The recent Court of Appeal decisions in Graiseley Properties v Barclays Bank and Deutsche Bank v Unitech have understandably been attracting much attention and comment. Certainly, if Graiseley’s and Unitech’s LIBOR-based cases were to succeed at trial, the implications for trillions of pounds worth of LIBOR-related debt obligations and derivatives are truly mind-boggling.  But these interlocutory decisions in the two cases are also significant for other reasons that have been less widely reported.

The story so far

First, a refresher on the history of these cases. Both started life as attempts by banks to enforce against defaulting customers under finance agreements. In Graiseley the bank is trying to enforce two swaps. The Unitech case comprises two claims: one by a syndicate of lenders to enforce repayment of a US$150 million loan facility; the other by Deutsche Bank alone to claim sums under a swap sold alongside the loan.

The banks’ customers both claim that the swaps were unsuitable. After various regulators’ investigations became public, the customers also tried to amend their cases to claim that the banks’ alleged role in or awareness of LIBOR manipulation entitles them to resist the claims.

Graiseley was given permission to amend its case to make claims related to LIBOR by Mr Justice Flaux in the High Court in October 2012. However, Mr Justice Cooke refused a similar application by Unitech in February 2013. Both those decisions were appealed. In the meantime, further applications to amend by Unitech and applications by the banks for summary judgment on aspects of Unitech’s case said to be made untenable by Mr Justice Cooke’s judgment were decided by Mr Justice Teare in September 2013 at the parties request, notwithstanding the pending Court of Appeal decision.

Then on 8 November 2013 the Court of Appeal overruled Mr Justice Cooke (and parts of Mr Justice Teare’s decision) and allowed the LIBOR allegations in all three cases to go to forward to trial. But as three of the most fiercely contested financial disputes of recent years, there is much more to these cases than LIBOR.

The silver bullet backfires

In the years since the famous decisions in Peekay v ANZ and Springwell v JP Morgan it has at times seemed that so-called “contractual estoppel” has become a silver bullet for financial institutions faced with mis-selling claims.  Where a bank had the foresight to include in its contract terms express confirmations by customers that no representations or advice were given (or where given they were not relied upon), those provisions have resolved a number of issues and cases in their favour.

In some cases banks’ counsel have been able to use contractual estoppel as a shortcut to success.  In Intesa Sanpaolo SpA v Regione Piemonte, Mr Justice Cooke and Mr Justice Eder both decided contractual estoppel arose: the former on an application for default judgment; the latter on a summary basis.  Similarly, in Titan Steel Wheels v RBS contractual estoppel was relied upon at a preliminary stage to defeat the existence of a duty of care in relation to advice. It is fair to say those cases are not characterised by close analysis of whether the statements alleged by the banks’ customers properly fell within the four corners of the terms relied upon.

Now the scope to use contractual estoppel to simplify or defeat mis-selling claims pre-trial has been thrown into some doubt by Mr Justice Teare’s judgment in Unitech, which survives the Court of Appeal decision in this respect. Asked by the bank to find that Unitech was estopped from relying on any representation (express or implied) as a result of these types of disclaimers, the judge looked closely at the overlap between the wording and the allegation.  He concluded that he was “not persuaded that this is a matter which can safely be resolved on an interlocutory application” as “the inter-relationship between the…representation and the terms of the disclaimer may well depend upon the precise circumstances in which that representation was made”.

It may be that these decisions mark the beginning of a more critical approach to contractual estoppel clauses and the allegations they can defeat.

Fraud unravels all?

It has sometimes been said that fraud is broadly effective to defeat a contractual estoppel in much the same way that stone beats scissors in the eponymous game.  There was a hint of that attitude in Unitech when Mr Justice Cooke suggested that the non-reliance provisions of the swaps have “much less weight in a situation where dishonesty is alleged” and noted the equitable maxim that “fraud unravels all”.

In the Unitech application that came before Mr Justice Teare the game was more like chess as the judge scrutinised Unitech’s fraud gambit and the banks’ moves in response.  For example:

  • Mr Justice Teare held that dishonesty was not relevant to whether a duty of care in negligence was prevented by contractual disclaimers.  He observed that “the fact that dishonesty may be alleged does not enable a duty of care to arise in circumstances where it would not otherwise”.
  • He noted as an “interesting argument which has the advantage of logic” the bank’s suggestion that the effect of a contractual term that no representation had been made should be considered before determining whether even a fraudulent misrepresentation had been made.
  • On the other hand he considered it arguable if contractual disclaimers were obtained by fraudulent misrepresentation that would defeat a contractual estoppel.

The Court of Appeal defaulted back to the broader brush approach, treating the banks’ reliance on disclaimers as “arguably misplaced when the allegation is that the contracts were fraudulently induced”.  Time will tell which game will catch on.

Moving target – the limits of summary judgment

The courts in these cases have to some extent indulged attempts to pick off weak issues by targeted summary judgment applications.  Mr Justice Cooke’s judgment in Unitech demonstrates this approach well.  But limits to the courts’ willingness to do this are crystallising.

The Court of Appeal made clear that it did not wish to be “too selective about the precise representations the parties wish to advance”.  The High Court was also in places cautious not to attempt to resolve issues at a summary stage where it was not safe to do so without the full factual background.  Mr Justice Teare refused to dismiss some allegations where they were weak on their own but were closely related to stronger allegations: for example where express and implied representations to the same effect were alleged as alternative cases.

Caution is clearly needed when trying to cherry pick issues at an early stage in proceedings. It does not appear that the courts will currently look kindly on an overly selective approach based on technical distinctions between legal causes of action.

New for old?

Finally, the Court of Appeal’s decision contains a surprising attack on the sort of novation provisions routinely used in syndicated loan facilities.  These commonly allow an originating lender to syndicate parts of the loan by either assigning rights under the loan agreement or by novating the agreement so that a new lender can accede to its terms.

These provisions came into focus because two of the lenders under the Unitech loan facility had become lenders by novation.  Mr Justice Cooke had decided that since a novation extinguished the pre-existing agreement and replaced it with a new one, any right to rescind the loan facility for misrepresentation had also been extinguished.  The banks then applied for and got (from Mr Justice Teare) summary judgment against Unitech’s claim to rescission for misrepresentation.

The Court of Appeal overruled the High Court on this.  It doubted whether “novation” in the loan facility was used in its strict legal sense.  It considered it arguable that no novation had occurred and so the remedy of rescission was not lost.

Before now it has been widely assumed that standard novation provisions in syndicated loan facilities do provide for a complete novation of the loan agreement in the strict legal sense.  There may well be unintended consequences in the syndicated loan market if these novations turn out not to be novations at all.


The LIBOR aspects of these cases may have knock-on effects for financial products litigation in the coming months.  But it is one thing to plead the case: it will be much harder to show that the relevant banks’ role in relation to the setting of these indices was genuinely important to customers when they entered their contracts.

If those allegations are not made out, the interlocutory skirmishes over the issue may become a footnote in history.  On the other hand, the trends in more longstanding issues in mis-selling cases, such as the limits of the doctrine of contractual estoppel or the scope to make targeted strike-out raids against the soft parts of an opponent’s case, have the potential to resonate more broadly after the LIBOR controversy has passed.