Marme Inversiones 2007 SL v Natwest Markets Plc & Ors

An implied representation requires clear words or conduct, assessed objectively in context. Silence or a representee’s uncommunicated assumption will not ordinarily suffice because English law imposes no general duty of disclosure. Broad, vague or intricate representations require correspondingly clear and specific conduct.

A misrepresentation claimant must have understood, at least in substance, that the representation was being made and must have relied upon it. Rescission may be lost through affirmation and cannot ordinarily be confined to one contract within a commercially indivisible bargain. Apparent authority requires a relevant holding out by the principal, reasonable reliance and authority of sufficient scope to cover the act alleged.

A Spanish special purpose vehicle financed the acquisition of a major property through a syndicated senior loan and interest-rate swaps referenced to EURIBOR. It alleged that RBS had impliedly made five representations concerning its own and other banks’ past, present and intended conduct in the EURIBOR-setting process. It sought rescission of the swaps or damages for fraudulent or negligent misrepresentation. It claimed that RBS made the representations for itself and, with apparent authority, for four other swap counterparties.

The banks denied that the representations were made or relied upon. They also relied on affirmation and the rule against partial rescission. RBS and the other banks sought declarations that the swaps had been validly terminated and that the contractual termination sums were due.

The central issues were implication, falsity, fraud, reliance, rescission, damages, apparent authority and the effectiveness of the banks’ contractual terminations.

1. Judgment for the defendants; declarations granted. The five pleaded EURIBOR representations were not implied. An implied representation must arise objectively from clear words or clear conduct. Silence, passive acceptance and a representee’s internal assumption are insufficient without conduct communicating the alleged representation. The pleaded representations were excessively broad, uncertain and intricate. The evidence did not show that RBS proposed the hedging structure; it joined a transaction whose principal terms, including EURIBOR-linked swaps, had already been proposed.

2. RBS’s participation in the swaps did imply the narrower representation that it was not itself manipulating, and did not intend to manipulate or attempt to manipulate, EURIBOR. That narrower representation was not pleaded and was not shown to be false. Although the wider pleaded representations would have been materially false if made, this could not establish liability.

3. Marme did not rely upon the pleaded representations. A claimant relying on an implied representation must have understood, at least in substance, that it was being made. An unconscious assumption that EURIBOR was honest and reliable was insufficient. The representations were not actively present to the relevant decision-maker’s mind, and the evidence did not show that Marme would or might have acted differently had they not been made.

4. Alternatively, rescission was barred. Marme affirmed the swaps by deliberately making payments after learning of the alleged misconduct and while knowing that misrepresentation could confer a right to rescind. Rescission of the swaps alone would also have been impermissible partial rescission. The swaps and senior loan formed a single, commercially interdependent bargain.

5. The damages case failed because neither proposed counterfactual would have occurred. The lenders would not have accepted an unhedged payment-in-kind structure or the proposed reduction in the swap spread.

6. The claims against the non-RBS banks also failed. They had not held RBS out as authorised to make the alleged representations. Any authority arising from RBS’s co-ordination and execution functions was too narrow, and Marme had not relied upon the alleged holding out.

7. Marme’s implied-term and repudiatory-breach defence failed. The proposed terms were too vague and were not necessary for commercial coherence. No breach was proved. The banks had validly terminated the swaps and were entitled to the declarations sought.

The judgment was delivered at first instance. The judgment records an earlier unsuccessful stay application in the same proceedings: Marme v RBS & Ors [2016] EWHC 1570 (Comm).