Court of Appeal finds in favour of bank in PAG LIBOR litigation

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Finding in favour of the bank, the Court of Appeal has handed down its judgment in the high profile PAG v RBS LIBOR manipulation litigation [1].  Dismissing the appeal in its entirety, the court upheld the decision of the High Court, which is explained in our earlier briefing.

High profile LIBOR litigation

The claimant property investment and development company bought several LIBOR-linked interest rate swap hedging products from the defendant bank 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 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.
  • Breach of implied terms as to hedging interest rate risk, good faith and LIBOR.

The High Court dismissed PAG’s claim on all counts, but PAG appealed to the Court of Appeal.

Court of Appeal

In dismissing the appeal, the Court of Appeal has provided clarification in three key areas:

  1. Whilst acknowledging that an intermediate (or ‘mezzanine’) duty of the type for which PAG argued might arise in some cases [2], the Court of Appeal confirmed that, absent an advisory relationship or any special circumstances which might give rise to any broader duty, a financial institution’s duty to its customer will typically be the Hedley Byrne v Heller [3] duty note to misstate facts. The court found that the defendant bank did not breach its duty not to misstate.
  2. The misrepresentation issue at appeal was whether the products in question had been represented as hedges in the very narrow sense that PAG alleged, namely that they would reduce interest rate exposure. The Court of Appeal held that the reasonable representee would not have understood the products in the manner PAG suggested and also that factual evidence suggested that PAG had not relied on representations in that regard when entering the swap products. Those findings were fatal to PAG’s claim.
  3. Whilst the Court of Appeal did find that, in selling LIBOR-linked products the bank impliedly represented that it was not itself manipulating LIBOR (a significant departure from the High Court’s earlier decision), it also held that PAG could not prove that that representation was false. It noted that falsity needs to be proven in such cases – reliance on outside matters (such as a regulator’s findings) will not suffice.

WM Comment

Several cases based on LIBOR manipulation allegations have been stayed pending the outcome of this appeal, and it is anticipated that many more potential claimants have been deferring their decision whether to issue court proceedings until they have been able to assess the likely impact of this judgment.

It is likely that the dismissal of PAG’s appeal will deter some of the less confident claimants from pursuing such post-LIBOR scandal litigation and so lenders should, in general, welcome this decision. It should be noted, however, that PAG’s claims ultimately failed on the facts of the case, and it is possible to envisage scenarios where other facts could produce a different outcome.  In particular, in cases where there might be an advisory relationship or other circumstances which could justify something more than the mere duty not to misstate; or in cases where allegations of LIBOR manipulation on the part of a defendant and/reliance on misrepresentations by claimants, this Court of Appeal judgment could be relied on as persuasive authority to produce the opposite result.

If you would like any further advice or assistance in connection with any of the issues addressed in this case, please do not hesitate to contact Richard Sandford or any member of Walker Morris’ Banking Litigation team.


[1] Property Alliance Group Ltd v Royal Bank of Scotland plc [2018] EWCA Civ 355
[2] See our earlier Walker Morris briefing on the subject
[3] [1964] AC 465