LIBOR manipulation claims dismissed

Print publication


The drop in interest rates which accompanied the economic downturn in 2008 left many borrowers who had taken interest rate hedging products confronted with much higher than expected payments to make to lenders. This led to a number of cases being brought against banks in which borrowers alleged that the banks had mis-sold the products, acting in breach of contract and/or in breach of duty by failing to provide adequate information and advice. Walker Morris has reported previously [1] on the developing body of case law in which the courts have been reluctant to find lenders liable.  In the first reported case [2] in which the claimant also specifically raised allegations flowing from the LIBOR scandal [3], the High Court has ostensibly continued that theme, dismissing all claims pleaded against the lender in question.  The full judgment will make interesting and informative reading for all lenders and their professional advisors, but the principal legal points to note, along with some practical advice, are summarised below.

PAG’s claims

The claimant property investment and development company (PAG) bought several LIBOR-linked interest rate swap hedging products from the defendant bank (RBS) during the period 2004 – 2008.  Following exposure of manipulation of the LIBOR rates by a number of banks, PAG brought a mis-selling claim on the following grounds:

  • Negligent misstatement. PAG argued that, having proffered any explanation of the products which it wished to sell, RBS was under a duty [4] to provide a full, accurate and proper explanation of the nature and effect of the products, which it failed to do;
  • Misrepresentation as to the ‘hedging’ products and their suitability. PAG argued that the products did not provide a solution to, nor protect it from, interest rate risk, and they had left PAG in a worse financial position. It alleged that the products could not therefore be said to have been proper and suitable hedging agreements as RBS had represented;
  • Misrepresentation as to LIBOR. PAG alleged that RBS had made implied misrepresentations about LIBOR and how it was set and that PAG would not have entered into the swaps if it had known of the ongoing LIBOR manipulation; and
  • Breach of implied terms as to hedging interest rate risk, good faith and LIBOR.

High Court decision

PAG’s claims failed on all counts. Whether or not there was any underlying impetus not to open the floodgates for these types of claims, there is a sound legal and factual basis for the court’s findings.  Taking each element of claim in turn:

  • No duty = no negligent misstatement. Any duty to advise had been expressly excluded by the terms of the contractual arrangements between PAG and RBS (hence there was no breach of contract claim for PAG to pursue in respect of the product information/explanation provided to it). Being mindful not to blur the distinction between a salesperson and an advisor; taking into account the specific characteristics of PAG [5] and the fact that it retained specialist banking advisors; and noting market practice as to the content and extent of information generally provided about interest-rate hedging products, the judge concluded that RBS had no duty to advise beyond a mere generic duty not to mislead. There being no such duty, the court concluded that RBS had not been guilty of negligent misstatement.
  • No hedging/suitability misrepresentation. The alleged misrepresentations as to the hedging nature of the products in question and their suitability for PAG were actually caught by the ‘non-reliance’ clauses in the contractual arrangements between the parties. PAG was therefore contractually estopped from relying on any such representations to found a claim.
  • No misrepresentation as to LIBOR. The court confirmed that the correct approach for ascertaining implied misrepresentations was to judge objectively what a reasonable person would have inferred was being implicitly represented by the bank’s words and conduct in their context. Mere presentation of swap agreements which were linked to LIBOR (as happened here) was not sufficient to amount to conduct from which the reasonable representee would infer that representations as to LIBOR, and how it was being set, were being made by RBS.
  • No breach of implied terms as to hedging, good faith or LIBOR. In accordance with the recent Supreme Court case of M&S v BNP Paribas [6], the implication of terms into contracts is potentially intrusive and will not be done lightly. The court will ask whether implication is necessary to give business efficacy to the contract. Where the parties have entered into a lengthy, carefully drafted contract, particularly where they have been legally advised, it will be difficult to imply any term(s) as it will be doubtful whether any omission was the result of the parties’ oversight or a deliberate decision.       In addition, for a term to be implied, it must be obvious; capable of clear expression; and must not contradict any express term of the contract. The contracts between PAG and RBS, two sophisticated commercial entities, were detailed, industry-standard arrangements which expressly excluded equitable and fiduciary duties. To imply terms as to the nature and suitability of the hedging and as to good faith was not necessary to give business efficacy to the contract and would be contrary to those express exclusion clauses.       The same reasoning prevented terms as to LIBOR-setting being implied, plus the conduct of unknown banks on the LIBOR-setting panel would not have been in the contemplation of the parties at the time the contracts were made.

WM Comment and practical advice

Lenders and potential claimants alike have been awaiting the PAG v RBS decision.  Whilst it is now anticipated that this comprehensive, fully reasoned dismissal of all PAG’s claims will deter some less confident claimants from pursuing claims, it is not likely, however, that this case will preclude all such post-LIBOR scandal litigation.

The judge considered in a very careful and detailed manner all of the arguments raised by PAG and many of her decisions turned on the particular facts of this case – for example, the specific contractual arrangements and the nature of this claimant and its retained advisors. It is quite possible to envisage a scenario where the arrangements between a lender and a less sophisticated borrower might have an entirely different outcome, as may a case in which express non-reliance terms do not exist or are not effective to exclude particular representations which may have been made by a lender’s sales staff and are relied upon by an individual investor.

Lenders would be well advised to undertake a review of all cases in which LIBOR-linked product sales have been the subject of complaint or claim in light of this decision and to take expert advice, in particular, as to the existence of any relevant contractual terms or exclusions and the nature of any potential claimants and the extent of the lender’s relationships with them.

Lenders may also wish to review the terms of their standard contractual/loan agreements to ensure that future deals are protected so far as possible from misrepresentation/misstatement claims generally, and to educate their sales staff as to the extent to which their sales patter should – or should not – include product information and explanation.


[1] See our earlier briefings:;
[2] Property Alliance Group Ltd v Royal Bank of Scotland Plc [2016] EWHC 3342 (Ch)
[3] That is the scandal, initially exposed in 2012, in which several UK and international banks were found to have manipulated the London Interbank Offered Rate (LIBOR) to which loan or swap agreements were and are often linked
[4] See Crestsign v Natwest and RBS [2015] 2 All ER (Comm) 133
[5] PAG was not unsophisticated, but neither was it an expert in banking
[6] [2015] UKSC 72 – see our more detailed briefing