Banking Litigation

Finance disputes over bank lending to businesses can take many forms, often dependent on the complexity of the lending arrangements and the security given. We are a conflict-of-interest-free law firm and so able to act against the major. Usually, a company will provide a debenture over all its assets as security for its obligations or provide Legal Charges. There may also be priority agreements and debt postponement agreements where the company has other significant debts. In group lending, the bank will typically aim to obtain cross-guarantees from all the companies so that if one company does not meet its covenants, then the bank can hold the other companies responsible.

Loan to value covenants are a common source of disputes. The bank may contend that the value of the security (usually real estate) no longer meets the required percentage of the outstanding loan. The bank will have the property valued (at the borrower’s expense) and disputes may arise over the basis for the valuation and its accuracy. There may also be an allegation from the bank that there has been a breach of the earnings component of the financial covenants such as EBITDA.

The lending documents may include a material adverse change (MAC) clause to protect the bank against events that could be considered a “material” change to the borrower’s ability to repay the loan. Importantly, the clause enables the bank to call in the loan and enforce security even though there has not been a non-payment or event of default. The indications from the courts are that the material adverse change must affect the borrower’s ability to repay the loan and that it must not be temporary in nature and cannot include circumstances that were known to the bank at the time the loan was made.

Company directors are often required to provide guarantees, normally limited to a fixed amount. The documentation is often comprehensive to try to give the director little room to raise a dispute and framed as indemnities so that if the underlying lending is found to be void or unenforceable, the obligations of the director continue.

Banks are increasingly closing accounts because the customer operates in a way, or in a geographical area, that the bank feels creates a greater money laundering risk, but this can be motivated in part by the bank’s commercial assessment that the account is not sufficiently profitable. Errors are sometimes made because banks rely heavily on computer systems to detect accounts that should be closed. We are a conflict-of-interest free law firm and so able to advise against the major banks and financial institutions.

Banks are contractually entitled to close an account if they wish to do so and they are not required to give a reason, but they should act reasonably. Further, they must give reasonable notice and the Financial Services Ombudsman has said that in the case of a business, the notice should be more than 30 days. Often it is 60 days.

There are some court decisions that point towards banks having to exercise their discretion reasonably and the FCA has warned them against closing accounts simply because of de-risking objectives. The FCA has also said that during the Covid – 19 pandemic, banks should ensure that SMEs are treated fairly, and Cabinet Office guidance has emphasised this. It is very difficult to obtain a replacement account at another bank when banks, in the face of the pandemic, are saying that they only want to focus on existing customers.

We may be able to assist some clients in establishing accounts with a new bank via an external agency if the client’s bona fides can clearly be established and if the new bank considers that the account will be sufficiently profitable for it.

We have specialist experience and familiarity in the emerging area of blockchain and cryptocurrency. To date, the largely unregulated nature of this sector has made it frequently prone to fraud and the risk of money laundering.

Working closely with our non-contentious Fintech colleagues, we have advised on some of the first disputes in the UK relating to digital currencies.

We have experience of advising and acting for clients when they have been the victims of cyber fraud, including high net worth individuals and listed companies. Whether the fraud is perpetrated through fraudulent bank instructions supposedly made by or on behalf of the victim, or through false emails deceiving the victim into transferring funds to the perpetrator, the key is to act quickly. The faster the response from the victim, the more likely it is that the perpetrator will not yet have had an opportunity to dissipate or siphon off the funds.

We can assist with seeking to recover the funds from the perpetrators or the bank, and making complaints to the Financial Ombudsman in the event that the bank refuses to cooperate. We also have experience of conducting internal investigations for corporate clients in order to determine how a fraud has been perpetrated.

The value of a derivative is derived from the value of underlying assets to be decided at a future date and these transactions can lead to many areas of dispute. We typically act for the buy side in the dispute. We are a conflict-of-interest free law firm and so able to advise against the major banks and financial institutions.

Derivative contracts include swaps, options, futures and credit derivatives. The simplest form of derivative is a forward contract. Derivatives are either physically settled or cash settled. If there is a physical settlement then on the settlement date, in return for the prearranged price (“the strike price”) being paid by the buyer to the seller, the underlying asset is physically transferred to the buyer.

The regulation of derivatives is governed by a number of instruments including the Financial Services and Markets Act 2000 and the Financial Services and Markets Act 2000 (Regulated Activities order 2001). Derivative contracts are typically subject to documentation issued by the International Swaps and Derivatives Association (“ISDA”). The ISDA master agreement provides the framework of contractual terms; the ISDA schedule makes alterations to those standard terms as agreed between the parties; and confirmations import terms that are specific to a particular transaction. The credit support annex, as part of the schedule, contains obligations about the provision of collateral. All of this supplements the master agreement.

There is a long list of areas where disputes may arise: interpretation of the documentation; close out valuations for early termination; margin calls; payment flows; excessive mark-ups; mismanagement; contract settlements following default; and the impact of insolvency on the parties.

Market disruption, for instance arising from the Covid-19 pandemic, typically leads to financial institutions making margin calls for additional collateral and heightens the importance of the market disruption and dispute resolution clauses in the ISDA documentation (often contained in the schedules or confirmations to the master agreement).

The English and New York courts have typically been important centres for derivatives dispute rersolution and continue to be so. However, the use of arbitration has increased, and the ISDA master agreement enables the parties to choose arbitration for settlement of their disputes.

Our bank lawyers have dealt with over 100 disputes acting for clients against banks over interest rate swaps derivatives (to a total notional value in excess of £3 billion) as well as disputes over other derivatives.

The burden of regulation increases, and non-compliance can have serious consequences both for businesses and individuals. Working as necessary with colleagues in our financial services team we respond to the Financial Conduct Authority’s preliminary enquiries and prioritise the avoidance of the aggressive enforcement processes that may involve both civil and criminal law action. Where corporate reputation issues arise, we have a skilled team of lawyers available. Where the client’s activities are of an international nature, there may be concurrent investigations in a number of countries, and we are able to involve specialist lawyers in other jurisdictions.

Often a proactive approach is required with the regulator and we can assist with internal investigations where events have emerged that may have regulatory consequences. We advise clients on the employee issues and help develop a strategic response to the regulator and to employment law challenges. We have extensive experience in advising on the Senior Managers and Certification Regime.

Where data protection considerations are a feature. our experienced data protection team will help. Competition law advice is also available if an investigation is pursuant to the FCA’s or the Competition and Market’s Authority’s concurrent powers as regulators.

As a conflict-of-interest free firm, we receive referrals of clients from other law firms that are acting for companies involved in FCA investigations, where we are appointed to independently advise and represent the directors.

We also advise in relation to contested regulatory applications.

Claims against financial advisers may be based on allegations of misrepresentation, negligence, fraud or other misconduct. Each of these requires a different legal approach. With some claims the terms of business under which the advice was given will be a particularly important consideration, including considering exclusions of liability. The usual legal analysis is: did the adviser have a duty of care to the client; was that duty breached; did the breach cause the damage; and what was the loss?

The claim may not relate only to the manner in which the investment was sold to the client but also to events occurring during the life of the investment and include, for instance, the method by which the underlying assets have been valued or the way in which fees have been applied including the application of any hidden commissions.

There will also often be questions over whether there were breaches of the Financial Conduct Authority’s regulations and the consequences of those breaches.

London’s pre-eminent position in the foreign exchange markets, means that we have acted for many clients in disputes with banks, brokers and other Forex providers over contractual issues relating to terms of a trade or the way in which the trade has been fulfilled, with particular expertise in disputes over Forex derivatives. We have also acted for those on the “sell” side of the market in similar disputes. We are a conflict – of – interest free law firm and so able to act against the major banks and financial institutions.

Our bank lawyers have dealt with Forex manipulation claims since the scandal in 2013 led to worldwide investigations by regulatory agencies and market-competition authorities. Disputes particularly arose from the impact of the manipulation on Forex derivatives that banks had sold to their customers.

A client may have lost a substantial sum of money due to the fraud of a third party or employee and needs to trace, freeze and recover the money that has been taken. Speed is of the essence.

We focus on an in-depth analysis of what has occurred, the targets for recovery, the means of recovery and the prospects of success. Where the case involves an international aspect we can use our links to leading law firms in many jurisdictions. Where it is a complex fraud involving the transmission of money through many bank accounts in different countries, we may typically work with in an international accountancy firm with specialist global experience in identifying the flow of funds. We are also able to recommend and work with suitable private investigators.

We advise about the court orders that can be obtained including search and trace orders, freezing injunctions and orders requiring third parties, including banks, to provide information and disclosure of documents. Typically, our application to the court will be made without the fraudsters being aware of it, so that we can achieve an element of surprise.

At a later stage if the client seeks a prosecution, but the prosecuting authorities are not prepared to investigate or prosecute, then we can advise about a private prosecution. It is usually unwise to involve the police at an early stage, or perhaps at all, as their priority is investigation and prosecution whereas the client’s aim is to recover the stolen money. The best alternative is usually to take very speedy steps to try to recover the money using the well-developed legal orders available from the English civil courts.

Our bank fraud lawyers have assisted many clients whose bank accounts have been frozen by their bank. A frozen bank account often places clients in a severe predicament and can cause the collapse of their business. We are a conflict-of-interest free law firm and so able to act against the major banks and financial institutions.

Accounts are often frozen because the bank has made a Suspicious Activity Report (SAR) to the National Crime Agency. Whilst banks are obliged to report suspicious activity, SARs can be, and often are, triggered by entirely innocent behaviour.

We prioritise seeking access to funds in the frozen account as quickly as possible by communicating with the bank’s in house lawyers to try to secure that the matter is dealt with at a senior level and with the aim, via intensive analysis, of persuading them of the bona fides of the client’s business and of the transactions involved.

We may be able to assist some clients in establishing accounts with a new bank via an external agency if the client’s bona fides can clearly be established and if the bank regards the account as being sufficiently profitable for it.

We have wide experience acting for insolvency practitioners, directors and creditors in the disputes that can arise as a result of company insolvency, including relating to companies regulated by the Financial Conduct Authority.

Acting for the insolvency practitioner (IP), we are skilled in identifying the company’s assets for recovery and the steps that need to be taken, including the availability of court orders for the delivery up of documents and information to assist the IP. We are also able to advise the IP on the availability of litigation funding to take steps against the directors, for instance, for malfeasance such as the improper application of the company’s assets. We also advise the IP on all regulatory aspects.

Additionally, we act for directors who are being investigated by an IP including representing them in disqualification proceedings and also in FCA misconduct investigations. We may be brought in by the company’s previous lawyers to provide independent advice and representation for the directors, for instance, where there are allegations of wrongful or fraudulent trading.

For creditors, we advise on the steps being taken and proposed by IPs to obtain and deal with the company’s assets and represent creditors in disputes that may arise in relation to this.

We also have experience of acting for trustees in bankruptcy and for directors and others who become subject to the bankruptcy regime.

For further information please see our corporate recovery, restructuring & insolvency page.

Claims may cover a wide area and the claimant may be a professional investor or not. Typical issues are: was the investment riskier than stated; was the promised return misstated; were underlying assets bought and sold without authority and generally was accurate information provided to the client.

There may, for instance, be an allegation of “churning” – was the investment manager’s real motivation for changing underlying investments so that it could earn more commission? The limits and consequences of early withdrawal may not have been adequately explained and there may be misrepresentations about the illiquid nature of the investment.

Each client’s situation has to be reviewed individually and the conditions surrounding the investments investigated. Areas for legal focus include the nature and extent of the mis-selling, the investment sophistication of the client, the contractual position and what action is available to recover losses and how the losses are to be calculated. We work with expert advisers in the investment field on technical and valuation issues where necessary.

In all these situations we bring to bear our experience of the legal framework governing financial products and of the regulatory requirements applying to financial advisers.

Since the first major revelation of financial benchmark manipulation in June 2012, when the FCA fined Barclays Bank Plc £59.5 million for Libor manipulation, our banking lawyers have been deeply involved in the analysis and pursuit of legal claims on behalf of claimants.

Shareholder group actions are a fast-growing area, often attracting significant attention in the press. Given recent developments however, this is still an area of much legal uncertainty. Shareholders may be unclear about the potential benefits and risks of taking part in a group action.

We offer independent, tailored advice to institutional and private investors who are considering whether to commence or participate in group actions. We also advise litigation funders seeking advice on the various complex legal issues that can arise in funding group actions of this nature.