Property Alliance Group Ltd v The Royal Bank of Scotland Plc

In a non-advisory commercial relationship, a bank does not ordinarily owe a wider duty to explain an interest-rate derivative merely because it has provided information about the product. Any such duty is fact-sensitive and lies on the advisory spectrum. A generic warning about break costs, without quantified modelling or disclosure of internal hedging lines, was sufficient in the circumstances. References to a derivative as a “hedge” or “suitable” product were generic and did not amount to actionable representations in the contractual context. A good-faith term will not ordinarily be implied into standard banking agreements between sophisticated parties contracting at arm’s length. A term controlling contractual discretion applies only where the contract requires an assessment or choice from a range of options. LIBOR was a judgment-based benchmark, not purely transaction-based. The claims failed.

Property Alliance Group Ltd brought claims against The Royal Bank of Scotland Plc arising from four interest-rate derivatives entered into between 2004 and 2008. The claims alleged misstatements, fraudulent and negligent misrepresentations, breach of implied contractual terms, and manipulation of GBP LIBOR. PAG also challenged its transfer to and management within RBS’s Global Restructuring Group, including valuations, a security review and alleged improper threats.

The central issues were whether RBS owed wider duties when explaining the derivatives; whether the products were represented as hedges or suitable instruments; whether contractual terms should be implied; whether the LIBOR representations and implied terms were made or breached; and whether RBS acted irrationally, in bad faith or capriciously in exercising its contractual rights.

1. Swaps misstatement claims. The principle in Bankers Trust International plc v PT Dharmala Sakti Sejahtera was fact-sensitive and did not create an automatic duty on a salesman to explain fully every product offered. The alleged wider duty was on the advisory spectrum. In the non-advisory, arm’s-length relationship, with express non-reliance provisions, professional assistance available to PAG and warnings about break costs, no such duty arose. RBS was not required to provide initial mark-to-market figures, quantified break-cost estimates or scenario modelling. The information supplied was not inaccurate or misleading, and the misstatement claims failed.
2. Representations. In context, “hedge”, “protect” and “suitable” were generic descriptions, not representations that the derivatives had a particular technical quality or were suitable investment advice. The contractual non-reliance provisions excluded reliance on explanations as advice or recommendations, although they did not protect fraud. PAG’s evidence also established that it had not relied on the pleaded technical meaning of those terms. The misrepresentation claims therefore failed.
3. Implied terms and GRG. No term that the derivatives would be suitable for hedging, that RBS would act generally in good faith, or that it would disclose important hedging information was necessary or obvious in the standard facility agreements. The Socimer principle applies where a contract requires an assessment, opinion or choice from a range of options affecting both parties. RBS’s valuation clauses conferred absolute contractual rights, not such discretions. In any event, the alleged GRG breaches were not proved, save that an improper threat to appoint receivers was found but was insufficient to establish breach.
4. LIBOR. Merely proposing derivatives referenced to GBP LIBOR did not imply the detailed representations pleaded. A limited term was implied that RBS would calculate the floating rate by reference to the BBA definition of 3-month GBP LIBOR. The BBA definition was hypothetical and required professional judgment; it did not require an actual transaction in every currency and tenor. RBS had not breached that term, and the manipulation claims failed.
5. Other matters. No binding compromise of the swaps claims was concluded in connection with the 2011 refinancing. PAG was entitled to rely on the whole of the uncalled witness statement under CPR r 32.5(5), not selected passages only. The claim was dismissed.