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The decision in Graiseley Properties Ltd and Others v Barclays Bank Plc  EWCA Civ 1372 dealt with the issue of whether, in a contract for the selling of
financial products, there is an implied term that Banks should not manipulate the LIBOR rates. Even though the case was ultimately settled, the debate continues with a
number of claims reaching the courts of justice.
Do you agree with the decision? Should your answer be affirmative: what remedies are available to the claimant?
LIBOR is defined by the British Bankers’ Association (BBA) as “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.” The proceudure goes as follow , Every morning at about eleven
o’clock, eighteen banks of the big banks, under the supervision of the British Bankers Association, inform the interest rate for borrowing reasonable amount of dollars
from each other under the so-called London interbank market. These banks report the interest rates on borrowing for seven different maturities ranging from loans for
one night to one-year loan and for five different currencies. The agency, Thomson Reuters, collect the interest rates from these banks on behalf of the bankers’ group.
Consequently, the Agency announces the average price at which banks said it could borrow each other.
I am with the decision of the court of appeal that give permission to the claimant to amend their claim to plead fraudulent LIBOR misrepresentation and LIBOR implied
In Graiseley Properties Ltd and Others v Barclays Bank Plc , the Court of Appeal gave permission for claims based on the fixing of LIBOR to proceed to trial. The
appeal concerned a derivative linked to LIBOR entered into by a bank with a claimant as part of that claimant’s borrowing arrangements. The Court of Appeal found that
it was at least arguable that the bank had impliedly represented that LIBOR was not manipulated and that this representation entitled the claimants to rescind those
The bank were endeavouring to recover sums due under loan agreements or swap agreements and the borrowers (or their guarantors) had contended that the agreements,
which had been recommended and represented to them as being suitable, had not been. Bank had been involved in contributing to the calculation of the London Inter-Bank
Offered Rate (LIBOR). It came to light that there had been wrongdoing in that exercise, which had been motivated by profit, which had led to LIBOR rates being higher
than they should have been. In particular, the bank in the first action was implicated as having been involved in that wrongdoing. The borrowers sought permission to
amend their pleadings to allege, inter alia, that the banks had made implied representations as to the efficiency of or the non-manipulation of LIBOR.
The bank contended, inter alia, that the amendments had not satisfied the test for implied representations set out in IFE Fund SA v Goldman Sachs International 
All ER (D) 476 (Jul). The fact that there had been a proposal by the banks that the loan agreement and the swap agreements should have referred to LIBOR for the
purpose of calculating interest rates had not meant that any representation about LIBOR or a particular bank’s participation in LIBOR had been impliedly made. Further,
the agreements had included entire agreement clauses and disclaimers of any intention to make any representations. Such clauses or disclaimers could not be defeated by
a plea of fraud because the clauses prevented any assertion that any representation had been made. Furthermore, the most that any allegation of fraud amounted to was
an allegation of fraudulent non-disclosure.
The claim are based on allegation that bank impliedly represented that it was not attempting to manipulate LIBOR, rather than that it failed to disclose that it was
manipulating LIBOR. It seems likely that this is because an omission will only constitute a misrepresentation in certain limited circumstances: for instance, if there
is a particular relationship between the parties (such as insurer and insured) or a voluntary assumption of responsibility by the representor in relation to the
matters to be disclosed (see Banque Financière de la Cité SA v Westgate Insurance Co Ltd  2 All ER 952). Neither of these are apparent in this case.
In the absence of an unusual fact pattern, claimants are unlikely to be able to point to any express representation by a bank as to the integrity of LIBOR. This was
the case with both GPL and Unitech, who had to plead that the LIBOR representations should be implied from conduct and the surrounding circumstances Implied
representations are not easily made out, with the legal test being that a court must consider what (if anything) a reasonable person would have inferred was being
implicitly represented by the representor’s words and conduct in their context.
Longmore LJ appeared to be sympathetic to the argument that particular precontractual conduct may amount to an implied representation. He used the analogy of a
restaurant customer sitting down to a meal being an implied representation that he had the means to pay. This is similar to the Court of Appeal decision in Contex
Drouzhba Ltd v Wiseman  EWCA Civ 2001, where a director, in signing a supply agreement, impliedly represented that his company would have the means to pay for
any goods ordered in the future. However, if the scope of implied representations resulting from pre-contractual conduct is widened significantly, this risks allowing
a general duty of disclosure in pre-contract negotiations.
In February 2013, in the separate proceedings of Deutsche Bank AG and others v Unitech Global Ltd  EWHC 471 (Comm) Cooke J dealt with Unitech Limited’s
application to amend to plead fraudulent misrepresentations in respect of Libor. Mr Justice Cooke’s judgment did not allow the amendments on the basis that fraudulent
misrepresentations were not arguable on the facts in that case. Unitech Limited was granted permission to appeal by the judge on the basis that it would be important
that the Court of Appeal considered and clarified the approach that should be taken.
Remedies in misrepresentation or tort will usually be more attractive to claimants, as they may give rise to the transaction being set aside or a discharge from
liability, whereas contractual damages are likely to be much more limited and difficult to establish factually.
The legal merit of such claims is virtually unanswerable. However, the main difficulty is how to quantify the loss. One would have to establish the extent of the
influence by managers on the submitters and then in turn, the influence of the submission on the published rate.
It is suggested that there are three principles that will assist a claimant seeking to quantify a loss from the understatement of LIBOR.
It is suggested that there are three principles that will assist a claimant seeking to quantify a loss from the understatement of LIBOR in the period from September
2007: (i) the court’s reluctance to deprive a victim of a remedy simply because of inherent uncertainties in the process; (ii) the court’s willingness to substitute an
alternate means of quantifying a price where the primary mechanism has broken down; and (iii) the hypothetical price of waiver (or Wrotham Park damages) as a means of
compensation in hard cases.
(i) Uncertainty no bar to a remedy
There are many cases where the court faces difficulties in quantifying loss. Claims for future losses, contingent on events, which may or may not occur well after the
trial has finished, are one such example. In the recent case of Simon v Helmot  UKPC 5 the Privy Council considered a claim for the future cost of care from the
victim of a motorcycle accident in Guernsey. Lord Hope said:
“It has to be recognised that it is not possible, when dealing with losses that will be incurred in the future, to achieve perfect accuracy. As Lord Steyn said in
Wells v Wells at p 383, ‘perfection in the assessment of future compensation is unattainable…It follows that the calculation should make the best use of such tools as
It is suggested that if a claimant were to mount a claim for compensation based on the understatement of LIBOR, and if the court was satisfied that there had been such
an understatement (which now appears a virtual certainty) and if a defendant bank was shown to have contributed to
the understatement; a judge would not be dissuaded from calculating the value of the compensation payable simply because the task was difficult and inherently
uncertain. If the only way of offering such a claimant a remedy was to rely on a reasonable yet imperfect reconstruction of LIBOR, a judge would embrace this approach.
(ii) The broken machinery
It is now well established that where parties agree on a mechanism to arrive at a price in a contract, and where that machinery has broken down, the court will
substitute its own machinery. The 19th century view was that if the parties’ agreed processes broke down for any reason (even if the fault of one of them) there was
nothing the court could do. As Lord Eldon said in Blundell v Brettargh (1810):
“There is no instance where…the terms of a contract having failed, this court has assumed jurisdiction.”
But in Sudbrook v Eggleton  AC 444, the House of Lords considered a valuation mechanism in a lease that had broken down due to the fault of the landlord, who
simply refused to appoint a valuer under the terms of the lease. An obvious solution was to find an implied term that required the landlord to cooperate and award the
enhanced rent as damages for a breach of that obligation. But the case was decided on a far wider principal, as is clear from the judgment of Lord Fraser:
“The case may be distinguishable in that respect from cases where the breakdown has occurred for some cause outside the control of either party…But I do not rely on
any such distinction. I prefer to rest my decision on the general principle that, where the machinery is not essential, if it breaks down for any reason the court will
substitute its own machinery.”
It is suggested that LIBOR is such a non-essential mechanism.2 it is the way that the parties have chosen to calculate the cost of funds to the bank. But there is
nothing special about it. LIBOR simply happens to be the most popular benchmark interest rate in use. In previous times, the Bank of England’s minimum lending rate was
used, or a bank’s base rate. These indices all fulfil the same basic function, and LIBOR itself is not essential. This is supported by the ISDA 2000 definitions, which
provide that where a LIBOR rate is not available for a particular day the calculation agent will request the principal London office of each reference bank to provide
a quotation of its rate.
(iii) The hypothetical licence
In Wrotham Park v Parkside Homes  1 WLR 798, the court was concerned with a claim for damages by the Stafford family for breach of restrictive covenants
precluding development of land, other than in accordance with a layout plan. Proceedings were issued (but no interim injunction was sought), but in spite of this, the
developers went ahead and constructed 14 houses in breach of the covenant. At the trial, the developers argued that there was no loss. Brightman J disagreed, finding
that the loss of the availability of an injunction was a disadvantage that could be measured in financial terms. Giving judgment for the claimant, the judge held:
“The basic rule in contract is to measure damages by that sum of money which will put the plaintiff in the same position as he would have been in if the contract had
not been broken. From that basis, the defendants argue that the damages are nil or purely nominal, because the value of the Wrotham Park estate (as the plaintiffs
concede) is not diminished by one farthing in consequence of the construction of a road and the erection of 14 houses on the allotment site…In my judgment, a just
substitute for a mandatory injunction would be such a sum of money as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for
relaxing the covenant.”
It is submitted that a judge may be prepared to approach a claim for compensation arising from the understatement of LIBOR, by asking what price the bank might have
been expected to pay for a licence to make LIBOR returns which understated the true position. The price would undoubtedly be guided, even if not dictated, by a
reasonable reconstruction of where LIBOR would otherwise have been published.
If there are no special features of the pre-contractual negotiations, then these cases may provide guidance as to whether banks will be held to have made implied
representations as to the manipulation of LIBOR. Also, any finding of that knowledge as to LIBOR manipulation of a bank employee could be attributed to its employer
may definitively resolve this issue for that bank. And legal guidance on attribution of knowledge may help to determine exactly what other banks must prove to avoid
liability. If banks lose on these points, and especially if the judge grants rescission, the market can expect an avalanche of LIBORrelated claims to follow, with
success in each depending on its particular facts.
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