FML Timeline: Property Alliance Group v The Royal Bank of Scotland plc

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PAG was a property investment group. RBS was PAG’s primary banker until 2005. PAG commenced proceedings in September 2013 on the basis of three claims: (1) the Swaps Claims (PAG alleged misselling of four interest rate swaps); (2) the Global Restructuring Group (GRG) Claims (PAG alleged abuse of discretion and bad faith against RBS’ GRG division, RBS’ turnaround division, when its business was transferred into the division for refinancing); and (3) the LIBOR Claims (PAG alleged implied representations or terms relating to the setting of LIBOR).

Decision

Mrs Justice Asplin DBE found wholly in favour of RBS and dismissed all of PAG’s claims.

Swaps Claims

Scope of duty of care to explain/not to mis-state

The Court rejected PAG’s claims that RBS owed a wider duty of care than the duty to take reasonable care not to misstate facts, as accepted in Bankers Trust v Dharmala. The Court affirmed that the exclusion clauses in the contracts excluded RBS’ duty to advise. In any case, it was not market practice for the bank to provide information such as break costs or the MTM value of the swaps at the start of the relationship.

Misrepresentation/contractual estoppel

The court dismissed PAG’s allegation that RBS had misrepresented that the swaps would “hedge”, “protect” or “de-risk” the interest rate risk which induced PAG to enter into the swaps. Instead, the Court found that the meaning of such words had to be assessed in the context of the non-advisory nature of RBS’ role. In any case, the Court held that even if RBS did make a representation, since the contractual documents contained express non-reliance language, PAG was contractually estopped from relying on it.

Implied terms

The court rejected PAG’s argument that the swaps were sold in breach of an implied term that the swaps were suitable. The contractual documents were sufficiently clear and coherent so there was no need for the Court to imply terms in respect of good faith, especially in light of the exclusion clauses.

GRG Claims

Implied term of good faith

The court dismissed PAG’s claim that the transfer of PAG’s swaps from the normal RBS management team to the GRG division was in breach of implied terms of good faith. The Court held that there was no general good faith duty and, on the facts, it was not required to imply such a duty.

Implied limits on discretion

The court held that the contracts did not contain any element of discretion and therefore there could not be any implied terms on how discretion should be exercised.

Breach

Even if the clauses had been implied, the Court further held that there would have been no breach of them given RBS’ conduct when the relationship was moved to GRG.

LIBOR Claims

Implied representation

The court dismissed PAG’s claim that the proffering of a transaction referenced to a LIBOR rate would give rise to any implied representation about how LIBOR was set.

Reliance

In any case, the court further found that PAG’s alleged implied representations were not, in fact, understood by PAG’s witnesses and therefore could not have been relied upon.

Implied term

The court held that although there was an implied term that the relevant LIBOR rate would be the BBA LIBOR rate, such a term was to be restricted to RBS’ conduct and did not extend to cover the conduct of other panel banks.

Manipulation of GBP Libor

The court rejected PAG’s allegation that RBS had been involved in the manipulation of GBP LIBOR and therefore found that the implied term in the swaps relating to LIBOR had not been breached.

Noteworthy/ Novel points

Financial institutions will be reassured by the Court’s decision to uphold and respect the contractual documentation negotiated between bank and customer, including clauses which exclude any advisory or fiduciary duties.

This judgment serves as a reminder for financial institutions to continually review and update their standard terms and to ensure that their customers are appropriately classified.