The English High Court holds that “awareness” is required for LIBOR misrepresentation claim

Last month, in Leeds City Council & Ors v Barclays Bank Plc & Anor [2021] EWHC 363 (Comm) the English High Court struck out claims brought by local authorities against Barclays which sought to rescind certain bank loans on the grounds of fraudulent and/or negligent misrepresentations concerning LIBOR. Mrs Justice Cockerill DBE held that the claims had no real prospect of success because they did not satisfy the test for establishing reliance in a misrepresentation claim, namely that the claimants were not “aware” of each relevant representation at the time they entered into the contract.

The claimants contended that their loans were tainted by false representations on LIBOR. Between 2006 and 2008, the local authorities obtained various long-term loans which all used LIBOR as the reference rate for the purposes of setting the interest rate and/or calculating breakage fees. The bank was a member of the LIBOR panel. The claimants argued that the loans were tainted by various false representations by the bank to the effect that (a) LIBOR rates were being set honestly and properly and (b) the bank was not engaged, and did not intend to engage, in improper conduct in connection with its role on the LIBOR panel. The claimants contended that these representations had induced them to enter into the loan contracts. The bank applied to have the claims struck out.

The parties disputed the relevant test for reliance and/or inducement in relation to an implied representation. The bank asserted that for the misrepresentation claim to succeed the claimants had to show that the relevant natural persons actively/consciously appreciated that the alleged representations were being made by the bank to them at the time of entering into each loan: Marme Inversiones 2007 SL v Natwest Markets plc [2019] EWHC 366 (Comm). This was key to establishing the necessary reliance on the misrepresentation. The bank argued the claimants had not pleaded the necessary ‘awareness’. The claimants argued that the representations had operated on their mind consciously or subconsciously.

The court agreed with the bank that some requirement of ‘awareness’ did exist. The court held that the authorities established that some proof of understanding of the representation was a constituent part of a misrepresentation claim (although the case law does not express this principle consistently). This ‘awareness’ requirement was particularly important when considering implied representations. It should be noted that the court was concerned not to depart too far from previous cases about LIBOR that concerned substantially the same representations, which supported the bank’s argument as to the correct test for reliance.

This is a significant decision about the test for reliance in implied misrepresentation claims. While this decision is only an interim decision from a court of first instance and not a final judgment on the merits, it provides a good indication of how the English courts will address such claims in future. That is to say that in cases of implied misrepresentation, claimants may need to plead and prove an actual awareness of the representation relied on when entering into the transaction. In some cases, the question would be what the claimant consciously thought, while in others it might be better expressed by focusing on active presence to the mind. Sometimes, the element of awareness could come very close to something which might loosely be characterised as assumption and which is most obviously derived from conduct.

Affirmation as a bar to rescission. As an alternative to its strike-out application the bank argued that, if the misrepresentations were established, the claimants had affirmed the loans by paying interest and committing to restructuring agreements that varied the terms of the loans. Given its findings on reliance, it was not necessary for the court to decide this point but it did consider the law and on an obiter basis found that this argument would not have been suitable for summary determination.

Rebecca Burton, Managing Associate in London

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