1. High Court implies term due to end of LIBOR
Standard Chartered PLC v Guaranty Nominees Limited et al [2024] EWHC 2605 (Comm)
The High Court had to determine the effect of the end of LIBOR on the terms of preference shares that paid dividends at a floating LIBOR rate. The test for implied terms is a high bar, but the Court was satisfied that it was necessary for the purposes of “business efficacy” to imply a term that the dividends should be calculated using a reasonable alternative rate (here the overnight rate of Secured Overnight Financing Rate (SOFR) with a spread adjustment).
The parties argued for different implied terms to get to different outcomes. Whilst Standard Chartered pushed for the introduction of an alternative rate, the defendants argued that the shares should be redeemed. The Court was clearly reluctant to bring the parties’ agreement to a premature end -consistent with the Courts’ general reluctance to frustrate contracts - and opted for the alternative rate. The parties had likely intended their agreement to continue; preference shares are long-term instruments, and there were already some LIBOR fallback provisions in the offering circular (albeit they did not cater for the permanent abolishment of the rate). Reading in a redemption trigger always felt like a bigger step for the Court to make.
The Court noted that its conclusions may be “similarly persuasive” in relation to contracts affected by the LIBOR transition. Going forward, an implied term could well be imposed on these “tough legacy” contracts to keep them afoot. More generally, the case shows the reluctance of the Court to give parties a way out of long-term financial commitments due to changes in the market or regulation.
2. Motor Finance decision causes shockwaves
Johnson v FirstRandBank Ltd (t/a MotoNovo Finance)[2024] EWCA Civ 1282
In what quickly became a seismic judgment, the Court of Appeal found that a lender can be liable to the customer where there is insufficient disclosure of any commission paid to a car dealer who also acts as a credit broker by recommending motor finance.
The Court found that the car dealers owed the customers a “disinterested duty” (i.e. had to provide impartial information and advice) and a parallel fiduciary duty. This meant that car dealers couldn’t receive a commission, and put themselves in a position of conflict, without obtaining fully informed consent. In the facts of the three cases, none of the customers had provided informed consent – in two cases there was no disclosure of the commission at all and in one case the disclosure was partial and insufficient.
As for the lenders, they were liable for the commission, either on a primary basis, because the commission was akin to a bribe, or as an accessory to the broker's breach of fiduciary duty. A key issue for lenders is what disclosure is required from them to obtain informed consent given that it has historically been the fiduciary agent, i.e. in this case the car dealer, who had responsibility to obtain that consent. The Court of Appeal was not convinced by generic statements buried in standard terms and held obiter that lenders should provide full details of all “material facts” about the commission (including the rate, the calculation methodology and the “tie” between the dealer and the lender) and obtain confirmation of consent. Firms should ensure that their sales materials and contractual terms reflect these requirements, at least until we have more clarity.
Permission to appeal has been granted by the Supreme Court and will be heard by March 2025. The outcome will be highly anticipated; there are already thousands of pending County Court proceedings and FOS complaints, with claims management firms and claimant law firms taking an interest. In the meantime, the FCA is continuing its review as to whether firms have breached regulatory rules on discretionary fee arrangements and is considering expanding that review to other types of commission. We are heading inextricably towards some industry-wide redress schemes next year, which links nicely to our next case…
3. FCA wins appeal over BlueCrest $700m redress scheme
FCA v BlueCrest Capital Management (UK) LLP [2024] EWCA Civ 1125
The Court of Appeal confirmed in Bluecrest that there is power to impose a single-firm redress scheme under s.55L FSMA and the conditions for the exercise of this power are as expressly stipulated therein. The Court applied the normal principles of statutory interpretation and rejected the view of the Upper Tribunal that these single-firm redress schemes should be subject to the same restrictions as industry-wide schemes under section 404 FSMA, namely establishing loss, breach of regulatory duty, causation, and civil actionability. For a single-firm scheme, the FCA merely has to make a “rational” decision as to whether the scheme advances the objective of securing an appropriate degree of consumer protection. The public law practitioners out there will be familiar with what a low bar “rationality” is under English law.
The FCA has unsurprisingly welcomed the decision. In line with the FCA’s commitment to use all the statutory powers available to it, including its supervisory intervention powers as an alternative to or concurrent with enforcement proceedings, we expect to see more instances of the FCA imposing schemes under section 55L FSMA. Further, the FCA is likely to continue closely scrutinising the conduct of firms when it comes to the management of conflicts of interest and client relationships.
4. Supreme Court upholds anti-suit injunction
UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30
The Supreme Court upheld the Court of Appeal’s order imposing an anti-suit injunction on RusChemAlliance as a result of the parties’ agreement that any disputes between them should be settled by arbitration in Paris. The core issue considered by the Supreme Court was whether it was appropriate for the English Court to grant an anti-suit injunction when the French Court did not have that power.
The Supreme Court held:
- The arbitration agreement was governed by English law even though it was a Paris seat. The Court reiterated the principles set out in its decision of Enka v Chubb: where parties have not specified the law governing the arbitration agreement, which is fairly common, the governing law of the contract will apply. However, this approach under English law might change following the Law Commission’s recommendations to amend the Arbitration Act (likely to come into force in 2025) to adopt a “seat” approach, meaning that contrary to Enka, the default rule will be that the arbitration agreement is governed by the law of the seat unless the parties agree otherwise.
- The choice of an arbitral seat outside of England did not mean that the English Court could, or should, not impose an anti-suit injunction. In situations where parties have contractually agreed on a forum, parties should be held to their contractual bargain by any Court before whom they have been, or can be, properly brought.
This case is one of several in 2024 where we saw the English Court demonstrate a real willingness to impose anti-suit injunctions. This should give firms comfort that their choice of jurisdiction clauses and arbitration agreements will be prioritised in English courts ahead of comity considerations. Another interesting example was Barclays v VEB [2024] EWHC 1074 (Comm) where the Commercial Court rejected VEB’s argument that the arbitration agreement had been frustrated by sanctions. And the topic of sanctions brings us neatly to our fifth case…
5. Landmark Court of Appeal decision on sanctions regulations
Celestial Aviation Services Limited v UniCredit Bank AG, London Branch [2024] EWCA Civ 628
In an important judgment on the scope of the UK’s sanctions regulations and related principles, the Court of Appeal considered a claim brought against UniCredit for its decision not to make payment under letters of credit due to UK’s Russa sanctions.
The Court held UK sanctions were wide enough that they could apply to arrangements entered before the sanctions came into force. It also held that even if sanctions had not prohibited payment, UniCredit would still have had a defence under s44 Sanctions and Anti-Money Laundering Act 2018, namely its belief that complying with sanctions was reasonable and noting that the bank had taken advice from its in-house Compliance team. This was generally a welcome decision, which recognises the difficulties for banks in navigating sanctions regulations and making decisions at short notice, whilst also trying to adhere to contracts.
The case is also interesting in the context of conflict of laws sanctions issues. Firms often grapple with payment requests that fall foul of a sanctions’ regime in one country but are permitted in another. In this case, Unicredit argued that the payments had to be made in USD and was therefore prohibited under US sanctions laws even if UK sanctions did not apply. The Court of Appeal upheld the established principle in Ralli Bros v Compañia Naviera Sota y Aznar [1920] 2 KB 287 that English law will not enforce a contractual obligation if doing so necessitates an unlawful act in the place of performance and not merely a preparatory step. Previous cases had suggested – somewhat impractically - that payments under financial contracts can be made in cash, which would avoid any performance in the US. The Court of Appeal said it was a matter of construction and, in this case, payments in cash or other currencies were not permitted under the letters of credit (although the Court did not decide whether the involvement of a correspondent bank in the US was a “necessary” or “preparatory” part of performing a USD payment obligation). However, Unicredit could not rely on Ralli Bros because it had not made reasonable efforts to obtain a licence from the US authorities; in particular, its application to OFAC did not give an accurate impression of the required payment flows. This is a salutary warning for banks to make prompt and accurate licence applications.
