The case concerned an application by the claimant for permission to appeal a decision of the High Court to strike out the entirety of the claim concerning the claimant’s interest rate hedging products (IRHPs”) and its refusal to grant permission to add a new claim. Although not a substantive appeal as such, the case nevertheless illustrates some useful headline points in mis-selling claims.

The Court of Appeal held that the claimant had no real prospect of success in its claims: (1) based on alleged implied contractual terms and misrepresentations regarding the manipulation of LIBOR benchmarks (due to deficiencies in how those claims had been pleaded in this particular case); and (2) that the relevant IRHPs constituted wagering contracts and were invalid at common law. It did, however, grant leave to appeal a third limb of the claim (concerning conduct of the FCA Review).

Importantly, the Court of Appeal found that the claimant had through its conduct affirmed its interest rate swap, which would preclude any claim for rescission. The Court appeared to set a low standard for affirmation, finding that the claimant had affirmed the swap contract by: (1) making payments under the swap until its termination; (2) participating in the industry wide review of sales of IRHPs; and (3) claiming repayment of net swap payments and consequential losses in the proceedings.

Although the Court of Appeal’s decision is technically not binding precedent (as the judgment relates to permission to appeal), this point may have wider significance for LIBOR manipulation claims if other courts decide to follow the Court’s reasoning.


The claimant entered into four IRHPs with NatWest, hedging loans made by that bank: three enhanced interest rate collars in 2004, 2005 and 2007, and an interest rate swap in 2010. In June 2012, the FCA announced that it had agreed with a number of banks (including NatWest) that a redress scheme would be set up to review and compensate certain customers to whom IRHPs had been mis-sold (the “FCA Review“). In this case, the FCA Review provided redress in respect of the three enhanced collars, but found that the swap had not been mis-sold.

The claimant advanced three main claims:

  1. LIBOR Claims: It was an implied term of the swap that NatWest had not previously, and would not in future, seek to manipulate any LIBOR index. Alternatively, there was an implied misrepresentation that NatWest would not manipulate any LIBOR index. This claim was not included in the initial pleading and the claimant had sought permission at first instance for its claim to be amended to include this claim.
  2. Wager Claim: The IRHPs constituted wagering contracts, as contracts for differences are in essence bets on the movement of the underlying rate/asset. It was claimed that such contracts are invalid under common law if the parties have unequal knowledge of the prospects of succeeding in the wager. The claimant argued that the parties had unequal knowledge as only NatWest knew that the IRHPs each had a mark-to-market value in favour of NatWest on the date of sale.
  3. Review Claim: NatWest had breached a duty of care owed to the claimant to carry out the Review diligently and to take proper account of all the evidence. The Review should have offered redress for the swap and offered additional consequential losses in relation to the three enhanced collars.

At first instance, HH Judge Roger Kaye QC in the Leeds District Registry struck out the entirety of the claim as having no real prospect of success and refused permission for the addition of the LIBOR Claims. The claimant sought permission to appeal.


The Court of Appeal refused leave to appeal the strike out of the Wager Claim and refusal to allow the amendment to include the LIBOR Claims. However, it granted permission to appeal the judge’s decision to strike out the Review Claim.


The Court of Appeal found that the LIBOR Claims had no real prospect of success and accordingly refused permission to appeal. Whilst the Court found (following Deutsche Bank AG v Unitech Ltd and Graiseley Properties Ltd v Barclays Bank plc [2013] EWCA Civ 1372) that the existence of both the alleged implied term and implied representation was arguable, it was highly critical of how the claims had been pleaded in this case and found that several essential elements of the causes of action had not been pleaded. For example, in respect of the implied term claim, the claimant failed to allege that NatWest manipulated the relevant LIBOR rates at any relevant time. In respect of the implied misrepresentation claim, the claimant failed to claim that it had relied on the alleged misrepresentation.

Notably, both the High Court and the Court of Appeal found it “plain” that the claimant would not have been able to claim rescission (for breach of the alleged implied misrepresentation) as it had affirmed the swap contract by: (1) making payments under the swap until its termination; (2) participating in the Review and pursuing the Review Claim in the proceedings; and (3) claiming for repayment of all net swap payments and consequential losses in the proceedings.

Wager Claim

The Court of Appeal firmly rejected the Wager Claim, finding:

  1. The alleged common law rule that wagering contracts are invalid if the parties have unequal knowledge (if it had ever existed), would have been abolished by the Gambling Act 2005. In any event, the regime established by the Financial Services Act 1986 and the Financial Services and Markets Act 2000 would have excluded the rule from applying to the IRHPs or any financial instrument which they regulated.
  2. Even had the alleged rule applied, the IRHPs would not have constituted wagering contracts as they had a genuine commercial purpose. The IRHPs protected the claimant from changes in interest rates.
  3. Even had the alleged rule applied, the parties would not have had unequal knowledge, as neither side knew the future course of interest rates during the term of the IRHPs. The fact that the mark-to-market value was in favour of NatWest on the date of sale merely represented the expectations of the market, but ultimately neither party knew what would happen.

The Court also rejected an argument by the claimant, linked to point 3 above, that it is unlawful for a bank to enter into a swap contract with a customer that has a mark-to-market value in the bank’s favour on the date of sale, unless it discloses that fact to the customer. The Court firmly found that there was no realistic basis for claiming an implied term or representation that the mark-to-market is zero at the date of sale.

Review Claim

The Court of Appeal noted that it had recently granted permission to appeal a similar decision of the High Court in CGL Group Ltd v Royal Bank of Scotland [2016] EWHC 281 (QB). Accordingly, it accepted that the Review Claim was arguable and granted permission to appeal. The Court recommended that consideration should be given to listing the two appeals together (CGL is due to be heard in June 2017).


As the Court noted, it is unusual for the Court of Appeal to issue such a lengthy and detailed judgment in respect of an application for permission to appeal. This was primarily due to the judgment going into considerable depth to explain why the Wager Claim was fundamentally flawed. The Court suggested that it wanted to ensure similar claims were not advanced in future.

Perhaps the most significant part of the judgment is the Courts’ dismissal of the LIBOR Claim and its comments around affirmation. Much of the Court’s reasoning is limited to the particular facts of the case and, in particular, the claimant’s failure to plead its case properly. However, it is notable that the Court found that the claimant affirmed the swap contract (and therefore could not rescind) due to participating in the Review and also initiating proceedings to recover the net swap payments. The findings on affirmation were dealt with briefly in the judgment and the Court’s reasoning was not set out in detail. In addition, the judgment is technically not binding precedent, as it relates to the narrow question of permission to appeal. Nevertheless, if this approach is followed in other LIBOR manipulation cases (and in particular, in the upcoming judgment in Property Alliance Group v Royal Bank of Scotland plc, expected by January 2017), then claimants may struggle to establish rescission for implied misrepresentations regarding LIBOR manipulation. This could deal a severe blow to such claims, as it is likely that the amount of damages in any LIBOR manipulation claim (as distinct from rescission) would be minimal, given that the effect of alleged manipulation on any one product is likely to be negligible.

John Corrie
John Corrie
+44 20 7466 2763
Dan Eziefula
Dan Eziefula
+44 20 7466 2182