The compensation scheme itself wouldn’t exist unless the banks realised that there had been poor practice in selling the products. The simple fact is that in all cases we encountered, providers simply did not understand the products they were signing up to, and the banks deliberately withheld information that would have helped them make informed decisions. In many cases, not only were businesses effectively being conned into taking a flutter with the banks, but were also being conned about the price for the product. There is no doubt that the merits are strong in many, possibly even the great majority, of cases.
Another time sensitive issue concerns funding of claims. Solicitors can offer no win no fee arrangements with clients which mean that if the client loses, nothing is payable to the solicitor but if the client wins, an uplift (the success fee) is payable in addition to the usual fee. Clients can also take out after the event insurance to cover the other side’s costs if they lose. At the moment, both the success fee and the premium for the insurance cover are recoverable from the unsuccessful party. That will change from April 2013, meaning that the availability of no win no fee arrangements for these sorts of cases is likely to diminish considerably.
It is therefore vital for businesses to act quickly. When the dust settles from all of this, there well may be some dazed providers wondering how they managed to lose out in obtaining a decent remedy. Don’t be one of them. Contact us