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 6 months.
Privilege decisions have, as ever, dominated the legal development headlines. In our last update, we celebrated the return to the orthodox position on litigation privilege following the Court of Appeal’s decision in SFO v ENRC. However, the good news was short-lived and the trend of decisions continues to be towards a more narrow approach to privilege. The recent case of WH Holding, for example, is likely to lead to difficulties in practice for banks and other corporates discussing commercial proposals for the settlement of disputes at board level (which the Court of Appeal found were not covered by litigation privilege in this case).
On the other hand, the courts have adopted an increasingly broad interpretation of the compulsory disclosure powers exercisable by criminal/regulatory authorities (the KBRdecision is a good example). This highlights the significance of the High Court’s decision to order Tesco to disclose SFO documents in the civil action brought by its shareholders under s.90A of the Financial Services and Markets Act 2000 (“FSMA“). Those documents had been obtained by the SFO from third parties using its powers of compulsion and disclosed by the SFO to Tesco in the course of negotiating Tesco’s deferred prosecution agreement (“DPA“). From a civil litigation perspective, the increased reach of criminal/regulatory authorities to obtain documents may increase the scope of documents ultimately disclosable in civil proceedings. The combined effect of these judgments is therefore a developing area we are monitoring closely.
In the past 6 months we have noticed a decline in judgments relating to mis-selling/misrepresentation, although the High Court’s decision in Marme is notable – being the second civil court trial judgment considering IBOR manipulation (the first being PAG v RBS). Other significant decisions from the perspective of financial institutions include a High Court judgment on the calculation of Loss under the 1992 ISDA Master Agreement (once again arising out of the collapse of Lehman Brothers), and a Court of Appeal decision clarifying the “advice” vs “information” distinction when applying the SAAMCO principle, with the effect that losses flowing from market forces were outside the scope of the defendant professional adviser’s duty.
It would be remiss to publish an update at this time without mentioning Brexit, although to date there has been only one significant Brexit-related judgment with potential relevance in the banking litigation sector. That is the decision in Canary Wharf v European Medicines Agency, illustrating the uphill struggle that is likely to face a party seeking to establish that its contracts are frustrated as a result of the UK’s withdrawal from the EU. Amidst the ongoing uncertainties in relation to both the nature and timing of Brexit, we have published a new decision tree on enforcement of English judgments in the EU27 post-Brexit.
Looking to the future, in another area of uncertainty impacting financial institutions, we have been considering the fact that LIBOR (at least as we know it) will cease to exist from 2021. Given its prevalence as an interest rate benchmark in contracts across multiple markets and jurisdictions, its demise raises questions about the litigation risks which parties to such contracts may face. We have published a banking litigation e-bulletin on the types of litigation which may arise, and some of the legal arguments which might be deployed following LIBOR discontinuation, plus a more detailed 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.
To make it easier for our clients to keep on top of legal developments between e-bulletins, we have launched a banking litigation podcast. Each podcast is a bitesize (10-15 minutes) audio recording of key legal developments. It takes two main forms: (1) a monthly high level summary of key judgments, with a ‘deep dive’ into a particular case of interest (you can listen to our most recent monthly update on SoundCloud, iTunes and Spotify); and (2) special edition podcasts focusing on a particular topic of interest in the sector. We have recently released our first special edition of the podcast series, in which the focus is on the litigation risks arising from LIBOR discontinuation (see previous paragraph). The episode is available to download on SoundCloud, iTunes and Spotify.
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.