Graiseley Properties Ltd & Ors v Barclays Bank Plc & Ors

An allegation of an implied representation should not be rejected summarily where its existence depends on the full factual context. A bank proposing a transaction governed by LIBOR may arguably represent that its own participation in setting that rate is honest and non-manipulative.

Entire agreement and disclaimer clauses do not necessarily defeat such a claim at the pleading stage where fraudulent inducement is alleged. Whether a transfer described as a novation extinguishes the original contract and associated rights depends on the proper construction and effect of the transaction. The terminology used is not necessarily conclusive.

These conjoined appeals arose from loan and derivatives agreements under which interest was calculated by reference to LIBOR. Borrowers and guarantors sought permission to allege that the contracting banks had impliedly represented that LIBOR, and their participation in its setting, were honest and free from manipulation.

In the Graiseley action, Flaux J permitted amendments alleging implied representations and an implied contractual term. In the Unitech actions, Cooke J refused comparable amendments and held that transfers to two incoming lenders by novation extinguished the original agreement and the right to rescind. That conclusion subsequently supported summary judgment against the Unitech parties.

The central questions were whether the proposed representations and associated claims were sufficiently arguable to proceed to trial, and whether the alleged novations necessarily extinguished the original credit agreement and the equity of rescission.

1. Disposition. The appeal from Cooke J was allowed and the proposed amendments in the Deutsche Bank actions were permitted. Barclays' appeal from Flaux J was dismissed. Longmore LJ gave the judgment, with which Underhill LJ and Sir Bernard Rix agreed.
2. An alleged implied representation must be assessed objectively from the representor's words and conduct in their context. Such an allegation is fact-specific and should not be dismissed summarily in a factual vacuum where it has a real prospect of success. The proper content and extent of the alleged representations should be determined after the trial court has obtained a full picture of the dispute.
3. By proposing transactions governed by LIBOR, a panel bank arguably represented, at least, that its own participation in setting the rate was honest. Proposing the LIBOR-linked transactions constituted relevant conduct. It was analogous to the conduct capable of conveying a representation in DPP v Ray [1974] AC 370. Authorities concerning the absence of a duty to disclose dishonesty where nothing was said did not conclusively dispose of a case involving such positive conduct.
4. The broader proposed representations concerning the overall integrity of LIBOR or the conduct of other panel banks faced greater difficulty. Nevertheless, the court declined at the amendment stage to select among their precise formulations. The trial judge should determine their meaning and viability in the full factual setting. The associated allegations of negligent misrepresentation and breach of warranty were also permitted.
5. The banks' reliance on entire agreement and disclaimer clauses could not resolve the claims summarily where the contracts were alleged to have been fraudulently induced. The fraud pleading in the Unitech actions required greater precision following disclosure.
6. The use of the word “novation” in the transfer documents did not conclusively establish that the parties intended to discharge the entire credit agreement and replace it with a new contract. The agreement repeatedly contemplated the incoming institution becoming a lender under the existing agreement. It was therefore arguable that “novation” was not used in its strict legal sense. Alternatively, an argument for partial novation, preserving the original agreement and the equity of rescission against other lenders, was sufficiently arguable to proceed.

• Court of Appeal (Civil Division): By [2013] EWCA Civ 1372, allowed the Unitech parties' appeal from Cooke J, dismissed Barclays' appeal from Flaux J and permitted the proposed amendments.
• High Court, Commercial Court: In [2013] EWHC 471 (Comm), Cooke J refused the Unitech parties permission to plead the proposed implied representations and concluded that novation had extinguished the original agreement and the right to rescind.
• High Court, Commercial Court: In [2012] EWHC 3093 (Comm), Flaux J permitted the Graiseley claimants to plead implied representations concerning LIBOR and an implied term against manipulation during the contracts.
• High Court, Commercial Court: Following Cooke J's ruling, Teare J granted summary judgment on the availability of rescission because the novation ruling created an issue estoppel, while permitting an implied-term counterclaim for damages.