The case of Leeds City Council and others v Barclays Bank plc and another [2021] EWHC 363 (Comm) addresses some important points relevant to misrepresentation claims. This briefing explains the decision.
Where Party A makes an untrue statement of fact or law (a representation) to Party B that induces Party B to enter into a contract with Party A, it is open to Party B to seek rescission (or setting aside) of the contract, or damages (depending on whether the misrepresentation was fraudulent, negligent or innocent). For Party B to have been induced to enter into the contract they must have "relied" on the representation.
In the Leeds City case the court looked specifically at the issue of reliance and, in particular, whether "awareness" of the representation is required and, if so, how that will be established. The court concluded that to succeed in a misrepresentation case of this type a claimant must plead and prove that a representation had actually been made, that they were aware of the alleged representation at the time it was made, and that this awareness amounted to more than a subconscious factor in their decision to enter into a contract.
Factual background
In this case several local councils sought to rescind LIBOR-referenced loan agreements entered into with Barclays (the Bank), between 2006 and 2008, alleging fraudulent misrepresentation. In 2012 it emerged that various banks on the LIBOR panel had been involved in manipulating LIBOR benchmark rates. The claimants alleged that their loans were affected by LIBOR-related implied misrepresentations, namely that LIBOR rates were being set honestly and properly (so far as the Bank knew) and that the Bank was not (and had no intention of) engaging in any improper conduct relating to its role on the LIBOR panel. It was common ground that the Bank had been involved in LIBOR manipulation, but the nature and extent of this was very much in issue. The Bank vigorously contested many of the claimants' allegations, including that it made the representations at all.
The Bank sought to strike out the claims on the basis that they were bound to fail because the claimants could not demonstrate that they had relied on the alleged representations. For the purposes of the strikeout applications, the court was required to treat the claimants' factual case at its highest and the Bank accepted that the court had to determine the applications on the assumed basis that the alleged representations had been made, were false and had been made fraudulently.
The reliance test and "awareness"
The parties disagreed on the correct legal test for reliance. The Bank asserted that "awareness" was an essential component of reliance; i.e. that a claimant must show "a present active understanding that the communication is being made" (termed the "Awareness Requirement"). The point being made by the Bank was essentially a simple one – how can you rely on a statement or representation if you are not aware of it having been made? It was accepted that the claimants would not be able to satisfy the Awareness Requirement, as formulated by the Bank, if that was found to be the correct test. The Bank relied, in particular, on the court's reasoning in Marme Inversiones 2007 SL v Natwest Markets Plc [2019] EWHC 366 (Comm) to support its position.
The claimants argued that the Bank was wrong on the test for reliance and that it was sufficient to show they were "influenced or affected" by the LIBOR Representations "in the sense that the LIBOR Representations operated on their minds, whether consciously or subconsciously". They contended that an assumption (here, simply taking it on trust that the Bank was not manipulating LIBOR) could, in certain circumstances, be sufficient to found a claim in misrepresentation. It was central to the claimants' case that awareness could not be separated from inducement with regard to any representations made – i.e. if you could demonstrate awareness of the representation it automatically followed that you relied on it.
Court's decision
The Judge found the authorities which "posit a test of understanding/awareness, seem to indicate that there is no scope for reliance on an assumption where there is an issue as to whether the representation was ever actively present to the representee's mind". The Judge found the Awareness Requirement was particularly important when considering implied representations. In some cases, "awareness" may be very close to what might be loosely characterised as assumption. However, the Judge was influenced by the decisions in Marme and Property Alliance Group Limited v The Royal Bank of Scotland Plc [2016] EWHC 3342 (Ch), which involved similar LIBOR-related representations. The Judge concluded that the Bank was broadly speaking correct as to the test to be applied and that proceeding on the basis of assumption in this case would be wrong in law; more was needed than an assertion of "subconscious operation". It followed that the claims as pleaded, even if proved, had no real prospect of success and would be struck out.
