Banking and financial litigation markets update - Summer 2022
This update is brought to you by RPC’s top tier banking and financial markets practice, with specialists in all areas of financial markets litigation (and arbitration) and a wealth of expertise including frequent involvement in the most complex, high-value, and high-profile disputes in the sphere. Here, we take a look at some of the most important judgments in recent months in this area.
Quincecare duty remains a hot topic with more developments of note in recent months than we have seen in the last few years. Among them are that a bank's Quincecare duty does not necessarily depend on the existence of a fraudulent agent who gives instructions to the bank to pay money out of an account for a fraudulent purpose (Philipp v Barclays Bank UK Plc), and a finding by the Privy Council that banks do not owe a Quincecare duty to a beneficial owner of monies in a bank account (Royal Bank of Scotland International Ltd v JP SPC4 and another). The most recent decision in this area is The Federal Republic of Nigeria v JPMorgan Chase Bank, N.A, where the High Court rejected a Quincecare claim brought by Nigeria (for whom RPC acted) in the context of payments amounting to approx. USD 1 billion out of an account held by Nigeria with JPMorgan to a Nigerian company closely associated with a disgraced former Nigerian oil minister. We will also hear more about Quincecare in an insolvency context in the forthcoming Supreme Court decision in Stanford International Bank Ltd (in liquidation) v HSBC Bank PLC, which was heard in January, with no judgment handed down just yet.
Elsewhere, authorised push payment fraud outside of a Quincecare context was considered in Tecnimont Arabia Limited v National Westminster Bank PLC, where the court rejected knowing receipt and unjust enrichment claims made by the fraud victim against the fraudster's bank who received the money, rather than against their own bank.
We now also know that a claim in knowing receipt will fail if, at the moment of receipt, the beneficiary’s equitable proprietary interest is destroyed or overridden so that the recipient holds the property as beneficial owner, as this was clarified by the Court of Appeal in Byers & Ors v The Saudi National Bank.
In the realm of fraudulent misrepresentation, the degree of consciousness that a claimant must have of the existence of an implied representation has come under further scrutiny following the decisions in Marme Inversiones -v- Natwest and Leeds City Council -v- Barclays. The appeal of the latter decision (which held that, at least in a LIBOR context, the hurdle is set high) was settled by Barclays, avoiding a superior court decision on the point for the moment. Although not in a banking context, the point arose again in the context of an application to strike out a fraudulent misrepresentation class action against Volkswagen arising from the "Dieselgate" scandal. Waksman J provided a helpful analysis of the extent of consciousness that was required and considered the various authorities which have arisen in a LIBOR-claim context and pushed back strongly against the first instance Leeds City Council -v- Barclays decision (Crossley and others v Volkswagen Aktiengesellschaft and others). The claims against VW have since also been settled so the point will next be tested in another context.
Meaning of a "person discharging managerial responsibility" under FSMA
In relation to s.90A and Schedule 10A Financial Services and Markets Act 2000 (relating to civil liability of issuers of publicly traded securities for publication of false, misleading or incomplete information and for dishonest delay in publication), we have now had helpful clarification of the meaning of a person discharging managerial responsibility (PDMR). It has been decided that the term "director" is broad enough to encompass not only de jure, but also de facto and at least arguably shadow directors (Allianz Global Investors GmbH and Ors v G4S Ltd).
In other developments, UBS was unsuccessful in a jurisdictional challenge earlier this year in a USD 495 million claim against it based on allegations of negligent misstatements and advice (Kwok Ho Wan and ors v UBS AG (London Branch)). The Court of Appeal also looked at jurisdiction in Skatteforvaltningen v Solo Capital Partners where it decided that the Danish tax authority's claim to recover refunds of Danish withholding tax in the context a dividend arbitrage scheme known as “cum-ex” did not fall within Dicey rule 3, as it concerned the restitution of monies misappropriated by fraud, rather than enforcement of tax.
Derivative contracts, local authorities and Cattolica
Italian local authorities and their derivative contracts claims continue to play out in in the Commercial Court. It decided in Deutsche Bank v Busto di Arsizio last October that the Italian local authority did not lack capacity to enter into the mirror swap and interest rate swap it had concluded with Deutsche Bank, also analysing the Cattolica judgment of the Italian Supreme Court in that regard. Deutsche Bank was later partly successful in obtaining declarations from the court about the transactions in question in a consequentials judgment this year.
The Commercial Court also decided in another case involving an Italian local authority in a swaps dispute, Bank of America Europe DAC v CITTA Metropolitana Di Milano, that reviving proceedings automatically stayed under CPR 15.11 requires a relief from sanctions application.
As it has been such an active area for judgments, a full exploration of recent developments is beyond scope of this bulletin, but the extension of limitation for fraud and concealment under s.32 of the Limitation Act 1980 has been a theme in a financial services context. In particular, the decision in European Real Estate Debt Fund v Treon & Ors held that the period during which "reasonable diligence" could have allowed a claimant to discover the existence of a fraud can begin to run before the claimant has suffered any loss from the fraud.
In ECU Group PLC v HSBC Bank PLC & Ors, Mrs Justice Moulder rejected an extension of the limitation period for the claims made against HSBC. ECU Group Plc had made allegations of front-running, trading ahead of client instructions, wrongful margins and misuse of confidential information against the bank, but was not permitted to bring the claims as they were held to be time-barred.
In yet another case involving Credit Suisse, the Libyan Investment Authority lost the argument that its claim in relation to loan notes was not time-barred, with the court finding that the LIA could with "reasonable diligence" have properly pleaded its case in fraud before the relevant limitation date (Libyan Investment Authority v Credit Suisse International).
Finally, two well-known topics in the banking world are still keeping the courts busy.
In the context of FX manipulation, in Allianz Global Investors GmbH & Ors v Barclays Bank PLC & Ors the Court of Appeal allowed an appeal earlier this year by claimant funds and struck out defences by the defendant banks that losses incurred by the funds had been avoided or passed on upon redemption by their investors.
The collapse of Lehman Brothers is still relevant for the English courts over 13 years after the event - the Court of Appeal had to decide on priorities of competing subordinated debts in Lehman Brothers Holdings Scottish LP 3 v Lehman Brothers Holdings plc (in administration) and others. It also considered the rule against double proof in insolvencies (which prevents the same debt being claimed twice).