BRIEFING

Banking litigation: a round-up of 2018 and looking ahead to 2019

A number of key decisions from the English Liability for acts of rogue individual International AG, the Court of Appeal and EU courts in 2018 illustrate the litigation A number of decisions have considered the held that the non-defaulting party has wide trends that are likely to have implications for liability of organisations where losses have discretion in assessing fair market value in the fi nancial institutions in 2019 and beyond (see been caused by rogue individuals. termination of valuation of bonds used in repo box “Banking cases to watch in 2019”). trades covered by Global Master Repurchase In Singularis Holdings Ltd v Daiwa Capital Agreements (2002 version) and is required Banking duties Markets Europe Ltd, the Court of Appeal held only to act rationally and not arbitrarily or Several cases considered the scope of duties that a bank, Daiwa, could not rely on the perversely ([2018] EWCA Civ 719). owed by . customer’s, Singularis’, alleged illegality to escape liability nor could the fraud by In the State of the Netherlands v Deutsche In Property Alliance Group Ltd v Royal Bank of an individual who was a director and sole Bank AG, the High Court confi rmed that a Scotland Plc, while the Court of Appeal found shareholder of Singularis be wholly attributed 1992 International Swaps and Derivatives that, on the facts, there was no evidence that to Singularis ([2018] EWCA Civ 84; www. Association (ISDA) Master Agreement and Royal had manipulated practicallaw.com/w-013-3648). The Supreme Credit Support Annex (CSA) did not oblige sterling , it did indicate that an implied Court will hear Daiwa’s appeal in July 2019. to pay negative interest on representation by a sterling LIBOR panel deposits where the State of the Netherlands bank that it was not manipulating and did not In Frederick v Positive Solutions, the Court of would be paying the interest if there was intend to manipulate sterling LIBOR would Appeal held that a principal is not vicariously a positive interest rate ([2018] EWHC 1935 probably be inferred from a mere proposal liable where the agent’s activities are wholly (Comm); www.practicallaw.com/w-016-7043). of the swap transaction ([2018] EWCA Civ attributable to the conduct of the agent’s This fi nding should encourage counterparties 355; see News brief “Mis-selling and LIBOR: own independent business, even if there is a to any existing unamended legacy CSAs to Court of Appeal test case”, www.practicallaw. degree of connection between that business negotiate and incorporate the 2014 ISDA com/w-013-8904). and the agent’s work for its principal ([2018] Collateral Agreement Negative Interest Rate EWCA Civ 431). The Supreme Court will hear Protocol or equivalent provisions. An appeal In Ehrentreu v IG Index, the Court of Appeal an appeal in February 2019. is listed for April 2019. found that, absent very clear express words, a spread-betting operator, IG Index, had no In Wm Morrison Supermarkets plc v Various Jurisdiction contractual obligation to protect the customer Claimants, the Court of Appeal held that Governing law and jurisdiction issues continue from deliberately infl icting economic harm on Morrison was vicariously liable for its to occupy both the English and EU courts. himself ([2018] EWCA Civ 79). The court also employee’s misuse of data, despite Morrison held that IG Index was not in breach of the having done as much as it reasonably could to In Löber v Bank Plc, an investor client’s best interests rule in the Financial prevent the data misuse and the fact that the sought, through the Austrian courts, to Conduct Authority’s Conduct of Business employee’s intention was to cause reputational recover losses resulting from her reliance on sourcebook (COBS 2.1.1). or fi nancial damage to Morrison ([2018] EWCA a bond prospectus (C-304/17). The European Civ 2339; see News brief “Morrisons’ liability for Court of Justice held that, for the purposes In Parmar v Barclays Bank Plc, Barclays rogue employee: an apple of discord”, www. of Article 5(3) of the Brussels Regulation successfully defended the fi rst swap mis- practicallaw.com/w-017-7358). Morrisons has (44/2001/EC), the fact that she had suffered selling claim brought to full trial by an applied for permission to appeal. fi nancial consequences is not enough in itself individual alleging breach of statutory duty to establish jurisdiction in her country of ([2018] EWHC 1027 (Ch); www.practicallaw. Financial transactions domicile. However, as the damage consisted com/w-015-3933). Several decisions have provided guidance exclusively of fi nancial loss which materialised on standard clauses in master agreements. directly in the claimant’s bank account and as The High Court found that Barclays had not all the claimant’s dealings had been through advised on the sale of the relevant products to In Special Financing v National Austrian banks, the Austrian courts had the claimant and, in any event, the products Power Corp and another, the High Court held jurisdiction. This decision will continue to were both suitable and appropriate. Notably, that, when calculating the close-out amount be relevant under Article 7(3) of the recast however, if Barclays had advised on the sale, on early termination under a 2002 Derivatives Brussels Regulation (1215/2012/EU), which it would not have been able to rely on a clause Master Agreement, the determining party is materially the same as its predecessor. that restricted liability to private persons as must use procedures that are objectively this would be in breach of COBS 2.1.2, which commercially reasonable to produce a result The Court of Appeal provided welcome prevents fi rms from seeking to exclude or which is objectively commercially reasonable clarifi cation that claims brought under the restrict any duty or liability that they owe ([2018] EWHC 487 (Comm); www.practicallaw. terms of a swap contract will be governed by to a client. com/w-014-5040). In LBI EHF v Raiffeisen the jurisdiction clause in that contract and will

© 2018 Thomson (Professional) UK Limited. This article fi rst appeared in the January/February 2019 issue of PLC Magazine, 1 published by Practical Law, part of Thomson Reuters (Professional) UK Limited, and is reproduced by agreement with the publishers. not be determined by the terms of the wider relationship between the parties (Deutsche Banking cases to watch in 2019 Bank AG v Comune di Savona [2018] EWCA Civ 1740). The court held that the English In light of Property Alliance Group Ltd v Plc, a number of stayed courts had exclusive jurisdiction because the LIBOR-related claims are now afoot, including Deutsche Bank AG v Unitech Ltd ([2018] dispute fell under a swap agreement which EWCA Civ 355). In addition, the Federal Deposit Insurance Corporation is attempting to contained an English exclusive jurisdiction bring a claim against various banks and the British Bankers’ Association for fraudulent clause rather than an advice agreement which misrepresentation connected with LIBOR-rate setting. If the litigation moves to trial, had an Italian exclusive jurisdiction clause. it will be an interesting one to watch.

Contractual interpretation The appeals in Frederick and Wm Morrison will be of interest for all fi rms in terms of Two cases provided a stark warning to those vicarious liability. The claim in Banca Nazionale del Lavoro is to be restarted as a deceit seeking orally to modify written contracts. In claim following details which emerged during trial that the employee who gave the Rock Advertising v MWB Business Exchange reference had previously given a reference without authority and was dismissed by Centres Ltd, the Supreme Court held that the bank. “no oral modification” (NOM) clauses are effective in precluding parties from varying agreements orally ([2018] UKSC 24, documents on grounds of privilege where connection between the company and the UK see News brief “Contract variation: does it they were demanded by a regulator ([2018] (section 2(3), Criminal Justice Act 1987) ([2018] need to be in writing?”, www.practicallaw. EWHC 2284 (Ch); www.practicallaw. EWHC 2368 (Admin)). com/w-014-9282). Notably, however, the com/w-017-1300). The Court of Appeal is due court observed that, if a party acted on an to hear an appeal by the end of October 2019. In Banca Nazionale del Lavoro SPA v Playboy oral variation, despite the NOM clause, the Club Ltd and others, the Supreme doctrine of estoppel may be effective to In R(AL) v SFO, the High Court held that Court confi rmed that a bank which provided prevent unfairness. privilege does not apply to fi rst interview a fi nancial reference for a customer was only notes where there is no litigation privilege liable to the party to whom the reference was In Edgworth Capital () v Aabar and the interviewee is not the client of the addressed, not to its undisclosed principal Investments, the High Court emphasised that interviewing lawyer ([2018] EWHC 856). ([2018] UKSC 43; see News brief “Bank the absence of a contemporaneous written However, given comments by the courts in references: liability to an undisclosed principal”, record by those with business experience both the RBS Rights Issue Litigation and ENRC www.practicallaw.com/w-016-3610). may count heavily against the existence of an concerning the application of legal advice oral contract, particularly as communications privilege to interview notes, this is unlikely CMOC Sales and Marketing Ltd was notable nowadays typically leave some form of to be the end of the debate (see News brief because it was the fi rst worldwide freezing electronic footprint ([2018] EWHC 1627 “Legal advice privilege: who is the client?”, order granted in respect of bank accounts (Comm)). www.practicallaw.com/3-638-0479). against “persons unknown” and also because the High Court permitted service through Privilege In WH Holding and another v E20 Stadium, a number of innovative methods including In The Director of the Serious Fraud Offi ce v the Court of Appeal clarifi ed the meaning of Facebook and virtual data rooms ([2018] Eurasian Natural Resources Corporation Ltd, “conducting litigation” for the purposes of EWHC 2230 (Comm)). the Court of Appeal held that documents litigation privilege ([2018] EWCA Civ 2652; see produced during an internal investigation into News brief “Litigation privilege: Court of Appeal In R (Holmcroft Properties Ltd) v KPMG LLP, the potential criminal conduct were protected by refuses to widen scope”, this issue). The decision Court of Appeal held that a private body acting litigation privilege, even before any contact is a reminder that litigation privilege does as a skilled person in a customer remediation between the Serious Fraud Offi ce (SFO) and not necessarily extend to all communications context, KPMG, was not exercising a public ENRC ([2018] EWCA Civ 2006; see News brief pertaining to a piece of litigation. function that was amenable to judicial review “ENRC privilege decision: welcome news but was offering assistance in relation to a but diffi culties remain”, www.practicallaw. Other cases of interest dispute about private law rights in a private com/w-016-7167). The SFO has confi rmed In R (KBR) v Director of the Serious Fraud law context ([2018] EWCA Civ 2093; www. that it will not appeal. Offi ce, the High Court held that the SFO’s practicallaw.com/9-628-4088). power to require a person to produce relevant In Financial Reporting Council Ltd v Sports documents for an SFO investigation extends Sarah Parkes is a partner, and Emma Probyn Direct International plc, the High Court to foreign companies in respect of documents is an associate, at Freshfi elds Bruckhaus held that the defendant could not withhold held abroad provided that there is a suffi cient Deringer LLP.

© 2018 Thomson Reuters (Professional) UK Limited. This article fi rst appeared in the January/February 2019 issue of PLC Magazine, 2 published by Practical Law, part of Thomson Reuters (Professional) UK Limited, and is reproduced by agreement with the publishers.