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BANKING & FINANCE: An Introduction

BANKING & FINANCE: An Introduction  

Contributed by Ian Wilson QC and William Day of 3 Verulam Buildings

It is encouraging that the loss of the Brussels Recast Regulation has not (so far) triggered any significant transfer of international banking work from the London courts to other jurisdictions or to arbitration. Indeed, the LCIA caseload attributable to banking and finance decreased last year, whereas, in contrast, the Commercial Court Report published in May 2021 noted that it was now handling many more banking and financial disputes than in previous years.

London’s continuing status as a hub for international finance means that there is a regular intersection between banking and finance disputes and issues of private and public international law. In Banco San Juan Internacional Inc v Petroleos de Venezuela SA, attempts by Venezuela’s state-owned oil conglomerate to rely on US sanctions as a defence to defaults under English law-governed facility agreements were unsuccessful: in granting summary judgment, the Commercial Court further narrowed the basis on which a counterparty can rely on foreign law illegality as a defence to contractual performance. In the meantime, the Supreme Court has heard the appeal in Banco Central de Venezuela v Bank of England, which will determine which of Venezuela’s rival governments is entitled to that country’s gold reserves held at the Bank of England. Its decision in Law Debenture v Ukraine, over USD3 billion in sovereign debt issued by Ukraine allegedly without capacity or authority or under duress from Russia, is also still awaited.

A spike in bank enforcement work following Covid-related defaults has not yet materialised but may not be far away. The early commercial disputes triggered by Covid have primarily concerned the aviation industry (eg Salam Air v Latam Airlines and Wilmington Leasing v Spicejet) and real estate leases (eg Bank of New York Mellon v Cine-UK). Nonetheless, financial institutions will take comfort from those decisions, which demonstrate the reticence of the English court to release parties from the terms of their agreements.

Another example of the continuing importance placed on contractual terms arises in the context of ‘no advice’ basis clauses. In our introduction to this practice area last year, we noted that the Court of Appeal’s decision in First Tower could be translated into the mis-selling context and give rise to fresh challenges under the Unfair Contract Terms Act 1977 to standard terms used by banks and other financial institutions. However, in late 2020 the High Court distinguished First Tower in Fine Care Homes Ltd v NatWest, deciding that its reasoning did not apply to contractual clauses that defined a party’s primary rights and obligations. This will be welcome news for lenders, although further challenges may lie ahead.

Benchmark manipulation claims are increasingly time-barred, as this year’s decision in Boyse v Natwest Markets demonstrates, but they still have the capacity to generate substantial litigation and raise novel issues. In February 2021, in Leeds v Barclays Bank, the Commercial Court decided to strike out a claim premised on implied representations as to the integrity of LIBOR on the basis that the claimant borrowers had not been consciously aware of those representations at the time that they were made. That decision is not only significant in practice but potentially controversial as a matter of principle. The Court of Appeal is due to hear the appeal in February 2022, and its decision will be eagerly awaited by banking and finance litigators.

Even if LIBOR misrepresentation claims are increasingly difficult to pursue, other avenues remain open for seeking redress for benchmark manipulation. One of the most significant set of proceedings now proceeding in the Chancery Division is the claim by the Federal Deposit Insurance Corp, acting as receiver for 39 US banks, that ten City LIBOR panel banks coordinated to artificially suppress the level of USD LIBOR in breach of then-applicable EU competition law. An early attempt to strike the claim out by UBS on limitation grounds failed, but presumably that will remain a central battle ground at trial. A similar competition claim against banks is on foot for FX rigging, brought by Allianz Global and other investment firms.

Last year was also notable for renewed prominence of the Quincecare duty in banking and finance litigation. Stanford International’s claim against HSBC for breach of that duty by failing to stop payments where there were arguably suspicions of fraud was dismissed by the Court of Appeal, on the basis that the payments out were largely applied to discharge debts owed in any event, meaning there was no loss. Permission to appeal has now been given by the Supreme Court. Watching closely will be the parties in Philipp v Barclays Bank, where a claim that the bank breached its Quincecare duty by failing to stop an authorised push payment fraud was struck out. The appeal in Philipp will be heard in February 2022.

In the arena of consumer credit, the decision in Kerrigan v Elevate marks the first judgment in what is likely to be a series of significant decisions in group litigation concerning ‘payday’ lenders. The court held that a failure to take into account a customer’s creditworthiness could amount to a breach of the lender’s regulatory obligation and in turn this could give rise to ‘unfairness’ for the purposes of Section 140A of the Consumer Credit Act 1974.

Financial institutions continue to find themselves embroiled in private client disputes, the two most prominent examples being the Ingenious and Eclipse group actions, where banks are accused of misleading investors in the marketing of film finance and other tax schemes. The Ingenious trial is scheduled to occupy much of 2022, with the Eclipse litigation following in its wake.

‘Banking and finance’ is understandably categorised as a single practice area in this directory. But the snapshot above, we hope, gives a sense of the continued scale, diversity and complexity of the UK Bar’s work in this area.