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Judgment for Bank in RBS LIBOR and GRG Test Case

21/12/16

Property Alliance Group v the Royal Bank of Scotland

The High Court (Financial List) has today handed down judgment following a 10-week trial of a test case against RBS arising out of its role in the LIBOR-fixing scandal and the conduct of its Global Restructuring Group (‘GRG’).

Property Alliance Group Ltd (‘PAG’), a property investment and development business, brought a number of claims against RBS relating to four interest rate derivative products (‘the Swaps’) which RBS had sold to it between 2004 and 2008, namely:

  1. The Swaps Claims’ – claims concerning the ‘mis-selling’ of the Swaps, each of which was set by reference to 3 month GBP LIBOR.
  2. The LIBOR Claims’ – claims for rescission of the Swaps on the grounds that RBS had made a number or misrepresentations about LIBOR and the way in which it was set (or alternatively damages for breach of a number of implied terms to similar effect).
  3. The GRG Claims’ – claims for breach of contract arising out of PAG’s transfer to, and subsequent management by, the (now disbanded) RBS GRG division.

The case was transferred into the Financial List in January 2016 by the Chancellor (see [2016] 1 W.L.R. 2783) on the basis that it involved:

“… important issues of general market significance, which are clearly relevant to other participants in the markets and their clients. It is well known that there are others who have claims, and are now or are likely in the future to be litigating, in relation to similar issues arising out of the alleged rigging of LIBOR rates. It seems reasonably clear that the judgment following trial in the present proceedings will have an impact on other cases already launched and those which will be launched in the future. It is also likely that decisions about provisions in the agreements between RBS and PAG limiting RBS's exposure to claims for negligence will have relevance elsewhere in the markets.”

Asplin J dismissed each of the claims.

In relation to the Swaps Claims, the Judge considered the scope of the duty owed by a bank when providing information or explanations to a customer about financial products (at [194]-[205]) (in light of the decisions in Bankers Trust International Plc v PT Dharmala Sakti Sejahtera [1996] CLC 518 and Crestsign Ltd v National Westminster Bank Plc [2015] 2 All E.R. (Comm) 133). The Judge found that the duty identified by Mance J in Bankers Trust was wider than a bare duty not to misstate facts, but went on to say that:

“… if the decision in Crestsign was intended to go further, and to suggest that once information is provided by a bank, a salesman is always under a duty to explain fully the products he wishes to sell, without a broader advisory relationship having arisen, I decline to follow it.”

The Judge concluded that whether such a duty arose (and, if so, its extent and scope) depended on the relevant circumstances and that no such duty arose on the facts.

In relation to the LIBOR Claims, the Judge concluded (at [407]) that the proffering of LIBOR-referenced derivative products was not sufficient conduct from which a reasonable representee could have inferred that RBS was making any representations about LIBOR or the way in which it would be set.

However, the Judge went on to say (at [408]-[411) that, if she was wrong about the sufficiency of RBS’s conduct, then she would have found that a reasonable representee would have inferred from the use of LIBOR as a benchmark that RBS was making a series of representations about the specific tenor and currency to which the particular transaction related (e.g. 3 month GBP LIBOR), namely:

  1. that it was set at the date of the transaction and would be set throughout its term in accordance with the relevant definition, being the BBA Definition;
  2. that RBS had no reason to believe that it would be other than the interest rate as defined by the BBA during the life of the transaction; and
  3. that RBS had not previously made false or misleading submissions to the BBA in relation to that rate and/or engaged in the practice of attempting to manipulate it.

The Judge therefore rejected RBS’s submission that a reasonable representee would simply have inferred from the use of LIBOR as a benchmark that it was “no more than a reference to a number on a screen” (see at [413]).

The Judge also found (at [414]) that each of the Swaps contained implied terms about how LIBOR would be set, although she ultimately concluded that those terms had not been breached on the facts.

In relation to the GRG Claims, the Judge declined to imply a term into PAG’s various banking facilities with RBS that RBS would perform those agreements in good faith or a term that RBS would exercise its various powers and directions under those agreements for a proper purpose and not capriciously, arbitrarily or irrationally (i.e. a term similar to that found in Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116).

The judgment appears here. The hearing of consequential matters arising from the judgment is expected to take place in January 2017.

Tim Lord QC, Kyle Lawson and Ben Woolgar appeared for PAG, instructed by Bird & Bird.