The Court of Appeal has ruled that allegations that the Libor benchmark interest rate was manipulated can be included in two major cases against Barclays and Deutsche Bank and has scheduled Barclays’ case for next April.
In its latest bid to have the Libor aspects of the case dismissed ahead if the full trial, Clifford Chance partner Ian Moulding turned to South Square’s Robin Dicker QC for Barclays, who argued that the claims amounted to an “obligation to disclose one’s own dishonesty” which was a cause of action unknown to English law.
Joint appellants Deutsche Bank was represented Allen & Overy partner Andrew Denny on the lenders action instructing Mark Hapgood QC of Brick Court and Freshfields Bruckhaus Deringer partner Gillian Eastwood in the swaps action, who instructed Richard Handyside QC of Fountain Court.
Cooke Young & Keidan partner Philip Young instructed One Essex Court’s Stephen Auld QC to lead the response for Graiseley Investments. Indian property company Unitech, which had previously been refused permission to bring Libor claims against Deutsche, drafted in Stephenson Harwood partner Richard Gwynne who instructed 4 Stone Buildings’ John Brisby QC.
Barclays and Deutsche will now be forced to answers to answer deceitful misrepresentation claims for financial instruments it was sold. The move could bring into question over $300tn worth of derivatives swirling around the marketplace.
This is the second attempt by Barclays to prevent the court from hearing the Libor aspect of the case. In October, Graiseley Properties won the battle to amend its claim to include allegations of fraudulent misrepresentation (7 January 2013).
The bank only applied for an appeal after Unitech Global was refused permission to amend its own claim against Deutsche Bank to also include allegations of fraudulent misrepresentation.
The cases were heard simultaneously for the appeal by Barclays and cross appeal by Unitech Global.
In April 2013 Barclays sought permission to appeal, outside the allotted time period, the decision Mr Justice Flaux made in October 2012, prompted by Mr Justice Cooke’s February 2013 decision in Deutsche Bank AG v Unitech Limited .
At the appeal hearing over three days starting on 15 October 2013, Unitech’s appeal was allowed and Barclays was dismissed, with the court ruling that the case was at least properly arguable.
In the judgment Lord Justice Longmore said: “The banks did propose the use of LIBOR and it must be arguable that, at the very least, they were representing that their own participation in the setting of the rate was an honest one. It is, to my mind, surprising that the banks do not appear to be prepared to accept that even that limited proposition is arguable”.
The court added that the banks’ argument was that the banks would do nothing dishonest or manipulative during the term of the contract itself and that this should be enough for their customers.
In rejecting the argument Longmore LJ said: “I can only say that, in my view, it is arguably not enough. If the day after the contracts had been made, the banks told their counterparties that they had been manipulating LIBOR in the past and intended to do so in the future, but would be happy to pay any loss that their borrowers could prove, the borrower would (arguably) be sufficiently horrified so as to think he would be entitled to rescind the deal. The law should strive to uphold the reasonable expectations of honest men and women”
The Barclays case is now expected to proceed to full trial next April.
A spokesperson for Barclays said: “The Court of Appeal’s decision resolves two conflicting legal judgments. With or without the LIBOR claims, the allegations of mis-selling have no merit. Graiseley had a suite of advisors and a lot of financial experience and skill in-house. They entered into their swap agreements with sufficient understanding to exercise their own judgment as to whether the products would meet their business objectives. Graiseley is a significant business and owes Barclays £70m.”
The legal line-up
For the appellants, Barclays Bank
South Square’s Robin Dicker QC and Jeremy Goldring QC and 3 Verulam Buildings’ Adrian Beltrami QC, instructed by Clifford Chance partner Ian Moulding
For the respondents, Graiseley Investments & Ors
One Essex Court’s Stephen Auld QC leading Outer Temple Chambers’ Farhaz Khan and Simon Oakes instructed by litigation boutique Cooke Young & Keidan partner Philip Young and consultant Len Murray
For the appellants, Unitech Global Ltd and Unitech Ltd
4 Stone Buildings’ John Brisby QC, and Alastair Tomson and One Essex Court’s Michael d’Arcy instructed by Stephenson Harwood partner Richard Gwynne
For the respondents, Deutsche Bank
On the swaps action: Brick Court Chambers’ Mark Hapgood QC and Fountain Court’s Timothy Howe QC and Adam Sher, instructed by Freshfields partner Gillian Eastwood
On the lenders’ action: Fountain Court’s Richard Handyside QC and Adam Zellick, instructed by Allen & Overy partner Andrew Denny