LIBOR manipulation claim stumbles

05 April 2013. Published by Chris Ross, Partner

In Deutsche Bank AG v Unitech Global Limited 2013 EWHC 471 (Comm) Cooke J refused permission for the defendants to amend their defence and counterclaim to refer to misrepresentations relating to the alleged manipulation of LIBOR by Deutsche Bank, on the basis that the amended claims had no reasonable prospect of success.


The background to the judgment was that in 2012 Deutsche Bank and a number of other lenders brought claims seeking repayment of US$150m owing from Unitech Global Limited and its parent company, Unitech Limited, under a credit facility agreement and corresponding guarantee. A separate claim was brought by the bank in relation to sums owing under a related interest rate swap. Both the facility agreement and the swap referenced the 6-month US$ LIBOR rate in determining the interest payable.

Unitech brought a counterclaim on the basis that Deutsche Bank had misrepresented that the swap agreement was suitable for Unitech's purposes. It subsequently sought permission to further amend its statements of case to refer to four misrepresentations that were said to have induced Unitech to enter into the facility agreement and related swap. These proposed amendments arose from the publicity around the manipulation of LIBOR and material which suggested that Deutsche Bank had been involved in the manipulation of the yen LIBOR rate, and possibly other LIBOR rates, between 2005 and 2011.

The misrepresentations Unitech sought to rely on were as follows:

  1. LIBOR was a genuine average of the estimate rate at which members of the Panel could borrow from each other in a reasonable market size just prior to 11am London time on any given day.
  2. The LIBOR rate itself was a rate based on the respective Panel member banks' submissions to Thomson Reuters which were good faith accurate estimates of the rate at which they could actually borrow from each other in a reasonable market size just prior to 11am London time on any given day.
  3. Deutsche Bank had not itself acted, was not acting, and had no intention of acting, in a way which would, or would be likely to, undermine the integrity of LIBOR.
  4. Deutsche Bank was not aware of any conduct (either its own, or of other banks on the Panel) which would, or would be likely to, undermine the integrity of LIBOR.

Unitech sought to rely on these representations to add a claim in misrepresentation; alternatively that Deutsche Bank had acted in breach of duty of care in that the representations were made negligently; or that, alternatively, Deutsche Bank had given an implied contractual warranty that the representations were true.


Cooke J refused permission for the amendments.

The judge referred to the test for implied representations set out in IFE Fund v Goldman Sachs International [2006] 2 CLC 1056, under which the court has to consider what a reasonable person would have inferred was being impliedly represented by the representor's words and conduct in context.

In relation to the specific representations said to have been relied on, Cooke J found that representations 1 and 2 were too wide to be given effect, saying that "the width and uncertainty of those representations run far beyond anything that any reasonable representee could imagine", on the basis that they amounted to saying that every bank participating in a LIBOR panel on any of the 150 different LIBOR rates would be making this representation about the whole system and every bank involved in it.

In relation to representations 3 and 4, the judge said that there is a difference between an implied term that a party will not manipulate a specific LIBOR rate related to a particular contract (which he said might be readily implied) and a representation that nothing has been/will be done to undermine the whole LIBOR system, which would impose a positive duty on all LIBOR panel banks to disclose any information that might undermine the integrity of LIBOR. The latter, he said, was also too wide. On that basis, neither the misrepresentation claim nor the negligence claim could succeed. He also referred to the entire agreement clauses and disclaimers in the transaction documents, which made it clear that Unitech was relying on its own judgment in entering into the transactions.

In relation to the breach of warranty claim, Cooke J found that the representations did not meet the test set out in AG of Belize v Belize Telecom Ltd [2009] UKPC 10 for implication as a warranty (the question under that test being whether the term sought to be implied would spell out in express words what the document, read against the relevant background, would reasonably be understood to mean) and that they would in addition conflict with the entire agreement clauses in the transaction documents.

The judge clearly was of the view that the misrepresentations that Unitech sought to rely on were too wide-ranging and non-specific in their scope. He did suggest, however, that if the warranty claim were to be redrafted to refer to an obligation not to manipulate a particular LIBOR rate related to the transaction in question this may have a greater chance of success. Subject to careful drafting, therefore, this decision does not seem to be shutting the door on LIBOR manipulation claims altogether.

Graiseley Properties v Barclays

The decision in this case runs counter to the decision of Flaux J in the ongoing Graiseley Properties case, in which Flaux J had allowed amendments to add claims for fraudulent misrepresentation against Barclays in relation to the manipulation of LIBOR. Cooke J acknowledged this in his judgment, but said that each case must be decided on its own facts.

In light of the Graiseley Properties decision, however, and the importance of this issue generally, Cooke J gave permission to appeal. The decision on any appeal will, clearly, be closely watched by banks and potential claimants alike.

Graiseley Properties is currently set down for trial in the Commercial Court in October 2013.

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