Banking litigation: 2019 in review and the outlook for 2020
This article first appeared in the January/February 2020 issue of PLC Magazine.
A number of key decisions from the English courts in 2019 illustrate the litigation trends that are likely to have implications for financial institutions in 2020 and beyond (see "Banking cases to watch in 2020" section below).
The High Court has handed down judgment in two long-running claims against financial institutions in relation to alleged misrepresentation and benchmark rate manipulation. In Marme Inversiones 2007 SL v Natwest Markets plc and others, Marme sought rescission of five interest rate swaps and damages of up to €996 million, arguing that Natwest had made false implied representations regarding EURIBOR ( EWHC 366). The court held that:
- the representations could not be implied because there were no clear words or specific clear conduct from which the wide-ranging representations could be said to arise; and
- the case could be differentiated from Property Alliance Group v Royal Bank of Scotland plc because, in Marme, the alleged representations extended to the conduct of banks other than Natwest and to attempted manipulation, not just actual manipulation ( EWCA 355).
In Deutsche Bank AG v Unitech Global Limited and Unitech Limited and Deutsche Bank AG v Unitech Limited, Deutsche Bank sought judgment under a guarantee and indemnity for amounts owed by the defendants ( EWHC 969). The defendants alleged, among other things, that Deutsche Bank had made various implied misrepresentations about LIBOR and its involvement in the LIBOR setting process. However, as the defendants did not participate at trial, they did not put forward evidence to support these allegations.
After almost 30 years in abeyance, two cases in 2019 considered the scope of the Quincecare duty of care, which requires a bank 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 (Barclays Bank plc v Quincecare Ltd  4 All ER 363).
In Singularis Holdings Limited (in liquidation) v Daiwa Capital Markets Europe Limited, the Supreme Court unanimously upheld the lower courts' decision that Daiwa had breached the Quincecare duty of care when it paid out approximately $204 million held to Singularis's benefit on the instructions of Mr Al Sanea, who was the sole shareholder, the chairman and a director of Singularis, despite the many obvious signs that Mr Al Sanea was perpetrating a fraud on Singularis ( UKSC 50). Mr Al Sanea's fraud could not be attributed to Singularis: attribution requires a consideration of the context and purpose for which the attribution is relevant. The context was Daiwa's breach of its Quincecare duty towards Singularis, the purpose of which is to protect companies against exactly the sort of misappropriation of funds as took place in this case.
In The Federal Republic of Nigeria v JPMorgan Chase Bank NA, the Court of Appeal upheld the High Court's decision that a bank's Quincecare duty can be excluded only by clear and explicit language in the customer agreement ( EWCA Civ 1641).
Derivatives master agreements
Transactions entered into under derivatives master agreements continue to generate litigation. In The State of the Netherlands v Deutsche Bank AG, the Court of Appeal confirmed that negative interest did not accrue on cash collateral posted under the 1995 International Swaps and Derivatives Association (ISDA) Credit Support Annex ( EWCA Civ771). Nothing in ISDA's guidance or the documents gave the impression that negative interest was contemplated or intended.
On an event of default under the 1992 ISDA Master Agreement, the standard to which the determining party is held in calculating loss is one of rationality, not objective reasonableness. However, in Lehman Brothers Finance AG v Klaus Tschira Stiftung GmbH and another, the High Court clarified that this broad discretion does not mean that the determination can be challenged only if no reasonable non-defaulting party acting in good faith could have come to the same result ( EWHC379). Courts should not consider challenges to the discretionary calculation along the lines of public law decisions; the non-defaulting party must calculate the loss as permitted by the contract, that is, in line with ISDA definitions. The court also commented that a non-defaulting party is not always required to use live quotations at the early termination date, for example where the market moves against it before it is aware of the termination, or if there is no market for an appropriate replacement transaction at the early termination date.
In CFH Clearing Limited v Merrill Lynch International, which concerned foreign exchange transactions executed on the day that the Swiss National Bank removed the currency floor for the Swiss franc against the euro, the High Court found that there was no prospect of CFC succeeding in its claims that certain transactions should have been retrospectively repriced or cancelled following market turbulence ( EWHC 963). The Court of Appeal is due to hear CFH's appeal in February 2020.
In AMC III Purple BV v Amethyst Radiotherapy Limited, the High Court granted summary judgment to a lender for amounts outstanding under facility agreements despite the borrower claiming that it had a right of equitable set¬off and the facility agreements containing market standard clauses excluding the borrower's right of set-off ( EWHC 1503). This decision indicates the court's robust interpretation of market standard set-off clauses and its willingness to grant summary judgment on that basis.
In Chudley and others v Clydesdale Bank Plc (t/a Yorkshire Bank), the claimants had paid money to an investment company, Arck, which had been paid into a Clydesdale account under a letter of instruction that required the monies to be placed in a segregated account ( EWCA Civ 344). In breach of this, Clydesdale placed the funds into another of Arck's accounts and then paid the funds out at Arck's direction. Arck later went into liquidation and the claimants sought to recover their losses from Clydesdale. The Court of Appeal held that the claimants were entitled to sue Clydesdale for breach of contract in their own right under the Contracts (Rights of Third Parties) Act 1999.
Financial Ombudsman challenges
Attempts to judicially review decisions of the Financial Ombudsman Service (FOS) have proved unsuccessful in 2019. In Berkeley Burke SIPP Administration Ltd v Financial Ombudsman Service Ltd, the High Court dismissed a claim for judicial review of a final decision of the FOS regarding a complaint against Berkeley Burke, finding that the FOS had not erred in law ( EWHC 2878). Permission to appeal was granted but, in October 2019, the hearing was vacated following Berkeley Burke's administration. Subsequently, in R (Critchley) v Bank of Scotland Plc (t/a Halifax) and another, the High Court dismissed an application for judicial
review of a FOS decision to reject a mis-selling complaint ( EWHC 3036). These cases serve as a useful reminder that the High Court is unwilling to review decisions of the FOS unless they are perverse and irrational.
The High Court's decision in N v The Royal Bank of Scotland plc provides reassurance to banks acting to freeze accounts that are suspected of being used to hold the proceeds of crime ( EWHC1770). The banking contract with N entitled The Royal Bank of Scotland (RBS) to terminate the banking relationship without notice in exceptional circumstances. RBS suspected that N's accounts held the proceeds of crime and the court held that this constituted exceptional circumstances. N has been granted permission to appeal. The Supreme Court has granted permission to appeal the High Court's decision in R (on the application of KBR Inc) v Director of the Serious Fraud Office (SFO) that the SFO's power to require a person to produce relevant documents for an SFO investigation extends to foreign companies in respect of documents held abroad, provided that there is a sufficient connection between the company and the UK ( EWHC 2368).
In Lamesa Investments Limited v CynergyBank Limited, the High Court concluded that the borrower could rely on the carve out "in order to comply with any mandatory provision of law" in a non-payment event of default in a facility agreement in order to withhold repayments while the lender's owner remained a blocked person under the US sanctions regime, even though the loan had no connection with the US ( EWHC 1877).
In BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA, the Court of Appeal agreed with the High Court that the English courts had jurisdiction over claims for declarations in respect of a swap transaction on ISDA Master Agreement terms, as these claims fell within an English jurisdiction clause in the ISDA Master Agreement as opposed to an Italian jurisdiction clause in a related financing agreement ( EWCA Civ 768).
In Ramona Ang v Reliantco Investments Limited, the High Court held that a private individual investing her personal funds in Bitcoin futures qualified as a consumer under the recast Brussels Regulation (1215/2012/ EU) and could therefore bring proceedings against Reliantco in the EU member state in which she was domiciled despite an exclusive jurisdiction clause in Reliantco's terms and conditions ( EWHC 879).
Other cases of interest
In Bank Mellat v HM Treasury, the Court of Appeal upheld a first instance decision requiring an Iranian bank to produce unredacted documents alleged to contain confidential customer information, despite the bank's assertion that the disclosure would breach Iranian law ( EWCA Civ 449). Mr Merrick's attempt to bring a £14 billion claim against Mastercard continues, with the Court of Appeal remitting back to Competition Appeal Tribunal the decision whether to make a collective proceedings order against Mastercard allowing Mr Merricks to act as the representative for around 46.2 million UK consumers on an opt-out basis (Walter Hugh Merricks CBE v MasterCard Incorporated and others  EWCA Civ 674). The Supreme Court has granted permission to appeal.
In Lloyd v Google LLC, the Court of Appeal allowed an opt-out class action claim to proceed which relates to alleged infringements by Google of data protection law affecting 4.4 million iPhone users ( EWCA Civ 1599). By determining that damages can be awarded for a loss of control of data even in the absence of financial loss or distress, the Court of Appeal has potentially opened the floodgates to data privacy damages claims in the English courts. Google has indicated its intention to appeal.
Banking cases to watch in 2020
A number of the 2019 cases discussed above are going to appeal. In addition to those cases, the trial in PCP Capital Partners & PCP International Finance Limited v Barclays Bank plc is due to start in June 2020. This is a $1 billion claim brought by Amanda Staveley against Barclays Bank alleging fraud in the context of the bank's emergency fundraising in 2008. In addition, a preliminary hearing in Michael O'Higgins FX Class Representative Limited v Barclays Bank plc and others is due in the Competition Appeal Tribunal in February 2020, concerning a follow-on claim brought against five banks by investors who claim that dealers manipulated foreign exchange markets and caused investors significant losses on currency trades.