In a recent judgment[1] the Court of Appeal upheld an earlier High Court judgment[2] in favour of a bank following a series of claims linked to interest rate hedging products (IRHP), the alleged manipulation of the GBP 3 month LIBOR rate and the exercise of a revaluation clause following transfer of the borrower into a restructuring unit within the bank.

Between 2004 and 2008 Property Alliance Group Limited (PAG) entered into four IRHP with The Royal Bank of Scotland plc (Bank). In the earlier High Court judgment Mrs Justice Asplin (Judge) dismissed all claims against the Bank. On appeal PAG sought to overturn that decision in relation to four claims.

This case is of such significance that we have produced a wider briefing note on the judgment for those who are interested here, but this blog summarises the main points of wider significance.

Negligent Misstatement Claim

In the context of the much debated issue of IRHP break costs, the Court of Appeal confirmed the responsibility assumed by any party has to be judged in the particular factual context of the transaction or relationship. The notion that there is a continuous spectrum of duty – from a duty to not mislead to a full advisory duty – is flawed.

The expression ‘mezzanine’ or ‘intermediate’ duty referred to in the earlier cases of Thornbridge[3] and Crestsign[4] (see earlier blog here) was incorrect.

Misrepresentation Claim

On appeal PAG argued that the representation that each of the IRHP was a “hedge” was incorrect. None of the IRHP were a “hedge” in the true sense of the word, in that the combined effect of the costs of breaking the arrangement and the Bank’s cancellation rights meant that they failed to protect PAG against risk on downward movement of interest rates. The Court of Appeal concluded that the Judge had been correct to hold that the reasonable representee would not have understood “hedge” to mean the wider definition that PAG was seeking to apply to it. Accordingly that claim failed.

LIBOR Claims

The IRHP purchased by PAG were based on GBP 3 month LIBOR and, against the background of wider FSA findings on “manipulation” of LIBOR, the key to this claim was what representations as to the accuracy of LIBOR should be implied from RBS’s conduct.

The Court of Appeal held there was a limited implied representation that the Bank was not manipulating and did not intend to manipulate sterling LIBOR. However, they saw no basis to hold there had been manipulation of sterling LIBOR in light of the Judge’s conclusions on the evidence at first instance.

Valuation Claim

The Court of Appeal disagreed with the Judge in relation to her analysis of the Bank’s contractual right to require a revaluation of security, holding it was subject to an implied term that the power must be exercised in pursuit of the Bank’s legitimate commercial interest. However, the Court of Appeal did agree with the Judge that the Bank were right to impose a valuation at the time and to seek to recover its costs from PAG.


Subject to any appeal, this judgment would appear to mark a substantial move forward on IRHP and LIBOR related claims.

This was the first Court of Appeal judgment on IRHP claims and in particular in relation to the mezzanine duty referred to in Crestsign and Thornbridge. The conclusion of the Court of Appeal was clear and it is helpful for banks in its confirmation that there is no continuous spectrum of duty of care, which should substantially reduce financial institutions’ risk of adverse judgments.

Further, whilst fact sensitive, the documents in use by the Bank at the time for IRHP were in similar terms to those used by many other banks and the decision provides valuable guidance on issues such as warnings on break costs and the terms used by banks when proposing IRHP.

The judgment could however perhaps be unhelpful for some banks to the extent that it highlights the possibility of claims for misrepresentation where borrowers obtained funds linked to other LIBOR rates where financial institutions have admitted, or regulators have found there to be, manipulation.

[1] Property Alliance Group Limited v The Royal Bank of Scotland Plc [2018] EWCA Civ 355

[2] Property Alliance Group Limited v The Royal Bank of Scotland Plc [2016] EWHC 3342 (Ch)

[3] Thornbridge Limited v Barclays Bank PLC [2015] EWHC 3430 (QB)

[4] Crestsign Ltd v National Westminster Bank plc [2014] EWHC 3043

This blog post was written by John Williams and Rob Payne. For further information, please contact:

John Williams, associate, Banking & Finance

T: 0121 234 0247


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.