On 2 March 2018, the Court of Appeal handed down judgment in the case of Property Alliance Group Ltd v Royal Bank of Scotland plc [2018] EWCA Civ 355; Property Alliance Group’s (“PAG”) appeal was dismissed.


RBS loaned PAG funds at interest rates linked to the London Inter-bank Offered Rate (“LIBOR”); the provision of the funds was subject to PAG entering into an interest rate hedging instrument (a “swap”) which was suitable to RBS; PAG purchased such a product from RBS which included significant break costs if PAG terminated early and interest rates had declined. Shortly, after the parties had entered into the arrangement, the LIBOR rates declined significantly and PAG terminated the swap and incurred the break costs.

The Claim

PAG claimed that:

  1. RBS had negligently breached a duty owed to it in failing to illustrate the worst case scenario on potential break costs at the outset;
  2. By using the terminology “hedge”, RBS had misrepresented the swaps as products which would reduce PAG’s interest rate risk; and
  3. False representations could be implied from RBS’ conduct in relation to the LIBOR rates (i.e. RBS had impliedly represented that it would not manipulate LIBOR and then did so).

These claims were dismissed in the High Court ([2016] EWHC 3342(Ch)); PAG appealed.

The Appeal

The Court of Appeal dismissed the appeal on the following grounds:

  1. RBS did not breach its Hedley Byrne duty by failing to illustrate the “worst case scenario”, the information provided was neither misleading, partial or inaccurate. Further, RBS had assumed no further responsibility and did not owe PAG a specific duty to explain the nature or effect of the transaction;
  2. The judge had been entitled to hold that the term “hedge” did not represent the swap as a product which would reduce PAG’s interest rate risk. The swap was required by RBS to protect against interest rates rising which may otherwise adversely impact on PAG’s ability to repay the finance to RBS’ detriment. In any event, the judge held that PAG did not enter into the swap in reliance on RBS’ use of hedging terminology; and
  3. There was evidence that RBS had represented that it was not seeking to manipulate LIBOR but the judge found that there was no evidence of RBS manipulating LIBOR.

The full judgment can be read here: PAG v RBS