Deutsche Bank AG and Others v Unitech Global Ltd and another; Deutsche Bank AG v Unitech Ltd

JurisdictionEngland & Wales
JudgeLord Justice Longmore
Judgment Date03 March 2016
Neutral Citation[2016] EWCA Civ 119
Docket NumberCase No: A3/2013/3094, A3/2013/3095 & A3/2014/3435
CourtCourt of Appeal (Civil Division)
Date03 March 2016

[2016] EWCA Civ 119

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

THE HONOURABLE MR JUSTICE TEARE

[2013] EWHC 2793 (Comm) & [2014] EWHC 3177 (Comm)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Right Honourable Lord Justice Longmore

The Right Honourable Lord Justice Christopher Clarke

and

The Right Honourable Lord Justice Sales

Case No: A3/2013/3094, A3/2013/3095 & A3/2014/3435

Between:
1) Deutsche Bank AG
2) DBS Bank Limited
3) BBK B.S.C.
4) Shinhan Bank
5) Liref (Singapore) PTE Ltd
6) PT. Bank Negara Indonesia (Persero) TBK, Tokyo Branch
7) BMI Bank BSC (C)
8) DB International (Asia) Limited
9) Axis Speciality Limited
10) DB Trustees (Hong Kong) Limted
Claimants (Lenders Action)/Respondents And Cross-appellants
and
1) Unitech Global Limited
2) Unitech Limited Deutsche Bank AG
Defendants (Lenders Actions)/Appellants and Cross-Respondents

and

Deutsche Bank AG

and

Unitech Limited
Claimant (Swap Action) Defendant (Swap Action)

Mr Thomas Sharpe QC, Mr John BrisbyQC, Mr Alastair Tomson & Mr Michael d'Arcy (instructed by Stephenson Harwood LLP) for the Defendants in Lenders and Swap Actions

Mr Richard Handyside QC & Mr Adam Zellick (instructed by Allen & Overy LLP) for the Claimants in Lenders Action

Mr Adam Sher (instructed by Freshfields Bruckhaus Deringer LLP) for the Claimant in Swap Action

Hearing dates: 2 nd, 3 rd & 4 th February 2016

Lord Justice Longmore delivering the judgment of the court:

Introduction

1

This is the second interlocutory appeal in the battle between Deutsche Bank and other creditors who have brought two actions in the Commercial Court to recover amounts due under loan or swap agreements which used LIBOR as a reference rate in the calculation of interest. Those conversant in these matters will recall that the last appeal decided that the defendants could make amendments to their defence which (inter alia) alleged misrepresentation about the accuracy of LIBOR and the Deutsche Bank's alleged part in undermining its integrity. Those misrepresentations are said by the defendant borrower and its guarantor to entitle them to rescind the agreements.

2

The first Deutsche Bank action has been called "the Lenders' Action". In it Deutsche Bank ("the Bank") and eight other Lenders claim under a credit facility agreement made with Unitech Global Ltd ("UGL") on 24 th September 2007 as amended by a term sheet dated 22 nd October 2010 and against Unitech Ltd ("Unitech") as UGL's parent company guarantor. The agreement is governed by English law and confers exclusive jurisdiction on the English courts. US$150 million was advanced and, as a result of various failures to pay instalments due, or other events of default, repayment was accelerated so that the total is allegedly due to the Lenders. The second to ninth claimants (together with the Bank "the Lenders") are said to have acceded to the credit facility agreement by virtue of an assignment or transfer of rights or novation pursuant to clause 29 of that agreement.

3

In the second action which has been called "the Swap action" the Bank claims US$11 million, approximately, from Unitech under the same guarantee of UGL's obligations in respect of an interest rate swap agreement, which incorporated the terms of an ISDA 2002 Master Agreement. The defendants' case is that this swap agreement was proposed by the Bank as a hedge for UGL against interest rate fluctuations and that the credit facility agreement and the swap agreement were part of a single package deal. Unitech and UGL contend that the swap agreement was represented and recommended as suitable for UGL when it was not, particularly by reference to the terms of the credit facility agreement itself. It is alleged that misrepresentations induced the two agreements and were, in any event, made in breach of a duty of care owed by the Bank.

4

The credit facility agreement provided for payment of interest by reference to LIBOR, which was defined in the definitions section by reference to the applicable screen rate as displayed for the relevant currency and term, or overdue amount, on the appropriate page of the screens of Reuters or Telerate.

5

Under the interest rate swap agreement, the obligations related to six month US dollar LIBOR, as set out in the annex to the ISDA 2002 Master Agreement:-

"The rate for a Reset Date will be the rate for deposits in US Dollars for a period of the Designated Maturity, which appears on the Telerate, page 3750, as of 11.00 a.m., London time on the day that is two London Banking Days preceding that Reset Date. If such rate does not appear on the Telerate Page 3750, the rate for that Reset Date will be determined as if the parties had specified US LIBOR Reference Banks as the applicable Floating Rate Option."

6

It is probably relevant to know that at the relevant time there were LIBOR reference rates for ten different currencies. For each currency there was a rate for each of 15 different maturity periods (or "tenors") ranging from overnight to one year. There were, therefore, 150 different LIBOR rates in total.

7

Prior to February 2011, the USD LIBOR panel consisted of 16 contributor banks (of whom the Bank was one) and the USD LIBOR rates were calculated in the following manner:-

"(1) Each contributor bank would submit its USD LIBOR submissions to Thomson Reuters based on the following question: "at what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 a.m?"

(2) Upon receiving submissions from the contributor banks, Thomson Reuters would exclude the four highest and the four lowest rates. The remaining (eight) rates were arithmetically averaged to produce the USD LIBOR rates.

(3) Accordingly, high and low "outlying" submissions were excluded from the published LIBOR rates."

8

In both Deutsche Bank actions, the borrowers were, on 8 th November 2013, given permission by this court, reversing Cooke J, to plead implied representations as set out in paragraph 5GC of a proposed amended pleading in the Lenders' Action and paragraph 36C of a proposed amended pleading in the Swap Action, which were for convenience of the argument labelled (A)-(D), albeit numbered (1)-(4) in the pleading itself. They were that:-

"(A) LIBOR was a genuine average of the estimated rate at which members of the Panel could borrow from each other in a reasonable market size just prior to 11.00 a.m. London time on any given day, as set out in the last sentence of paragraph 5GA above.

(B) The LIBOR rate itself was a rate based on the respective Panel member banks' submissions to Thomson Reuters which were good faith accurate estimates of the rate at which they could actually borrow from each other in a reasonable market size just prior to 11.00 a.m. London time on any given day, as set out in the last sentence of paragraph 5GA above.

(C) The first claimant had not itself acted, was not acting, and had no intention of acting, in a way which would, or would be likely to, undermine the integrity of LIBOR.

(D) The first claimant was not aware of any conduct (either its own, or of other banks on the Panel) which would, or would be likely to, undermine the integrity of LIBOR."

9

Cooke J had also held that, because the 3 rd and 7 th claimants in the Lenders' Action had apparently acceded to the credit facility agreement by novation, the original credit facility agreement had been extinguished and that any right on the part of UGL to rescind that agreement had therefore been lost. That led to a complicated interlocutory hearing before Teare J in which he was invited to decide no fewer than 23 issues including an application for summary judgment by the Lenders and further applications by the Unitech parties to yet further amend their pleadings.

10

On 20 th September 2013 Teare J handed down a judgment dealing with all these issues, [2013] EWHC 2793 (Comm). He permitted the defendants to plead an implied term of both contracts to the effect that the Bank would not seek to manipulate the setting of LIBOR but held that any damage resulting from any breach of such an implied term could only be claimed by way of counterclaim rather than set-off. He refused the defendants permission to make other amendments and, in the light of Cooke J's decision that the defendants were not entitled to rescission of the novated credit facility agreement, gave the Lenders summary judgment for a very large sum in the Lenders' Action.

11

This court's decision of 8 th November 2013, however, held that Cooke J had been wrong to decide, on a summary judgment basis, that the credit facility agreement had been novated since it was arguable either that it had not been novated at all (but had merely been assigned to the new Lenders) or that it had only been partially novated. There would therefore have to be a trial of those issues. In those circumstances Teare J's summary judgment could not stand and on 3 rd October 2014 he sensibly set it aside. The Lenders' however submitted that that order should be conditional on payment of the principal sum (and non-contractual interest) into court or alternatively that there should be an order for interim payment of that sum.

12

There are now appeals by the Unitech parties against Teare J's refusal to allow amendments on his granting of summary judgment in relation to 5 intended defences alleging in broad outline:-

i) that the Bank failed to disclose to Unitech as guarantor unusual features of the credit facility agreement with UGL and the guarantee was therefore discharged;

ii)...

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2 firm's commentaries
  • Judgments
    • United Kingdom
    • JD Supra United Kingdom
    • 11 Julio 2016
    ...cases. Deutsche Bank successful in its appeal in relation to Unitech Deutsche Bank AG and others v. Unitech Global Limited and another [2016] EWCA Civ 119 This judgment of the Court of Appeal considered a judgment at first instance of Teare J, that was itself handed down in somewhat complex......
  • Judgments
    • United Kingdom
    • Mondaq UK
    • 18 Julio 2016
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