UK: PAG v RBS: Court Of Appeal Judgment On Swaps Mis-Selling, LIBOR And GRG

Last Updated: 14 March 2018
Article by James Cooper and Karen Boto

Most Read Contributor in UK, November 2018

In December 2016, in the first major decision on LIBOR manipulation and interest rate derivative products, the High Court dismissed Property Alliance Group Limited's (PAG) claims against the Royal Bank of Scotland (RBS). The Court of Appeal has now dismissed the appeal in its entirety. Whilst, on the facts, all of PAG's claims against RBS failed, the Court of Appeal's decision provides clarity on some important areas of law:

  • In absence of an advisory relationship, a financial institution will owe no duty to explain the effect of a proposed transaction.Whether a broader duty is owed, over the bare duty not to misstate, will be fact specific. The Court has dealt a blow to the argument (which had found some success in first instance decisions) that a "mezzanine duty" (more than a duty not to misstate but less than a duty to advise) exists.
  • The Court of Appeal found that, based on RBS' conduct, there was a narrow implied representation that RBS was not itself manipulating and did not intend to manipulate LIBOR in selling GBP LIBOR linked swaps. As the Court found that on the facts the claim of manipulation of GBP LIBOR had not been made out, the question of the correct test for fraud and reliance, in the context of implied representations founded on a party's assumptions, has been left open.
  • RBS' (through its Global Restructuring Group (GRG)) contractual right to call for valuations of a customer's assets was not unfettered but subject to an implied term that this right could only be exercised for a purpose related to the bank's "legitimate commercial interests" and could not be used maliciously.


PAG is in the business of property investment and development and has a large portfolio of property. In 2003, RBS began to provide financing facilities to PAG. Over the next 5 years, PAG entered into 4 swaps, using the GBP 3 month LIBOR as a reference rate (the "Swaps"), which were governed by an ISDA Master Agreement. RBS also provided other investment facilities to PAG that were typically referenced to a margin over LIBOR. From 2008, floating rates plummeted, leaving PAG with crippling fixed rates and prohibitive close out costs. In the spring of 2010, PAG was transferred into the GRG. In June 2011, PAG terminated the swap agreements and they incurred a break cost of £8.261m. At the same time, PAG agreed refinancing terms with RBS and entered into a composite facility.

In August 2013, GRG proceeded to demand valuations of PAG's properties over which RBS held security. PAG remained in GRG until they refinanced their debt with HSBC in 2015.

PAG commenced court proceedings against RBS in September 2013.

In the meantime, the June 2012 FSA final notice to Barclays, which revealed LIBOR manipulation, was published.

PAG's Claims

PAG's claims against RBS fell into three categories:

  1. The Swaps Claims, which concerned allegations that the Swaps had been mis-sold. PAG alleged that:

    1. RBS was in breach of its duty to fully explain the Swaps and/or to take reasonable care not to misstate the facts (the Misstatement Claim);
    2. RBS had misrepresented that the Swaps would provide a hedging solution and "protect" or "de-risk" PAG's interest rate risk (the Misrepresentation claim); and
    3. the Swaps had been sold in breach of an implied term that the Swaps were suitable, that RBS would act in good faith and in accordance with commercial fair dealing and not withhold important information about the Swaps (the Contract Claim).
  2. The GRG Claims, which concerned allegations of mistreatment of PAG by GRG. It was alleged that the transfer of the business to GRG and subsequent management by GRG was in breach of implied terms, including that of good faith and an abuse of alleged contractual discretions.
  3. The LIBOR Claims, made as an alternative to the Swaps Claims and GRG Claims. They included allegations of implied misrepresentations made by RBS about the way LIBOR was set, which allegedly induced PAG into the Swaps, or that the Swaps contained implied terms relating to RBS' conduct in connection with LIBOR. Put simply, PAG argued that by proffering a product based on the LIBOR rate, RBS represented that it was not manipulating the rate.

At first instance, the High Court rejected PAG's claims in their entirety.

The Court of Appeal Decision

PAG only pursued certain points on its appeal. The claims upon which PAG continued to rely included:

  • Under the Swaps Claims, PAG appealed against the judge's findings on the Misstatement Claim and the Misrepresentation Claim;
  • The GRG Claims, in particular that RBS was wrong to have PAG's portfolio revalued in August 2013; and
  • The LIBOR Claims.

The Court of Appeal found as follows:

The Swaps Claims

PAG accepted that RBS did not owe it an advisory duty in relation to the Swaps. Instead, it alleged that RBS' failure to disclose its internal credit line in relation to the Swaps (known as the credit line utilisation or CLU), or to provide worked break cost scenarios, meant that its presentation of the Swaps was inaccurate and incomplete.

It said this rendered RBS liable for negligent misstatement under classic Hedley Byrne Co Ltd v Heller & Partners Ltd [1963] 2 All ER 575 principles. In addition, or alternatively, PAG alleged that to the extent these alleged failures fell outside Hedley Byrne principles, they nevertheless constituted a breach of the so called common law "mezzanine" duty (being something more than a duty not to misstate, but less than a duty to advise) to ensure, when providing information, that it was both accurate and fit for purpose.

The Court of Appeal noted that the High Court was correct to reject the allegations of negligent misstatement and the idea that a wider duty to provide the information arose.

The Court of Appeal confirmed that the concept of a mezzanine duty is "best avoided". The Court noted that: "it appears to reflect the notion that there is a continuous spectrum of duty, stretching from misleading, at one end, to full advice, at the other end". This, the Court of Appeal confirmed, is not the case. Rather, in the Court of Appeal's view, "concentration should be on the responsibility assumed in the particular factual context as regards the particular transaction or relationship in question".

The extent of the duty owed in non-advised sales will therefore typically be a duty not to misstate. Whilst the Court of Appeal did emphasise that this is "an elastic duty that is factually sensitive", in order to establish a specific broader duty of care (such as a duty to speak or provide fuller explanations), the claimants will need to satisfy one of the traditional tests for establishing a duty of care (namely, the assumption of responsibility test; the three fold test in Caparo v Dickman [1990] 2 AC 605 of reasonable foreseeability, proximity and whether it would be just, fair and reasonable to impose a duty of care; and the 'incremental test' (attaching to an existing duty of care)).

The Court of Appeal held that there had been no breach by RBS of its Hedley Byrne duty not to misstate. There had been no error in the way in which RBS explained the terms of the Swaps, including the circumstances in which break costs might be incurred or how they would be calculated. On the facts, there was no proper basis for holding that RBS had assumed a responsibility for the disclosure of the CLU or any similar indication of possible future break costs.

The Court of Appeal also dismissed the misrepresentation argument. They agreed with the lower court that the representation that PAG argued for had not been made out and even if it had, the non-reliance clauses in the ISDA Master Agreement were clear and meant that PAG was contractually estopped from relying on any such statements.

The GRG Claims

Under the provisions of one of PAG's facility agreements, RBS had the right to require a valuation (at PAG's cost) of each of PAG's properties over which it held security.

PAG alleged that this right was subject to an implied term (based on Socimer International Bank Ltd v. Standard Bank London Ltd [2008] [EWCA Civ 116]) requiring RBS to act "reasonably, in a commercially acceptable or rational way, in good faith, for a proper purpose (i.e. the purpose for which such power or discretion was conferred), not capriciously or arbitrarily and not in a way that no reasonable lender, acting reasonably, would do." PAG alleged that when RBS exercised its right in 2013, it breached that term and it had no intention to re-finance with PAG.

The Court of Appeal held that there was no question of RBS owing fiduciary duties and RBS "must have been free to act in its own interests and it was under no duty to attempt to balance its interests against the interests of PAG." However, (in contrast to the first instance judge), the Court of Appeal found that RBS' right to require a valuation was not wholly unfettered, and it could be inferred that the parties had intended that the power was to be exercised in pursuit of legitimate commercial aims, rather than, for example, to vex PAG maliciously.

On the facts, however, the Court of Appeal did not interfere with the judge's conclusion that, with regard to the valuation, RBS had not acted in breach.

The LIBOR Claims

Although the Court of Appeal accepted that the pleaded LIBOR representations were "extremely complex and intricate", the Court of Appeal agreed with PAG that there was sufficient conduct on RBS' part for representations to be implied.

The Court of Appeal reformulated the implied representation and held it to be to the effect that RBS "was not itself seeking to manipulate LIBOR and did not intend to do so in future".

The Court of Appeal also endorsed the so called "helpful test" in Geest v Fyffes [1999] 1 All ER (Comm) 672, namely that the existence of an implied representation can be tested by whether a reasonable representee would naturally assume that the true state of facts did not exist and that, if it did, he would necessarily have been informed of it.

The Court of Appeal found, again contrary to the first instance judge, that RBS had, during the course of its lengthy discussions with PAG concerning the proposed Swaps, made an implied representation to the effect that RBS was not manipulating and did not intend to manipulate GBP LIBOR. However, the scope of such representation was said to be limited to the currency of the relevant Swap, in this case GBP.

Despite persuading the Court of Appeal to find the representation, PAG's claim still failed. The Court of Appeal upheld the High Court's factual finding that PAG had failed to make out its case that RBS had manipulated GBP LIBOR; there was insufficient evidence to suggest that RBS was guilty of trader manipulation, lowballing or financial crisis manipulation in relation to the GBP LIBOR Rate. Whilst regulatory findings had been made as to RBS' manipulation in relation to other currencies, no finding has been made with regard to GBP LIBOR, which was the relevant currency in question.

Accordingly, the Court of Appeal left open important questions of law as to the requirements for fraud and reliance in the context of implied representations founded on a party's assumptions.


The Court of Appeal's finding that the "mezzanine duty" does not exist is useful in the context of considering the duty of care owed by a bank in relation to mis-selling claims, especially in light of conflicting decisions in the lower courts in recent years. The firm finding in this instance that there was no duty to provide CLUs and predictions, may mean that successful claimants will need to distinguish themselves from this decision in the future.

Although PAG was not successful in relation to LIBOR manipulation and PAG's alleged mistreatment by GRG on the facts, two important legal principles have been decided which may assist future cases:

  • Whilst, on the facts, PAG could not prove that RBS' representation in relation to LIBOR manipulation was false, if a claimant can show that a financial institution manipulated LIBOR for the particular currency that a swap is referenced to (e.g. through regulatory findings), then there may be grounds to rescind the derivatives contract. The finding in this case that a narrow implied representation could exist is therefore important.
  • Restricting GRG's contractual right to call for valuations of a customer's portfolio, though an implied term that the right could only be exercised for a purpose related to the bank's "legitimate commercial interests", potentially clears the way for claims to be advanced against GRG. GRG has been publicly accused of using its contractual powers to artificially distress its customers' businesses. Given the recent public wrangling and eventual publication of the section 166 skilled person's report, future claimants may seek to rely on this implied term and the evidence in the report (if appropriate) to argue that GRG did not exercise its facility rights for "legitimate commercial interests".

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Karen Boto
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions