English Court Of Appeal Decision In Significant Test Case: Property Alliance Group v Royal Bank Of Scotland

On 2 March 2018, the Court of Appeal handed down its highly-anticipated judgment in Property Alliance Group (“PAG”) v Royal Bank of Scotland (“RBS”), dismissing all of PAG's grounds of appeal and overturning a finding of fraudulent misrepresentation against RBS. The case has been closely watched as it was the first claim for damages arising from LIBOR manipulation to reach trial. Although PAG was unsuccessful on the facts, the Court of Appeal decision carries potentially significant consequences, in particular for LIBOR setting banks.


In January 2016, PAG's claim was transferred into the (then recently-created) Financial List1 in the High Court, by Order of the then Chancellor, Sir Terence Etherton. Now, as Master of the Rolls, he was one of the three judges hearing PAG's appeal in the Court of Appeal. In January 2016, he directed that the PAG action was in effect a 'test case or lead case' on the basis that:

“. . . the allegations concerning the alleged misselling of the four interest rate swaps and particularly the allegations concerning the alleged improper conduct of RBS in relation to the fixing of LIBOR rates involve important issues of general market significance, which are clearly relevant to other participants in the markets and their clients. It is well known, that there are others who have claims and are now or are likely in the future to be litigating, in relation to similar issues arising out of the alleged rigging of LIBOR rates. It seems reasonably clear that the judgment following trial in the present proceedings will have an impact on other cases already launched and those which will be launched in the future. It is also likely that decisions about provisions in the agreements between RBS and PAG limiting RBS's exposure to claims for negligence will have relevance elsewhere in the markets.”

Indeed, the Court of Appeal decision has significant implications for a potentially large number of other misselling claims that are pending or currently before the courts. It provides clarification of the duty owed by banks when providing information to customers. The decision also provides important clarification as to when a party may exercise an unfettered contractual right - a point of some consequence for other claims which may arise as a result of activities of RBS's Global Restructuring Group (“GRG”) in particular.

Of potentially most significance, however, is the Court of Appeal's finding that in proposing a sterling LIBOR denominated transaction, RBS made an implied representation to the effect that RBS was not manipulating and did not intend to manipulate sterling LIBOR. PAG's claim itself was unsuccessful because it failed to establish on the facts that RBS had manipulated sterling LIBOR.


PAG is a property investment and development business that, at the time of the relevant swaps, used RBS as its principal source of commercial banking facilities. PAG entered into LIBOR-referenced finance agreements with RBS which required that PAG enter into interest rate hedging instrument(s) that were acceptable to RBS. The proceedings concerned four such swap transactions entered into between 2004 and 2008 (the “Swaps”).

From 2007-8, interest rates went down dramatically, with the result that the level of interest that PAG was paying under the Swaps substantially exceeded what it was receiving under them. This had a corresponding impact on the break costs, which, when PAG terminated the Swaps in 2011, totalled £8.261 million. Previous to this, RBS had transferred its relationship with PAG to GRG in 2010, which then instigated valuations of the properties held by PAG over which RBS held security.

PAG sought rescission of the Swaps and/or damages. A number of the points that were heard at first instance were not pursued on appeal. Four key issues were considered by the Court of Appeal, namely whether:

(1) RBS fraudulently made implied representations about LIBOR and how it was set which were false (the “LIBOR Claims”);

(2) RBS was wrong to have PAG's portfolio revalued in August 2013 (the “Valuation Claim”);

(3) RBS may be liable in tort for negligent misstatement as a result of an alleged failure to provide PAG with information about potential break costs (the “Negligent Misstatement Claim”); and

(4) RBS falsely represented to PAG that each of the Swaps was a “hedge” and, hence, that it would reduce PAG's interest rate risk (the “Misrepresentation Claim”).

Of particular significance is that part of the judgment dealing with the LIBOR Claims, which we address first.

The LIBOR Claims

The claim: PAG's case was that if it had realised that LIBOR had been manipulated, it would never have agreed to the Swaps in the first place, such that they should be rescinded. The claim for rescission was premised on a series of implied misrepresentations in respect of LIBOR which were said to have been made by RBS. This followed findings by the then FSA of manipulation in connection with RBS's submissions that formed part of the calculation of Japanese yen and Swiss franc LIBOR, and inappropriate conduct in relation to Japanese yen, Swiss franc and US dollar LIBOR submissions. No specific findings had been made by any regulator in relation to the LIBOR sterling rate.

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