In Leeds City Council and others v Barclays Bank plc and another  EWHC 363 (Comm), Cockerill J struck out claims for the rescission of loans on the grounds of fraudulent misrepresentation holding that a lack of ‘active appreciation’ of the alleged representations was fatal to the claim.
This case consisted of two actions being heard together in which the claimants were local authorities that entered into a series of Lender Option – Borrower Option (LOBO) loans with the defendants between 2006 and 2008. The LOBO loans each referenced the London Inter-Bank Offered Rate (LIBOR) as the rate for the purpose of setting the relevant interest rate and/or as part of the methodology for calculating break costs. The claimants argued that the LOBO loans were affected by what Cockerill J described as “the LIBOR rigging affair of 2012”, and so they sought rescission on the grounds of fraudulent misrepresentation. One claimant sought damages for misrepresentation in the alternative.
The defendants applied:
- To strike out the claims on the ground that the claimants could not show reliance on any of the pleaded representations (the Reliance Issue); and
- In the alternative, if the defendants were wrong on the Reliance Issue and a misrepresentation was found, the defendants sought summary judgment on the ground that the claimants had affirmed the relevant contracts through continuing to pay interest charges and by entering into restructuring agreements to vary the terms of some of the LOBO loans (the Affirmation Issue).
This note focusses on the Reliance Issue, but it can be noted that Cockerill J went on to consider that had the Affirmation Issue arisen, it would not have been suitable for summary determination.
The alleged representations
The claimants followed the well-trodden path of previous cases such as Marme Inversiones 2007 v Natwest Markets plc  EWHC 366 (Comm) (Marme) (see our case note here) and Property Alliance Group v Royal Bank of Scotland plc  EWHC 3342 (Ch) (PAG) (see our case note here) in alleging various representations tied to the defendants’ participation as a panel bank in the setting of LIBOR. The alleged representations were put slightly differently in each of the two actions, but were put “more pithily” by the Leeds County Council action claimants as follows:
- The defendants represented that they were not themselves manipulating LIBOR and that they did not intend to do so in the future.
- The defendants represented that they had no reason to believe that LIBOR was being manipulated or that it would be manipulated in the future.
- The representations were not corrected by the defendants and remained in effect and/or were repeated upon entering into each separate LOBO loan.
(together, the Alleged Representations)
It is notable that, as this was a strike-out application, Cockerill J took the claimants’ cases at their highest. It was agreed that the applications should be determined on the assumed basis that each of the Alleged Representations were: i) in fact made; ii) were false; and iii) were made fraudulently.
Awareness and inducement
The defendants argued that in order for the claimants to prove their case on misrepresentation, they had to demonstrate reliance on the Alleged Representations. In turn, reliance consists of two components: awareness and inducement.
In relation to awareness, the defendants set out a series of principles derived from established cases, including Marme and PAG, to the effect that the claimants had to show that they understood the Alleged Representations at the time they were made. The defendants went further to argue that awareness is not satisfied by an assumption, or awareness of facts from which a representation is said to be implied, but that it required an active understanding that the communication is being made. The defendants relied on the obiter statement of Picken J in Marme that “contemporaneous conscious thought” was required.
The claimants placed much emphasis on other authorities, including, in particular, DPP v Ray  AC 370. The claimants argued against the defendants’ interpretation of Marme arguing that “contemporaneous conscious thought” can be interpreted as simply meaning that a representation needs to operate on the representee’s mind, whether knowingly or not, or, in the alternative, that the defendants’ interpretation is wrong in law. The claimants argued that the two component parts of reliance cannot be forensically separated, and that the consideration that should be given to awareness will differ on a case by case basis.
Having considered the line of authorities including Marme and PAG, Cockerill J found that they support the argument that “for a misrepresentation to be actionable, the representee must be aware of it – he must understand it in the sense in which he later complains of it; it must be “actively present to his mind””.
Cockerill J found that it was “key” that the Alleged Representations were “effectively identical” to those in Marme and PAG. The court was not therefore operating in a vacuum, but had the additional context of two judgments in which it was held that awareness of some form is required. The highest the claim in this case had been put was a bare assertion that the Alleged Representations operated either consciously or subconsciously, which was found to be insufficient.
Taking these matters into account, Cockerill J struck out the claimants’ claims.
In discussing the authorities referred to by the parties, Cockerill J also sought to reconcile the “not quite “apples and oranges”” lines of authority relating to verbal misrepresentations (e.g. DPP v Ray) and representations by conduct (in the line of PAG). She rejected the submission that these should be treated as distinct rules requiring a binary choice as they arose in sufficiently different contexts.
The end of LIBOR
The similarity of the Alleged Representations to those pleaded in Marme and PAG was clearly highly influential to Cockerill J’s decision. This may raise a practical issue for claimants; namely, how to frame representations in a new or novel way. This issue may be exacerbated as potential claimants face expiring limitation periods. For the moment, the judgment signals a further entry in favour of banking institutions in the final chapter of LIBOR, with panel banks no longer being compelled to submit to the benchmark after the end of 2021.