The Court of Appeal has dismissed the appeal brought by Property Alliance Group Limited (PAG) concerning allegations against The Royal Bank of Scotland plc (RBS) in respect of the sale of interest rate hedging products and the subsequent exercise by RBS of certain of its rights under a facility agreement.

Asplin J (as she then was) had held in December 2016 that each of PAG's claims against RBS would be dismissed in their entirety. Broadly, those claims were split as follows:

  • the Swaps Claims (concerning the alleged mis-selling by RBS of four interest rate hedging products (the Swaps));
  • the LIBOR Claims (allegations of implied misrepresentations and breach of implied terms in the Swaps in relation to the veracity of the London Interbank Offered Rate (LIBOR)); and
  • the GRG Claims (involving allegations of bad faith and abuse of discretion against RBS' Global Restructuring Group (GRG)).

PAG only pursued certain points on appeal. The claims upon which PAG continued to rely included:

  • in relation to the Swaps Claims, a claim that RBS was liable in negligent misstatement as a result of failure to provide PAG with information concerning potential break costs;
  • in relation to the LIBOR Claims, a claim that RBS fraudulently made implied representations about LIBOR and how it was set, which representations were false; and
  • in relation to the GRG Claims, a claim that RBS had breached an term implied into a right by RBS to seek re-valuations.

The Court of Appeal has now found as follows.

PAG accepted that RBS did not owe it an advisory duty in relation to the Swaps. Instead, it alleged that RBS' failure to disclose its internal credit line in relation to the Swaps (known as the credit line utilisation or CLU), or to provide worked break cost scenarios, meant that its presentation of the Swaps was inaccurate and incomplete. It said this rendered RBS liable for negligent misstatement under classic Hedley Byrne & Co Ltd v. Heller & Partners Ltd [1964] AC 465 principles. In addition or alternatively, PAG alleged that to the extent these alleged failures fell outside Hedley Byrne principles, they nevertheless constituted a breach of a common law "mezzanine" duty (of the sort described in Crestsign v. National Westminster Bank plc [2014] EWHC 3043) to ensure, when providing information, that it was both accurate and fit for purpose.

The Court of Appeal held that there had been no breach by the Bank of its Hedley Byrne duty not to misstate. There had been no error in the way in which RBS explained the terms of the Swaps, including the circumstances in which break costs might be incurred or how they would be calculated. There was no proper basis for holding, on the facts, that RBS had assumed a responsibility for the disclosure of the CLU or any similar indication of possible future break costs. The Court of Appeal did not accept the existence of any "mezzanine duty", holding that such an expression is "best avoided".

The Court of Appeal found that the Bank had, during the course of its lengthy discussions with PAG concerning the proposed Swaps, made an implied representation to the effect that RBS was not manipulating and did not intend to manipulate GBP LIBOR. That representation extended to all tenors of GBP LIBOR, but not to LIBOR in any other currencies.

The Court of Appeal upheld Asplin J's factual finding that PAG had failed to make out its case that RBS had in fact manipulated GBP LIBOR. Accordingly, there was no need to consider the issue of whether PAG had in fact relied on any representation.

Under the provisions of one of PAG's facility agreements RBS had the right to require a valuation (at PAG's cost) of each of PAG's properties over which it held security. PAG alleged that this right was subject to an implied term, of the type found in Socimer International Bank Ltd v. Standard Bank London Ltd [2008] EWCA Civ 116, requiring RBS to act "reasonably, in a commercially acceptable or rational way, in good faith, for a proper purpose (i.e. the purpose for which such power or discretion was conferred), not capriciously or arbitrarily and not in a way that no reasonable lender, acting reasonably, would do." PAG alleged that when RBS exercised its right in 2013, it breached that term.

The Court of Appeal held that the relevant provision had clearly been inserted for the benefit of RBS. As such, there was obviously no question of RBS owing fiduciary duties and RBS was free to act in its own interests without having to balance those interests against the interests of PAG. The Court of Appeal did, however, form the view that RBS' right to exercise its right was not wholly unfettered and that it could be inferred that the parties had intended that the right be exercised in pursuit of legitimate commercial aims, rather than, for example, to vex PAG maliciously. However, on the facts, there was no reason to doubt Asplin J's finding that there was no breach.