The Court of Appeal has today (2 March 2018) handed down judgment in the highly anticipated appeal in Property Alliance Group Limited v The Royal Bank of Scotland PLC  EWCA Civ 355.
Although the claimant’s appeal was unsuccessful, the judgment contains useful grounds for future claims for potential claimants and the case can be distinguished. The appeal failed in this case because the Court of Appeal found that RBS’s admission of manipulating LIBOR was irrelevant, as the swaps were confined to GBP LIBOR, and the judge found no evidence of the latter’s manipulation.
PAG appealed on four claims and all four were dismissed. However, on the claim of LIBOR manipulation, future litigants will find comfort in the court’s finding that a “party to a contract containing a swap needs to be certain of the counterparty’s honesty at the beginning of the deal not just in the future but throughout its course.” The Court of Appeal’s decision on the LIBOR claim opens up other banks to future claims of LIBOR manipulation.
The High Court Judgment
Property Alliance Group Limited v The Royal Bank of Scotland PLC  EWHC 3342 (Ch) before Mrs Justice Asplin was the first High Court case to consider a claim involving RBS’s Global Restructuring Group (“GRG”). The case focused on 3 claims:
- Swaps: alleged mis-selling of 4 interest rate swaps to PAG
- GRG: alleged abuse of discretion and bad faith
- LIBOR: alleged implied representations relating to the setting of LIBOR.
The High Court dismissed all of PAG’s claims.
The Importance of the Court of Appeal Judgment
The importance of the Court of Appeal judgment lies in determining how the judiciary will view the prospects of success for claimants bringing LIBOR mis-selling claims and alleging that GRG caused the failure of their businesses.
Click to Download Court of Appeal Judgement in Property Alliance Group v RBS  EWCA Civ 355
PAG’s claims against RBS
PAG made the following claims against RBS:
- Negligent Misstatement Claim: A claim that RBS is liable in tort for negligent misstatement as a result of its failure to provide PAG with information about potential break costs;
- Misrepresentation Claim: A claim that RBS falsely represented to PAG that each of the Swaps was a “hedge” and, hence, that they would reduce PAG’s interest rate risk;
- LIBOR Claims: A claim that RBS fraudulently made implied representations about LIBOR and how it was set;
- Valuation Claim: A claim that RBS was wrong to have PAG’s portfolio revalued in August 2013.
Court of Appeal’s Judgment
The Court of Appeal dismissed the claimant’s appeal on all 4 claims. Nevertheless, the Court provided some welcome elucidation on LIBOR issues. Future claimants-especially those from smaller businesses- should not be discouraged from litigating as this judgment can be distinguished from this case, which involved a large investment and development business with derivative advisors. Below are some sections from the judgment for each of PAG’s claims.
1. Negligent Misstatement Claim
We do not agree that there was any such breach of duty. It is clear from the documentation and other evidence at the trial that PAG was made fully aware that (1) breaking any of the Swaps could carry adverse financial consequences, (2) the size of those financial consequences would depend upon interest rates at the time the Swaps were broken, and (3) the precise calculation of any amount to be paid by PAG would take into account the extent to which, if at all, the floating-rate payable by RBS under the Swaps was lower than the fixed interest payable by PAG.
PAG v RBS  at para 72
In short, there was no error in the way that RBS explained the terms of the Swaps, including the circumstances in which break costs might be incurred and how they would be calculated.
PAG v RBS  at para 75
2. Misrepresentation Claim
We consider that, on the evidence and in the factual context in which the expression “hedge” was used by RBS and those acting on its behalf, the Judge was entitled to reach her conclusion (in paragraph 230 of her judgment) that the reasonable representee would not have understood that expression in the way for which PAG contends.
PAG v RBS  at para 90
In the absence of evidence sufficient to justify a finding that one or more of Mr Bescoby, Mr Jones and Mr Goldrick thought that “hedge” in relation to the Swaps bore Mr Virji’s meaning and intended that references by them to “hedge” should be understood to have that meaning or were reckless as to whether such references would be understood in that way, there is no foundation for a finding of fraudulent misrepresentation against RBS.
PAG v RBS  at para 111
3. LIBOR Claims
We do not accept this submission since the law relating to misrepresentation fulfils a different function from the law relating to implied terms. The former deals with the present not the future and gives potential remedies which may be more appropriate than a claim for damages. A party to a contract containing a swap needs to be certain of the counterparty’s honesty at the beginning of the deal not just in the future but throughout its course. If a claimant has suffered no loss, that may be relevant to remedy but should not exclude a right to rely on misrepresentation if any misrepresentation has occurred.
PAG v RBS  at para 125
In the present case there were lengthy discussions between PAG and RBS before the Swaps were concluded as set out by the Judge in the earlier part of her judgment. We have particularly in mind the facts and matters set out in paragraphs 51-54 and 82-83 of the judgment. RBS was undoubtedly proposing the swap transactions with their reference to LIBOR as transactions which PAG could and should consider as fulfilment of the obligations contained in the loan contracts. In these circumstances we are satisfied that RBS did make some representation to the effect that RBS itself was not manipulating and did not intend to manipulate LIBOR. Such a comparatively elementary representation would probably be inferred from a mere proposal of the swap transaction but we need not go as far as that on the facts of this case in the light of the lengthy previous discussions. In this sense the case is comparable to UBS v KWL in which a not dissimilar representation was implied from what Depfa had been told by UBS and the fact that the relevant transaction was put forward to Depfa by UBS. It is true that UBS had also told Depfa that it had done due diligence as KWL but we do not consider that fact to have been decisive on its own in the mind of Males J in that case.
We therefore disagree respectfully with the Judge when she held (paragraph 407), admittedly in the context of the intricate pleaded representations, that the proffering of the Swaps was not in the context of this case conduct from which any representation could be inferred.
PAG v RBS  at para 133-134
4. The Valuation Claim
In short, although we differ from the Judge on whether the power conferred on RBS by clause 21.5.1 of the 2011 facility was subject to an implied limitation, there is no reason to doubt her conclusion that RBS was entitled to commission the 2013 valuation and to recover its cost from PAG. This ground of appeal therefore fails.
PAG v RBS  at para 175
LEXLAW Banking Litigation & Dispute Resolution
It is an absolute must that victims of RBS GRG or other bank BSUs protect their legal rights. This is the only sensible course of action when a business is facing a high value dispute with a major bank, such as the Royal Bank of Scotland or National Westminster Bank. Otherwise, if there is no redress scheme, or if the bank refuses to offer reasonable redress, customers may well find they are time-barred from commencing legal action and their high value claim is now worthless. Legal rights can be protected by taking urgent legal advice and by instructing specialist GRG solicitors to issue a protective claim form or by instructing GRG litigation solicitors to prepare and agree a carefully written standstill agreement.
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