WW Property Investments Ltd v National Westminster Bank Plc

A contract for differences is not automatically a wager. An interest-rate swap entered for a genuine commercial hedging purpose is not a wager merely because it provides for net payments by reference to fluctuating rates. The parties need not have equal knowledge or expectations, and no term requiring equal knowledge or disclosure of mark-to-market value is implied.

The statutory regimes under the Gambling Act 2005, the Financial Services and Markets Act 2000 and the relevant order leave no room for a revived common-law rule invalidating such contracts. A LIBOR claim must identify the relevant manipulation, reliance and a viable remedy. A claim concerning negligent conduct of an interest-rate hedging review was reasonably arguable, subject to proper pleading.

WW borrowed from NatWest and entered into three interest-rate Collars and a later LIBOR Swap. The Collars were included in NatWest’s Interest Rate Hedging Product Review and WW accepted basic redress, while its consequential-loss claim was rejected. The Swap was reviewed separately and no redress was awarded.

WW commenced proceedings advancing wager, LIBOR, payment protection and guarantee, and tort claims. HH Judge Roger Kaye QC struck out the claim and refused permission to amend. WW sought permission to appeal, raising compromise, wagering-contract, LIBOR-manipulation and review-duty issues.

1. Permission and disposition. Permission to appeal was granted in part in relation to proposed amendments concerning the Interest Rate Hedging Product Review, principally paragraphs 13.1–13.6, 16.1–16.5, 17.2, 20.1, 21.1 and 21.3–21.5. Permission was refused in relation to the compromise issue and the proposed amendments concerning the remaining claims. The compromise issue was left open because, after the justifiable refusal of permission to amend, it was presently academic.
2. Wager claim. A contract for differences is not necessarily a wagering contract. The substance and purpose of the transaction must be considered. A contract entered into for a genuine commercial purpose, such as hedging exposure to a floating interest rate, is not a wager merely because it provides for payment of differences. In an interest-rate swap, a commercial purpose on the part of at least one party is sufficient. The court upheld the reasoning in Morgan Grenfell Ltd v Welwyn Hatfield District Council [1995] 1 All ER 1 and saw no realistic prospect of the Collars or Swap being characterised as wagers.
3. The validity of a wager does not depend on equal knowledge or equal expectations about the likely outcome. The future event must be uncertain, but the parties may possess different information and may assess the prospects differently. There was no basis for implying a term requiring equal knowledge or ignorance. The discussion of cheating in Ivey v Genting Casinos Ltd [2016] EWCA Civ 1093 concerned interference with the process of a game and did not establish such a term in commercial swaps.
4. NatWest was not obliged to disclose its mark-to-market valuation or expectations about future interest rates. There was no implied representation or term that the mark-to-market value was zero. The contracts were not contracts uberrimae fidei and NatWest was not a fiduciary.
5. The repeal of the Gaming Act 1845 did not revive a common-law rule invalidating wagers where knowledge was unequal. The comprehensive statutory regimes under the Gambling Act 2005, the Financial Services and Markets Act 2000 and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2000 left no room for such a common-law rule. Section 16(1)(a) of the Interpretation Act 1978 supported that conclusion.
6. LIBOR claim. It was arguable that the Swap contained an implied term that NatWest would not manipulate the one-month GBP LIBOR used to calculate payments, and that there was an implied representation concerning past and intended manipulation. The pleading nevertheless disclosed no manipulation of the relevant rate, no proper reliance case, and no viable basis for the damages claimed. Rescission is not a remedy for breach of contract, and WW had affirmed the contract. The LIBOR claim therefore had no real prospect of success.
7. Review-duty claim. There was a reasonable prospect of establishing a duty of care to conduct the review diligently and to consider relevant evidence. The proposed pleading was wholly unparticularised in relation to the Collars, but the allegations concerning the Swap were not wholly incomprehensible. Permission was therefore granted only to pursue the specified amendments.

1. Court of Appeal (Civil Division): On 29 November 2016, granted permission to appeal in part concerning specified amendments relating to the Interest Rate Hedging Product Review, refused permission on the compromise issue and other proposed amendments, and left the compromise issue open.
2. Leeds District Registry: On 1 March 2016, HH Judge Roger Kaye QC struck out the entirety of WW’s claim against NatWest and refused permission to add a new claim.