In December 2016, the High Court (Financial List) handed down judgment in Property Alliance Group Limited ("PAG") v The Royal Bank of Scotland ("RBS")  EWHC 3342 (Ch), the first civil claim involving allegations of LIBOR manipulation to go to trial.
PAG, a property investment and development company, commenced proceedings against RBS, its principal provider of commercial and banking services. The dispute arose primarily out of four interest rate swaps that were referenced to the GBP 3 month LIBOR rate and had been sold by RBS to PAG between 2004 and 2008 (the "Swaps").
PAG's claims against RBS fell into three separate categories.
(1) The Swap mis-selling claims
There were three elements to PAG's miss-selling claims; namely the "Swaps misstatement claims"; the "Swaps misrepresentation claims" and the "Swaps contract claims". All were dismissed by the Court.
Firstly, the Court rejected PAG's claim that RBS owed it a wider duty than the duty to take reasonable care not to misstate facts. The contracts which had been entered into contained exclusion clauses that expressly excluded a duty to advise, and the Court noted that it was not standard market practice for providers of commercial banking services to provide such advice. Additionally, at all material times PAG was a sophisticated party with access to a series of experienced banking advisors.
Secondly, the Court rejected PAG's claim that RBS had misrepresented that the Swaps would "hedge" (or "de-risk") PAG's risk of interest rate exposure. The Court said that such words must be seen in the context of a particular contractual relationship between two parties; which in the current case was a non-advisory relationship. In any event, non-reliance clauses in the contracts meant that PAG was contractually estopped from relying on them.
Thirdly, the Court rejected PAG's argument that RBS had breached implied contractual terms that (i) the Swaps would be suitable for the contractual purpose of hedging PAG's risk of interest rate exposure, and that (ii) RBS would act in good faith and not fail to disclose important information. It was the Court's view that PAG was "seeking to achieve by the back door what cannot be achieved by the front and runs contrary to express terms."
(2) The Global Restructuring Group Claims
The Court also dismissed PAG's claim that the internal transfer of its banking services to RBS' Global Restructuring Group ("GRG") and its subsequent management by GRG amounted to a breach of an implied contractual term that RBS would perform the contract in good faith.
The Court clearly stated that a duty of good faith did not reflect the presumed intention of the parties, and could therefore not be implied into the agreement. It went as far as stating that even if it had found that the terms had been implied into the contract, the facts of the case were such that RBS had not breached them.
(3) The LIBOR Claims
Finally, the Court rejected PAG's claims that by its alleged participation in, and knowledge of, the manipulation of LIBOR (by RBS itself and other panel banks), RBS had made misrepresentations about LIBOR which amounted to a breach of implied terms. In particular, PAG had argued that the proffering of a transaction referenced to LIBOR had given rise to an implied representation about how LIBOR was set. The Court rejected this argument on the basis that this was not what a reasonable person would have inferred was represented by RBS, and that in any event, this was not what had actually been understood to be inferred by the relevant individuals at PAG.
The judgment will be of interest to parties involved in, or considering bringing, similar proceedings as it sets the foundations on which Courts will approach cases involving LIBOR mis-selling claims in the future. The decision is a very significant victory for RBS and although the prospects of success in future claims based on similar facts are likely to be reduced, it does not exclude the risk of future similar claims altogether. In its judgment, the Court made clear that a bank does not make representations about LIBOR, or the way in which LIBOR is set, by offering to enter into a contract referenced to LIBOR. However, the court was prepared to accept that a bank might make implied representations that accurate submission rates in relation to the specific tenor and currency of a particular contract have been made. Where those representations are broken, a claim for damages cannot be ruled out.
It is clear from the judgment that the LIBOR Claims had little or no relation to the factual matrix of the case and the dismissal of these claims, highlights the need for practitioners to be careful when drafting Pleadings and ensure that the facts relied upon support the legal case put forward. This is particularly important when dealing with claims for misrepresentation which are predicated upon the recipient's reliance on what they are alleged to have been told.
In dismissing all of PAG's claims, the Court also highlighted the importance of the express terms in the contracts and made it clear that it would not override clearly drafted clause. Banks should therefore ensure their standard terms are clearly drafted, and those contracting with banks should be fully aware of the terms including any exclusion and non-reliance clauses.