Reuben Berg

Elysia entered into business in 2004 with HSBC as its banker. The bank sold the Partnership a structured collar. When trade dropped in 2008/09 and the payments under the structured collar increased, the Partnership began having financial difficulties. The structured collar was taking £120,000 a quarter out of the Partnership, which was unsustainable and eventually the Partnership lost its franchise agreement, rendering it effectively at an end.

The Partnership submitted its claim to the FCA Review. The three hedges that the Partnership had entered into, including the structured collar, were torn up and a full cash redress offer made and accepted. The Partnership thought that the bank was actually taking responsibility for its failures of the past. That was not the case.

A detailed forensic accountants report was prepared to explain the true impact the structured collar had had on the business and to identify the Partnerships consequential losses. However, when the banks decision arrived, the offer was circa £20,000. This was predominantly refunds of bank fees. The additional £7 million that the Partnership claimed in consequential losses was dismissed. The bank averred that even though the Partnership’s cash flows had been destroyed by the structured collar, the bank did not deem that it had caused the Partnership any additional losses.

When we reviewed the decision by the bank, we noted to our surprise that the bank’s s. 166 independent skilled person does not actually appear on the FCA’s panel of s. 166 Independent skilled persons. We complained to the bank, who said it did not matter, and we complained to the FCA who did not think the issue worth responding to.

Essentially the bank found that taking almost £350,000 from a small partnership during the economic down-turn caused no damage. The independent skilled person, who is a large law firm that predominantly works in the Far East – Hong Kong and Asia – where HSBC predominantly works, did not think that the bank could be blamed for any of the financial difficulties the Partnership was caused. That is not surprising if you think that the independent skilled persons are largely over-seen by the banks. The FCA thinks that this kind of connection between the bank and the reviewer is unlikely to have caused the independent skilled person to be swayed.

The Partnership has appealed. The grounds have been substantial. The principal question is “How could the Partnership NOT have been damaged by the loss of such a substantial sum of money?” We await the decision.

Mr and Mrs Hockin had built up a successful family company called London and West Country Estates which owned and ran a number of business parks. This was their life’s work, which has been taken from them as a result of the actions of RBS.

The Hockins were mis-sold a complex interest rate hedging product which they did not want or understand. The Hockins were also unaware that the bank could flip from LIBOR to base rate if it suited them partway through the term. They were told that they could exit the swap without charge, which was untrue as the exit charge within a few months would already have been several million pounds and around the time the facility was coming to an end in 2011, it had reached over £10 million. The bank also failed to mention that the swap would be taken into account when assessing the company’s loan to value covenant.

But far worse was to come. Despite London and West Country Estates being a growing and robust business, the bank used the increased costs under the swap, and the alleged breaches in loan to value covenant, to put the company into the hands of its notorious Global Restructuring Group.

Then, in January 2012, the bank sold the business loan at a 30% discount to Isobel, a fund partly owned by RBS (75%). Two months later, Isobel put the company into administration and at this point, Mr and Mrs Hockin lost control of the business. Although they wanted to pursue a claim against RBS in relation to the sale of the swap, they could not do so as ownership or conduct of the claim sat with the administrators, Ernst & Young. The administrators refused to pursue the mis-selling claim against the bank, nor would they assign the claim to the Hockins to enable them to do so.

With our help, the Hockins won a Court application ordering the administrator to assign the claim. Proceedings were then commenced and are well underway. The Hockins have been advised that their claim is worth in excess of £30 million but as might be expected the bank are seeking to thwart the claim at every stage. Tax payers money is thus being used to defend this claim vigorously, when in reality the bank should accept its wrongdoing and compensate the Hockins for the loss and damage they have suffered as a result of the bank’s actions. 

In April 2016 the Bank failed to block key elements of the the multi million compensation claim.  A court date is now set for April 2017. 

Champneys is a group of companies (one company per property asset) that owns and runs luxury spa and hotel groups.

In 2005 Champneys moved its banking away from RBS because RBS had started to treat the business in an unhelpful way. Lloyds encouraged Champneys away with the promise of more ethical banking.

Lloyds imposed a condition of hedging in its lending criteria. Champneys already had a £16 million interest rate swap with RBS. Lloyds ordered Champneys to break the swap (which was in the money, so Champneys received £596,000) and enter into a new swap, which was necessarily out of the money.

In 2011/12 Lloyds’ attitude to Champneys changed. It started making ever increasing demands of the company. Champneys could not understand this change. Eventually Lloyds demanded a new valuation of the whole group.

The resultant valuation of the group holdings were significantly lower than Champneys expected. The valuation carried out by Christie & Co in July 2012 valued the business at £39,450,000, £36,700,000 or £27,900,000, but Christie & Co believed the group would be sold for £50,000,000 if marketed. There is no explanation of why it believed a group valued at a maximum of £39,450,000 would sell for £50,000,000.

The managing director of Champneys, Mr Stephen Purdew, refused to accept the valuation. He also refused to accept the threats from Lloyds. He knew Champneys was worth in the region of £68 million, not the £27,900,000 stated by Christie & Co. He informed Lloyds of this, who stated that under the terms of the lending, they were entitled to rely upon the valuation from their panel member valuer. Mr Purdew also spoke to associates of his in the hotel industry who all had had the same Lloyds-effect valuations whereby Lloyds devalued the business to such an extent that they had no option but to agree to new lending arrangements which were counter-productive to the best interests of the companies.

Mr Purdew approached Santander. Santander instructed a valuer, whose valuation came back as a single valuation figure (rather than the odd Lloyds-effect valuation of three different figures) on 25 December 2012 and which valued the business at £56,700,000. Mr Purdew remains of the view that the true value of the business is in fact £68 million.

The Lloyds valuation suggested that the business was insolvent and Champneys met with members of Lloyds Business Support Unit (“BSU”) on Thursday 12 July 2012. Lloyds advised that due to the revaluation Champneys the BSU would be taking over the day to day handling of Champneys accounts.

As a result of the actions of Lloyds, Champneys re-financed their facilities with Santander Bank. Mr Stephen Purdew avers that Santander were of the opinion that Champneys was a highly solvent business and as such they refinanced the entire group. Champneys continues to provide some of the greatest and most luxurious spa resorts in England. However as a result of the actions of Lloyds Champneys has incurred significant cost associated with re-financing their facilities with Santander.

We are currently advising on the re-financing of a portfolio of three properties in Newport and Chepstow with Cambridge and Counties Bank Limited having concluded the re-finance of a second portfolio for the Darlow family in the last month. This follows on from work our banking litigation team have been handling

“berg are representing me on a number of matters at present including a large financial mis-selling claim against one of the major banks. Throughout the process berg have been very clear in their advice and proactive in making sure I am regularly updated on the litigation process and options available to me. They are also assisting me on other re-finance and other property matters and so are providing me with other business services as well as expert litigation advice. They have taken the time to consider my business needs and litigation objectives and are always on hand should I need them. In particular, Mr Reuben Berg, the Senior Partner regularly telephones me to ensure that all matters are being dealt with and that I have no issues that haven’t been attended to. I would highly recommend berg to anyone who needs an approachable and efficient legal team on their side.”

Midcity Estates provides student accommodation in Sheffield. All was well with the business until they made the mistake of entering into a loan facility with Natwest in 2006 which came with a condition of lending that they take out a base rate swap.

Midcity transferred its lending portfolio to Lloyds a year later. At this time, Midcity was required to enter into a new, restructured swap. This saw Midcity become locked into a new IRHP with a term of 15 years. The new Lloyds IRHP had more fixed rate risk than its previous Natwest IRHP. It also came with an increased margin on its lending, together with a large administration fee of £150,000. What’s more, a break cost of £670,000 was created from the breaking of the original Natwest swap. This sum was added to the new IRHP.

Due to the crippling nature of the new Swap, it was cancelled on 11 July 2011 and Midcity took out a Fixed Rate loan. Break costs of £981,500 were created by this new arrangement.

We have pursued Midcity’s claim against both Natwest and Lloyds through the FCA Review. The process has been far from straight forward.

On 24th October 2014, we were informed by telephone by Natwest that a redress offer was to be sent out for the sum of £912,124.79. After almost two months, we finally received a letter from Natwest. To our surprise, the letter stated that despite the earlier telephone call, they had decided that no redress was payable. There was no explanation as to why they had changed their minds, apart from the bank’s mention of introducing a ‘swap for a swap’ (i.e. substituting an alternative product), which meant Midcity would receive no compensation.

Despite numerous complaints to the Chairman and CEO of the bank, the FCA and MPs, no further clarification on the point has been received other than to direct queries to Lloyds bank, who took over the lending in 2009. Natwest have stood by their offer of no redress.

Midcity fared slightly better with Lloyds. Their decision was that hedging was a condition of lending for only 50% of the loan and the fixed rate ought to have been 3.56% as opposed to 5.05%. As a consequence, Midcity has been offered £1.2m compensation from Lloyds. Whilst Lloyds is seeking to partially refund Midcity in respect of break costs, the amount of £981,500 remains embedded into the Fixed Rate Loan. The offer therefore looks artificially better than it is.

Midcity are still subject to horrific break costs on the Fixed Rate Loan that was entered into as a direct result of the now admittedly mis-sold Swap of 2009, which we calculate to be in the region of £1.1million. Lloyds have resolutely refused to deal with the Fixed Rate Loan as part of the Review on the basis that fixed rate loans are outside the strict scope of the FCA Review.

We are now at the stage of consequential losses in the Review. The banks continue to pressurise the business – refusing to suspend payments pending the outcome of the Review, and in the case of Natwest, refusing any extension of time for Midcity to file its claim for consequential losses – despite its own huge delay in dealing with the claim.

The battle goes on. The business owners who are two pensioners have had to push out any plans for retirement and are determined to continue to press the banks for compensation which reflects the true cost to the business.