LIBOR: The Deceit Cases Against the Banks Continue

British Pounds Tornado

Some months ago I blogged about the potential D&O coverage implications of the decision  of  Mr. Justice Flaux to allow Graiseley Properties Limited to argue its case in deceit based on the LIBOR scandal against Barclays Bank at trial.

In essence, Graiseley’s complaint was that it was obliged, as a condition of Barclays granting various loan facilities, to enter into two derivative contracts based upon the LIBOR rate and that, in doing so, it relied on implied representations (among others) that Barclays had not made any false or misleading submissions or engaged in the practice of attempting to manipulate LIBOR in any way.  The judgment of the Court of Appeal on Barclays’ Appeal from the decision of Mr. Justice Flaux was handed down last month.

Implied Representation

The essence of the appeal was that there was no relevant conduct by Barclays such as could properly form the basis for a case in deceit founded on an implied representation.

In refusing to allow the appeal, the Court of Appeal concluded that any case of implied representation was fact-specific and that it was dangerous to dismiss summarily an allegation of implied representation in a factual vacuum.  The specific conduct relied upon by the Court of Appeal, in concluding that an implied representation in deceit might lie, was Barclays’ proposal (and that of Deutsche Bank in its appeal) to their respective customers  that LIBOR should govern the interest rates payable under their contractual arrangements.  As the Court rather strikingly put it:

It was… submitted [by the banks] that doing nothing cannot amount to an implied representation.  But it is (arguably) the case that the banks did not do nothing in that the proposed transactions were to be governed by LIBOR.  That is conduct just as much as a customer’s conduct in sitting down in a restaurant amounts to a representation that he is able to pay for his meal…

… It must be arguable that, at the very least [the banks] were representing that their own participation in the setting of the rate was an honest one.  It was to my mind surprising that the banks do not appear to be prepared to accept that even that limited proposition is arguable….

The law should strive to uphold the reasonable expectations of honest men and women.  If in the end it cannot do so it should only be after a proper trial.

It may well be that the banks will seek further leave to appeal the Supreme Court on this issue.

They will need to get their skates on. The Barclays case is due to come to trial in April 2014.  Without further judicial intervention along the way (and of course barring any settlement) a detailed examination of precisely which members of senior management of Barclays knew what about LIBOR (and when) seems inevitable.  Were that to occur, the threshold D&O dislosure  issue which I flagged in my earlier blog may also come into play.

I should stress that I have no inside knowledge on this or any other issues concerning these claims.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
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