Libor Rigging Further Unmasked PAG V’s RBS

Via Berg Author Ian Mendelsohn Wednesday, 25th November 2015

Property Alliance Group Limited (“PAG”) –v- The Royal Bank of Scotland plc (“RBS”)

In a game changing decision of the High Court delivered on 13 November 2015 PAG has been given permission to amend its claim against RBS to include allegations of fraud in respect of LIBOR rigging which implicates senior personnel at the highest echelons of the Bank at the material time.

Following an interlocutory hearing before Mr Justice Birss he made a series of thundering findings against the giant bank which are likely to reverberate through the length and breadth of this land and perhaps wider.

Following evidence which PAG obtained from RBS in disclosure PAG applied to amend its claim to include an express allegation of misconduct relating to LIBOR Sterling and US Dollars from at least August 2007 onwards.

Further PAG applied to plead that from August 2007 and due to the worldwide financial crisis and shortage of liquidity, RBS and its fellow panel banks were submitting LIBOR rates at a time when they were either unable to borrow funds on the interbank market or were unable to borrow funds at the rates they were submitting to the British Bankers Association (BBA).

PAG submitted, based on its analysis of some 40 documents produced to the Court, that the LIBOR related misconduct of RBS did involve GBP or USD as well as the manipulation in respect of Swiss Francs and Japanese Yen already admitted by the Bank to the Regulatory Authorities.

Moreover PAG pointed out to the Court that RBS must have known all along that its misconduct was not confined to those matters it had admitted in its defence.


PAG also applied to amend its claim to say that RBS made LIBOR representations fraudulently.

RBS applied (yet again) to amend its defence, this time to confess to the extent of involvement of employees of RBS (or affiliates) in the attempted or actual manipulation of LIBOR not only with Japanese Yen and Swiss Francs but also attempted manipulation of the US dollar rate in 2008 and 2010.

Why RBS did not come clean beforehand and how could RBS have signed a Statement of Truth to its signed Defence are serious matters which need answers.

PAG’s amendments include allegations that the evidence they refer to, by its nature and extent, and the number of RBS employees involved and their seniority “show an approach and attitude within RBS to the manipulation of LIBOR that goes well beyond isolated instances of wrongdoing and amounts to an ongoing regime or environment within RBS in which misconduct relating to LIBOR benchmarks was practised and condoned from at least August 2007 into well into 2011“.

As with PAG many former customers of RBS will have been sold Interest Rate Hedging Products (Swaps) based on LIBOR during this material period.

It is worth repeating the significance therefore of the interrelationship between LIBOR rigging and these Swaps as so eloquently articulated by the Judge.

The interrelationship between actual or attempted manipulation of LIBOR and selling swaps is significant… The sort of scenario one can envisage would be for a derivatives trader to ask the benchmark submitter to adjust the submission to suit the derivative position“.

PAG submitted that in the period from August 2007 there is evidence that the interbank lending market was not functioning and evidence that this was appreciated at the highest level in RBS. The Judge observed that without such a functioning interbank market PAG’s point is that: it is hard to see how there could be a genuine LIBOR rate in accordance with its formal definition; that in this period LIBOR was effectively broken; that the Bank knew this although the outside world did not; and yet at the same time the Bank was selling LIBOR benchmarked swap contracts to PAG – and many many others.

The Judge concluded that in his judgment the material relied on by PAG provides ample prima facie support for an inference of fraud and dishonesty at the highest level of RBS, that, arguably, members of the RBS board were aware that LIBOR was “broken” during the period in which RBS was selling swaps to PAG referable to LIBOR, and that 10 individuals named in PAG’s Amended Particulars of Claim are clearly closely involved in the materials relied on.

PAG’s applications to amend were successful.

Consequently the Bank has also been ordered to give additional disclosure of documents amounting to some 8 million pages in respect of the senior RBS people involved including Fred Goodwin.

This PAG Judgment is likely to light the way for many other victims of these types of mis-sold swaps, even to the extent of potentially opening up the limitation period which may previously have prevented them from seeking relief.

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