High Court Rejects Councils Bid to Cancel Loans on Misrepresentation Grounds
04/06/2021
Leeds City Council and others v Barclays Bank Plc [2021] EWHC 363 (Comm)
The High Court recently struck out a claim for misrepresentations made by several councils concerning the London Interbank Offered Rate (LIBOR). In Leeds City Council and others v Barclays Bank Plc the Claimant and Sheffield City Council1 looked to cancel £110 million and £33 million worth of loans respectively because Barclays had engaged in "fraudulent misrepresentation" of the loans in connection with the 2012 LIBOR rigging scandal.
Background to the case
The local authorities had taken the loans between 2006 and 2008 for terms of between 60 and 70 years. Several elements of the loans had been established in accordance with LIBOR, which was a set of benchmark rates reflecting the rate at which banks could obtain unsecured loans from other banks.
In 2012 it was revealed that banks on the survey panel were manipulating LIBOR to further their own interests.
The Councils argued before Mrs Justice Cockerill that they had entered into the loans believing that Barclays was properly setting LIBOR rates and the loans were not tainted by the alleged misrepresentations connected to the scandal. The case proceeded on the hypothetical basis that Barclays had made fraudulent misrepresentations.
The legal arguments
Barclays argued, citing the decision in Marme Inversiones 2007 SL v Natwest Markets Plc [2019] EWHC 366 (Comm), [2019] 2 WLUK 338, that the claims would fail because the Councils could not prove reliance. For reliance on a misrepresentation to occur, the Local Authorities would need to have been aware of the representations being made. However, the Councils were relying on inducement when the issue of awareness logically had to come first.
The Councils disputed this, stating that "awareness" could not be forensically separated from "inducement" and was not an independent precondition that had to be satisfied independently.
Sitting in the High Court, Mrs Justice Cockerill summed up as follows:
"This is the crux of the Reliance Issue: the Bank says that (1) a necessary element of reliance is "awareness" of the representation being made; and that (2) none of the Claimants allege such "awareness" in the sense in which the law requires them to prove it. An important point here is that the Claimants do not say that they can satisfy that awareness requirement in the terms put forward by the Bank. Their position is that they do not need to do so, because the Bank misunderstands and misstates the correct legal test – or at the very least, that the Bank has not persuaded the Court to the requisite standard at the interlocutory stage that the test is what it says it is.” Para 13
The decision
Mrs Justice Cockerill observed that case law was unclear regarding whether the presence or absence of "awareness" was to be regarded as a separate element of reliance. However, there was a body of caselaw confirming that a Claimant had to show they understood the representation being made.
When an implied representation was made, awareness was crucial. After examining various cases, including (but not limited to) Brown v InnovatorOne plc [2012] EWHC 1321 (Comm) at [882] and Foster v Action Aviation Ltd [2013] EWHC 2439 (Comm) Mrs Justice Cockerill stated:
"The authorities to which I have referred, which posit a test of understanding/awareness, seem to indicate that there is no scope for reliance on an assumption where there is an issue as to whether the representation was ever actively present to the representee's mind. If this is right it poses a grave difficulty for the Claimants' case.”
It was ruled that ‘understanding’ and ‘awareness’ were not interchangeable; however, when it came to representations, one or the other had to be present. Which one depended on the circumstances of the case.
Concerning the LIBOR-related claims, previous cases make clear that for misrepresentations to be actionable, representees had to be aware of them and understand them and on this basis, complain about them. The representation had to be "actively present" in their mind.
Examining the facts in this case, the Court held that it would make no difference whether the test of awareness was ‘contemporaneous conscious thought’ or ‘active appreciation’. The highest at which the Councils put their claim was a bare assertion that the representations were present in their minds either consciously or subconsciously. This was inadequate in a ‘case of this sort’.
The claim was therefore struck out.
Comment
This case clarifies several issues concerning LIBOR claims. For a misrepresentation to be actionable, the Claimant must be aware of it, understand it, and have it “actively present in his mind”. The degree of awareness will depend on the circumstances.
Although this decision is disappointing for the local authorities involved, it does provide much-needed clarification on the law of misrepresentation.
The local authorities are considering an appeal.
1 Other parties to the claim were Greater Manchester Combined Authority, Newcastle City Council, North East Lincolnshire Council, Nottingham City Council, and Oldham Council
While every effort has been made to ensure the accuracy of these court updates, these articles are intended as a general overview and not intended, and should not be used, as a substitute for taking legal advice in any specific situation. Neither Zurich Municipal, nor any member of the Zurich group of companies, will accept any responsibility for any actions taken or not taken on the basis of these articles.
