Financial litigation roundup - Summer 2014

Regulatory investigations and developments London gold fix The Financial Conduct Authority (FCA) and the German financial markets regulator, BaFin, are  currently investigating manipulation of the “London gold fix”, a global benchmark for the price  of gold, by five present and former participants: Barclays, Deutsche Bank, HSBC, Bank of Nova  Scotia and Société Générale. In a related development, on 23 May 2014 the FCA announced that it had fined Barclays £26m  in relation to its role in the gold fix. The FCA Final Notice to Barclays centres on activities on  28 June 2012 when a trader, David Plunkett, placed a significant gold order during the daily  3pm call in order to influence the price and prevent Barclays from being required to pay  out $3.9m under a digital options contract that was dependent on the gold price. Plunkett’s  orders influenced the ultimate price such that it fell below a barrier that would otherwise have  triggered the option payment. Instead, it resulted in a $1.75m profit for Mr Plunkett’s trading  book. The FCA found that the bank was in breach of its Principles for Business in that the bank  had failed to “take reasonable care to organise and control its affairs responsibly and effectively,  with adequate risk management systems” (Principle 3) and failed to “manage conflicts of  interest fairly” (Principle 8). Gold-fixing takes place at 10.30am and 3pm each day in a teleconference between the member  banks. On a fixing call, the gold price is adjusted until a rough equilibrium is reached between  supply and demand, whereupon the price is fixed. The regulatory investigations are in response  to allegations that the member banks are able to ascertain the price movement during the  course of the fixing-call and trade on the information before the ultimate fix price is made  public. As in the Barclays case, the system also allows participants to affect the price of gold to  their own advantage where customers’ products are tied to the final fix. In the US, in excess of 20 claims have now been filed in relation to gold fixing. These include a  class action brought by trader Kevin Maher on behalf of himself and other investors who held  or traded gold and gold derivatives that were settled based on the gold fix since 2004 and a  claim by investment management firm, AIS Capital Management, after it reportedly lost 67%  of the value of its gold fund in 2013. Early indications are that the banks intend to vigorously  defend the US claims, although regulatory findings such as that by the FCA against Barclays  may weaken the banks’ positions. Gold may not be the only metal affected. BaFin’s regulatory investigation is concurrently also  considering the silver fix. In April 2014 Deutsche Bank resigned its seat on both the London  gold and silver fixings. This resulted in an announcement on 14 May 2014 that the silver fix will  cease forever on 14 August 2014 as only two remaining members – HSBC and Bank of Nova  Scotia – will remain on the fixing panel. Back to contents> Any comments  or queries Rupert Boswall Partner [email protected] D +44 (0)20 3060 6487 Robbie Constance Partner [email protected] D +44 (0)20 3060 6422 David Smyth Senior Partner (Asia) [email protected] D +852 2216 7100ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 3 1. United States District Court for  the Southern District of New  York – 14CV0475. 2. United States District Court for  the Southern District of New  York – 14CV0876. 3. United States District Court for  the Southern District of New  York – 14CV0752. Forex market manipulation Since mid-2013, regulators have been investigating allegations that the foreign exchange  market has been subject to longstanding manipulation. The banks involved in the Forex  marketallegedly shared information in chatrooms to coordinate their trading actions for the  60 second window either side of 4pm, which is the period that WM/Reuters monitors when  calculating its daily closing rate. The dominant players, accounting for over half of the Forex  market, are Deutsche Bank, Citi, UBS and Barclays. Other banks under investigation include  HSBC, Lloyds, Standard Chartered, Royal Bank of Scotland (RBS) and JP Morgan. A number of banks have been named as defendants in class actions in the US. The first of these  suits was brought by the State-Boston Retirement System1  and subsequent claimants include  the City of Philadelphia Board of Pensions and Retirement2  and the Newport News Employees  Retirement Fund3 . The allegations that have surfaced to date are that traders were using various techniques such as: • “Front-running” by using information about client orders to trade in advance of the fix to  protect or improve the trader’s own positions. While some clients may have suspected that  their orders were being used in such a way, they would not have been aware that traders at  different banks were colluding in order to push through trades in a concerted way • “Banging the close” by concentrating trades around the 4pm fixing window with the  purpose of moving the rate • “Painting the screen” by engaging in false trades that were immediately unwound Potentially, any customer who engaged in Forex transactions (be it spot, forwards, options or  otherwise) executed at the relevant WM/Reuters closing rate with one of the banks involved  may have a claim if the rate they traded at was affected by market manipulation. In practice,  given the relatively small degree by which the rate would have been affected on any individual  trade, it is likely to be those customers who traded currencies in large volumes on a regular  basis who will have claims that will be worthwhile pursuing. Month-end rebalancings by  pension funds and asset managers, for instance, are the types of transaction that are likely,  when aggregated over a period of time, to have the potential to reveal substantial losses. Back to contents> Hong Kong regulator joins global counterparts in investigating possible  FOREX manipulation The Hong Kong Monetary Authority (HKMA) announced in March 2014 that it is joining  its global counterparts in launching full investigations into the possible manipulation by  local banks of foreign exchange markets. This comes after the territory’s de facto central  bank previously confirmed only that it was liaising with overseas regulators by collecting  information and making inquiries. Now, however, it is apparent that a number of unidentified  banks in Hong Kong have been asked to hire independent lawyers or consultants to review their  Forex businesses.ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 4 Forex desks can be found in both the large global banks and smaller family-run banks in Hong  Kong and see over US$275bn passing through them each day. According to comment it provided to the Financial Times: “The HKMA is investigating a  number of banks in Hong Kong by requiring them to conduct independent reviews of their FX  operations and submit the results to the HKMA… The reviews are in progress… The HKMA is  also liaising with relevant overseas bank supervisors on the matter.” Watch this space for further developments. According to the HKMA: “an investigation will be  initiated when there is information or evidence warranting such action.” Back to contents> RP Martin LIBOR fine On 15 May 2014, the FCA imposed a fine of £630,000 on RP Martin, a small UK brokerage,  for a breach of Business Principles 5 (market conduct) and 3 (management and controls)  through misconduct relating to the calculation of JPY LIBOR. The financial penalty would have  amounted to £3.6m, but was reduced in light of the firm’s inability to pay the full amount on  top of its obligation to pay the US Commodity Futures Trading Commission an additional fine  of $1.2m. In its final notice, the FCA accused the brokers at RP Martin of collusion with a trader at UBS as  part of a co-ordinated attempt to influence the submission rate to improve the profitability of  his trading positions. The brokers assisted the UBS trader because he was a significant client  who accounted for a substantial proportion of the revenue of the JPY desk at the brokerage. RP Martin’s fine reflects the increasing focus of the LIBOR investigation on interdealer brokers,  who play a key role in determining the relationship between buyers and sellers of bonds,  currencies and swaps for which they charge a fee. It is the second penalty imposed upon an  interdealer broker since the FCA fined ICAP Europe Limited for £14m – the first broking firm to  be fined for failings relating to benchmark manipulation. Back to contents> Ian Hannam loses market abuse appeal On 27 May 2014, the Upper Tribunal upheld the decision of the FCA that Ian Hannam, a  former senior banker at JP Morgan, had engaged in market abuse. Two years previously the  Financial Services Authority (FSA) imposed a financial penalty on Mr Hannam of £450,000 for  improper disclosure of confidential information about his client, Heritage Oil, in two emails to  a potential investor. This latest development should perhaps come as no surprise to the financial services market,  where the regulatory spotlight is increasingly focused on accountability of senior management  in authorised firms. In particular, the current Significant Influence Functions (SIF) regime is soon ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 5 to be replaced by the Senior Managers and Certified Persons Regimes for Banks. However, the  FCA’s scrutiny of senior individuals is not limited to the banking forum – in an article published  on 22 May 2014 by Mark Carney, Governor of the Bank of England, the Bank announced its  intention to create a similar regime for senior managers in the insurance industry. Back to contents> UBS ban for failing to blow whistle on rogue trader On 1 May 2014, the FCA banned former senior UBS trader, John Hughes, for failing to blow  the whistle on his colleague Kweku Adoboli, the “rogue trader” jailed in 2012 for incurring  $2.3bn (£1.36bn) in unauthorised trading losses. Part of the unauthorised trading involved  creating and using an undeclared fund of profits, termed the “Umbrella”, which was used to  manipulate the profit and losses reported from the UBS London exchange traded funds desk. The FCA considered that Mr Hughes was aware of the manipulation and, as an Approved  Person, should have reported the trader’s misconduct to the regulator. Mr Hughes’ dishonest  conduct served as evidence that he was not a fit and proper person to perform functions in  relation to any regulated activity. Back to contents> Invesco fine The FCA’s 2014/2015 business plan makes explicit its priority to bring about an industry-wide  culture change to ensure consumers’ best interests are embedded in the culture of authorised  firms. As a result, the asset management sector, regulated exclusively by the FCA, is under  intense scrutiny. One of the regulator’s most recent enforcement decisions in this area is the fine imposed  for £18.6m on Invesco Perpetual. The firm’s systems and controls failures included breaches  of investment restrictions, requirements for clear and fair communication to clients, timely  record-keeping of trades and monitoring of fair allocation of trades between funds. Back to contents> UBS implicated in HIBOR fixing probe Regulators around the globe have been looking into interbank rate-setting processes after the  true extent of the LIBOR rigging scandal came to light. In March 2014, the Hong Kong Monetary Authority (HKMA), Hong Kong’s de facto central bank,  announced that it had found evidence that six traders at UBS AG had attempted to manipulate  the Hong Kong Interbank Offered Rate (HIBOR).ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 6 UBS was one of the banks at the centre of the LIBOR scandal, for which it has paid a record  US$1.5bn fine to authorities in the US, UK and Switzerland. It was also censured by the  Monetary Authority of Singapore in 2013, along with 19 other lenders, for its part in attempted  manipulation of key interest rate and foreign exchange benchmarks. In December 2012, the HKMA commenced an investigation into UBS after receiving information  from overseas authorities concerning possible misconduct by the Swiss bank in relation to its  submissions for HIBOR fixing. UBS had ceased to be a HIBOR reference bank in October 2010.  The HKMA subsequently extended its investigation to cover eight further HIBOR reference  banks: Bank of Tokyo-Mitsubishi UFJ, Citibank, Credit Agricole Corporate and Investment Bank,  Deutsche Bank, HSBC, JP Morgan Chase Bank, Royal Bank of Scotland and Societe Generale. The nine banks were required to appoint external firms, approved by the HKMA, to examine  relevant communications during the period 2005 to 2012. The investigation involved reviewing  more than 31m communications (eg emails and internal chat messages) and interviews with  bank staff involved with HIBOR fixing. As a result of its investigation, the HKMA identified approximately 100 internal chat messages,  sent during the period 2006 to 2009, which contained “change requests” by several UBS traders  which amounted, in the eyes of the HKMA, to attempts to rig the HIBOR fixing. The HKMA also found that UBS had failed to report its staff’s misconduct to the HKMA when  it became aware of these change requests. The investigation also highlighted material  weaknesses in UBS’s internal controls and governance in managing the HIBOR fixing process,  as well as in other areas. Accordingly, the HKMA required UBS to: • Take appropriate disciplinary action against those staff members responsible for the  misconduct identified and for the failure to report to the HKMA • Implement a “remedial plan”, approved by the HKMA, in relation to the identified control  and governance weaknesses within six months; and • Submit, pursuant to section 59(2) of the Banking Ordinance, a report to the HKMA prepared  by an independent external auditing firm assessing the effectiveness of the implementation  of the remedial plan The HKMA found no evidence of misconduct by any of the other eight banks and no evidence  of collusion between them in relation to HIBOR fixing. According to the HKMA, about one third of the change requests submitted by UBS’ traders  affected the HIBOR fixing rates submitted by the bank, while the HKMA estimates that this  had negligible impact on the actual outcome of HIBOR fixing. In February 2014, a 10th unidentified bank was required by the HKMA to conduct an external  review of its communication records, which we understand is in progress. Back to contents>ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 7 HK securities regulator and accountants’ audit working papers The High Court of Hong Kong handed down its long-awaited judgment in the “Standard Water”  case (HCMP 1818/2012) on 23 May 2014. The Court found that Ernst & Young Hong Kong (EY),  the former auditor of the PRC-based company Standard Water Limited, had failed to comply  with statutory notices issued by the Securities and Futures Commission (SFC) “without any  reasonable excuse” and ordered them to do so within 28 days. The SFC statutory notices require EY to, among other things, hand over their audit working  papers in relation to a proposed Hong Kong listing of Standard Water. Before their resignation  in 2010, EY had been the company’s reporting accountant and auditor and the relevant audit  working papers were physically located in Mainland China. EY argued that they had a “reasonable excuse” for not producing the working papers to the  SFC, which was that to do so would potentially contravene state secrets laws in China. The judge ruled that the Chinese State Secrets Law “does not impose a blanket prohibition  on cross-border transmissions of audit working papers to overseas securities regulatory  authorities”, but rather, prohibits transmission of documents containing state secrets. The  burden was therefore on EY to prove that the working papers did, in fact, contain state  secrets. Absent any evidence to this effect, the judgment found that EY failed to establish any  “reasonable excuse” for not complying with the SFC’s statutory notices. The judgment will have significant implications for the accounting profession generally in  Hong Kong, particularly in the context of Mainland Chinese companies coming to market in  Hong Kong, and will cause compliance teams to review carefully their dealings with regulators. Back to contents>ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 8 Key settlements, ongoing cases and judgments Settlements (1) JP Morgan Chase Bank plc (2) JP Morgan Securities Ltd v Berliner Verkehrsbetriebe  (BVG) Anstalt öffentlichen Rechts v Clifford Chance Germany As previously reported, JP Morgan brought a £130m claim against BVG in relation to sums  owed by BVG under a 2007 collateralised debt obligation (CDO). Clifford Chance was joined  to the proceedings in relation to allegedly negligent advice in connection with the CDO after  BVG contented that it had been misled by the law firm and was not itself sophisticated enough  to understand the financial mechanics. The dispute has now been settled, seven weeks into its trial in the Commercial Court. A judgment in this case would have been a useful addition to the jurisprudence surrounding  claims involving structured products entered into by European public institutions. Back to contents> Graiseley Properties Limited v Barclays Bank Plc As set out in our Spring update [insert link to Spring update], Graiseley had brought a  claim against Barclays relating to a loan and related interest rate swap, alleging innocent  misrepresentation in relation to LIBOR manipulation. Following regulatory findings against  Barclays, Graiseley applied to amend its Particulars of Claim to include an allegation of  fraudulent misrepresentation. That application was granted at first instance and that decision  upheld by the Court of Appeal. Barclays has now settled the case, reportedly agreeing to restructure the loan and write down  the debt from £70m to £40m. The fact that Barclays has settled a case with LIBOR elements is  a potentially encouraging development for claimants with similar claims. Back to contents> Dahabshiil Transfer Services Ltd v Barclays Bank PLC Barclays had attempted to withdraw its “money service business” services to three businesses,  including Dahabshiil, over concerns that the money transmission sector did not meet new  regulatory requirements for anti-money laundering. In particular, the fact that the businesses  operated in Somalia and the Horn of Africa gave rise to fears of terrorist funding. The claimant alleged that the bank was abusing its dominant position in the relevant market,  in breach of UK and EU competition law. As reported in our Spring update, in November  2013 the claimant was granted an injunction preventing the bank from withdrawing the  services pending a full trial taking place at the end of 2014. In reaching its decision, the court  found that there was a seriously arguable case that the bank did have a dominant position in  the relevant market.ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 9 Barclays has now settled the claim. The settlement has incorporated a transition period during  which Barclays will continue to provide its money service business whilst Dahabshiil makes  alternative arrangements to cater for Barclays’ withdrawal. As part of this process, Dahabshiil  will work with the British Bankers’ Association and the UK Government to ensure that payments  between Somalia and the UK are secure. Back to contents> Ongoing cases Barclays v former Dewey & LeBoeuf partners Barclays is pursuing claims against approximately 50 former partners of US law firm Dewey &  LeBoeuf, which collapsed in May 2012, for repayment of around $15m of professional practice  loans made by the bank to the partners. A number of partners, including Charles Landgraf, the former head of the firm’s Washington,  DC office, have responded by accusing Barclays of misrepresenting the financial health of  the firm and inducing them to take out borrowing that was designed to act not as a capital  contribution but as general indebtedness of the firm. In a hearing in February 2014, Justice  Popplewell held that the bank’s claim against Landgraf could not be disposed of summarily and  should proceed to trial. One of the issues to be explored is the relationship between the firm  and Barclays and the extent to which the bank was aware of the firm’s financial circumstances. The Landgraf trial is currently set down for December 2014, though the trials of actions against  other partners are listed for 2015 and they may be consolidated. Guy Philipps QC and Adam Zellick (both Fountain Court), instructed by TLT, are currently  acting for Barclays, with the defendants represented by a number of separate firms. Back to contents> Judgments Deutsche Bank AG v Unitech Global Limited4 Summary: The Supreme Court has refused the bank permission to appeal the decision of the  Court of Appeal to allow Unitech to amend its pleadings to include allegations that the bank  made implied representations as to the integrity of LIBOR. Unitech, India’s second largest real estate company, is being pursued by Deutsche Bank for  non-payment of sums due in connection with a $150m loan made by the bank. Separately,  the bank is also attempting to recover $11m from Unitech in respect of an interest rate  swap contract. Unitech’s defence and counterclaim to the swap action was served in 2012 and alleges that the  bank sold it an unsuitable product. As a result of subsequent regulatory findings regarding  LIBOR manipulation, Unitech applied to the court to amend its statements of case to include  LIBOR manipulation arguments. 4. [2013] EWCA Civ 1372ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 10 5. [2013] EWCA Civ 1372. At first instance, Unitech’s application was unsuccessful but, as reported in our Spring update,  in November 2013 the Court of Appeal heard a conjoined appeal with the Graiseley Properties  matter and allowed Graiseley and Unitech to amend their pleadings5 . As set out above, the  Graiseley case has now settled. In Unitech, Deutsche Bank appealed to the Supreme Court. The Supreme Court rejected the bank’s permission to appeal, commenting that “it is not  normally appropriate for the Supreme Court to entertain appeals on an issue which the  Court of Appeal has simply held to be arguable and this is not an exception”. The result of this decision is that the case will now proceed to trial and, given the Graiseley  settlement, will be the central decision regarding the extent to which LIBOR manipulation can  affect contractual obligations. Back to contents> Green & Rowley v The Royal Bank of Scotland Plc Summary: The Supreme Court has refused the claimants permission to appeal the decision of  the Court of Appeal that, when a bank is acting in an execution only rather than an advisory  capacity, the common law duty not to misstate does not require a bank to take reasonable  care to ensure that a customer understands the risks involved in a transaction. This was the first interest rate swap mis-selling case to come to trial following the FCA (then  the FSA’s) thematic review in 2012 into the sale of such products. The claimants brought a  claim that included negligent misstatement in respect of the information the bank provided  at the time the claimants entered into the swap. The Court of Appeal held that the common  law duty not to misstate incorporated all the duties on the bank imposed by the Conduct for  Business (COB) rules when the bank is acting in an advisory capacity. However, where the  bank is acting in an execution only capacity, as in this case, no such duties arise. Permission to appeal was refused by the Supreme Court. No reasons were given beyond  that no arguable point of law arose. The Court of Appeal had obviously been hostile to the  suggestion that the COB rules gave rise to a concurrent duty of care at common law when  Parliament had expressly legislated for private persons to bring a claim for breach of statutory  duty under section 138D of the Financial Services and Markets Act 2000. Back to contents> Barclays Bank Plc v Unicredit Bank AG6 Summary: The Court of Appeal has held that where a decision is required to be made in  commercially reasonable manner, the decision-making party is entitled to have regard to its  own commercial interests ahead of those of its counterparty. The appellant, Unicredit, sought to mitigate its credit risk from its loan portfolio and reduce its  regulatory capital requirements through “synthetic securitisation”, a process which involved  transferring the risk to the respondent (Barclays). Under the terms of the transfer, Unicredit  paid Barclays a quarterly premium and Barclays agreed to cover the portfolio’s losses in  quarterly payments.ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 11 6. [2014] EWCA Civ 302. 7. [2014] EWHC 142 (Comm). Barclays gave guarantees to Unicredit in respect of its obligations for the portfolio losses.  The guarantees could be terminated after the expiry of the average life of the loans, which  was expected to be five years. In the event of a regulatory change, however, Unicredit could  terminate the guarantees earlier with the consent of Barclays, such consent to be determined  by Barclays in a “commercially reasonable manner”. A regulatory change occurred and Unicredit sought to terminate early (after two years).  Barclays refused to provide its consent until Uncredit had paid the balance of its premiums for  the entire five-year period. At first instance, the court held that Barclays was entitled to give  precedence to its own commercial interests and that as such, the withholding of consent was  commercially reasonable. On appeal, Unicredit argued that Barclays’ withholding of consent was commercially  unreasonable since it failed to take into consideration Uncredit’s commercial interest as well  as Barclays’ own. The appeal was dismissed, with the Court of Appeal holding that the critical factor was that  it was the manner of determination that had to be commercially reasonable and not the  outcome. Barclays was entitled to have primary regard to its own commercial interests and  was entitled to act by reference to what it could reasonably have anticipated would have been  a reasonable return from the contract. Back to contents> HSH Nordbank AG v Intesa Sanpaolo SPA7 Summary: The claimant bank failed to show that a swap agreement that it had entered into  by way of novation was in breach of an Italian governmental decree. It was accordingly  unsuccessful in its claim for restitution against the original swap counterparty. In 2005, the defendant entered into a swap with an Italian local authority, which was  restructured in 2006. Later in 2006, the swap was transferred from the defendant to the  claimant by way of novation, with the claimant entering into an ISDA Master Agreement with  the Italian local authority and making a novation payment of c.€9m. In 2007, the Italian Ministry of Finance issued Decree 389 governing how local authorities  could use derivatives. Following an audit of the Italian local authority, the regional Court of  Auditors found that the 2007 swap transaction failed to comply with Decree 389 (although  it found that the 2005 and 2006 transactions were valid, a decision which was upheld by the  Court of Auditors). Despite the findings of the Court of Auditors, the claimant brought proceedings for restitution  against the defendant on the basis that the 2006 swap (and therefore the 2006 novated swap)  was void for non-compliance with Decree 389. The claimant submitted that it had entered into  the novation agreement mistakenly and that there had been a total failure of consideration.ADVISORY | DISPUTES | TRANSACTIONS Summer 2014 Financial Litigation Roundup 12 8. [2014] EWHC 1083 (Ch). The court held that the claimant had not provided any authority to set against the clear  conclusions of the Court of Auditors and that it had failed to show that the 2006 swap was  void. However, if it was wrong in this regard, the court also considered the claimant’s case for  restitution on the assumption that the 2006 swap was void. In this event, the court determined  that the claim would fail since the claimant’s senior legal counsel had known about the risk of  the swap being incompatible with Decree 389 following advice received from Italian lawyers. The claimant had accepted the risk and obtained what it bargained. Furthermore, there had  been no total failure of consideration for the novation. The defendant had not assumed  any responsibility in respect of swap’s legality, validity or enforceability and the swap had  effectively been novated. Back to contents> Napier Park v Harbourmaster CLO8 Summary: Where a contract relates to assets that might pass to persons other than the  original contracting parties, such as tradable financial instruments, it is reasonable to assume  that the parties would have been particularly conscious of the need for clarity in the language  used. In such circumstances, the court should be particularly cautious about departing from  the ordinary and natural meaning of words when determining construction. The claimant was a junior noteholder in a collaterised loan obligation structure. The sum  raised by the issue of the notes was used to buy a portfolio of loans. Under the terms of a  Collateral Management Agreement, the proceeds received from the loan portfolio were  required to be used in acquiring further loans that satisfied the re-investment criteria, which  in turn provided that “the rating of the Class A1 Notes have not been downgraded below  their Initial Ratings”. The Class A1 Notes rating was temporarily downgraded (before being  reinstated) and the trustee second defendant used the proceeds from the loan portfolio to  redeem the loan notes, according to the waterfall provisions. The claimant contended that  the proceeds should  nstead have been made available for reinvestment. The Chancellor of the High Court dismissed the claim, commenting that the words “have  not been downgraded” were in the present perfect tense, indicating that something had  happened at any unspecified time in the past. They were clear and unambiguous as well as  being in line with the wording of the rest of the contract, such that any downgrading (even if  subsequently rectified) would result in the dis-satisfaction of the reinvestment criteria. The  court should exercise caution in departing from the ordinary and natural meaning of words  in a contract and in this case, the defendant was within its rights to apply the proceeds to  redemption of the notes. Back to contents> Barclays Bank Plc v Svizera Holdings BV9 Summary: Barclays was successful in a claim for $35m due under a facility agreement. A  counterclaim based on an argument that the bank had failed to honour an obligation to obtain  a currency swap failed.Tower Bridge House  St Katharine’s Way  London E1W 1AA  T +44 (0)20 3060 6000 Temple Circus  Temple Way  Bristol BS1 6LW  T +44 (0)20 3060 6000 11/F Three Exchange Square 8 Connaught Place Central Hong Kong T +852 2216 7000 8 Marina View #34-02A Asia Square Tower 1 Singapore 018960 T +65 6818 5695 Summer 2014 Financial Litigation Roundup 13 9. [2014] EWHC 1020 (Comm). 10. [2013] EWHC 4097 (Comm). 11. (2014) QBD (Hamblen J)  16/05/14. Barclays acted as agent bank for a syndicate of lenders which, in September 2007, entered into  a facility agreement with Svizera under which Svizera was lent $45m. In 2012, Svizera defaulted  on its repayments under the facility agreement and Barclays issued proceedings to recover  its losses. In its defence, Svizera submitted that it was a condition precedent to the facility  agreement that Barclays would obtain a US dollar/Indian rupee currency-swap and that the  failure to do this amounted to a misrepresentation or, alternatively that Barclays was in breach  of either (i) a collateral contract in which representations were made as to the swap or (ii) an  advisory duty of care in tort. The court found no evidence that Barclays had assumed an obligation to enter into the  currency swap, either in writing or orally. The only swap Svizera was obliged to enter into under  the facility agreement was an interest rate swap with Bank of India (see our Spring 2014 update  – Bank of India v Svizera Holdings BV10). The court held that the provisions in both the facility  agreement and a mandate letter setting out the terms of the facility expressly excluded any  advisory relationship and that no duty of care could therefore be inferred. Back to contents> Kays Hotels Ltd v Barclays Bank Plc11 Summary: Barclays was unsuccessful in its application, on limitation grounds, for summary  judgment in respect of a mis-selling claim. The claimant did not have the relevant knowledge  that it had a case merely by reason of the fact that it had been required to make substantial  payments to the bank under the product. Kays entered into a loan agreement with Barclays in 2005 for £1.34m. Shortly thereafter, Kays  entered into an interest rate collar with Barclays to hedge its exposure under the loan to  fluctuating rates. Under the terms of the collar, payments by either side did not commence  until 2007. In 2007, as interest rates rose, Barclays made payments to Kays under the collar.  With the fall in interest rates from 2008 onwards, however, Kays began making payments to  Barclays. Kays brought a negligence claim against the bank, alleging that it had been mis-sold  the collar in 2005. Barclays applied for summary judgment in respect of the claim on the grounds of limitation  since the cause of action – the entering into of the collar – stemmed from 2005. Kays  contested that the cause of action actually arose in 2009, when it began to investigate the  nature of the hedging product. Kays submitted that s.14A of Limitation Act 1980 should  therefore apply to extend the limitation period to 2009, when Kays had acquired the requisite  knowledge to bring a claim. The Court found that the relevant test was whether the claimant had been alerted to the factual  rudiments of his claim, sufficient for him to take advice and put proceedings in train. Barclays’  approach – that Kays knew or should have known it had a claim when is started to make  payments under the collar – was too narrow and Kays had a real prospect of establishing that it  could rely on s.14A at trial such that its claim could not be summarily dismissed.