A legal action by a campaign group seeking £400 million in compensation for small firms from Clydesdale Bank, now part of Virgin Money UK, and its former owner National Australia Bank, will open in the high court in London today.

The trial, expected to take up to 12 weeks, is the culmination of a long legal process, which initially saw 901 business claimants (with 1403 claims) join a group action in relation to the bank’s sale of fixed interest loans, or tailored business loans, between 2005 and 2012. The bank says this number has fallen to just four live claimants.

The claims led by the RGL group allege that the banks falsely demanded break costs from borrowers who sought to terminate fixed rate business loans early, as well as that the banks deliberately and systemically inflated the fixed interest rate payable with ‘added value’ margin before applying their agreed profit margin – without informing customers.

RGL has instructed solicitors, Fladgate, led by partner, Garbhan Shanks, with specialist banking counsel.  The case is funded by Bench Walk Advisors. After the Event iinsurance is also in place, to protect against the adverse costs risk to claimants. 

In a March 2023 pre-trial hearing, the banks sought permission from the judge to adduce expert evidence regarding the (as explained by the defendants’ barristers) widespread practice across UK banks of adding basis points to fixed rate commercial loans without disclosing this to customers.            

The judge, Mr Justice Zacaroli, refused permission to call an expert in this regard, stating in court that the fact that this conduct may have been rife in the banking market would not have any bearing on whether Clydesdale/NAB’s conduct was fair or unfair.

James Hayward, CEO, RGL Group, said: “It has taken many years to arrive at the trial of this group litigation.  The funding and insurance arrangements that have allowed the RGL Group to reach the steps of the Court remain in place, and the confidence of the claimants’ legal team in the merits of the claims has not wavered.  

RGL’s focus is, and always has been, on the claims of the RGL Group. It will nonetheless be of interest to SME businesses as a whole that adding hidden margin to fixed rate commercial loans may well have been widespread among UK banks for many years.

“For the moment, however, hard-pressed customers of Virgin Money… now have their time in court.  We hope this action brings them some belated relief and the recovery of the significant losses suffered.”

Clydesdale Bank has always said it would defend its position and in 2017 said it had “made significant progress in resolving the vast majority of cases.”

A spokesperson today said:  “There is absolutely no merit in the allegations made in RGL’s claims, which involves four live claimants. We remain confident of defending our position.” 

It also noted that during a Case Management Conference in December 2020, Judge Zacaroli said it is not a group litigation.

He said: “In this case, whilst it is true that there is group litigation in the sense that there are 500 claimants pursuing claims of the same or similar nature against the same two defendants, it is important to note this is not formally group litigation.

“There is no Group Litigation Order, there are no representative claims and there has been no process of identifying between the parties, among all the claimants, appropriate lead cases. No order is currently sought that any finding in the first action will bind the parties in any other action.”