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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Graiseley Properties Ltd & Ors v Barclays Bank Plc & Ors  EWCA Civ 1372 (08 November 2013)
Cite as:  EWCA Civ 1372
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ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE HONOURABLE MR JUSTICE FLAUX &THE HONOURABLE MR JUSTICE COOKE
Strand, London, WC2A 2LL
B e f o r e :
THE RIGHT HONOURABLE LORD JUSTICE UNDERHILL
THE RIGHT HONOURABLE SIR BERNARD RIX
| GRAISELEY PROPERTIES LIMITED & ORS
BARCLAYS BANK PLC
DEUTSCHE BANK AG
DBS BANK LIMITED
LIREF (SINGAPORE) PTE LTD
PT. BANK NEGARA INDONESIA (PERSERO) TBK, TOKYO BRANCH
BMI BANK BSC
DB INTERNATIONAL (ASIA) LIMITED
AXIS SPECIALTY LIMITED
DB TRUSTEES (HONG KONG) LIMITED
|- and -
|UNITECH GLOBAL LIMITED
DEUTSCHE BANK AG
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Stephen Auld QC, Mr Farhaz Khan & Mr Simon Oakes (instructed by Cooke, Young & Keidan LLP) for the Respondents Graiseley Properties Ltd & ors
Mr John Brisby QC, Mr Alastair Tomson & Mr Michael D'Arcy (instructed by Stephenson Harwood LLP) for the Appellants Unitech Global Ltd and Unitech Ltd
Mr Richard Handyside QC & Mr Adam Zellick (instructed by Allen & Overy LLP) for the Respondents Deutsche Bank AG & Ors Folio 2011 1199
Mr Mark Hapgood QC, Mr Timothy Howe QC & Mr Adam Sher (instructed by Freshfields Bruckhaus Deringer) for the Respondent Deutsche Bank AG Folio 2012/464
Crown Copyright ©
Lord Justice Longmore:
"The rate at which an individual contributor panel bank could borrow funds were it to do so by asking for and then accepting interbank offers in reasonable market size just prior to 11.00 a.m. London time."
There is a number of panel banks for each currency of which Barclays is one. Each bank submits a rate and an average of rates is then calculated after omitting a number of the highest and the lowest rates.
"Benchmark reference rates that indicate the interest rate that banks charge when lending to each other. They are fundamental to the operation of both UK and international financial markets, including markets in interest rate derivatives contracts."
The Graiseley Action
"(1) On any given date up to and including the date of the Swap and the date of the Collar, LIBOR represented the interest rate as defined by the BBA, being the average rate at which an individual contributor panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11.00 a.m. on that date.
(2) Barclays had no reason to believe that on any given date, LIBOR had represented, or might in the future represent, anything other than the interest rate defined by the BBA, being the average rate at which an individual contributor panel bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11.00 a.m. on that date.
(3) Barclays had not on any given date, up to and including the date of the Swap and the Collar:
(a) made false or misleading LIBOR submissions to the BBA and/or
(b) engaged in the practice of attempting to manipulate LIBOR, such that it represented a different rate from that defined by the BBA, (viz a rate measured at least in part by reference to choices made by panel banks as to the rate that would best suit them in their dealings with third parties); and
(4) Barclays did not intend in the future to
(a) make false or misleading LIBOR submissions to the BBA and/or
(b) engage in the practice of attempting to manipulate LIBOR, such that it represented a different rate from that defined by the BBA. (viz a rate measured at least in part by reference to choices made by panel banks as to the rate that would best suit them in their dealings with third parties)."
The Deutsche Bank actions
"The rate for a Reset Date will be the rate for deposits in US Dollars for a period of the Designated Maturity, which appears on the Telerate, Page 3750, as of 11.00 a.m., London time on the day that is two London Banking Days preceding that Reset Date. If such rate does not appear on the Telerate Page 3750, the rate for that Reset Date will be determined as if the parties had specified US LIBOR Reference Banks as the applicable Floating Rate Option."
"(1) Each contributor bank would submit its USD LIBOR submissions to Thomson Reuters based on the following question: "at what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 a.m."
(2) Upon receiving submissions from the contributor banks, Thomson Reuters would exclude the four highest and the four lowest rates. The remaining (eight) rates were, arithmetically averaged to produce the USD LIBOR rates.
(3) Accordingly, high and low "outlying" submissions were excluded from the published LIBOR rates."
"(A) LIBOR was a genuine average of the estimated rate at which members of the Panel could borrow from each other in a reasonable market size just prior to 11.00 a.m. London time on any given day, as set out in the last sentence of paragraph 5GA above.
(B) 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 in a reasonable market size just prior to 11.00 a.m. London time on any given day, as set out in the last sentence of paragraph 5GA above.
(C) The first claimant 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.
(D) The first claimant 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."
"In determining whether there has been an express representation, and to what effect, the court has to consider what a reasonable person would have understood from the words used in the context in which they were used. In determining what, if any, implied representation has been made, the court has to perform a similar task, except that it has to consider what a reasonable person would have inferred was being implicitly represented by the representor's words and conduct in their context."
"one cannot look at what the banks knew and what the banks did in order to spell out what a reasonable person in the position of the defendants would have inferred was being implicitly represented as existing fact by [the Bank] when contracting by reference to a LIBOR rate."
He also refused permission to allege a negligence or breach of warranty claim.
"5GA. It was an implied term or contractual warranty in both the Credit Agreement and the Swap (the LIBOR implied term) that the first claimant would not, either on its own or in conjunction with another Panel member, seek to manipulate the setting of the relevant LIBOR rate by which interest rates in the agreements were set, whether by making false submissions as to the estimated rate at which it could borrow from other Panel members in that currency and tenor in reasonable market size just prior to 11.00 a.m. London time on any given day to Thomson Reuters or otherwise. Such a term is to be implied on the basis that its existence would be obvious and in order to give commercial efficacy to the relevant agreements."
But any damages ensuing from such breach could only operate as a counterclaim which was not to prevent immediate judgment for the sums now due (or most of them) in both the lenders' action and the swap action. Cooke J's decision on novation has thus proved disastrous for the Unitech defendants and it was the focus of much more detailed argument before us than before Cooke J from both Mr Brisby QC for the Unitech appellants and Mr Handyside QC for Deutsche Bank and the other lender respondents.
i) the amendments did not satisfy the test for implied representations set out by Toulson J in the IFE Fund case;
ii) the fact that there had been a proposal by the banks that the loan agreement and the swap agreements should refer to LIBOR for the purpose of calculating interest rates did not mean that any representation about LIBOR or a particular bank's participation in LIBOR was being impliedly made;
iii) that was all the more the case when one read the detail of the agreements and saw that they included entire agreement clauses and disclaimers of any intention to make any representations;
iv) such clauses or disclaimers could not be defeated by a plea of fraud because the clauses prevented any assertion that any representation was made; and
v) the most that any allegation of fraud amounted to was an allegation of fraudulent non-disclosure, a cause of action unknown to English law.
Mr Stephen Auld QC for the Graiseley claimants in the Graiseley action and Mr Brisby for the Unitech defendants in the Deutsche Bank actions submitted the proposed amendments were all arguable and should be permitted.
i) the novation point was not open to the Lenders on the pleadings;
ii) on the proper construction of both the original credit agreement and the agreements by which the other claimants (including the 3rd and 7th claimants ("BBK and BMI")) had acceded to the credit agreement, the accession was by way of assignment, not of novation; since assignees took subject to equities, the claim for rescission was not barred; and
iii) in any event, the credit agreement, if novated at all, was only partially novated in the case of BBK and BMI so that the right of rescission remained against all the other claimants.
Mr Handyside submitted:-
i) the Lenders' pleadings needed no amendment and, in any event, the novation point would more naturally be made in reply;
ii) the documents by which BBK and BMI came to participate into the loan were expressed to be novations; "novation" was a term of legal art which meant that the original credit agreement was extinguished and a new agreement came into existence in its place; and
iii) if English law had any concept of partial novation, it could not apply in this case.
Proposed pleas of implied representations
"29.1 Assignments and transfers by Obligors
Neither Obligor may assign or transfer any of its rights and obligations under the Finance Documents without the prior consent of all the Lenders.
29.2 Assignments and transfers by Lenders
Subject to the following provisions of this Clause, a Lender (the Existing Lender) may at any time;
(a) assign any of its rights; or
(b) transfer either by way of novation or by way of assignment, assumption and release any of its rights or obligations under this Agreement,
to any other person (the New Lender).
29.3 Conditions to assignment or transfer
(a) Unless the Company and the Facility Agent (acting on the instructions of the Majority Lenders) otherwise agree, a transfer of part of a Commitment or part of its rights and obligations under this Agreement by the Existing Lender must be in a minimum amount of US$1,000,000.
(b) The Facility Agent is not obliged to enter into a Transfer Certificate or otherwise give effect to an assignment or transfer until it has completed all know your customer requirements to its satisfaction. The Facility Agent must as soon as reasonably practicable notify the Existing Lender and the New Lender if there are any such requirements.
(c) If the consent of the Company is required for any assignment or transfer (irrespective of whether it may be unreasonably withheld or not), the Facility Agent is not obliged to enter into a Transfer Certificate if the Company withholds its consent.
(d) Unless the Facility Agent otherwise agrees, the New Lender must pay to the Facility Agent for its own account, on or before the date any assignment or transfer occurs, a fee of US$2,000.
(e) Any reference in this Agreement to a Lender includes a New Lender but excludes a Lender if no amount is or may be owed to or by it under this Agreement.
29.4 Procedure for assignment of rights
An assignment of rights will only be effective on receipt by the Facility Agent of written confirmation from the New Lender (in form and substance satisfactory to the Facility Agent) that the New Lender will, in relation to the assigned rights, assume obligations to the other Finance Parties equivalent to those it would have been under if it had been an Original Lender.
29.5 Procedure for transfer using a Transfer Certificate
(a) In this Sub-clause:
Transfer Date means, in relation to a transfer, the later of:
i) the proposed Transfer Date specified in that Transfer Certificate; and
ii) the date on which the Facility Agent executes that Transfer Certificate.
(b) A transfer of rights or obligations using a Transfer Certificate will be effective if:
i) the Existing Lender and the New Lender deliver to the Facility Agent a duly completed Transfer Certificate; and
ii) the Facility Agent executes it.
(c) Where a transfer is to be effected using a novation on the Transfer Date:
i) The New Lender will assume the rights and obligations of the Existing Lender expressed to be the subject of the novation in the Transfer Certificate in substitution for the Existing Lender;
ii) the Existing Lender will be released from those obligations and cease to have those rights; and
iii) the New Lender will become a Lender under this Agreement and be bound by the terms of this Agreement as Lender.
(d) Where a transfer is to be effected by an assignment, assumption and release, on the Transfer Date:
i) the Existing Lender will assign absolutely to the New Lender the Existing Lender's rights expressed to be the subject of the assignment in the Transfer Certificate;
ii) the New Lender will assume obligations equivalent to those obligations of the Existing Lender expressed to be the subject of the assumption in the Transfer Certificate;
iii) to the extent the obligations referred to in subparagraph (ii) above are effectively assumed by the New Lender, the Existing Lender will be released from its obligations referred to in the Transfer Certificate; and
iv) the New Lender will become a Lender under this Agreement and will be bound by the terms of this Agreement as a Lender.
(e) The Facility Agent must execute a Transfer Certificate delivered to it and which appears on its face to be in order as soon as reasonably practicable and, as soon as reasonably practicable after it has executed a Transfer Certificate, send a copy of that Transfer Certificate to the Company.
(f) Each Party (other than the Existing Lender and the New Lender) irrevocably authorises the Facility Agent to enter into and deliver any duly completed Transfer Certificate on its behalf."
Lord Justice Underhill:
Sir Bernard Rix: