UK: Banking On Bankers

Sascha Hindmarch outlines the pursuit of Libor-related claims

The Court of Appeal's decision at the end of last year in Graiseley Properties Ltd v Barclays Bank plc [2013] (appeal decision) confirmed that the door is open for claimants to plead implied representations against financial institutions in relation to the manipulation of London interbank offered rates (Libor) and/or Euro interbank offered rates (Euribor). With that comes the ability to rescind contracts entered into with financial institutions, potentially recovering previous payments made if misrepresentations (implied or otherwise) can be proved. However, while the door may be ajar it certainly remains arguable as to whether the floodgates have opened.

Libor – what is it and how was it manipulated?

Before embarking upon the detail of the appeal decision it is worth briefly covering what Libor is and the manipulation that took place. As Longmore LJ (at para 2) set out, Libor is defined by the British Bankers Association as:

The rate at which an individual contributor panel bank could borrow funds were it to do so by asking for and then accepting interbank offers in reasonable market size just prior to 11.00am London time.

The benchmark rate is set after each panel bank submits a rate and an average is calculated once the highest and lowest rates are omitted.

The Libor fallout involved several financial institutions including UBS AG, JPMorgan, Barclays, Royal Bank of Scotland and Deutsche Bank being sanctioned by worldwide financial regulators for seeking to manipulate Libor and Euribor between 2005 and 2010. As a result, the English courts have seen Libor-related claims being prosecuted in their jurisdiction.

Background to the appeal decision

Interestingly, the appeal decision arises out of two independent cases and two contradictory decisions at first instance – Graiseley Properties Ltd v Barclays Bank plc [2012] before Flaux J (Graiseley case) and Deutsche Bank AG v Unitech Global Ltd [2013] before Cooke J (Unitech case). The Court of Appeal therefore dealt with two appeals arising out of these first instance decisions. Both cases involved interest or swap agreements in which the relevant banks were attempting to recover monies due under such agreements and where borrowers have sought to plead implied representations regarding the manipulation of Libor.

Graiseley case

In brief, the Graiseley case focused on derivative contracts the claimants had entered into as a condition of the bank granting relevant loan facilities. Part of the claimants' pleaded case – objected to by the bank – dealt with specific implied representations in relation to Libor up to the date when the derivative contracts were entered into. Those representations, as it was pleaded, were said to be false and misleading. On the claimants' case they would not have entered into the transactions had they known the bank was seeking to manipulate Libor. The pleaded case also included representations as to future conduct alleging the representations were fraudulent and, therefore, the transactions should be rescinded, potentially clearing the way to a recovery for all payments made under the contracts.

At first instance, before Flaux J, the bank objected to the pleading on the following grounds: firstly, whether there was any foundation for there to be an implication; secondly, whether it could be said that the relevant bank personnel had knowledge that the representations were false; and thirdly, whether the representations were made with the bank's authority. Flaux J found that the bank was unable to demonstrate it did not have an answerable case that implied representations were not made.

Unitech case

The Unitech case involved claims made in connection with credit facility and interest rate swap agreements. Similarly, the borrowers sought to plead implied representations that the lenders would not undermine the integrity of Libor. However, in the judgment at first instance, Cooke J declined to follow Flaux J, refusing to allow the claimants to proceed on a pleaded case based upon an implied representation. In so doing, Cooke J referred to the test formulated by Toulson J in IFE Fund SA v Goldman Sachs International [2007] (and in particular at para 15):

In determining whether there has been an express representation, and to what effect, the court has to consider what a reasonable person would have understood from the words in the context in which they were used. In determining what, if any, implied representation has been made, the court has to perform a similar task, expect that it has to consider what a reasonable person would have inferred was being implicitly represented by the representor's words and conduct to their context.

In that context, as the Court of Appeal explored, Cooke J considered that the pleading of implied representation sought to place (para 20 of the appeal decision):

... in the mouth of one bank a statement about the overall integrity of the LIBOR system or of an individual bank's contributions to it which was unrealistic and did not meet Toulson J's test.

While Cooke J was prepared to allow a pleading based upon an implied term that the bank would not do anything to impact upon a proper assessment of the relevant Libor relating to the transactions, his Lordship was not prepared to allow a pleading that implied a representation based upon the fact the bank was a panel bank and offered or made a financial transaction linked to Libor. In his Lordship's eyes, this was too wide and would require placing a duty on a bank to disclose any information that it had, which potentially undermined the integrity of Libor.

Appeal decision

The Court of Appeal was asked to consider the competing first instance decisions and, in particular, the proposed pleas of implied representations. Longmore LJ (with Underhill LJ and Sir Bernard Rix agreeing) rejected to Cooke J's analysis and in so doing his Lordship concluded at para 25:

I consider that any case of implied representation is fact specific and it is dangerous to dismiss summarily an allegation of implied representation in a factual vacuum. If the LIBOR scandal has occurred before these cases were begun and what are now the proposed pleas had been incorporated in original pleadings, they would not, in my view, be amendable to a strike out application and it is not surprising that Barclays did not, at first instance, seek to appeal Flaux J's decision.

In reaching his conclusions Longmore LJ considered the decisions of Ward v Hobbs [1878] and Bell v Lever Bros [1931], which dealt with there being no duty to disclose one's own dishonesty or breach of statutory duty. However, his Lordship considered that those authorities had no role to play in relation to a strike-out application or permission to amend in a case of this nature. As it was pointed out, in reference to ING Bank NV v Ros Roca SA [2011], that (para 26):

... may be the law where nothing is said and there is no duty to speak, but even that is not wholly free from doubt.

Further, Longmore LJ brought to the fore that:

  • the banks did propose to use Libor and it was, therefore, arguable that their participation in setting the rate was honest and the banks proposed the Liborgoverned transactions;
  • it was not enough to simply say that the banks were prepared to accept that they would not do anything dishonestly during the term of the contract and that should be enough for the counterparty to the contract. In that regard his Lordship said, at para 30:

[t]he law should strive to uphold the reasonable expectations of honest men and women. If in the end it cannot do so, that should only be after a proper trial.

  • reliance on a disclaimer and entire agreement clause is misplaced when the pleaded allegation is inducement by fraud and is not a point that could be determined summarily; and
  • dovetailing into that, the function of the court at the summary stage should not be too selective about the precise representations which are being advanced by the parties to the proceedings. That is a matter for the trial judge to decide.


The Court of Appeal has been clear to establish that matters such as those dealing with implied representations are to be reserved for trial and cannot be dealt with (and dismissed) summarily.

It remains the case that much will depend upon the facts of any particular case and its merits. Therefore the appeal decision has not necessarily opened up a Pandora's box. Its importance lies in the window it provided claimants to pursue financial institutions for Libor-related infringements by pleading implied representations as a head. In so doing, such a plea, if able to be ultimately proved, may pave the way for the relevant contract-based transaction to be rescinded and potentially previous payments to be recovered.

Financial institutions are on notice. Having said that, it needs to be borne in mind that the appeal decision dealt with an interim application concerning the pleadings. It was not a Court of Appeal judgment that established there were implied representations dealing with the manipulation of Libor leading to the rescinding of the contract. Whether this appeal decision has any significant and lasting impact remains to be seen and will not ultimately be known until these issues are ultimately tested at trial.

Bell v Lever Bros
[1931] UKHL 2

Deutsche Bank AG & Ors v Unitech Global Ltd & Ors
[2013] EWHC 471 (Comm)

Graiseley Properties Ltd & Ors v Barclays Bank plc & ors
[2012] EWHC 3093 (Comm);
[2013] EWCA Civ 1372

IFE Fund SA v Goldman Sachs International
[2007] EWCA Civ 811

ING Bank NV v Ros Roca SA
[2011] EWCA Civ 353

Ward v Hobbs
(1878) 4 App Cas 13

The Headlines

Following the appeal decision, companies and individuals that entered into contracts with financial institutions involved in Libor or Euribor may be able to bring claims against those institutions if the following apply:

  • The contract was entered between 2005 and 2010 – the period when the Libor/Euribor manipulation took place. The one caveat in that regard is that a cautious approach needs to be taken in relation to any contracts entered into pre-2008 as limitation periods are likely to apply.
  • The types of contracts likely to be affected include floating rate notes, interest rate swaps or options, asset swaps, collateralised debt obligations, credit default swaps, inflation swaps and total return swaps.
  • In order to bring a claim in the English courts the claimant must have entered into a transaction with a UK-domiciled financial institution involved in the benchmark manipulation or the harmful event/damage which occurred by entering into the transaction was in England.
  • If it can be established that the financial institution knowingly breached an implied representation and did so fraudulently the claimant is entitled to rescind the transaction and be put back into the position it would have been entitled to be in pre-transaction. As such, it paves the way to allow the claimant to recover all payments previously made under the contract.

Originally published in March 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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