Banking On Bankers

Sascha Hindmarch outlines the pursuit of Libor-related claims

The Court of Appeal's decision at the end of last year in Graiseley Properties Ltd v Barclays Bank plc [2013] (appeal decision) confirmed that the door is open for claimants to plead implied representations against financial institutions in relation to the manipulation of London interbank offered rates (Libor) and/or Euro interbank offered rates (Euribor). With that comes the ability to rescind contracts entered into with financial institutions, potentially recovering previous payments made if misrepresentations (implied or otherwise) can be proved. However, while the door may be ajar it certainly remains arguable as to whether the floodgates have opened.

Libor - what is it and how was it manipulated?

Before embarking upon the detail of the appeal decision it is worth briefly covering what Libor is and the manipulation that took place. As Longmore LJ (at para 2) set out, 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 11.00am London time.

The benchmark rate is set after each panel bank submits a rate and an average is calculated once the highest and lowest rates are omitted.

The Libor fallout involved several financial institutions including UBS AG, JPMorgan, Barclays, Royal Bank of Scotland and Deutsche Bank being sanctioned by worldwide financial regulators for seeking to manipulate Libor and Euribor between 2005 and 2010. As a result, the English courts have seen Libor-related claims being prosecuted in their jurisdiction.

Background to the appeal decision

Interestingly, the appeal decision arises out of two independent cases and two contradictory decisions at first instance - Graiseley Properties Ltd v Barclays Bank plc [2012] before Flaux J (Graiseley case) and Deutsche Bank AG v Unitech Global Ltd [2013] before Cooke J (Unitech case). The Court of Appeal therefore dealt with two appeals arising out of these first instance decisions. Both cases involved interest or swap agreements in which the relevant banks were attempting to recover monies due under such agreements and where borrowers have sought to plead implied representations regarding the manipulation of Libor.

Graiseley case

In brief, the Graiseley case focused on derivative contracts the claimants had entered into as a condition of the...