English Court Judgment Increases the Challenges for LIBOR Claimants

March 9, 2021, Covington Alert

In prior English LIBOR cases, claimants have alleged that banks proposing financing products indexed to LIBOR or EURIBOR made representations (typically, implied representations) to the effect that they were not manipulating, and did not intend to manipulate, those rates.[1] Misrepresentation claims of this sort have been a feature of the English litigation landscape for a number of years. However, last month’s Commercial Court judgment in Leeds City Council & Ors v Barclays Bank PLC & Ors has made these claims much more difficult.[2] Claimants must now show that the LIBOR representations were ‘understood’ or ‘actively present’ in customers’ minds when entering into the relevant agreements.

The Claim

The Leeds CC v Barclays proceedings were brought against Barclays by a number of different public authorities, in relation to various loan agreements entered into between 2006 - 2008 (the “Loan Agreements”). All the Loan Agreements referenced LIBOR in order to calculate interest or break fees, and the Claimants argued that they had entered into the Loan Agreements as a result of fraudulent misrepresentations to the effect that that Barclays had not, and would not, engage in LIBOR manipulation. Importantly, the Claimants did not contend that their representatives gave any active consideration to this issue at the time. 

Barclays applied to strike out the claims on the grounds that they were bound to fail, arguing that the absence of active consideration meant that an essential element of any valid misrepresentation claim was missing − namely, reliance. Barclays’ position was that the Claimants’ pleaded case failed to meet the legal threshold required to establish that they had been induced to enter into the relevant agreements by any misrepresentations Barclays may have made (which were also disputed, but which were not relevant to the strike out application). Important context to the claim was provided by the 2019 decision Marme Inversiones 2007 SL v Natwest Markets PLC & Ors.[3] In that case, the claimant alleged misrepresentation in relation to certain EURIBOR-referenced swaps. Its claim failed because the claimant was unable to establish that the relevant representations were ever made. But the judgment nonetheless included a concise analysis as to why the Judge would also have ruled against the claimant on the issue of reliance, reviewing prior case law and concluding that “a claimant in the position of Marme in the present case should have given some contemporaneous conscious thought to the fact that some representations were being impliedly made”.[4]

An issue that was something of a coda in the Marme judgment became, in the words of the Judge, Mrs Justice Cockerill, a “battle royal” in the Leeds CC v Barclays strike out application.  Barclays argued that Marme, and the line of authority underpinning that decision, required the Claimants to have had an active appreciation of the representations made to them when deciding to enter into the Loan Agreements, while the Claimants contended that it would be sufficient to show reliance if the representations operated on the minds of those who received them, even if subconsciously. The parties argued their position on the basis of authorities running to nearly 4,700 pages, and the points arising were fully considered in a judgment running to 35 pages.[5]

Cockerill J’s judgment emphasised that the question of whether a person had been induced to enter into a contract by a representation was a question of fact, which would require the Court to investigate different matters in different cases.

• In all cases, there will be “some requirement of awareness”, but there are some disputes where this will “will come very close to something which might loosely (and without careful analysis) be characterised as assumption”. The example given by the Court is where an auctioneer reacts to a bidder raising a paddle by agreeing the sale, induced by a representation that the bidder is willing and able to pay the auction price, in a way that is almost automatic.
• However, the Judge’s review of prior case law led her to conclude that in the specific case of LIBOR claims the hurdle required to show reliance is higher. Her view was that prior LIBOR/EURIBOR judgments had proceeded on the basis that reliance could not then be established without active awareness. Accordingly, she concluded that claimants would be incapable of proceeding with their LIBOR misrepresentation claims unless they could show that they had possessed an “understanding” or an “actively present” awareness of the representations made to them.
• Since in this case the Claimants could not show that conscious consideration, their claims were struck out.

The Court’s reasoning could present tremendous challenges to claimants still pursuing LIBOR claims before the English Courts, since it is unlikely that many bank customers would have given active consideration to the integrity of the LIBOR/EURIBOR processes at the time they entered into financial transactions. The fact that many customers may have only have assumed an absence of LIBOR manipulation is now a reason why many of these claims cannot succeed. 

In many misrepresentation claims, especially those involving express representations on matters of obvious and contemporaneous importance, reliance will continue to present a relatively low bar. However, in LIBOR/EURIBOR disputes, and other cases where the subject matter of the claim only becomes relevant after the deal has been struck between the parties, Leeds CC v Barclays is an important reminder that reliance can still present serious obstacles to claims in misrepresentation.

The decision will be welcomed by banks facing LIBOR-related claims, as well as by other financial institutions, as evidence that the English Courts remain alert to prevent customers from avoiding bad bargains on grounds which did not impact their decision making at the relevant time. 

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