Guardian Care Homes v Barclays Bank PLC – LIBOR manipulation: update
SERIOUSLY ARGUABLE CASE ON LIBOR-FIXING SURVIVES INTERLOCTUTORY STAGE
Along with a number of other Claimants, Guardian Care Homes ("Guardian") is claiming approximately £38m from Barclays Bank PLC[1] ("Barclays") in relation to a number of hedging transactions it was required to enter into with Barclays as a condition of Barclays providing certain loan facilities. Amongst other things, Guardian claims that Barclays mis-sold the hedging transactions (an interest rate swap and collar) and that Barclays was negligent and/or in breach of contract and in breach of statutory duty.
Last week the Commercial Court heard Guardian's application for permission to amend its Particulars of Claim. One of the features of the application was Guardian's request for permission to plead that Barclays had made implied representations relating to LIBOR which were false and fraudulent, and which induced Guardian to enter into the loans and the hedging transactions.
The background to Guardian's amendment is, of course, the LIBOR-fixing scandal. Earlier this year UK and US regulatory authorities found misconduct and wrongdoing by Barclays in relation to its LIBOR submissions at various times between 2005 and 2009. Specifically, Barclays made LIBOR submissions which took into account requests by the bank's derivatives traders (to manipulate submissions in order to generate profits) and instructions from senior management (to lower Barclays LIBOR submissions in order to avoid the impression that Barclays' cost of borrowing was higher than normal).
Barclays objected to Guardian's application to amend its pleadings on a number of grounds, including that the implied representations pleaded were too wide and for too long a period, that it was not obvious to the Barclays employees alleged to have had the relevant knowledge that they had made the implied representations (or that they had been misleading in the sense alleged) and that the Barclays employees responsible for negotiating the IRS contracts did not have authority to make the representations.
Barclays's objections were rejected by Flaux J who noted that, at the interim stage, all the court was concerned with (pursuant to CPR 17.3.6) was whether the proposed amendments were sufficiently arguable that the pleading had a real prospect of success. Flaux J found that this threshold had been met. The issue of whether the implied representations were made would depend upon a number of factual issues which could only be decided at trial. Flaux J also found it "seriously arguable" that senior management within Barclays had the same degree and extent of knowledge as the derivatives traders of the potential impact of what was being done to manipulate LIBOR and there was clearly implied or ostensible authority for the individuals in question at Barclays to have made the implied representations alleged.
Prior to this decision, it may well have been thought that a claim in relation to LIBOR for implied misrepresentation would fail to survive the strike out stage of proceedings. Little (if anything) is likely to be said by the parties about LIBOR at the contracting stage and claims for implied misrepresentation are generally difficult to plead because there is no general liability for non-disclosure and "silence by itself cannot found a claim in misrepresentation"[2]. This decision, though, shows that such a claim is at least arguable. It will be interesting to see what approach the court takes on the issue should the case reach trial. The real test ultimately may be in convincing the court that it would be appropriate to unwind the transactions in question on the basis of the implied representations.
Link to HTML version of Judgment.
[1]Graiseley Properties Limited and others v Barclays Bank PLC [2012] EWHC 3093 (Comm).
[2] Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotlad plc [2010] EWHC 1392 (Comm) – see paragraph 84