The recent quashing of criminal convictions against former traders Tom Hayes and Carlo Palombo has reignited discussion around the legal concept of malicious prosecution. Their cases have put the spotlight on questions of prosecutorial overreach, the fair application of financial regulations, and whether those responsible for pursuing the charges could now face civil liability.
What is Malicious Prosecution
Malicious prosecution is a civil claim, a tort, that allows someone who was wrongly prosecuted to seek damages from those who initiated or sustained the case. While it can technically apply to civil proceedings, it's most commonly associated with criminal prosecutions.
To succeed in such a claim, a claimant must prove four elements:
That the prosecution:
- Was brought by the defendant;
- Ended in the claimant's favour, either by acquittal or, as in Hayes' case, by the conviction being overturned;
- Lacked reasonable or probable cause; and
- Was driven by malice, meaning an improper motive, such as personal hostility, political pressure, or institutional self-interest.
Most legal battles in malicious prosecution cases centre on the third and fourth points; was there a solid legal foundation for the prosecution and did those bringing that prosecution act for reasons other than a genuine belief that justice was being served.
The Supreme Court's Judgment in the LIBOR Cases
On 23 July 2025, the UK Supreme Court delivered a landmark ruling that overturned the convictions of Hayes, Palombo, and several other traders previously found guilty of manipulating the LIBOR and EURIBOR interest rate benchmarks. The Court concluded that the legal foundation of these prosecutions was flawed from the outset.
Prosecutors had argued that the traders acted dishonestly by submitting benchmark rates that were influenced by their banks' trading positions, rather than offering a neutral estimate of what they would pay to borrow funds. The trial judge went even further, instructing the jury that any rate shaped by commercial considerations could not, by definition, be an honest submission, thereby making it dishonest in law.
The Supreme Court unanimously rejected this reasoning. It found:
- There was no legal obligation for banks to submit the lowest possible rate at which they could borrow;
- Commercial considerations were not inherently incompatible with honesty;
- And crucially, it was up to the jury, not the judge, to decide whether a defendant believed their rate submission was honest.
The Court ruled that the trial judge's instructions mischaracterised the legal concept of dishonesty, ultimately rendering the trials unfair and the convictions unsafe.
Could a Successful Malicious Prosecution Claim be Brought
With their names now cleared, Hayes and Palombo may explore civil remedies for the time they spent imprisoned, the damage to their reputations, and the substantial financial losses/loss of income, they incurred. One potential route is to bring a claim against the Serious Fraud Office (‘SFO') or other public bodies for malicious prosecution.
Bringing a successful claim in malicious prosecution carries tremendous difficulties but it is not impossible. To succeed, they would need to show:
- That the prosecution was brought and sustained by the SFO;
- That it ended in their favour (which it now has);
- That the case lacked reasonable or probable cause, particularly given how uncertain and unsettled the legal framework was at the time;
- And that the prosecution was driven by malice, such as a desire to make scapegoats of individuals after the financial crash, attract media attention, or deflect scrutiny from systemic failures in financial regulation.
There's some precedent for such claims in the United States. Former Deutsche Bank trader Matthew Connolly, whose LIBOR-related conviction was also overturned, recently secured a $150 million settlement against his employer for malicious prosecution and reputational harm.
Any claim brought by Hayes or Palombo in the UK would face a high bar. Roughly put, the courts require proof not only that that the case lacked legal merit but that it had been pursued with improper intent. There is a potential argument that the SFO pressed ahead with a legally uncertain theory, cast it in moral absolutes and failed to correct judicial misdirection that ultimately misled the jury. If it can be shown that prosecutors deliberately ignored or suppressed competing legal interpretations, that could edge their actions into the territory of malice, making the prospects of successfully establishing malicious prosecution more likely.
A Moment of Reckoning
The implications of the Supreme Court's ruling may go well beyond two individuals. Numerous traders were convicted under a legal theory that has now been thoroughly discredited. That raises serious questions about whether these prosecutions were just, and whether broader institutional accountability is now needed.
Calls for a public inquiry into the LIBOR prosecutions are likely to grow, particularly as attention shifts to the motivations of the institutions and prosecutors behind these cases. Were they driven solely by legal principle, or by the desire to make headlines, reassure markets, and quell political fallout after the financial crash?
Meanwhile, affected individuals may also seek compensation through statutory routes under the Criminal Justice Act 1988 or pursue claims such as misfeasance in public office.
What began as a high-profile financial scandal may now come to mark a turning point in the relationship between the justice system and those it prosecutes, raising fundamental questions about fairness, responsibility, and the rule of law.
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.
