Court of Appeal allows LIBOR claims to proceed

The Court of Appeal has allowed parties to two claims against LIBOR panel banks to amend their pleadings to include allegations that the banks made implied representations relating to the accuracy of LIBOR. In doing so, the Court held that the amendments were sufficiently arguable so as to have a real prospect of success.

This is a relatively low threshold and, whilst the parties will be allowed to plead the LIBOR allegations, they are likely to face some significant hurdles at trial (as set out in our earlier briefing following the first instance decisions, here). However, if the Court of Appeal decision stands the test of a potential appeal to the Supreme Court, banks can expect to have to argue such issues concerning whether implied misrepresentations were made, and (if so) what was their scope, at trial rather than dismiss them summarily.

Graiseley Properties Limited v Barclays Bank PLC and Deutsche Bank AG v Unitech Global Limited [2013] EWCA Civ 1372 (read the judgment here).

First instance decisions

Graiseley Properties Ltd ("Graiseley") brought a mis-selling claim against Barclays Bank plc in respect of an interest rate swap and a loan which originally included an allegation of innocent misrepresentation against Barclays in relation to LIBOR manipulation. However, following the regulatory findings against Barclays in respect of Barclays (including the information contained in the FSA Final Notice), Graiseley applied to amend its particulars to include a plea of fraudulent misrepresentation.

Unitech Global Ltd and Unitech Ltd (together, "Unitech") had applied to amend their defence and counterclaim in respect of a claim brought by Deutsche Bank for payment under a credit facility and an interest rate swap so as to include similar allegations to those made by Graiseley relating to LIBOR manipulation.

The Commercial Court granted Graiseley's application to amend its pleading to include the implied representations relating to LIBOR.¹ However, by contrast, Cooke J did not allow Unitech to make their proposed amendments.²

Court of Appeal decision

The Court of Appeal heard both appeals together and unanimously decided to allow both parties to make the proposed amendments to their pleadings.³

In allowing Graiseley and Unitech to amend their pleadings, Longmore LJ (who gave the leading judgment) stressed that whilst the proposed pleas of implied representations in both cases are arguable, any case of implied representation is fact specific and therefore it would be "dangerous" to dismiss such an allegation summarily "in a factual vacuum." Even where Longmore LJ felt that, in respect of the alleged representations concerning the conduct of other banks, Barclays' and Deutsche Bank's arguments would have "considerable force" at trial, he nevertheless felt that it was not appropriate for the Court of Appeal to refuse permission to amend the pleadings at this stage. He said that he did not "consider it the function of this court at this stage of the proceedings to be too selective about the precise representations which the parties wish to advance" and that it was for the trial judge, who would have a fuller picture of the case, to decide on the merit of the allegations.

It is still open to both Barclays and Deutsche Bank to seek to appeal the Court of Appeal's decision to the Supreme Court, so the legal position in relation to whether such pleadings will be allowed to proceed may yet take another turn.

Difficulties in bringing LIBOR claims

Our earlier briefing in May 2013 (click here) sets out the various difficulties that parties are likely to face in bringing claims against banks in connection with the accuracy of LIBOR. Disclaimers in the contractual documentations (particularly 'no representation' and non-reliance clauses) may be difficult to overcome in cases where fraud is not pleaded. However, even in a claim for fraudulent misrepresentation, the extent of the awareness or responsibility of senior management in respect of the LIBOR manipulation is likely to be a key factor in establishing the requisite knowledge and intention on behalf of the bank in making representations on routine commercial transactions referencing LIBOR. This is because the individual salesman or relationship manager who sold the interest rate hedging or other financial product referencing LIBOR is not likely to have known about any manipulation of LIBOR by the bank at the time. Parties pleading representations relating to LIBOR manipulation are therefore likely to seek to rely on any regulatory findings regarding senior management's awareness of wrongdoing, if there is any.

It is worth noting that, in their appeal of the Commercial Court's decision in Graiseley, Barclays decided not to pursue two of the objections to the granting of permission to amend that were raised at first instance. The first of these objections related to whether it can be said that it must have been obvious to the people alleged to have had the relevant knowledge that the representations were being made on transactions referencing LIBOR and were false. Flaux J said at first instance that this objection was "wholly without merit" because it was at least arguable that senior management at Barclays had the requisite degree and extent of knowledge, particularly in light of regulatory findings. This may well be one of the key issues at trial. The other objection related to whether the individuals who were alleged to have made the implied representations were authorised by Barclays. Flaux J held that it was sufficiently arguable that such authority did exist for the proposed pleading amendments to be allowed to proceed.

Where claimants bring contractual claims alleging that terms relating to manipulation of LIBOR were implied into a contract, these are also likely to face difficulties in establishing causation and loss (as set out in more detail at paragraph 4 of our earlier briefing, here).

¹_{Graiseley Properties Ltd & Ors v Barclays Bank plc [2012] EWHC 3093 (Comm)}

²_{Deutsche Bank AG & Ors v Unitech Global Ltd [2013] EWHC 471 (Comm)}

³_{Graiseley Properties & Ors v Barclays Bank plc; Deutsche Bank AG & Ors v Unitech Global Ltd & Ors; and Deutsche Bank AG v Unitech Ltd [2013] EWCA Civ 1372}