The Royal Bank of Scotland plc (RBS) made loans to Property Alliance Group (PAG), a property investment and development business, between the period of 2003 to 2013 (after which time all facilities provided by RBS to PAG were refinanced).

Between October 2004 and April 2008, RBS sold to, and PAG entered into, four interest rate derivative products (the Swaps).

In the spring of 2010, the management of PAG’s banking affairs was transferred to RBS’s Global Restructuring Group (GRG).

In June 2011, PAG terminated the Swaps, incurring a mark-to-market break cost of £8.261 million. PAG subsequently refinanced the terms of its loans with RBS and entered into a composite facility which included a tranche to finance the break costs incurred on termination of the Swaps (the 2011 Facility).

Proceedings were commenced in September 2013, after the termination of the Swaps and entry into the 2011 Facility, but at a time when PAG’s banking relationship with RBS was still continuing.

PAG’s claim against RBS can be characterised under three main headings:

  • The Swaps Claims – these claims focussed on the purported mis-selling of the Swaps by RBS and were broken down into misstatement claims, misrepresentation claims and contract claims
  • The LIBOR Claim – this claim arose out of the manipulation of LIBOR rates by RBS (amongst others), with PAG citing breach of contract and fraudulent misrepresentation by RBS
  • The GRG Claim – this claim was based on the alleged mistreatment of PAG by GRG, including claims that GRG engineered breaches of covenant in PAG’s facility agreements and threatened to exercise powers under those agreements to allow it to impose unreasonable terms on PAG under the 2011 Facility.


Asplin J handed down the judgment of this case on 21 December 2016. All claims against RBS were dismissed.

The Swaps Judgment

PAG argued that RBS was under a broader duty of care than that held in the authoritative case of Bankers Trust International plc v PT Dharmala Sakti Sejahtera. The duty established in Bankers Trust is sometimes referred to as a ‘mezzanine duty of care’ (being a halfway house between the duty not to make negligent misstatements and a duty to fully advise).

The court rejected this argument on the basis that PAG was a professional client with experienced advisors, such that the test of foreseeability, proximity and what is fair, just and reasonable (as set out in Caparo Industries plc v Dickman) did not overreach RBS’s ‘mezzanine duty of care’.

As to PAG’s arguments that representations had been made fraudulently by RBS (including that the Swaps were a “hedging solution”, that the Swaps would “protect” or “de-risk” and that the Swaps were “suitable” or a “solution”), the court considered the fact that RBS’s contractual documents contained express non-reliance language and excluded any advisory duties or fiduciary relationships (the Exclusions). On the basis of contractual estoppel therefore, the court dismissed PAG’s arguments noting that, in any event, “a reasonable representee would not have understood the representations in the way in which PAG contends”.

PAG’s argument that it would not have entered into the Swaps if it had known of RBS’s manipulation of LIBOR was dismissed. Although the court noted that it is “well established and goes without saying” that there is an implied assumption that parties to a contract will behave with honesty, it rejected PAG’s submissions on the basis that there had been no words or conduct from which the purported representations (which PAG alleged induced them to enter into the Swaps) could be inferred by a reasonable representee.

The court also considered, obiter, what the position would be if the representations were in fact made, but ultimately reached the same conclusion on the basis that it was clear that PAG did not understand what the purported representations actually meant and the ‘presumption of inducement’ was therefore rebutted.

PAG alleged that it was implied that RBS would perform the contracts it had in place with PAG in good faith, although the court dismissed this on the basis that there is no general duty of good faith in English law (Mid Essex Hospital Services NHS Trust v Compass Group). The court also noted that the contracts with PAG did not fall within any recognised categories of good faith, and the Exclusions mitigated against any such implication.


Running throughout the judgment was the court’s emphasis that the contracts between PAG and RBS:

  • were between sophisticated commercial parties;
  • were negotiated on an arm’s length basis; and
  • contained the Exclusions (as noted above).

The judgment was therefore an important affirmation of the court’s reluctance to both imply contractual terms into contracts between sophisticated parties and to dispense with clear non-reliance language; however this should also serve as a warning to financial institutions and borrowers to ensure that terms in documents are clear, unambiguous and intended.

Financial institutions should also take comfort from the maintenance of the ‘mezzanine duty of care’, although we would flag that the court did not hold that a duty over and above this could never exist. Such a case would obviously turn on its specific facts.

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