Property Alliance Group Limited v Royal Bank of Scotland plc [2016] EWHC 3342 (Ch)


On 21 December 2016 judgment in Property Alliance Group Limited v Royal Bank of Scotland plc was handed down. The trial of this significant claim (in the region of £30m) lasted 8 weeks and judgment ran to 187 pages. Asplin J comprehensively dismissed all claims against RBS.

This was the first mis-selling claim including allegations of LIBOR manipulation to go to trial. Its progress has been followed by all those interested in allegations of mis-selling, the Tomlinson Report and LIBOR manipulation.

The proceedings had already delivered 8 interim decisions. Most notable were the judgments providing guidance on the extent to which privilege can be asserted in factual summaries and minutes (PAG v RBS [2015] EWHC 3187) and on how parties should approach the scope of standard disclosure in complex cases where unfettered disclosure could result in unmanageable volumes of documents (PAG v RBS [2014] EWHC 4308 (Ch).

It could also be regarded as a test case for the Chancery Division’s handling of such claims within the relatively new Financial List.

It is likely that the lengthy examination of the evidence and legal issues contained in this judgment will be pored over for some time to come. However, it is unlikely to be the end of similar claims or allegations. Claimants pursuing any similar claim will now have some extensive guidance as to the significant hurdles they are likely to face. In particular, it highlights the challenges and risks of:

a) formulating a claim so widely;

b) the evidential burden needed to demonstrate that specific duties arose or that purported implied terms were relied on; and

c) the detailed scrutiny each allegation of purported LIBOR manipulation will face within the Financial List and elsewhere.

The Claim

The claim can be broken down as follows:

a) The Swaps Claims – which centred on the typical allegations found in many mis-selling claims. Namely, that there had been a negligent misstatement, misrepresentation (negligently and/or fraudulently made) and/or a breach of (implied) contract terms.

b) The LIBOR Claims – which sought to progress the claims previously accepted as arguable by the Court (in Graiseley Properties Ltd v Barclays Bank plc [2013] EWCA Civ 1372) and not capable of being summarily dismissed. Graiseley settled before trial in 2014; and

c) The GRG Claims – which focussed on the transfer into, and treatment whilst under the responsibility of, RBS’ Global Restructuring Group. GRG has been the focus of scrutiny since the Tomlinson Report published in November 2013 and most recently the FCA’s statement on its review of the s166 Skilled Persons Report into RBS’ treatment of customers referred to GRG. This case provided the potential manifestation of how a claim based on that type of scrutiny could be pursued (i.e. outside of a conduct or regulatory context).

We set out below some of the key issues and findings below before highlighting some other interesting issues.

(A) The Swap Claims

In essence, this was formulated like many other mis-selling claims:

a) The Swaps Misstatement claims – where it was alleged that RBS, having offered an explanation of the products, failed to provide in each case a “full, accurate and proper explanation which was adequate in all the circumstances”.

b) The Swaps Misrepresentation claims – where it was alleged that RBS misrepresented the Swaps in a number of ways, including:

i. when it represented that they would hedge, protect, de-risk and be a solution to PAG’s interest rate risk exposure under certain of its RBS lending (the “Hedging Representations”); and

ii. when it represented that they were suitable for PAG (the “Suitability Representations”).

c) The Swaps Contract claims – where it was alleged that the sale of the Swaps, pursuant to RBS standard form hedging requirement, was in breach of terms which should be implied into the contractual agreements between the parties.

With regards to the Swaps Misstatement claims, the Court considered key case law, in particular Bankers Trust International v PT Dharmala Sakti Sejahtera [1996] 1 CLC 518 and Crestsign Ltd v National Westminster Bank & Royal Bank of Scotland [2015] 2 All ER (Comm) 133, and found that the duty owed by the Bank not to misstate the facts could not be enlarged to the extent that it, through its salespeople, having once provided information, should always be under a duty to explain fully the products it wished to sell. This would be to “blur the line between a salesman and an advisor”.

The Court was cognisant of the particular factual context of this case. PAG was a sophisticated client, under no time pressure, with financial advisors and prior knowledge of break costs and of the existence of a hedging credit line. However, PAG had never sought clarification on the amount of MTM and, further, it was not general market practice for banks to provide information about potential break costs and the MTM.

In any event, the Court found that PAG was contractually estopped from asserting reliance on any such alleged misstatements in light of the express terms of the contractual arrangements - which included a non-reliance clause governing the Swaps:

Non-Reliance. [PAG] is acting for its own account, and it has made its own independent decisions to enter into that Transaction and as to whether that Transaction is appropriate or proper for it based upon its own judgement and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into that Transaction; it being understood that information and explanations related to the terms and conditions of a Transaction shall not be considered investment advice or a recommendation to enter into that Transaction. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of that Transaction.

Assessment and understanding. [PAG] is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the risks of that Transaction.”

Turning to the Swaps Misrepresentation claims, the Court found that these also failed as being contractually estopped by the non-reliance clause. The Court also held that PAG did not enter the Swaps in reliance upon the purported Hedging Representations as “a reasonable representee would have considered the term [“hedge”] to be generic” and PAG fully understood the cancellable nature of the Swaps. PAG also did not rely upon the Suitability Representation as “a reasonable representee would not have understood the representations in the way in which PAG contends”. Speaking obiter, the Court indicated that, in any event, it would have found the Swaps suitable as meeting PAG’s target interest rate and being without a premium.

In relation to PAG’s assertions that terms should be implied into the contracts (the Swap Contract claims), the Court found that these failed. It was not necessary to imply that the Swaps should be suitable in light of the standard terms of the contracts and the parties’ relationship. Further, applying the leading authority on implied terms (Marks and Spencer v BNP Paribas Securities Services Trust Co [2015] UKSC 72), it would not be possible to imply a term that RBS must act in good faith as this would be contrary to the express terms of the contracts which excluded equitable and fiduciary duties. Furthermore, it would be unnecessary between two sophisticated commercial parties negotiating at arm’s length on standard ISDA terms. Finally, it would not be possible to imply that RBS would not withhold or fail to disclose important information about the hedging undertaken as that would also run contrary to the express terms and would be an attempt to “achieve by the backdoor what cannot be achieved by the front” as a result of s.138D FSMA.

(B) The LIBOR Claims

Worthy of detailed analysis in itself, this third part of the claim is broken down into the following limbs:

a) The LIBOR Misrepresentation Claim – where it was alleged that RBS’ conduct in proposing and entering into the LIBOR referenced Swaps gave rise to implied representations as to the nature of LIBOR and its conduct in relation to it. The representations (simplified for ease) were:

i. LIBOR represented the average rate at which a contributor bank could borrow funds;

ii. RBS had no reason to believe that LIBOR was anything other than the average rate at which a contributor bank could borrow funds;

iii. RBS had not made false or misleading LIBOR submissions and/or engaged in the attempt to manipulate LIBOR;

iv. RBS would not in the future make false or misleading LIBOR submissions and/or engage in any attempt to manipulate LIBOR; and

v. LIBOR was a proxy for the costs of funds for RBS;


b) The LIBOR Implied Terms Claim – where it was alleged that the Swaps themselves had various terms implied into them. Again, such terms were in respect of the nature of LIBOR and RBS’ conduct in relation to it:

i. The floating rate payable by or to RBS under each of the Swaps would be calculated by reference to LIBOR as defined by the BBA (namely the average rate at which an individual contributor panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11am on that date) (“LIBOR Implied Term 1”);

ii. If RBS had reason to believe that LIBOR represented or might represent anything other than that defined by the BBA, it would not withhold or conceal that from PAG; and

iii. RBS would not in the future make false or misleading LIBOR submissions and/or engage in any attempt to manipulate LIBOR.

In regard to the LIBOR Misrepresentation Claim, the Court explained that it is well established that parties to a contract will behave honestly (Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] 1 All E.R. (Comm) 1321) and was willing to imply such a term into each of the Swaps if necessary. But this was not in issue and it was not right to intertwine this principle with the question of whether the pleaded implied representations, which were detailed and specific, were made. Instead, merely offering the Swaps in the context of this relationship was not in itself sufficient to infer the LIBOR representations pleaded. There was no conduct from which the representations could be inferred and there needed to be something more.

Going further, in case it was wrong, the Court dismissed each and every one of the representations alleged, principally on the basis that they were far too wide to have been inferred by a reasonable representee based on the facts of this case.

Going further still, the Court also could not find that PAG actually relied on the extremely complex and intricate representations – which were “borrowed” from the Graiseley case and not led by the evidence in this one. It did, however, recognise that in a different context (i.e. had there been conduct by a bank from which this could have been inferred) more limited and less technical representations could have been inferred.

Even so, the Court was prepared to examine the outcome had it been wrong in refusing to infer these representations and wrong to say they were not relied upon by PAG. Whilst RBS had accepted that, if made, the representations were false, even then, despite the extensive evidence put before the Court to support allegations of manipulation, the LIBOR Misrepresentation Claim failed. The Court could not find that there had been any manipulation of GBP LIBOR whether by trader manipulation, lowballing or financial crisis manipulation.

When it came to the LIBOR Implied Terms Claim, the Court dismissed 2 of the 3 pleaded terms for similar reasons as the representations (i.e. they were too wide and not necessary to imply). However, it was willing to imply LIBOR Implied Term 1 to the extent it was restricted to the conduct of RBS because, following the recent restatement of implied terms in Marks and Spencer, it was needed to give business efficacy to the contract.

Nonetheless, this did not take PAG anywhere. Following its detailed examination of the allegations regarding manipulation of GBP LIBOR, the Court could not find that RBS had breached LIBOR Implied Term 1 which related to 3 month GBP LIBOR and the conduct of RBS as to it.

(C) The GRG Claims

PAG alleged that, further to the principle established in Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, the facility agreements by which RBS lent money to PAG were subject to implied terms that RBS would:

a) perform its agreement with PAG in “good faith” and not in a “commercially unacceptable way” (the “Good Faith Implied Term”); and

b) exercise the powers and discretions conferred on it by virtue of the agreement reasonably, in good faith and for a proper purpose, and not capriciously, arbitrarily or in a way that “no reasonable lender, acting reasonably, would do so” (the “Discretion Implied Term”).

PAG maintained that RBS’ actions, including its decision to transfer PAG to GRG and its management of PAG during that time, were in breach of the alleged implied terms. In particular, PAG alleged that its transfer to GRG was “irrational”, founded in “bad faith” and had been undertaken in order to extract as much value as possible from PAG and stifle its complaints. RBS did not accept that the terms had been implied into its agreement with PAG and maintained that its decision to transfer PAG to GRG was entirely justifiable. Further, it maintained that the question of which RBS team was responsible for managing its relationship with PAG was not relevant to, or governed by, the agreement between the parties.

The Court determined that neither alleged term had been implied into the facility agreements. In particular:

a) While there was no “general doctrine” of good faith in English contract law, such a duty may be implied in relation to certain categories of contract or where the parties had intended to do so. PAG and RBS were, however, both commercially sophisticated parties that had negotiated the agreements at “arm’s length”. The agreements specifically excluded any fiduciary or equitable duties arising from the provision of the services provided to PAG by RBS. It could not, therefore, have been the parties’ intention to include the Good Faith Implied Term.

b) The Discretion Implied Term relied upon the relevant express contractual terms containing some element of discretion. RBS’ actions were, however, simply an exercise of the absolute contractual rights conferred on it by virtue of its agreement with PAG. Because there was no element of discretion, assessment or formulation of an opinion on RBS’ part, it could not be the case that RBS acted in a capricious or arbitrary way. The Discretion Implied Term was, therefore, not applicable.

Similarly, the Court found that there was simply “no evidence” of a campaign within RBS to extract as much value as possible from PAG or stifle its complaints against RBS. Contemporaneous evidence rendered PAG’s allegations of bad faith, arbitrariness and capriciousness “hopeless”. Accordingly, had the Good Faith Implied Term been included within the agreement, RBS would not have been in breach of it.

Other Interesting Issues

Experts – The trial received a variety of expert evidence. The Court regarded it as providing varying degrees of assistance. In particular, both parties’ LIBOR experts were of “little assistance” and their diverging approaches (and therefore conclusions) highlighted the difficulty the Court found in identifying any evidence that GBP LIBOR manipulation actually took place. Further, the Court struggled to assess the effects the manipulation was said to have had when it came to consider the alleged consequential losses.

However, the Court did benefit from expert evidence in regard to PAG’s consequential loss claims (said to be £19.5m). Whilst this was not a live issue, having dismissed the claims already, the Court found that only a small proportion of the consequential loss claimed could be recoverable (particularly those losses that were clearly evidenced as being caused by PAG’s lack of cash due to being tied into the Swaps).

Witnesses – Given the highly fact-sensitive nature of the claim (as often repeated by Asplin J), the quality of the witness evidence was fundamental to the determination of the issues – both those available and unavailable. Where a Claimant has to persuade the Court on each limb of the allegations on the balance of probabilities, the absence of evidence or doubt as to its quality is, naturally, a key factor.

The Court also considered whether PAG was entitled to rely upon passages from the witness statement of a former employee of RBS in circumstances where the witness had not been called to give testimony and the remainder of the statement conflicted with PAG’s case. The Court noted that, if PAG had sought to adduce the statement in its entirety, it would have no choice but to maintain that a large part of it was untrue. There was therefore a “real concern” that, in the absence of its wider context, the admission of the passages would allow PAG to “cherry-pick” only the parts that were supportive of its case. The Court refused to admit the relevant passages of the witness statement.

Disclosure – As can be gathered from the previous interlocutory decisions and PAG’s criticisms of RBS, disclosure had been a live issue throughout these proceedings. This is often the case in such claims where a claimant suspects or alleges withholding of damaging sensitive material. Undoubtedly a significant disclosure exercise would have been undertaken (given the tens of thousands of documents that were disclosed) and RBS can take some significant comfort in the fact that there was no criticism of its disclosure, despite the repeated accusations by PAG of disclosure failings. Despite this substantial disclosure, the paucity of evidence on which to base the LIBOR manipulation allegations was highlighted by RBS. Naturally, the Court was not minded to make assessments or inferences of wrongdoing in the absence of evidence.


Given the scrutiny that will be applied to this lengthy judgment and the number of other potential claims which have been awaiting the outcome of this case, it is unlikely that this can be regarded as the end of the story. As set out above, in summary:

a) The Swaps Claims were typical of many other mis-selling claims pursued against banks. Allegations that the swaps were incorrectly or inadequately described failed, partly on the facts, but also as a result of robust contractual clauses which barred reliance on these alleged deficiencies (“contractual estoppel”). The impact of such clauses in these cases cannot be understated.

b) In the LIBOR Claims the Court was willing to imply one very limited contractual term into the swaps (i.e. that the floating rate payable by or to RBS under the swaps would be calculated by reference to LIBOR as defined by the BBA) but did not find this was breached.

After extensive analysis, the Court rejected the implied representations alleged by PAG (including that RBS would not seek to manipulate LIBOR). The Court also considered whether, if wrong to reject them, PAG had relied upon them. It had not.

In any event, PAG was also unable to evidence any LIBOR manipulation by RBS.

This part of the judgment will be closely scrutinised due to the number of parties interested in any wholesale findings of implied terms, representations, breaches or manipulation. Given the conclusions reached, it will be difficult for similarly pleaded claims to do any better.

c) In the GRG Claims, PAG relied on criticism levelled at RBS in the Tomlinson Report. The Court considered these to be unsubstantiated and lacking in evidence.

However, it could now be said that a framework on which to formulate a LIBOR claim has been outlined and it is quite possible that, where this claim was insufficient in hitting the mark, another will try to plug those gaps. This case will remain a weighty source and touchstone to claims of this nature, providing a comprehensive consideration of the wide ranging allegations and issues for each side to refer to in similar claims going forward.

Co-authored by Elizabeth Lombardo, trainee solicitor.