Disputes Yearbook 2024:
Banking litigation

Impact of Russian sanctions

Russian sanctions continue to have a significant impact on financial institutions in the UK, as seen from a number of English court judgments over the past year (for an overview, see our special edition sanctions podcast and article in the Journal of International Banking Law and Regulation). A number of complexities have surfaced in these cases, including: (i) the suspension of payment obligations under financial instruments (see here and here); (ii) the interpretation of the "ownership and control" test under the UK sanctions regime (see here and here); and (iii) whether actual ownership of funds must be established to make out an offence under UK sanctions regulations (see here). These decisions highlight the difficulties faced by responsible financial institutions taking a cautious approach to fulfilling contractual obligations which might otherwise be regarded as breaching sanctions. Notably, where Russian companies have brought claims against banks for allegedly failing to pay sums due under financial instruments in the context of sanctions, the High Court has been willing to order security for costs (see here).

Financial institutions seeking to rely on English jurisdiction clauses and arbitration agreements can take comfort in the UK judiciary’s strong support for maintaining the integrity of such provisions under English law, even in the face of foreign proceedings and sanctions. We have already seen a number of successful applications for anti-suit, anti-anti-suit and anti-enforcement applications by international banks and major corporations in this jurisdiction and expect this trend to continue (see here, here and here). Most of these applications have been based on exclusive jurisdiction clauses, including asymmetric jurisdiction clauses, which are popular in the syndicated loans market.

Authorised Push Payment (APP) fraud

Following the Supreme Court's decision in Philipp v Barclays Bank UK plc [2023] UKSC 25 last year (see here), which effectively barred so-called Quincecare claims by the victims of APP fraud, there has been a surge in claims against banks based on innovative causes of action. There have been a number of claims targeting receiving payment service providers (PSPs) (see here, here, here and here). These decisions have examined whether receiving PSPs owe a duty of care to fraud victims, particularly regarding the prevention of fraud and the retrieval of funds after the fraud has been discovered and reported. With numerous first instance judgments considering different causes of action and some conflicting authority, the litigation risks surrounding payment processing have been elevated and appellate guidance is much needed.

In parallel to these developments, the UK Payment Systems Regulator’s new mandatory reimbursement requirement, effective from 7 October 2024, imposes obligations on both sending and receiving PSPs. A customer could potentially be awarded £945,000 redress following a successful complaint to the Financial Ombudsman Service (FOS). This is comprising an award of £85,000 against the sending PSP for failure to reimburse under the scheme, plus the FOS award limit of up to £430,000 for any unrecovered loss if the sending PSP is found to be at fault, plus up to £430,000 from the receiving PSP if it is at fault. 

Broker commission cases

In late autumn, the Court of Appeal found lenders liable for commissions paid to credit brokers in three combined motor finance appeals (see here). The judgment considers the specific scenario of the sale of motor finance to financially unsophisticated consumers, buying a second-hand car from a dealership which also arranges the finance, in circumstances where the dealer receives a commission payment from the lender (either not disclosed or only partially disclosed to the customer). Pending any appeal to the Supreme Court, the decision clarifies the requirements for transparency in respect of commissions paid by lenders to dealers and demonstrates the potential liability of lenders directly to customers where the court deems that disclosure has not been sufficient.

Although the decision makes clear that the context of the relationship between the dealer/broker and customer is significant, the ruling will be of interest to any institution engaging with brokered finance, in particular those operating under a commissions structure. This decision is likely to have a contagion effect which will not be limited to other motor-finance cases. Claimants are likely to attempt to read across the analysis and conclusions reached in this case to other areas involving the payment of commissions to third parties (indeed, this may go beyond consumer finance to other industries, including the insurance and energy sectors).

The ongoing motor finance class action in the Competition Appeal Tribunal is now stayed until 31 July 2025 (Taylor v Black Horse Limited). Again, regulatory developments are running in parallel, with the FCA consulting on extending the time motor finance firms must handle customer complaints about discretionary commission arrangements, and for consumers to refer them to the Financial Ombudsman Service. In January this year, the FCA launched a review of historical motor finance discretionary commission arrangements across several firms.

Class actions against banks

At the end of 2023, the FCA confirmed there would be a radical restructuring of the UK Listing regime, aimed at making the UK a more attractive and competitive listing venue. The FCA held two consultation processes, before bringing into force the new UK Listing Rules in July 2024. The new rules involve a shift to a disclosure-based regime, which places greater risk on investors, who must rely more heavily on the accuracy and completeness of company disclosures. This may impact future securities class actions claims brought by shareholders under ss.90 and 90A of the Financial Services and Markets Act 2000 against UK listed banks. You can read more in our article published in Butterworths Journal of International Banking and Financial Law here. The FCA has also published proposed new prospectus rules, which will likely lead to fewer prospectuses being published, at least for secondary capital raises. While this may reduce the risk of s.90 FSMA claims, the change could magnify the importance of the information which is disclosed by issuers, driving claims under s.90A FSMA and common law claims.

As noted in the Commercial Litigation section, the availability of CPR 19.8 (which allows a claim to be brought by or against a party as representative of any other persons with the “same interest” in the claim on an “opt-out” basis) may impact the risk of class actions against financial institutions. Given developments in broker commission cases outlined above, this is a particularly hot topic, as the only case in which the court approved a "bifurcated" approach to a representative action was a secret commission case (see here), although this case has now settled and so we do not have further guidance.

LIBOR cessation

In October 2024, the High Court considered the first LIBOR cessation test case in which it determined the appropriate rate which should apply to a series of LIBOR-linked instruments following the benchmark's cessation (see here). The judgment steers financial institutions dealing with "tough legacy" LIBOR contracts, by providing guidance as to how the courts might interpret these contracts, including the use of implied terms to address gaps left by LIBOR’s end. However, since the case involved a long-term contract, the court took a flexible approach, which might not apply to shorter-term contracts. Future cases could be decided differently.