The Lie of the Land
Banking Litigation - Key cases in England & Wales so far this year
In this briefing, we outline the key banking litigation cases heard and decided so far this year, which highlight the courts’ ongoing efforts to increase the clarity of business transactions and to articulate the different aspects of a banker’s relationship with its customers when faced with potential money laundering – over and above the carefully worded contracts between the parties.
February 2019: The Commercial Court concluded that bankers owe their clients the Quincecare duty of care unless it is (very) clearly and explicitly excluded
The Federal Republic of Nigeria v JP Morgan Chase Bank  EWHC 347 (Comm)
The Federal Republic of Nigeria’s (FRN’s) claim (significantly amended shortly before the hearing) was that JP Morgan Chase Bank (JPM) made three payments totalling over £700,000,000 from a depository account held with JPM by the Federal Government of Nigeria in breach of the Quincecare duty of care – the duty on a bank (first articulated in Barclays Bank plc v Quincecare Ltd  4 All ER 363) to refrain from executing a customer’s order if, and for so long as, the bank is ‘on inquiry’ that the order is an attempt to defraud the customer.
JPM applied for reverse summary judgment and/or strike out of the FRN’s claim on the basis that it had no real prospect of succeeding and there were no reasonable grounds for bringing it. Importantly, for the purposes of assessing the summary judgment and strike out applications, the Court assumed that the FRN would be able to prove that it was in fact defrauded by a corrupt scheme and that JPM was ‘on inquiry’ that the payment instructions it received were part of an attempt to deceive the FRN, and that, despite that, JPM went ahead and made the payments.
The issues for the Court were: (1) whether the Quincecare duty was excluded by the wording of the contract between the parties, which provided (among other things) that JPM’s duties and obligations “shall be determined solely by the express terms of this Agreement […]”, (2) even if a Quincecare duty was imposed, whether the FRN could show causation of loss, as JPM argued that reasonable inquiries would not have uncovered the alleged fraud, and (3) in any event, JPM had a complete defence to the claim because of an indemnity clause in the contract, in which the FRN indemnified JPM for all claims and losses arising out of following instructions to make payments out of the depository account.
The Court held that the depository agreement was not inconsistent with and did not exclude the Quincecare duty of care. It held that there were good policy reasons for the duty, “to encourage banks to combat fraud”, and that it was a valuable right to the customer which could only be excluded by clear words.
On the second issue of whether the FRN could show causation of loss, the Court held that the complexity of the underlying facts and the nature and scale of the alleged fraud meant that the question needed to be examined at trial after a review of the evidence. On the third and final issue, the Court held that on its correct interpretation, the indemnity clause related to claims brought by third parties against JPM; it did not mean that the FRN indemnified JPM for any claims which it brought against JPM itself.
JPM appealed to the Court of Appeal and that judgment is awaited.
Note: In the only case to date in which the Quincecare duty of care has been held to have been breached, Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd  EWCA Civ 84, the bank has appealed to the Supreme Court. The case was heard in July this year and a judgment is expected shortly.
April 2019: The Court of Appeal upheld an English jurisdiction clause which governed the specific transaction between the parties rather than the Italian jurisdiction clause governing the overall relationship
BNP Paribas S.A. v Trattamento Rifuiti Metropolitani S.P.A.  EWCA Civ 768
In this case project company Trattamento Rifuiti Metropolitani S.P.A. (TRM) appealed against the High Court’s decision last year that BNP Paribas’s (BNP’s) claims for declaratory relief in relation to an interest rate swap fell within an English jurisdiction clause in an ISDA Master Agreement rather than an Italian jurisdiction clause in a financing agreement between the parties.
TRM entered the financing agreement with a syndicate of banks, including BNP, in 2008. The jurisdiction clause in the financing agreement provided that “any dispute relating to the interpretation, conclusion, performance or termination of this contract or otherwise relating to it shall be within the exclusive competence of the Court of Turin”. BNP was described in the financing agreement as “Mandated Lead Arranger, Lending Bank and Agent Bank”, and it was also defined as “Hedging Bank” for the purpose of interest-rate hedging arrangements.
To fulfil its interest rate hedging obligations under the financing agreement, TRM entered an interest rate swap agreement in 2010 with BNP on terms set out in an ISDA Master Agreement, Schedule and Confirmation. The ISDA Master Agreement provided that the English courts would have jurisdiction over “any suit, action or proceedings relating to this Agreement”.
Last year the High Court concluded that the parties had agreed jurisdiction for disputes about the interest rate swap in favour of the English Court in the ISDA Master Agreement, and that the dispute should therefore be heard in England, pursuant to Article 25 of Regulation (EU) No. 1215/2012 of 12 December 2012.
The Court of Appeal agreed. It found that the natural interpretation of the “apparently competing” clauses was that the Italian jurisdiction clause was to govern claims relating to the overarching or background finance agreement, while the English jurisdiction clause was to govern claims relating to the specific swap agreement. The two jurisdiction clauses governed particular legal relationships between the parties, and did not materially overlap.
That conclusion was supported by the implausibility of sensible business people agreeing inconsistent jurisdiction clauses and the presumption of mutual exclusivity – which was not displaced by any clear language.
The Court of Appeal noted that its decision was consistent with three important (but closely related) considerations:
- The aims of the Regulation, which are to allow claimants to easily identify the court to bring an action in, defendants to reasonably foresee which courts they may be sued in, and courts to readily decide jurisdiction without having to consider the substance of the case;
- The commercial imperative that jurisdiction clauses provide certainty and that parties should know where their disputes will be resolved, both from the outset and when a claim arises; and
- The acknowledged importance of interpreting the standard terms of the ISDA Master Agreement in a way which provides clarity, certainty and predictability.
April 2019: The Commercial Court held that there was no evidence of Deutsche Bank had made interest rate swap-related representations
Deutsche Bank AG and others v Unitech Global Limited and Unitech Limited and Deutsche Bank AG v Unitech Limited  EWHC 969 (Comm)
Unitech Global Limited (UGL) entered into a Credit Agreement and an interest rate swap agreement (Swap) with Deutsche Bank AG (Deutsche) in 2007. Its ultimate owner and one of India’s largest real estate investment and development companies, Unitech Limited (Unitech), guaranteed UGL’s obligations under the Credit Agreement and the Swap. UGL defaulted, and in these two (long-running) actions Deutsche (and other lenders which had acceded to the Credit Agreement) sought judgment against Unitech under the Guarantee and Indemnity for the sums outstanding under both the Credit Agreement and the Swap.
Unitech argued that it was entitled to rescind the Guarantee and Indemnity on the basis that Deutsche made various express and/or implied misrepresentations that the Swap was suitable for UGL as a hedge of its liabilities under the Credit Agreement, and that Deutsche made various implied representations about LIBOR, and about Deutsche’s involvement in the LIBOR setting process, which UGL and Unitech had relied on. Although Unitech had engaged in the early stages of the litigation, it had not prior to and chose not to appear at the hearing.
The Court found that Unitech had failed to establish the defences it pleaded, in particular because there was no evidence that any of the express representations alleged were made. In any event, there was no reliance – no evidence that any of the alleged representations were actually understood or appreciated by Unitech at the time.
May 2019: The Court of Appeal considered the two available interpretations of the interest provisions in a Credit Support Annex to an ISDA, and concluded that negative interest was not payable in this case
The State of the Netherlands v Deutsche Bank AG  EWCA Civ 771
The parties had agreed a Credit Support Annex (CSA) in 2010, which was an annex to the earlier ISDA Master Agreement governing the relationship. When the interest rate in the CSA fell below zero for the first time in 2014, the State of the Netherlands (the State) argued that Deutsche Bank AG (Deutsche) was obliged to pay it negative interest. The High Court found that the CSA did not contemplate a legal obligation to account for negative interest, and that therefore it was not payable.
The Court of Appeal agreed that negative interest was not payable in this case, although it considered that the High Court had not gone far enough in its reasoning.
It acknowledged that the parties’ rival interpretations of the interest provisions in the CSA were both available meanings of the words used. However, it preferred Deutsche’s interpretation that negative interest was not contemplated and therefore not payable for three main reasons:
- It was consistent with the factual matrix; guidance to ISDA users did not alert them to the possibility of a negative interest payment until a Best Practice statement in 2011, which was after the date that the CSA was signed.
- The payment of negative interest was not contemplated by the CSA considered as a whole. The interest provisions referred specifically to positive interest but not negative interest, and the payment of negative interest would result in two mechanical asymmetries which were otherwise unexplained.
- There was nothing in the CSA read as a whole that gave the impression that negative interest was contemplated or intended.
July 2019: The Commercial Court upheld RBS’s exercise of its contractual discretion to terminate a banking relationship without notice
N v The Royal Bank of Scotland  EWHC 1770 (Comm)
When it suspected that a customer’s bank accounts were being used for money laundering purposes (whether innocently or otherwise), the Royal Bank of Scotland (RBS) froze the customer’s accounts and terminated the banking relationship without notice. The customer, N, was an authorised payment institution which provided foreign exchange and payment services to its customers, had a turnover of around £700 million, approximately 60 active accounts with RBS, and a very high volume of transactions. N commenced proceedings challenging the lawfulness of RBS’s decision.
The contract between the parties provided that RBS would give N not less than 60 days’ written notice to close an account, unless RBS considered there were exceptional circumstances. It also provided that RBS would not have any liability for delaying or refusing to process a payment if, in its reasonable opinion, it was prudent to do so in the interest of crime prevention or in compliance with laws or regulations. RBS’s case was that it had concluded there were exceptional circumstances in this case, and that it had also concluded that it was obliged to take the steps it had taken in the interest of crime prevention.
The Court did not grapple with the important question of whether rationality or objective reasonableness (or neither) is required when a contract gives the right to a contracting party to reach a decision; it found that even the higher standards had been met in this case. The Court emphasised that different decisions could have been made by RBS on the day that the relationship was terminated which were also honest, rational and reasonable, but the availability of other decisions did not mean that RBS’s decisions fell outside the range of what was honest, rational and reasonable.
The evidence showed that N had serious failures in its regulatory compliance at the time, including its due diligence of clients. The Court specifically noted that although RBS’s decisions had major consequences for N, that it was “a proper response to circumstances for which N, not the Bank, must take responsibility”, and that the “wider, public, interests of the prevention of crime and the protection of the victims of crime are a further crucial part of the picture”.
Note: At the time of writing an application for permission to appeal to the Court of Appeal has been filed.