PAG v RBS: Court of Appeal dismisses swaps mis-selling and libor manipulation claims

In its first substantive decision on allegations of LIBOR manipulation and interest rate hedging product mis-selling, the Court of Appeal has dismissed the claimant's appeal with the result that all claims against the defendant bank have failed: Property Alliance Group v The Royal Bank of Scotland [2018] EWCA Civ 355.

The decision has clarified a number of points relating to claims for negligent misstatement and misrepresentation against financial institutions. In particular, the Court of Appeal held that, absent an advisory relationship or special circumstances in which a specific broader duty is established, a financial institution owes no duty to explain the nature or effect of a proposed arrangement to a prospective customer. The extent of the duty will typically be a duty not to misstate.

The decision is also of interest regarding the requirement to prove falsity of a LIBOR related representation. The Court of Appeal found that, in selling GBP LIBOR linked products, the defendant bank made the narrow implied representation that it was not itself seeking to manipulate GBP LIBOR and did not intend to do so in the future. However, on the facts, the claimant could not prove that the representation (concerning GBP LIBOR) was false. The Court of Appeal held that falsity will need to be specifically proven; it would not be sufficient to invite the court to draw inferences on the basis of conduct relating to other benchmarks (such as LIBOR in a different currency) or indeed findings of the regulator.

For more information on this case, see our Banking litigation e-briefing.