Property Alliance Group Ltd v The Royal Bank of Scotland Plc

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Birss
Judgment Date13 November 2015
Neutral Citation[2015] EWHC 3272 (Ch)
Docket NumberCase No: HC 2013 000459
Date13 November 2015

[2015] EWHC 3272 (Ch)



Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL


Mr Justice Birss

Case No: HC 2013 000459

Property Alliance Group Limited
The Royal Bank of Scotland Plc

Tim Lord QC and Kyle Lawson (instructed by Cooke Young & Keidan) for the Claimant

David Railton QC and Adam Sher (instructed by Dentons) for the Defendant

Hearing dates: 5th and 6th November 2015

Mr Justice Birss

This is another judgment dealing with the management of these proceedings. Since it marks a significant stage in the development of the litigation, it is worth reviewing what the action is about and how it has arrived where it is. The Claimant (PAG) is a property developer with a portfolio worth about £200 million. PAG is a former customer of the Defendant bank (RBS).


In May 2003 RBS became one of two commercial banks with which PAG had a relationship. The relationship included various loan facilities. It also included four interest rate swap contracts to hedge the interest due under the loans. The four swap contracts were entered into in October 2004, September 2007, January 2008 and April 2008. The terms of the contracts varied, including the notional amounts and period (subject to termination rights). The first swap contract was for a notional value of £10 million with a ten year term, the second swap was for £15 million rising to £30 million with a ten year term, the third was for £20 million with a three or five year term and the fourth swap was for £15 million with a five year term. By April 2008 PAG had borrowed about £71 million from RBS under the various loan facilities. Each of the swaps used 3 month GBP LIBOR as a reference rate.


PAG terminated the swaps in June 2011 by paying RBS about £8 million. PAG contends that it did so to stem its substantial ongoing losses caused by entering into them. In September 2013 PAG issued the Claim Form in this case and in January 2014 served Particulars of Claim. RBS filed its Defence in May 2014. The case was docketed to me and the first CMC took place in November 2014. At that stage directions were given to bring the case to a trial in the window May — July 2016 with an estimate of 6–8 weeks.


PAG contends that various express or implied representations were made by RBS in the course of selling the swaps, including that the swaps were a solution to PAG's interest rate risk and that the swaps were required by RBS in order to provide ongoing finance to PAG. PAG contends these were misrepresentations, entitling PAG to rescission and damages. The damages claimed include the sums paid under the swaps (about £5 million) as well as the approx. £8 million paid to RBS in June 2011 to get out. There are also claims for breach of contract.


The bank denies that the swaps were mis-sold, denies misrepresentation and breach of contract. These allegations are not what this judgment is about nor are they what any of the previous case management judgments have been about.

The GRG issue


A distinct issue relates to the activities of the bank's Global Restructuring Group (GRG). The GRG is described as the bank's turnaround division, to help turnaround financially distressed businesses. The issue is as follows. In March 2010, RBS was concerned about PAG's financial position including a high level of loan to value (LTV), amortisation capacity and cash flow. In May 2010, RBS moved the handling of PAG from its local specialist property team in Manchester to the GRG. PAG contends that a report into the GRG called the Tomlinson Report shows that RBS was unnecessarily engineering defaults by otherwise successful customers in order to move them out of local management and into the GRG. This was ostensibly to turn them around but in fact was to extract maximum revenue by systemic and institutional malpractice, including excessive levels of fees, bureaucracy and restrictions of trading. PAG contends that at the time it was moved into the GRG, it did not need financial restructuring but was complaining about the swaps. PAG's case is that the transfer was a breach of an overarching customer agreement between the parties. The case includes an allegation that one of the purposes of the transfer was to stifle PAG's increasingly vocal complaints about the swaps.


RBS denies the existence of the contractual terms relied on by PAG and denies the transfer was a breach of any term. RBS also denies altogether any improper conduct, including the allegation of systemic and institutional wrongdoing by GRG.

The LIBOR issue


One of the important aspects of this case, not mentioned so far, is a distinct allegation by PAG that further misrepresentations were made by RBS in connection with the swaps. The alleged misrepresentations (or implied terms) were concerned with the conduct of RBS in setting LIBOR and the nature of LIBOR itself.


The LIBOR for a given currency and tenor is a benchmark interest rate organised and defined by the British Banker's Association (BBA). It is set in the following way. There is a panel of banks (including RBS) who contribute to the setting of LIBOR by making daily submissions to the BBA of their rates for the various currencies and tenors. Paragraph 73(1) of the Particulars of Claim describes the rate submitted by a panel bank as follows: it is the average rate at which the contributor bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11am on the relevant date. There are rules for deriving the LIBOR rate for a given currency and tenor, given the submissions from the panel banks.


As is now well known, a number of banks have been found to be involved in the manipulation of LIBOR rates. RBS is one of those banks. RBS has reached settlements with a number of regulators and prosecuting authorities including the US Department of Justice (DoJ), the US CFTC, the UK Financial Services Authority (as it then was) and the European Commission. There is a Deferred Prosecution Agreement ( DPA) between RBS and the US DoJ. In the DPA, RBS has admitted misconduct relating to Japanese Yen (JPY) and Swiss Franc (CHF) LIBOR. The details are set out in Attachment A to the DPA. The FSA imposed a financial penalty on RBS of £87 million, the European Commission imposed a penalty of €391 million and the CFTC imposed a penalty of $325 million.


In its Particulars of Claim, PAG pleaded that RBS made four relevant representations concerning LIBOR. In summary they are: (1) that LIBOR represented what it purported to be, that is the interest rate defined by the BBA; (2) that RBS had no reason to believe that on any given date LIBOR represented or might represent anything other than the rate defined by the BBA; (3) that RBS had not made false or misleading LIBOR submissions to the BBA nor had RBS engaged in attempting to manipulate LIBOR such that it represented a different rate from that defined by the BBA; and (4) that RBS did not intend in future to do the acts in (3).


PAG alleges that each of these was a misrepresentation. The basis for the plea in the original Particulars of Claim was the findings of the regulators that RBS was manipulating LIBOR. PAG claims rescission and damages. There is also a case pleaded based on implied terms.


Importantly, in November 2013 the Court of Appeal in Graiseley v Barclays Bank and others [2013] EWCA Civ 1372 decided that misrepresentation allegations of this kind, supported prior to disclosure by inferences drawn from the conclusions of regulatory authorities, were arguable and should go to trial (see Longmore LJ paragraphs 24–31). The Particulars of Claim in this case was served after Graiseley and the LIBOR allegations follow closely the pleading before the Court of Appeal.


Before turning to the Defence, it is worth noting that as pleaded, the LIBOR allegations in the Particulars of Claim are general in nature. All that PAG and companies in PAG's position really have to go on are the public findings of the regulators (and press comment). The bank is, however, in a different position. Having been through major regulatory investigations with the FSA and the European and American regulators over a number of years, RBS has obviously had to examine what happened in great detail. Moreover, leaving aside the regulatory matters, simply as a matter of sound administration, RBS must have made it its business to find out what happened. As counsel for PAG has submitted in these proceedings a number of times, from before these proceedings began, RBS has known what was going on.


In its Defence in these proceedings, RBS denied making any of the alleged representations. As to the falsity of the representations, RBS formally admitted misconduct relating to JPY and CHF LIBOR in the same terms as that admitted in public in Attachment A to the DPA. Those were the only admissions RBS made about the falsity of the representations. The remainder of the allegations were denied or not admitted, it was not always entirely clear which. This requires some explanation.


First, as regards other currencies and tenors, the Defence specifically made the point (para 260(3)(c)) that there have been no regulatory findings of misconduct on the part of RBS relating to GBP LIBOR, the currency of PAG's swaps. In the judgments dated 8 th June 2015 [2015] EWHC 1557 (Ch) and 15 th June 2015 [2015] EWHC 2197 (Ch) I held that this put in issue the basis on which the regulatory findings had been made, which mattered given that the FSA's findings were the product of a without prejudice negotiated settlement...

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