Heads We Win, Tails You Lose (The Difficulties Of Litigating Against An Adversary Who Will Still Owe You Money If They Win)

Since the settlement of Graiseley Properties Ltd v. Barclays Bank plc, the banner of LIBOR-related claims has been flown by Unitech, in defence of the claims made against it by Deutsche Bank for sums due pursuant both to a credit agreement and an interest rate swap agreement.

The recent judgment of Teare J marks the latest staging post in the advance of these claims towards trial. It is notable less for any advance in understanding how LIBOR-related claims are to progress than for the following:

highlighting the Court of Appeal's recent judgment in relation to the effect of novation and other forms of assignment on a claim for rescission; casting light on the court's approach where a bank litigates against a customer who will still owes it a substantial amount, even if that customer succeeds in a claim for rescission; and the unusual example of a judge overturning his own earlier decision. This update considers the first two of these points.

The disputed transactions

The Deutsche Bank v. Unitech litigation is comprised of two separate but related actions. The first (the Lenders' Action) relates to a credit agreement entered into by Deutsche Bank and other banks with Unitech on 24 September 2007 (the Credit Agreement) pursuant to which some US$ 150 million was advanced. New lenders acceded to the Credit Agreement, two purportedly by a process of novation which will be considered further below.

The second action relates to an interest rate swap entered into by Deutsche Bank and Unitech (the Swap), pursuant to which Deutsche Bank claims some US$ 11 million (the Swap Action). Unitech claims that the Swap was (wrongly) recommended to it as suitable. Unitech also contends that both the Swap and the Credit Agreement formed part of the same package, and that its agreement to both was procured by misrepresentation. Sums payable under both agreements were to be calculated by reference to US dollar LIBOR.

History of the litigation

Unitech sought to amend its defence to include pleas that implied representations were made to it by the Bank as to the integrity of LIBOR and the Bank's own contribution to it. Cooke J refused Unitech permission to make such amendments. He also went on to find that, as the Credit Agreement had been novated on the accession of two of the lenders, rescission was no longer available to Unitech as a remedy, leaving it only with a damages claim. This was significant because Unitech's rescission claim was its only defence to the Bank's claim for money due. A damages claim would only act as a counterclaim, and would not protect Unitech from its obligation to repay the Bank. Unitech therefore appealed both aspects of Cooke J's findings.

Shortly before the Court of Appeal hearing, the parties appeared again before Teare J arguing no fewer than 23 points of dispute. Unitech sought...