English Court of Appeal confirms possibility of implied representation when banks offer benchmark-linked products.
The Court of Appeal (the “CoA”) has recently confirmed an expanded scope for implied representations regarding non-manipulation of LIBOR by banks proffering LIBOR linked interest rate swaps. The CoA also confirmed that, for the purpose of demonstrating the falsity of such a representation, if a bank has manipulated LIBOR in one currency and one tenor (e.g. 3 month Swiss Franc LIBOR) it may be assumed that it has also manipulated LIBOR across other tenors within that same currency (e.g. 1, 2, 6 and 12 month Swiss Franc LIBOR).
However, the CoA declined to expand this to include other LIBOR currencies. The court noted that: “The idea that RBS could contemplate manipulating some of the tenors of sterling LIBOR and not others seems to us peculiarly far-fetched and would call into question RBS’s honesty in connection with sterling across the board.”
The case therefore marks an expansion of the scope for implied representations regarding non-manipulation when banks proffer benchmark-linked products, and has the potential to be used in relation to FX-linked transactions with banks.
The decision that there could not be assumed to have been cross-contamination between currencies was based on the evidence before the court that LIBOR submissions in different currencies were made by different people in different offices. Given different evidence – for example, any evidence of overlap between the submitters for different currencies – that decision could well be different in another case.
Principles arising from the Court of Appeal decision
The Court of Appeal decision confirmed:
- By proffering a swap linked to LIBOR, the bank had impliedly represented that it was not itself seeking to manipulate LIBOR and did not intend to do so in the future.
- However, a claimant will still be required to prove the falsity of that claim to succeed in a claim for negligent or fraudulent misrepresentations, and regulatory findings are not of themselves adequate proof.
The full judgment can be accessed here.