Sharp & Others v Blank & Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 12 November 2015 |
| Neutral Citation | [2015] EWHC 3219 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC-2014-002092 HC-2014-001387 HC-2014-001388 HC-2014-001389 HC-2015-000103 HC-2015-000105 |
| Date | 12 November 2015 |
[2015] EWHC 3219 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Nugee
Case No: HC-2014-002092
HC-2014-001010
HC-2014-001387
HC-2014-001388
HC-2014-001389
HC-2015-000103
HC-2015-000105
Alan Steinfeld QC & Stuart Adair (instructed by Harcus Sinclair UK Limited) for the Claimants
Helen Davies QC & Tony Singla (instructed by Herbert Smith Freehills) for the Defendants
Hearing dates: 21 st, 22 nd and 23 rd October 2015
Introduction
In these actions the Defendants applied for summary judgment under CPR 24.2 on particular issues pleaded by the Claimants and/or that certain parts of the Particulars of Claim be struck out under CPR 3.4(2)(a). I dealt orally with certain aspects of the application during the hearing, but was not able to deal with all of them. This judgment concerns one particular aspect of the hearing which is the Defendants' application for summary judgment on what has been referred to as the LIBOR allegation. (There is in this respect no alternative application under CPR 3.4).
It is not necessary to rehearse the claims in the actions in any detail. They concern the acquisition in early 2009 by the 6 th Defendant, now called Lloyds Banking Group plc but then called Lloyds TSB plc ( "Lloyds"), of Halifax Bank of Scotland plc ("HBOS"). An EGM of Lloyds shareholders was called to approve, and did approve, the proposed acquisition on 19 November 2008. Before the EGM the directors of Lloyds published a Circular to shareholders. In essence the claim is that this Circular (and various other communications to shareholders) contained material misrepresentations and omissions, and that the 1 st to 5 th Defendants, who were directors of Lloyds, were in breach of tortious and fiduciary duties owed to the Claimants, who are, or claim to be, some of the shareholders in Lloyds.
As set out in more detail below, among the matters which it is said that the Defendants knew, but did not disclose to the shareholders, was that HBOS was manipulating its LIBOR submissions. It is now clear, and accepted, that such manipulation was indeed going on, but the question is whether the Claimants have a realistic prospect of success on their allegation that the directors of Lloyds knew this at the time.
The pleaded allegations
There are in fact 7 actions before the Court but there are generic Particulars of Claim. The relevant paragraphs where the LIBOR allegation is pleaded are as follows:
(1) Paragraph 107(8)
Paragraph 107 pleads that by virtue, among other things, of the due diligence carried out by Lloyds, it is to be inferred that at all material times the Defendants had full knowledge of certain facts; and sub-paragraph (8) of the Particulars of Knowledge is as follows:
"HBOS, through its Bank of Scotland subsidiary, was manipulating its GBP and USD LIBOR submissions to bring them into line with other LIBOR panel banks and give the impression that the financial circumstances of HBOS were better than was actually the case and, in particular, that it was able to borrow funds on the London inter-bank market."
(2) Paragraph 108(6)
Paragraph 108 pleads that in breach of duty the Defendants took positive steps to conceal certain matters from the Lloyds shareholders, and sub-paragraph (6) of the Particulars of Concealment is as follows:
"The Defendants failed to disclose to the Lloyds shareholders and/or to the market generally that HBOS, through its Bank of Scotland subsidiary, was manipulating its GBP and USD LIBOR submissions to bring them into line with other LIBOR panel banks and give the impression that the financial circumstances of HBOS were better than was actually the case and, in particular, that it was able to borrow funds on the London inter-bank market."
(3) Paragraph 115(2)(h)
Paragraph 115 pleads that certain express and implied representations said to have been made by the Defendants were false and/or misleading. Sub-paragraph 2(h) of the Particulars of Falsity is as follows:
"As stated above, at the time of the announcement of Lloyds' intention to acquire HBOS and at all material times thereafter, the supply of wholesale funding to HBOS had dried up and customers were moving deposits out of HBOS at an alarming rate. Bank of Scotland was manipulating its GBP and USD LIBOR submissions to give the false impression that HBOS was able to borrow funds on the London inter-bank market at interest rates that were similar to other banks. The reference to the position during the latter part of 2007 without reference to the situation at the time of the publication of the Shareholder Circular was misleading and disingenuous."
(4) Paragraph 115(6)(h)
Sub-paragraph 6(h) of the Particulars of Falsity to paragraph 115 is as follows:
"The Defendants did not believe and/or did not have reasonable grounds to believe that there had been no change to the financial or trading position of the HBOS Group. They knew that HBOS had ceased to be able to fund itself and was wholly reliant on covert central bank support to enable it to pay its debts as they fell due and continue to trade. They also knew that the Bank of Scotland was manipulating its GBP and USD LIBOR submissions to conceal the fact that it could not borrow funds on the London Inter-Bank market. The sums borrowed from the Federal Reserve, the Bank of England and Lloyds amounted to many times the total market capitalisation of HBOS. Furthermore they knew that the huge losses being suffered by HBOS were quickly eroding its capital and that if HBOS were not acquired by Lloyds it would have to be nationalised."
It can be seen that paragraph 107(8) pleads "full knowledge" by the Defendants that HBOS, through Bank of Scotland ( "BoS"), was manipulating its LIBOR submissions, and paragraph 115(6)(h) is again a plea that the Defendants knew of the manipulation. The other two paragraphs do not refer to knowledge as such, but paragraph 108(6) refers to the Defendants taking "positive steps to conceal" certain matters including the manipulation, which contains an implicit allegation of knowledge as one cannot positively conceal what one is unaware of; and paragraph 115(2)(h) pleads the fact of the manipulation as part of an allegation that the Circular was misleading and disingenuous and again seems to me to be premised squarely on the basis that the Defendants knew of the manipulation, as it is not disingenuous to fail to refer to something if one is unaware of it.
It seems to me therefore that the LIBOR allegation is dependent on the Claimants establishing that the Defendant directors actually knew that the LIBOR submissions were being manipulated. At one stage in the argument Mr Steinfeld suggested that a plea of actual knowledge encompassed "Nelsonian" knowledge on the basis that the reason Nelson put the telescope to his blind eye was because he knew what he was going to see. That suggests that Nelsonian knowledge is confined to the case where a person does not ask a question because they already know what the answer is. I agree that that would be a case of actual knowledge, but whatever the historical position as to Nelson's state of mind at the Battle of Copenhagen (where he may indeed have known exactly what the signal was), the concept of Nelsonian or blind-eye knowledge as I understand it is usually regarded as indicating a state of mind where the person concerned chooses not to ask a question because they fear that the answer may not be what they want to hear. Indeed if that is not what it means it does not seem to me a concept that has much practical utility. I do not regard the current pleading as encompassing such a case; it is as I say a plea of actual knowledge.
The Defendants sought further information from the Claimants as to the facts and matters relied upon in support of the LIBOR allegation. The response referred to two matters:
(1) It was said that on or shortly after 18 September 2008 the Director Defendants would have been aware that HBOS was incapable of borrowing from or lending to other banks, and that they therefore would have appreciated that its GBP and USD LIBOR rates were:
"a fiction designed to disguise its financial circumstances and the fact that it was neither able to borrow nor lend."
(2) Reference was made to the outcome of an investigation by the Financial Conduct Authority ( "FCA") into both Lloyds and BoS as set out in a Final Notice addressed to them dated 28 July 2014 ( "the Final Notice"). This found that directions were given by certain Lloyds managers to manipulate the LIBOR rates. It was said that:
"It therefore follows that the Director Defendants would have been aware of the possibility that HBOS would have been doing the same thing as Lloyds was doing at the time."
The principles
There was no dispute before me as to the relevant principles. As already referred to in my oral judgment on the recapitalisation allegation, I was referred to the oft-cited summary by Lewison J in Easy Air Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15], the judgment of Lord Woolf MR in Swain v Hillman [2001] 1 AER 91, and the speech of Lord Hope in Three Rivers District Council v Bank of England (No 3) [2001] UKHL 16. I will come back to the application of the principles at the end of this judgment.
There is no doubt (as I said in that judgment) that CPR 24.2 confers a power on the Court to grant summary judgment on a particular issue. In the case of the recapitalisation allegation I nevertheless declined to grant summary judgment, primarily...
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