A number of councils, including Leeds City Council and Sheffield City Council (the ‘Claimants’) brought claims against Barclays Bank plc (the ‘Bank’) seeking rescission of long term loans on the basis that the terms of those loans had been misrepresented to them due to the manipulation of LIBOR.
The loan terms allowed the Bank to provide low interest rates initially but there was an option for the interest rate to be increased on certain fixed dates, and if exercised, the Claimants had the option to agree to the higher rates or instead repay the entire loan (with breakage costs) early. LIBOR was used as the reference rate for the purposes of calculating the interest and breakage costs.
LIBOR is an average interest rate benchmark calculated through submissions of interest rates by major banks. In 2012, a scandal arose due to banks falsely declaring rates in order to profit from certain trades. As such, the Claimants argued that the Bank had represented that the LIBOR rates were being set honestly and properly, when in fact they were not, as it is now admitted that the Bank did engage with LIBOR manipulation to some degree.
The Bank sought to strike out the claims. It argued that the test for reliance in a misrepresentation claim had two components, namely:
- Awareness (some proof of understanding of the representation)
- Causation (the representation caused the party to enter into the agreement)
It was the Bank’s position that the Claimants could not establish that they were actively aware of the representation at the time that it was being made to them.
The Claimants argued that they did not need to establish that they were actively aware of the representation at the time. They claimed that when the Bank advised or recommended certain loans, the Bank had represented to the Claimants that the LIBOR rate was defined by the BBA and that the Bank had not made false representations or misleading representations knowingly impacting the LIBOR rate. Therefore, although the Claimants had not actively considered such representations of LIBOR rates, they had thought about them in some way.
In summary, the Claimants argued that they had been induced to enter into the loans by the misrepresentations to the effect that the LIBOR rates were being set honestly and properly and that the Bank was not acting improperly. The Claimants further argued that had they known of such dishonesty, they would not have entered into the loans.
In previous case law concerning similar types of loan and alleged misrepresentations, such as Marme Inversiones 2007 SL v Natwest Markets plc and others, the High Court noted that if false representations were made regarding the Euro Interbank Offered Rate, the claimant would need to establish that they had given some ‘contemporaneous conscious thought’ to the representations made.
Furthermore, in Property Alliance Group Ltd v Royal Bank of Scotland plc, it was held by the High Court that if representations had been made regarding the LIBOR rates, the claimants would have needed to have given thought to them in order to rely on them.
In line with the previous case law, the Court rejected the argument that an assumption as to a state of affairs was enough to satisfy the test for reliance, noting there is a clear disparity between awareness and assumption. Therefore, it is clear that to establish reliance in a misrepresentation claim, awareness of the representation must be actively present in the Claimant’s mind and any assumption of representation would not be satisfactory.
Comment
This case is a continuation of a line of authorities which have rejected various iterations of similar claims based upon alleged misrepresentations drawn from implication rather than express statements. In an environment where we are experiencing a growth in misrepresentation claims (of various kinds) against financial institutions and other enterprises, this decision, at the summary judgment / strike-out stage, is a good illustration of how grasping a determinative issue early can significantly impact an otherwise more significant defence cost spend.
