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London Court Decides Loan Agreement Bans LIBOR Manipulation

Rod J. Cowper
Edwards Wildman Palmer LLP - London Office

October 7, 2013

Previously published on October 3, 2013

The Commercial Court in London has accepted that a term is to be implied into an agreement between a LIBOR reporting bank and its customer that it would not seek to manipulate LIBOR: Deutsche Bank AG v Unitech Global Ltd [2013] EWHC 2793 (Comm).

But that is the beginning rather than the end of the customer’s fight!

When a Bank (D) claimed repayment of a loan and sums due under a swap agreement, the borrower (U) defended on the basis that the reference rates in those agreements were set by reference to LIBOR and D had made deliberately inaccurate submissions in relation to the setting of the LIBOR rate. U initially formulated its defence as a misrepresentation claim but this was struck out (and an appeal is due to be heard soon).

Undaunted, and indeed encouraged by comments made by the Commercial Judge when striking out the misrepresentation claim, U reformulated its defence as a claim for breach of contract. The Judge refused to strike out the defence, finding that there was a real prospect that the existence of the term would be established at trial. However,

U pleaded that a term should implied into its agreements with D that D would not seek to manipulate LIBOR. Perhaps surprisingly D accepted that there was scope for implication of such a term but said any term should be limited to preventing acts which were intended to and did increase U’s obligations.

The Judge refused to strike out the defence and at trial U will rely on the wider term which does not require it to show that the incorrect submission actually increased its liabilities.

D’s decision not to argue that term should be implied may be explained by confidence that the submissions did not increase U’s liabilities rather than acceptance that implication of a term was appropriate. But it may also reflect the nature of a strike out application. U did not need to show it would succeed in establishing a term should be implied at trial but only that it had a real prospect of doing so. It remains to be seen whether D will argue at trial that no such term should be implied.

The Judge decided, however, that even if breach of the implied term were repudiatory (as U argued) accepting that breach as terminating the agreement would not eliminate D’s claim to recover the loan as a debt. Moreover he also decided that the “no set-off” clause in the loan agreement prevented U setting off damages for breach of the implied term against that debt even though the damages claim was based on an alleged fraud. Accordingly, he granted D summary judgment for its debt claim and the trial will proceed on other aspects of D’s claims and U’s counterclaims for loss resulting from breach of the implied term.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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