Welcome to our latest Banking Litigation Update, in which we highlight a number of the most important cases and developments affecting UK financial institutions over the past six months.
During this period, there have been a considerable number of judgments relating to the contractual interpretation of financial services agreements. While the legal principles of contractual construction are well-established, this continues to be an area in which disputes are ripe in the financial services sector (and beyond), with many cases progressing to appellate level. Perhaps this is because rival interpretations are often both arguable, but with commercial outcomes which are starkly opposed. In particular, the courts have considered a number of key decisions looking at the role of the contract in circumstances where there has been suspicion of criminal activity. For example, the contractual discretion of a bank to close a customer account without notice where there is suspicion of money laundering (N v RBS); and the right of a borrower to withhold payment under a facility agreement where there is a risk of US “secondary” sanctions (Lamesa v Cynergy). You can read more about these cases by following the link to the Banking Litigation Update below.
A cause of action which has received significant judicial scrutiny recently is the so-called Quincecare duty of care. This is the duty imposed on a bank where it has reasonable grounds (although not necessarily proof) for believing that a payment mandate by an authorised signatory of its customer is an attempt to misappropriate the funds of its customer. The duty relates to what a bank must/must not do in such circumstances. A case considering whether the defence of illegality can respond to a claim for breach of the Quincecare duty has gone all the way to the Supreme Court and judgment is expected this week (Singularis v Daiwa). In another case, the Court of Appeal has found that the express terms of a depository agreement did not exclude the duty and were not inconsistent with its imposition (JPMorgan v Nigeria). Until a couple of years ago, these arguments had only reached trial in a couple of cases since the early 1990s (when the Quincecare duty was established). Banks looking at the way they respond to payment requests which arouse suspicion would be wise to keep abreast of the judicial clarification which is continuing to evolve in this area.
An important regulatory development to be aware of is the latest EU Prospectus Regulation (EU/2017/1129), which is now in full force and effect and represents the most significant overhaul of European securities law since the Prospectus Directive came into force in 2005. The changes introduced will have a direct impact on securities litigation claims, which we have explored in our blog post: What securities litigators need to know about the new Prospectus Regulation.
Looking to the future, the biggest risk area (aside from Brexit) continues to be the discontinuation of LIBOR (and other IBORs) from 2021. IBOR transition teams across the globe are currently grappling with the difficulties posed by transition from IBOR benchmark rates to risk free rate alternatives. However, given the prevalence of IBORs as interest rate benchmarks in contracts across multiple markets and jurisdictions, the demise of IBORs raises questions about the litigation risks which parties to such contracts may face. In our last Banking Litigation Update, we referred you to our article in the Journal of International Banking Law and Regulation: LIBOR is being overtaken: Will it be a car crash? (2019) 34 J.I.B.L.R.. Since then, the FCA and PRA have published a joint statement setting out their observations from the responses of major banks and insurers in the UK to the Dear CEO letters last year (which asked for details of LIBOR preparedness). This joint statement highlighted that there is real divergence across the market, which we have considered in further detail in our blog post: LIBOR discontinuation – FCA thematic feedback on responses to Dear CEO letter.
In the past few months, we have launched two new products, aimed at keeping in-house lawyers at banks up to date with the latest banking litigation developments. In June 2019, we launched a new banking litigation blog, to which you can subscribe to receive email updates on the latest cases as soon as they are published. Earlier this month, and following the success of our banking litigation podcast series, we also launched a new podcast channel dedicated to financial services litigation and regulation. The purpose of the channel is to make it easy for our clients to subscribe for podcast updates which are specifically relevant to them. You can subscribe for the new channel here.
We hope you find our update useful and, as ever, please feel free to contact one of us or your usual Herbert Smith Freehills contact if there are any topics which you would like to discuss further.
Read our full Banking Litigation Update.