Graiseley Properties Ltd and Others v Barclays Bank Plc

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Longmore,Lord Justice Underhill,Sir Bernard Rix
Judgment Date08 November 2013
Neutral Citation[2013] EWCA Civ 1372
Date08 November 2013
Docket NumberCase No: A3/2013/0785, A3/2013/0788 & A3/2013/0862 Claim Nos. 2011 Folio 1199 & 2012 Folio 464 A3/2013/0785

[2013] EWCA Civ 1372

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

THE HONOURABLE MR JUSTICE FLAUX &THE HONOURABLE MR JUSTICE COOKE

[2012] EWHC 3093 (Comm) & [2013] EWHC 471 (Comm)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

The Right Honourable Lord Justice Longmore

The Right Honourable Lord Justice Underhill

and

The Right Honourable Sir Bernard Rix

Case No: A3/2013/0785, A3/2013/0788 & A3/2013/0862

Claim No. 2012 Folio 1259 A3/2013/0862

Claim Nos. 2011 Folio 1199 & 2012 Folio 464 A3/2013/0785

Between:
Graiseley Properties Limited & Ors
Respondents
and
Barclays Bank PLC
Appellants
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
8) DB International (Asia) Limited
9) Axis Specialty Limited
10) DB Trustees (Hong Kong) Limited
Respondents
and
1) Unitech Global Limited
2) Unitech Limited
Appellants
Deutsche Bank AG
Respondent
and
Unitech Limited
Appellant

Mr Robin Dicker QC & Mr Jeremy GoldringQC (instructed by Clifford Chance LLP) for the Appellants Barclays Bank Plc

Mr Stephen Auld QC, Mr Farhaz Khan & Mr Simon Oakes (instructed by Cooke, Young & Keidan LLP) for the Respondents Graiseley Properties Ltd & ors

Mr John Brisby QC, Mr Alastair Tomson & Mr Michael D'Arcy (instructed by Stephenson Harwood LLP) for the Appellants Unitech Global Ltd and Unitech Ltd

Mr Richard Handyside QC & Mr Adam Zellick (instructed by Allen & Overy LLP) for the Respondents Deutsche Bank AG & Ors Folio 2011 1199

Mr Mark Hapgood QC, Mr Timothy HoweQC & Mr Adam Sher (instructed by Freshfields Bruckhaus Deringer) for the Respondent Deutsche Bank AG Folio 2012/464

Lord Justice Longmore

Introduction

1

These two appeals result from the distortion or manipulation of the London Inter-Bank Offered Rate ("LIBOR") frequently used as a reference rate in the calculation of interest in loan agreements or swap agreements. In both the current appeals banks are endeavouring to recover sums due under such agreements and the borrowers (or their guarantors) have sought permission to amend their pleadings to allege (inter alia) that the banks made implied representations as to the efficiency of or the non-manipulation of LIBOR. In the Graiseley v Barclays case Flaux J on 29 th October 2012 gave permission for such amendments to be made. In the two Deutsche Bank cases Cooke J on 28 th February 2013 declined to follow Flaux J and refused permission to make amendments in the two cases but gave permission to appeal. In the light of that decision of Cooke J Barclays, despite the fact that their case had proceeded to disclosure of documents, sought an extension of time in which to seek permission to appeal Flaux J's decision and Moore-Bick LJ on 22 nd April 2013 granted permission to appeal; he encouraged the listing of both such appeals at the same time. We heard argument first in the Deutsche Bank cases but in this judgment we will consider Graiseley v Barclays first since it is that case which is the most advanced and indeed has a trial date in April 2014.

2

LIBOR is defined by the British Bankers' Association as:-

"The rate at which an individual contributor panel bank could borrow funds were it to do so by asking for and then accepting interbank offers in reasonable market size just prior to 11.00 a.m. London time."

There is a number of panel banks for each currency of which Barclays is one. Each bank submits a rate and an average of rates is then calculated after omitting a number of the highest and the lowest rates.

3

The recent report of the Treasury Select Committee quotes the finding of the Financial Services Authority ("FSA") as to the significance of LIBOR and the related Euro rate of EURIBOR, describing them as:-

"Benchmark reference rates that indicate the interest rate that banks charge when lending to each other. They are fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts."

The Graiseley Action

4

The Graiseley case concerns, in effect, two such derivatives contracts which the claimants (who are largely owners and/or managers of care homes in the Midlands) were obliged to enter into as a condition of Barclays granting the relevant loan facilities. One of these contracts was a conventional swap; the other with somewhat different characteristics has been called "the collar". Part of the case of the Graiseley claimants is that these contracts were unsuitable contracts for them to have made, a fact that relevant Barclays personnel knew full well at the time the contracts were made. These allegations will have to be tried in any event.

5

In its Final Notice dated 27 th June 2012, the FSA identified two distinct phases of wrongdoing on the part of Barclays. The first concerned submissions from Barclays to the British Bankers' Association ("BBA") from 2005 to 2008, which took into account requests by interest rate derivatives traders to the submitters (who were responsible for submitting the LIBOR rates to the BBA) which the FSA found were motivated by profit. Secondly, the FSA found that during the financial crisis from about September 2007 until about May 2009, on instructions from senior management of Barclays, the submitters lowered their LIBOR submissions to the BBA, in response to negative media comments about the bank, a process which is described throughout the evidence before the Treasury Select Committee as "low-balling". This court received, without objection, a considerable amount of further evidence in relation to Barclays and LIBOR which may arguably show knowledge of what was happening at a high level within Barclays.

6

The specific implied representations relied upon by the Graiseley claimants and objected to by Barclays are set out in the draft amended pleading at paragraph 9 and they are as follows:-

"(1) On any given date up to and including the date of the Swap and the date of the Collar, LIBOR represented the interest rate as defined by the BBA, being the average rate at which an individual contributor panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11.00 a.m. on that date.

(2) Barclays had no reason to believe that on any given date, LIBOR had represented, or might in the future represent, anything other than the interest rate defined by the BBA, being the average rate at which an individual contributor panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11.00 a.m. on that date.

(3) Barclays had not on any given date, up to and including the date of the Swap and the Collar:

(a) made false or misleading LIBOR submissions to the BBA and/or

(b) engaged in the practice of attempting to manipulate LIBOR, such that it represented a different rate from that defined by the BBA, (viz a rate measured at least in part by reference to choices made by panel banks as to the rate that would best suit them in their dealings with third parties); and

(4) Barclays did not intend in the future to

(a) make false or misleading LIBOR submissions to the BBA and/or

(b) engage in the practice of attempting to manipulate LIBOR, such that it represented a different rate from that defined by the BBA. (viz a rate measured at least in part by reference to choices made by panel banks as to the rate that would best suit them in their dealings with third parties)."

7

The pleading goes on to refer to a rate that was being measured in part by the bank's own personal interest. The pleading then sets out how the representations were made by the agents of the bank, that is to say, for present purposes, those managers and staff in the local branches in the Black Country with whom the claimants dealt, in documents (including drafts of the various agreements which referred on a number of occasions to LIBOR and to the setting of the so-called screen rate), a series of emails passing between the bank and the claimants, and meetings.

8

Then the pleading sets out in detail at paragraph 12 the respects in which the representations are said to be false and those track in large measure the detailed findings made by the regulatory authorities. There is then a plea in paragraph 12A setting out why those representations are alleged to be fraudulent; what is pleaded is relevant knowledge and/or recklessness in that Barclays was proposing to potential customers that they enter into financial transactions containing obligations measured by reference to LIBOR such that the LIBOR representations were being made, or might be made, to the said customers, and that those representations were or might be false.

9

Then the claimants say that, prior to disclosure, the best particulars they can give of whose knowledge it was, or which individuals had the relevant knowledge, is a number of categories of managers and others within the bank, which again tracks the conclusions reached by the regulatory authorities, specifically the findings made by the regulatory authorities about the involvement of senior management of the bank together with the involvement of derivatives traders who made requests to the submitters and also the involvement of the compliance department. There is then a specific plea that the claimants relied on the representations through their chief executive officer, Mr Hartland, and also that the bank intended the claimants to rely upon the representations and was well aware that the claimants or a...

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