In a recent case, the High Court took the opportunity to restate the law on misrepresentation and the importance of demonstrating that an innocent party has actually relied on a misrepresentation.
In Leeds City Council and others v Barclays Bank PLC and another  EWHC 363 (Comm), the High Court preferred the Defendant’s interpretation of the applicable test and struck out the Claimants’ claims for misrepresentation. This case has a practical take-away for anyone considering a misrepresentation claim and underlines the importance of establishing early on (and certainly before drafting the claim) that the recipient of any misrepresentation has sufficient awareness so as to be said to have relied on the same.
The underlying claims related to two actions for rescission of loans provided by the Defendant to the Claimants on the grounds of misrepresentation. The loans in question were said to be affected by the London Interbank Offered Rate (LIBOR) rigging scandal. In 2012, it transpired that various banks, including the Defendant (although the precise nature and extent of the Defendant’s involvement in it were very much in issue), were involved in manipulating LIBOR benchmarks. In relation to the present case, the loans which were provided to the Claimants had various features which were set in accordance with LIBOR.
The Defendant sought to strike out both claims and, as the factual circumstances of both claims were extremely similar, the strike out application was heard for both claims simultaneously.
The Claimants claimed that these loans were tainted by misrepresentations concerning LIBOR rates and that it was implied in communications between the parties that the LIBOR rate was being set honestly. The Claimants alleged that had they been made aware that the Defendant was involved in manipulating LIBOR rates, the Claimants would not have entered into the relevant loan agreements.
Though the Defendant contested the allegation that they made any of the alleged misrepresentations, for the purposes of this case, the Court proceeded on the assumption that the Defendant had made misrepresentations in relation to the loans and the setting of LIBOR rates. This assumption was adopted as the parties disagreed on a fundamental point of law; the applicable test for reliance in relation to misrepresentation.
Reliance is an essential element of the cause of action in misrepresentation and the Defendant alleged a necessary element of reliance was “awareness” of the representation being made or, as described in previous authorities, “contemporaneous conscious thought to the fact that some representations were being impliedly made”. According to the Defendant, as the Claimants could not identify any natural persons who had consciously understood the alleged misrepresentations, it could not be said that the Claimants satisfied this test for reliance.
In contrast, the Claimants alleged that, for the purposes of demonstrating reliance, all they needed to prove was that they were influenced or affected by the LIBOR representations, whether consciously or subconsciously.
Decision – when is a misrepresentation not a misrepresentation?
The Court held that the prior authorities in this area provided “powerful support for the argument that proof of understanding of the representation is a constituent part of a case in misrepresentation”. Further, the Court held that the authorities in this area did not point to the possibility for an assumption (i.e. the Claimant assuming the Defendant will not participate in the manipulation of LIBOR rates) combined with proof of what the Claimant would have done if provided with the truth to be sufficient in demonstrating reliance. In short, the authorities did not afford scope for reliance where the representation was never actively present in the innocent party’s mind.
Though it was likely that the alleged misrepresentation induced the Claimants into the various loan agreements, the existence of inducement could not trump the requirement of awareness of misrepresentation.
The Court held that regardless of the nature of a given misrepresentation, implied or expressed, via conduct or words, the same rules apply to assessing whether there is an actionable misrepresentation capable of giving rise to a remedy. This essentially meant, regardless of how the Claimants’ pleaded the nature of the misrepresentation, there was no escaping the necessity of demonstrating “awareness” and reliance on the same.
Misrepresentation has long been the go-to “plan B” for claimants without the comfort of a traditional contractual or tortious claim. However, the practical take away from this case is that anyone considering a misrepresentation claim needs to look carefully at the outset as to not only whether there was any misrepresentation, but also whether it can be shown that an individual acted in reliance on that representation.
These claims are incredibly fact sensitive. However, this case is an important reminder that if reliance is not borne out in pleadings any claim can be struck out without trial. More specifically, financial institutions involved in the LIBOR scandal will likely seek a degree of comfort from this judgment in that contracts agreed prior to the scandal, with terms dependent on the LIBOR rate, may escape the clutches of successful causes of action in misrepresentation – though it is clear this is dependent on the circumstances and nature of correspondence between the parties. It also remains to be seen whether an appeal may follow.