Deutsche Bank AG & Ors v Unitech Global Ltd & Ors

Implied representations cannot be inferred merely because a party contracts by reference to LIBOR and is a LIBOR panel bank. The objective question is what a reasonable representee would understand from the representor’s words and conduct in context. Contractual disclaimers, entire-agreement clauses and non-reliance provisions may militate against implication. A distinction exists between an implied contractual obligation not to manipulate the particular LIBOR rate used by a transaction and representations about past conduct, present practice or future intentions concerning LIBOR generally. Such representations and corresponding warranties require a proper factual and contractual foundation.

In two related actions, UGL and Unitech sought permission to amend their defences and counterclaims concerning a credit facility and an interest-rate swap linked to LIBOR. The proposed amendments alleged implied LIBOR representations, negligence, contractual warranties, public-policy consequences and entitlement to rescind or discharge the agreements. The claimants opposed the amendments on the ground that the proposed case had no realistic prospect of success. The central issues were whether the pleaded circumstances could give rise to implied representations or terms, and whether the proposed remedies could follow.

1. Implied representations. The court applied the objective test stated in Primus Telecommunications v MCI WorldCom International [2004] EWCA Civ 957 and IFE Fund v Goldman Sachs International [2006] 2 CLC 1056. The question was what a reasonable representee in UGL’s position, with its known characteristics, would infer from DB AG’s words or conduct in context.
2. Contracting by reference to a LIBOR screen rate, combined with DB AG’s status as a panel bank, could not objectively support representations about the integrity of the wider LIBOR system, other banks’ submissions, DB AG’s past conduct, or its present or future intentions. The pleaded representations were too wide and uncertain. The contractual disclaimers, entire-agreement clause and non-reliance provisions reinforced that conclusion.
3. The court distinguished the materially different pleaded circumstances in Graiseley v Barclays Bank [2012] EWHC 3093 (Comm). Evidence of specific statements, communications and conduct could raise factual issues, but those matters were absent here.
4. A possible implied contractual obligation not to manipulate the particular LIBOR rate to which a transaction was linked was conceptually different from the pleaded representations. The court also held that the alleged warranties could not be implied under the principles discussed in Attorney General of Belize v Belize Telecom Ltd, given the contractual terms and the absence of obviousness, necessity or business efficacy.
5. The negligence claim failed in limine because it depended on representations that were not properly pleaded. A public-policy plea without particularised policy reasons was insufficient. The proposed relief was also unsupported: damages for breach of warranty would ordinarily reflect the difference between the manipulated and proper rate, not discharge of the loan principal.
6. For the acceding lenders, the novations extinguished the original agreement and created new contracts. Rescission was therefore unavailable in relation to the novated agreements, and the transfer certificates assumed only obligations equivalent to DB AG’s obligations under the facility agreement, not collateral misrepresentation obligations.
7. Under section 2.2 of the Misrepresentation Act, damages in lieu of rescission were unavailable where rescission itself was no longer available. None of the proposed amendments, in their current form and on the pleaded facts, had a reasonable prospect of success. Permission to amend was refused.