Is there a need for expert evidence in IRHP mis-selling disputes?

Banking and Finance Litigation Update

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An earlier version of this article first appeared in the February 2017 issue of Butterworths’ Journal of International Banking and Financial Law.

Sometimes cases can be decided purely on the basis of the factual evidence. At other times expert evidence may be needed to assist with specialist or technical areas but such evidence can only be brought with the court’s permission. Claimants in interest rate hedging product (IRHP) mis-selling disputes often seek permission to adduce expert evidence on issues such as the suitability of a given interest rate product or the adequacy of the information provided about it. Defendant banks routinely oppose such applications but claimants are often granted permission. Interestingly however, in the recent case of Darby Properties Limited and Another v Lloyds Bank plc [2016] EWHC 2464 (Ch) permission was refused on the basis that there is no acknowledged body of expertise in the field of interest hedging instruments and expert evidence was not reasonably required to resolve the issues.

Facts

The claimants entered into a number of IRHPs with Lloyds Bank plc (to replace existing IRHPs) with some products having lengthy terms. They later sued the Bank for damages for breach of contract and negligence and/or mis-representation arising out of the alleged advice/ recommendations/ explanations and information provided by the Bank claiming that the IHRPs were inherently unsuitable. The Bank defended the claim, arguing that the products were suitable as the claimants’ objective was to achieve a reduction in their interest costs and the IHRPs provided short term relief from the existing arrangements. The products were properly explained and understood by them.

It was in the context of that claim that the claimants sought permission to adduce expert evidence on issues such as: the characteristics of the IHRPs and the market for those products; the suitability of the products and the adequacy of the information provided by the Bank.

Decision

The judge reiterated the familiar principle that evidence of fact is admissible, if relevant, but evidence of opinion, even if relevant, is not. It is an exception to this rule that expert evidence of opinion is admissible, if relevant, but only if there is an acknowledged body of expertise in the issues in respect of which expert evidence is to be adduced which is "governed by recognised standards and rules of conduct and capable of influencing the court’s decision".

The judge drew a distinction between a professional negligence claim against, say, a doctor or an accountant and an IRHP mis-selling claim. Professionals belong to professional bodies which are regulated. Professionals are judged against recognised standards applying to professionals possessing ordinary skill in their particular field. In contrast, in the IRHP field there is no particular professional body which has recognised expertise. There are merely people with experience and expertise. If you ask them to express an opinion about whether a product was suitable or whether adequate information was provided you are in danger of asking them to express a purely subjective opinion which would be inadmissible.

Leaving that considerable hurdle to one side, the judge then considered whether expert evidence was in any event actually required in this case. He accepted that the products in question were complex and that, to that extent, the court might benefit from a "tutorial" about their characteristics and practice in the IRHP market. That evidence would however be of a factual kind, akin to the sort of evidence which might be given by an engineer explaining how a machine works. In that situation the engineer has the expertise to understand how the machine works but gives evidence of a factual nature. In English law permission is not needed to adduce such evidence.

Where however the proposed expert evidence was supposed to address suitability of a product or the adequacy of information then this would require the permission of the court, which would only be granted if such evidence was reasonably required to decide the issues. Having reviewed the pleaded issues in the case, the judge decided that they were largely matters of fact and information and that expert evidence was not necessary to determine them. He refused the claimants leave to adduce expert evidence.

Comment

If applied carefully, the decision should be welcomed by banks involved in litigation, as allowing technical explanations to be contained in statements of fact will undoubtedly save the time and expense of formal expert reports which can be costly. Judges will however need to be vigilant in ensuring that expert evidence is not allowed in 'via the backdoor' and without having met the strict evidential rules. It will be interesting to see whether this approach is followed by other judges and how the courts will keep a rein on "factual" experts to ensure that they do only give evidence of a purely factual nature.