United States: All Claims Dismissed In The First Major Judgment Involving The Alleged Manipulation Of LIBOR

In the wake of the LIBOR scandal, many of the banks which were subject to regulatory actions have faced claims of mis-selling of financial instruments referenced to LIBOR. In Graiseley Properties Ltd v Barclays Bank plc1 the Court of Appeal held that, in principle, a claim based on an implied misrepresentation that a bank was not attempt- ing to manipulate LIBOR was arguable. The recent judgment in Property Alliance Group ("PAG") v Royal Bank of Scotland plc ("RBS")2 is the first time that the formu- lation of those implied representations has been put to the test in a full trial.

In a judgment handed down on 21 December 2016, Asplin J dismissed all of PAG's claims against RBS, including claims based on alleged LIBOR-related misrepresenta- tions and implied terms which were almost identical to those in Graiseley. However, of particular note, given the number of pending LIBOR-related mis-selling claims, are Asplin J's detailed obiter (non-binding) comments about the way in which the repre- sentations and implied terms could have been re-formulated and how hypothetical al- ternative facts might have affected the success of PAG's claims.


PAG brought proceedings against RBS in the English High Court claiming that it had been mis-sold four interest rate swaps by RBS between 2004 and 2008 (the "Swaps"). Each of those Swaps was referenced to the 3 month Pound Sterling ("GBP") LIBOR rate.

Whilst PAG's claims fell into three categories (all of which were ultimately dismissed), this note focusses solely on the LIBOR-related claims (the "LIBOR Claims").3 In thisrespect, PAG claimed (i) rescission (i.e. unwinding the transaction) on the ground that RBS had made a number of misrepresentations about LIBOR and the way in which it was set (the "LIBOR Misrepresentation Claims"); and (ii) damages on the ground that RBS had breached a number of implied terms in each of the Swaps (the "LIBOR Implied Terms Claims").


PAG argued that there were five representations4 which could be inferred by a reason- able representee in PAG's position5 from RBS' words and conduct in proposing and entering into each of the Swaps.6

Despite a standard implied term that the parties to each of the Swaps would conduct themselves honestly when performing the contract, Asplin J came to the conclusion that, in the relevant factual context of the case, "the mere proferring of the draft Swaps referable to the 3 month GBP LIBOR rate was [not] in itself sufficient conduct from which the LIBOR Representations could be inferred by the reasonable represen- tee".7 This dismissed the LIBOR Misrepresentation Claims entirely.

However, helpfully, Asplin J went on to consider, obiter, the position if there had been sufficient conduct to found the implied representations: would a reasonable represen- tee in PAG's position have drawn the inferences contained in the LIBOR Representations?

LIBOR Representation 1: "On any given date up to and including the date of each of the Swaps, LIBOR represented the interest rate as defined by the BBA, being the average rate at which an individual contributor panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11am on that date". Asplin J concluded that this formulation was too widely drawn and technical to have been inferred by a reasonable representee. However, had there been suffi- cient conduct, Asplin J held that she "would have found...that a reasonable represen- tee would have inferred from the use of LIBOR as a benchmark that LIBOR in rela- tion to the tenor and currency to which the transaction related was set at the date of the transaction and would be set throughout its term in accordance with the relevant definition, being the BBA definition8"

LIBOR Representation 2: "RBS had no reason to believe that on any given date LIBOR has represented anything other than the interest rate defined by the BBA, be- ing the average rate at which an individual contributory panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just pri- or to 11am on that date". Again, Asplin J found that PAG's formulation was too broad in that it encompassed all dates in the past and all tenors and currencies to which LI- BOR is applied. However, had there been sufficient conduct, Asplin J held that she "would have found that a reasonable representee would have inferred that RBS had no reason to believe that LIBOR in relation to the tenor and currency to which each Swap related would be other than the interest rate as defined by the BBA during the life of each Swap".9

LIBOR Representation 3: "RBS had not made false or misleading LIBOR submis- sions to the BBA and/or had not engaged in the practice of attempting to manipulate LIBOR such that it represented a different rate from that defined by the BBA (viz a rate measured at least in part by reference to choices made by panel banks as to the rate that would best suit them in their dealings with third parties)". Asplin J found that this was "essentially the same as Representation 1 and suffers from the same de- fects" but could have been "tailored in a similar way to LIBOR Representation 1".10

LIBOR Representation 4: "RBS did not intend in the future and would not in the future: make false or misleading LIBOR submissions to the BBA; and/or engage in the practice of attempting to manipulate LIBOR such that it represented a different rate from that defined by the BBA (viz a rate measured at least in part by reference to choices made by panel banks as to the rate that would best suit them in their dealings with third parties)". Asplin J concluded that this amounted "to a promise as to future conduct...not a statement of fact" and, as such, would not have been inferred by a rea- sonable representee.11

LIBOR Representation 5:12 "LIBOR was a rate which represented or was a proxy for the cost of funds on the interbank market for panel banks such as RBS".13 Asplin J concluded that the "alleged inference is highly technical and not necessarily accu- rate", such that it would not have been inferred by the reasonable representee.14

Asplin J also stated, obiter, that, had they been made, the alleged representations would have all been false on the basis that RBS had admitted trader manipulation of submissions in LIBOR currencies other than GBP. However, the evidence of the rele- vant PAG witnesses demonstrated that they had no understanding of the "extremely complex and intricate pleaded representations" and, therefore, even if they had been made, PAG could not be said to have relied upon those representations.15

In the alternative, PAG had also alleged fraudulent false representation16 and/or negli- gent misrepresentation,17 both of which were dismissed by Asplin J. In relation to the claim based on fraud, Asplin J found that PAG's cross-examination of the relevant RBS witnesses failed to establish that they intended PAG to rely on the alleged LIBOR Rep- resentations.18 In relation to the claim based on negligence, PAG's pleaded case was insufficient to make out one of the key components of negligent misrepresentation and, on that basis, this aspect of the claim also failed.19

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