Marme v NatWest (2019): Clear Conduct, Clear Words – Tight Limits on Implied Benchmark Representations, Reliance, Agency and Rescission in Syndicated ISDA Swaps

Introduction

This Commercial Court decision concerns one of the largest Spanish real estate financings at the height of the financial crisis: Marme Inversiones 2007 SL’s purchase (and lease-back) of Banco Santander’s headquarters, largely financed by a syndicated senior loan of €1.575bn and a suite of 15-year stepped interest rate swaps referencing EURIBOR. Marme sued NatWest Markets (then RBS) and four other syndicate lenders (HSH, BayernLB, ING and Caixa) seeking rescission and/or damages approaching €1bn, alleging that RBS, on its own behalf and allegedly on behalf of the other banks, made implied representations about the integrity and honesty of the EURIBOR-setting process which were false in light of misconduct surrounding EURIBOR and the later criminal conviction of Philippe Moryoussef (then at RBS, formerly Barclays).

The banks denied the claims and, in parallel, sought declaratory relief confirming their early terminations under the ISDA Master Agreements (1992 form) following Marme’s non-payment in May 2014, claiming close-out amounts circa €710m plus default interest. RBS also faced a separate defence that it had repudiated implied EURIBOR-related terms of the swap.

The case presented a dense intersection of issues that recur in post-benchmark-manipulation litigation: (i) what can be impliedly represented by using a benchmark in a bilateral swap? (ii) how specific and clear must the representor’s words or conduct be? (iii) how strictly will the “awareness/reliance” requirement be applied for misrepresentation? (iv) when is a syndicate lead arranger or “bookrunner” an agent for other lenders? (v) can only part of an interdependent financing be rescinded? (vi) what damages are recoverable under counterfactual finance structures? and (vii) how do ISDA’s termination machinery and implied terms interact?

Summary of the Judgment

Implied representations: The Court rejected all five broad “EURIBOR representations” pleaded by Marme. Following and refining Property Alliance Group (PAG), it held that only a narrow representation could in principle be inferred from proposing a LIBOR/EURIBOR-referencing swap – namely that the bank itself was not, and did not intend to, manipulate the benchmark – but that narrower representation was not pleaded here and, on the evidence, was not false.
Falsity: If the pleaded broad representations had been made, parts of the contemporaneous record (especially past Barclays-era communications of Mr Moryoussef and a few early RBS communications) would have made them false in various respects; however, no evidence showed that RBS itself (or ABN AMRO submitters) actually manipulated EURIBOR during the relevant period.
Fraud: The judge indicated that, if necessary, fraud could have been established (via knowledge/intention within RBS attributable to the company), but this did not affect outcome because the representations were not implied and reliance failed.
Reliance/awareness: Marme did not prove that the alleged implied representations were “actively present to its mind” when contracting. Awareness is essential for reliance; mere assumptions about benchmark honesty do not suffice.
Rescission barred:
- Affirmation: By paying swap amounts in February 2014 after knowing the Commission’s December 2013 press release, Marme affirmed the swaps.
- Partial rescission: The swaps could not be rescinded alone. They were structurally interdependent with the senior loan (required hedging, embedded loan effect of the step-up structure, cross-consideration). To rescind only the swaps would rewrite the bargain (partial rescission rule).
Damages/counterfactuals: Both counterfactuals failed:
- PIK loan structure: Incompatible with lenders’ insistence on interest-rate hedging; it removed protection against EURIBOR movements and would not have been approved.
- Swap discount (10 bps): No realistic basis that RBS (still less the other banks) would have agreed to reduce the agreed 15 bps “all-in” spread; testimony established that 15 bps was already tight and economically grounded.
Agency (Non‑RBS banks): No apparent authority. RBS’s roles as joint MLA/bookrunner/document coordinator/hedge coordinator/facility agent did not make it agent for the others to make EURIBOR representations. On the credit spread negotiation, RBS acted as a conduit; on execution it acted as principal – the non‑RBS banks were hedged back-to-back and indifferent to the mid-market price. No reliance on any holding-out was shown.
Implied terms/repudiation: The Court refused to imply broad “honesty/integrity” terms into the swap; they were too vague and went beyond what was necessary for business efficacy. Even if implied, no breach was proved, and in any event Marme affirmed; ISDA’s termination machinery is a complete code in this context.
ISDA termination and sums due: The banks validly terminated under ISDA Section 6(a) following a (contractually extended) failure to pay. Their calculations under Section 6(d)/(e) stood, and declarations were granted. The Court accepted ISDA’s termination framework as providing the contractual consequences.

Analysis

Precedents Cited and How They Shaped the Decision

1) Implied representations about benchmarks

Property Alliance Group v RBS [2018] 1 WLR 3529 (CA): The Court applied PAG’s insistence that complex and wide-ranging implied representations are not to be lightly inferred. Only a narrow representation (“we are not and do not intend to manipulate”) may “probably” be inferred from proposing a swap, depending on the facts. The Court carefully distinguished the present wider EURIBOR representations (covering past conduct, attempted manipulation, other banks’ conduct and “integrity”) from PAG’s narrower formulation.
IFE Fund v Goldman Sachs [2006] 2 CLC 1043; Raiffeisen v RBS [2010] EWHC 1392 (Comm); Cassa di Risparmio v Barclays [2011] 1 CLC 701; Innovatorone [2012] EWHC 1321 (Comm): These cases demand clear conduct/words to imply a representation and are hostile to vague, evaluative concepts (e.g., “integrity”, “proper hedging”). The Court followed this line in holding Marme’s pleaded representations too uncertain and elastic.
Graiseley v Barclays [2013] EWCA Civ 1372: An interlocutory permission case only; the Court here rightly treated it as not setting substantive limits (PAG later refined the substance).
Standard Chartered v Ceylon Petroleum [2011] EWHC 1785 (Comm): Vague representations like “true hedge” or “proper hedging” are not apt to be implied. The Court echoed this in rejecting “undermining integrity” and “honesty in rate-setting” as implied terms/representations.

2) Falsity, regulatory/criminal materials

Civil Evidence Act 1968 s.11: Moryoussef’s conviction proved his conspiracy to defraud, but the indictment (and sentencing) did not establish misconduct at RBS during the relevant period. The Court carefully circumscribed the evidential reach of the conviction.
EU Commission Decision (2013) on EIRD Article 101 TFEU: The Commission’s “object” infringement findings (collusion/information-sharing) are different from deceitful manipulation of submissions; Article 101 does not require dishonesty. The Decision was not treated as an admission of manipulation.

3) Reliance and causation

Smith v Chadwick (1884) 9 App Cas 187; Arkwright v Newbold (1881) 17 Ch D 301; Raiffeisen; Cassa di Risparmio; Leni Gas [2014] EWHC 893: The representee must have the representation “actively present to mind.” Mere assumptions do not suffice. The Court applied this strictly; Marme’s principal witness had not turned his mind to any EURIBOR representation at all.
Assicurazioni Generali v ARIG [2003] 1 All ER (Comm) 140; Downs v Chappell [1997] 1 WLR 426; Dadourian v Simms [2009] EWCA Civ 169; Leni Gas; NIVE v Rembrandt [2019] EWHC 103 (Comm): The Court reviewed whether inducement requires “would” (usually) or “might” (possibly in fraud). It proceeded on the orthodox position: “would” for non‑fraud; “might” potentially for fraud—although here it did not matter, as reliance failed on awareness grounds.
Zurich v Hayward [2016] UKSC 48; OMV Petrom v Glencore [2016] EWCA Civ 778: Cited to clarify presumption of inducement (material misstatements) and to avoid speculative “what if told the truth” reconstructions unless directly relevant; the Court stressed the need for evidence connecting the (implied) statement to the decision to contract.

4) Agency and apparent authority in syndicated finance

Freeman & Lockyer v Buckhurst Park [1964] 2 QB 480; The Ocean Frost [1985] 1 Lloyd’s Rep 1; MCI WorldCom v Primus [2004] EWCA Civ 957: Apparent authority requires the principal’s representation to the third party, reasonable reliance and scope matching the act. The Court found no such representation here.
UBS v Kommunale Wasserwerke Leipzig (KWL) [2017] EWCA Civ 1567: Caution against forcing an agency analysis; absence of fiduciary duty and power to bind are “significant pointers” against agency. The judge applied this in holding that MLA/bookrunner/document coordinator roles are coordination functions, not agency mandates to make representations.
Spooner v Browning [1898] 1 QB 528: Even where an intermediary handles logistics or communications, authority to bind or to make representations is not lightly inferred.

5) Rescission, affirmation and partial rescission

Peyman v Lanjani [1985] Ch 457; UCB v Williams [2002] EWCA Civ 555: Affirmation requires knowledge of both facts and the right to rescind; subsequent payments in Feb 2014 after the Commission press release amounted to affirmation.
De Molestina v Ponton [2001] CLC 1412; Al Nehayan v Kent [2018] EWHC 333 (Comm); Halpern v Halpern [2008] QB 195; Erlanger v New Sombrero (1878) 3 App Cas 1218; Stocznia Gdynia v Gearbulk [2010] EWCA Civ 79: The rule against partial rescission applies to interdependent bargains. The swaps and loan were inseparable: hedging was a condition precedent, provided an embedded loan, and was part of the consideration architecture. Conditional repayment would still rewrite the bargain.

6) Damages and counterfactuals

Clef Aquitaine v Laporte [2001] QB 488; East v Maurer [1991] 1 WLR 461: Damages may be assessed by realistic counterfactuals, but claimants must prove that the alternative deal would have been achieved. On the evidence of lenders and market practice, neither PIK nor a 10 bps spread reduction would have happened.

7) Implied terms and ISDA termination

Marks & Spencer v BNP Paribas [2016] AC 742: The modern test for implying terms: necessity for business efficacy/obviousness; precision and coherence essential. Broad honesty/integrity terms failed these tests.
Deutsche Bank v Sebastian Holdings [2013] EWHC 3463 (Comm): ISDA termination is a complete contractual code; common law termination does not displace Section 6 consequences.
Lomas v JFB Firth Rixson [2011] 2 BCLC 120: ISDA should be construed to achieve clarity, certainty and predictability.

Legal Reasoning: Why the Court Reached These Conclusions

A. Implied benchmark representations: clarity before content

The Court insisted on the PAG discipline: to imply a representation there must be clear conduct or clear words, and the meaning must be objective and precise. Marme’s pleaded EURIBOR representations were sprawling: they covered RBS’s past, present and future conduct; other banks’ conduct; “attempted manipulation” even when unsuccessful; and abstract notions of “integrity” and “honesty” untethered to specific rate-setting behaviour. Invoking IFE, Raiffeisen, Cassa di Risparmio and Innovatorone, the Court held these allegations were too wide, intricate, and imprecise to be implied from the mere proposal or acceptance of a EURIBOR-referencing swap.

By contrast, a narrower proposition—“we are not and do not intend to manipulate”—could in principle be inferred depending on the factual context (as in PAG), but the Court held two decisive points here: (i) the broader pleaded representations are not implied; and (ii) even the narrower proposition (not pleaded) was not shown false because the evidence did not establish that RBS (or ABN AMRO submitters) manipulated 3‑month EURIBOR during the relevant period.

B. Falsity and the evidential value of regulatory/criminal material

The judge conducted a meticulous review of contemporaneous chats/calls. The Barclays-era communications overwhelmingly showed Mr Moryoussef’s unlawful attempts to influence submissions with other traders. A small number of 2007 RBS communications indicated similar attempts in the weeks/months after he joined; thereafter, the picture was very different—no panel submitter at RBS, no contact with ABN submitters, and no probative material of continued manipulation. The “arbitrage” discussions in 2008 were not shown unlawful, and no expert evidence established a cartel or manipulation by RBS.

Crucially, the Court refused to treat the Commission’s cartel decision (Article 101 “object” infringement) as proof of manipulation or dishonesty in submissions; nor did the s.11 conviction establish misconduct at RBS (the indictment treated him as a Barclays employee). The Court was careful not to conflate anti-competitive information exchanges with deceitful benchmark manipulation.

C. Fraud, knowledge and intention within a corporation

Although unnecessary to decide, the Court signalled that the “mental element” of deceit could be satisfied at the corporate level through the knowledge and intention of an individual such as Mr Moryoussef—even if he was not the person who engaged with the counterparty—drawing on authority that allows the mental state of one employee to ground corporate liability where the company’s conduct (e.g., proposing the swap) was intended to induce reliance (see Ludsin; Standard Chartered (No. 2); discussion drawing also on Bowstead & Reynolds and Males J’s analysis in UBS v KWL as to attribution). But since no implied representation was made (and reliance failed), this did not change the result.

D. Reliance: awareness is indispensable

On reliance, the Court applied the strict “awareness” requirement: a claimant must have the representation “actively present to mind.” The evidence showed that Marme’s principal witness never considered benchmark manipulation, nor formed any belief about the specific EURIBOR representations alleged. The presumption of inducement (for material misstatements) was rebutted on the facts; even under a “might” standard (for fraud), reliance failed because the alleged representations never registered with the decision‑maker.

E. Rescission barred: affirmation and indivisibility of the bargain

Affirmation was straightforward: by February 2014 Marme knew of the Commission’s press release and nonetheless paid the swaps, signalling an irrevocable election to affirm. On partial rescission, the swaps were central to the financing: hedging was a contractual requirement (Senior Loan cl. 8.3), provided an embedded loan (via step-up), and was part of the lenders’ commercial return. De Molestina and related authorities bar rescinding only the swaps; to do so would rewrite the multi‑document bargain.

F. Damages counterfactuals: proof of a realistic alternative

The PIK structure failed because it removed the core risk mitigant: protection against rising EURIBOR. Evidence from Bayern, ING and HSH established that full hedging was essential to credit approval and market practice. The 10 bps spread reduction also failed: contemporaneous documents and testimony showed 15 bps “all‑in” was tight market economics; the non‑RBS banks had no reason to concede and RBS would not (and realistically could not) subsidise them.

G. Apparent authority in a syndicate: coordination is not agency

Applying UBS v KWL, Freeman & Lockyer and The Ocean Frost, the judge held that RBS’s roles (MLA/bookrunner/document agent/hedge coordinator) are coordination functions, not fiduciary mandates; in syndicated loans, an arranger is generally an independent contractor, not agent of borrower or lenders. On spreads, RBS acted as conduit and adviser; on execution, it acted as principal hedging in the market and then back-to-backed to the others, leaving them economically indifferent to mid‑market price. No representation by the non‑RBS banks to Marme was shown; nor was reliance.

H. Implied terms and ISDA termination

Broad honesty/integrity terms (as pleaded) were too vague to satisfy Marks & Spencer: not necessary for business efficacy, not obvious, and incapable of clear expression. A narrow “no dishonest manipulation causing loss” term (akin to PAG) might be assumed, but was neither pleaded nor breached. In any event, Marme affirmed the swap; and, under Sebastian Holdings, ISDA Section 6 is a comprehensive termination code, displacing common law termination routes insofar as consequences/remedies are concerned. The banks’ Section 6(a) early terminations and Section 6(d)/(e) calculations stood.

Impact and Practical Implications

Benchmark litigation after PAG: Claimants face a high bar to imply broad, complex benchmark representations. Courts will demand simple, precise formulations tied to clear words/conduct, and will not “water down” the rule to accommodate unconscious assumptions about benchmark integrity.
Reliance: The “awareness” requirement is robust. Assumptions that a benchmark is “honest” do not amount to awareness of a specific implied representation. The presumption of inducement is rebuttable on the facts.
Agency in syndication: Lead arranger/bookrunner/document/hedge coordination roles will rarely amount to agency to make representations for other lenders. Apparent authority requires a principal’s holding‑out and third‑party reliance. Sole execution of swaps does not imply agency; it often reflects commercial efficiency and neutral economics for back‑to‑back hedged participants.
Rescission architecture: Interdependent finance structures (loan + hedges + embedded economics) typically preclude partial rescission. Affirmation can be found from continued performance post‑knowledge.
Damages counterfactuals in finance: Courts will test counterfactuals against market practice and lender testimony. PIK alternatives that eliminate interest‑rate hedging will rarely be credit‑acceptable in large real estate financings.
Implied terms in swaps: Broad “integrity/honesty” clauses are unlikely to be implied; a narrow “no dishonest manipulation causing loss” term aligns with PAG, but proof of breach will be exacting.
ISDA termination: Courts continue to treat Section 6 as the operative code for termination and settlement; attempts to circumvent via common law termination/repudiation are unlikely to prevail where ISDA consequences are specified.

Complex Concepts Simplified

What is EURIBOR and why does it matter? EURIBOR is a benchmark rate indicating the average rate at which eurozone banks offer to lend to one another. A swap “floater” leg linked to EURIBOR means the floating payments move with the published rate. It is central to the economic balance of swaps and floating‑rate loans.
“Implied representation” in contract talks: Even if nobody says anything expressly, the law can sometimes infer a representation from what a party did. But courts only do this where the conduct clearly conveys a specific factual message. Vague or sprawling propositions are not implied.
Reliance requires awareness: To claim misrepresentation, the claimant must have had the particular representation in mind when deciding to contract—assumptions or general beliefs are not enough.
Apparent authority: A person can bind a principal where the principal represents to the counterparty that the person has authority, and the counterparty reasonably relies on that representation. Mere coordination or passing messages does not create that authority.
Affirmation vs rescission: Rescission unwinds a contract from inception, but if after learning of the relevant facts you continue to perform (e.g., make a payment), you may be taken to have “affirmed” and lose the right to rescind.
Partial rescission rule: You cannot rescind one inseparable part of a multi‑document bargain and keep the rest; courts avoid rewriting the parties’ overall transaction.
ISDA Section 6 termination: ISDA gives a step‑by‑step method: notice of Event of Default, designation of an Early Termination Date, and calculation/payment of a close‑out amount. Courts treat this as the operative framework in disputes.
“Mid‑market” execution price and back‑to‑backs: When a dealer hedges the market risk and then passes hedges to other banks on back‑to‑back swaps, those banks typically earn a pre‑agreed spread and are indifferent to the precise “mid” execution level on the dealer’s market hedge.

Conclusion

This judgment fortifies the approach set in PAG and related authorities: implied benchmark representations must be narrow, precise and grounded in clear conduct; courts will not infer sprawling assurances about honesty, integrity or the conduct of third parties. Even where regulatory and criminal enforcement exists, falsity must be fitted to the representation actually made, in the relevant period, and to the defendant’s conduct—not to generalized wrongdoing in the market.

Equally important are the reliance and rescission holdings. The “awareness” requirement is applied with rigor; assumptions about benchmark probity cannot substitute for clear proof that a specific implied representation shaped the decision to contract. Rescission in complex financings requires careful attention to affirmation and the partial rescission bar: where swaps, loans, and embedded economics are interwoven, rescinding only the hedge will almost always rewrite the bargain.

On the syndication/agency front, the Court’s analysis underscores that arranging, coordinating, and executing roles do not of themselves create agency for other lenders; apparent authority requires a principal’s holding‑out and reliance. Finally, the judgment reaffirms ISDA’s termination machinery as a comprehensive code, discouraging attempts to bypass Section 6 consequences through broad implied terms or common law termination narratives.

For practitioners, the message is clear: (i) keep implied representations tight and tied to specific, clear conduct; (ii) gather direct awareness evidence on reliance; (iii) treat syndication roles as coordination unless a genuine agency mandate is demonstrable; (iv) expect courts to enforce ISDA termination mechanics as drafted; and (v) ensure damages counterfactuals reflect lender practice and market realities. Marme thus stands as a leading authority on the limits of implied benchmark representations, reliance, agency, rescission and ISDA termination in large syndicated swap-backed financings.