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LIBOR claims set to continue

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23/01/2014

Walker Morris has reported previously on the high profile litigation arising out of the 2012 London Interbank Offered Rate (LIBOR) manipulation scandal [1]. In the latest development, the Court of Appeal was recently tasked to referee two conflicting High Court decisions in respect of LIBOR-linked loan or swap agreements where, in both cases, the borrowers sought to amend their pleadings to claim false and fraudulent representations made by the lenders in relation to the setting of LIBOR.

The High Court in Graiseley Properties Limited v Barclays Bank PLC [2] had permitted the borrower to amend their particulars of claim following LIBOR-fixing allegations, but in the Deutsche Bank AG [3] litigation, the court refused. The rationale for the High Court’s decision in Deutsche was that there was no real prospect of success of the proposed amending pleadings succeeding, since no representations had been made in respect of the credit swap agreements on the method of LIBOR calculation and the stated misrepresentations were too wide and uncertain to be realistically implied into the agreements.

Referee’s Decision
Hearing appeals in both cases together on 8 November 2013 [4], the Court of Appeal decided that the claimants’ amendments addressing LIBOR manipulation would be allowed and that the borrowers’ claims against the banks could therefore proceed. The court demonstrated a reluctance to enter into the merits of the proposed pleadings, but placed significant weight on the fact that the banks had suggested the use of LIBOR, a measure in which they actively participated. As such, although the court did not provide a lengthy explanation for its decision (highlighting that it did not want to “inhibit…the approach or decisions of the trial judge”), it did indicate that implied representations are always fact-specific and it would be, “dangerous to dismiss summarily an allegation of implied representations in a factual vacuum”.

In addition, the court found that the banks’ participation in the setting of LIBOR ensured that the “proposed pleas of implied representation [were] in both cases arguable”, since “at the very least” it is arguable that the banks’ were representing that their participation in the setting of the LIBOR was “an honest one”.

Will it be final?
Subject to a potential appeal by the banks to the Supreme Court, this Court of Appeal decision means that claims relating to LIBOR manipulation will continue to be pleaded in respect of mis-selling LIBOR-linked products.

The outcome of the Graiseley and Deutsche Bank litigation remains one to watch and if you are interested or concerned and would like further information, please contact a member of the Walker Morris Banking Litigation team.

[1] [Link to previous article: Public scandal, private action (See below)]
[2] [2012] EWHC 3093
[3] [2013] EWHC 471 (Comm)
[4] [2013] EWCA Civ 1372