Marme Inversiones 2007 SL v Natwest Markets Plc & Ors, England and Wales High Court (Commercial Court), Judgment, Law, casemine.com

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Attorney(S)

Pushpinder Saini QC, Alastair Tomson and Andrew Rose (instructed by Kobre & Kim (UK) LLP) for the Claimant, Marme Inversiones 2007 S.L..
David Quest QC, Laura John and Max Evans (instructed by Simmons & Simmons LLP) for the First Defendant, NatWest Markets PLC.

Judges

THE HON MR JUSTICE PICKEN

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Marme Inversiones 2007 SL v. Natwest Markets Plc & Ors

Smart Summary

Factual and Procedural Background

These high value and complex proceedings arise from events leading to the convictions of two individuals for rate fixing and involve two connected actions between Plaintiff and multiple Defendant banks (including Company A and four other banks, collectively referred to as the Defendants). The dispute concerns interest rate swaps entered into in September 2008, shortly before the collapse of Lehman Brothers. Plaintiff is a Spanish special purpose vehicle incorporated to acquire a major property from Company B and financed partly by a syndicated loan from the Defendants and others. The loan terms required Plaintiff to enter into hedging arrangements via the swaps, linked to EURIBOR. Plaintiff seeks rescission of the swaps or damages on the basis that Company A, fraudulently or otherwise, made untrue representations about the integrity of the EURIBOR setting process, primarily relying on the conduct of an individual formerly employed by Company A who was convicted of conspiracy to defraud in relation to EURIBOR. Defendants deny manipulation by Company A during the relevant period and seek declarations that the swaps were validly terminated and sums are due from Plaintiff.

The background includes the acquisition of the property by Plaintiff via a sale and leaseback transaction with Company B, financed by a Senior Loan syndicate arranged initially by one Defendant bank and later joined by Company A and others. The swaps were negotiated in the context of this financing, with Company A acting as joint mandated lead arranger and facility agent. The swaps were executed on 12 September 2008. Following the financial crisis, Plaintiff was unable to repay the Senior Loan at maturity and entered insolvency proceedings in Spain. Defendants purported to terminate the swaps in late 2014 due to Plaintiff’s failure to pay, leading to the present claims and counterclaims in this jurisdiction.

Legal Issues Presented

Whether the Plaintiff can imply representations from Company A and/or the Defendants regarding the integrity and honesty of EURIBOR at the time of entering into the swaps.
Whether those implied representations, if any, were false or fraudulent due to manipulation or attempted manipulation of EURIBOR by Company A employees.
Whether Company A and the Non-Company A Defendants are liable for misrepresentation or deceit, including the question of agency and apparent authority of Company A to represent the Non-Company A Defendants.
Whether Plaintiff relied on any such representations and whether such reliance was reasonable and causative of entering into the swaps.
Whether Plaintiff is entitled to rescind the swaps or claim damages for misrepresentation or deceit.
Whether the Defendants validly terminated the swaps and are entitled to declarations as to sums due upon termination.
Whether any terms should be implied into the swaps and whether there was any repudiatory breach by Company A.

Arguments of the Parties

Appellant's Arguments

Plaintiff contends that Company A made implied representations that it and other banks did not manipulate, or attempt to manipulate, EURIBOR, and that these representations were false due to the conduct of a key trader convicted of conspiracy to defraud.
Plaintiff relies on the trader’s communications at both Company A and a previous employer to establish falsity and fraud.
Plaintiff asserts that Company A acted as agent for the other Defendant banks in making these representations and negotiating the swaps, justifying claims against all Defendants.
Plaintiff argues reliance on these representations induced it to enter into the swaps and that, had it known the truth, it would have negotiated materially different terms or avoided the swaps altogether.
Plaintiff seeks rescission of the swaps or damages representing the loss caused by the misrepresentations.
Plaintiff disputes the validity of the Defendants’ termination of the swaps, contending rescission or repudiatory breach precludes termination.

Defendants' Arguments

Company A denies that the trader manipulated or attempted to manipulate EURIBOR while employed by Company A and contends that the implied representations alleged are too wide, vague, and complex to be implied.
Defendants submit that the only implied representation that could exist is that Company A was not itself manipulating EURIBOR, which Plaintiff has not shown to be false.
The Non-Company A Defendants deny that Company A had actual or apparent authority to make representations on their behalf and dispute agency.
Defendants argue Plaintiff did not rely on the alleged representations and, in any event, Plaintiff affirmed the swaps by making payments after becoming aware of the alleged misconduct.
Defendants contend that the swaps and loan financing are interdependent, preventing partial rescission, and that the contractual termination provisions were validly exercised.
Defendants maintain that Plaintiff’s damages counterfactuals are speculative, unsupported, and would not have been accepted by the banks under the circumstances.
Defendants argue that any alleged repudiatory breaches were not established, not accepted, and that termination followed proper contractual procedures.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Property Alliance Group Ltd v Royal Bank of Scotland [2018] 1 WLR 3529	Limits on implying broad and complex representations concerning benchmark rate integrity.	Used to distinguish and reject Plaintiff’s broad implied representations about EURIBOR.
IFE Fund SA v Goldman Sachs International [2006] 2 CLC 1043	Principles for implication of representations and construing statements objectively.	Applied to assess whether alleged implied representations were made.
Geest plc v Fyffes plc [1991] 1 All ER (Comm) 672	Test for implied representation based on reasonable representee’s natural assumptions.	Considered but found insufficient to imply the representations without clear conduct.
Graiseley Properties v Barclays Bank [2013] EWCA Civ 1372	Permission to plead implied representations concerning attempted manipulation and integrity.	Distinguished as interlocutory; not determinative of substantive law in this case.
R v B [2018] EWCA Crim 73	Explanation of EURIBOR setting and submission obligations.	Used to clarify the nature of EURIBOR and obligations of panel banks.
Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480	Principles of apparent authority and estoppel.	Applied to assess Plaintiff’s claim of agency and apparent authority of Company A.
Marks and Spencer plc v BNP Paribas Services Trust Co (Jersey) Ltd [2015] UKSC 72	Legal principles for implication of terms in commercial contracts.	Applied to reject Plaintiff’s alleged implied terms as vague and not necessary for business efficacy.
Doyle v Olby [1969] 2 QB 158	Measure of damages for fraudulent misrepresentation.	Accepted as correct principle for damages if fraud established.
Smith New Court Securities v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254	Measure of damages for deceit and causation principles.	Accepted as correct principle regarding damages and causation.
Avon Insurance v Swire Fraser Ltd [2000] Lloyd’s Rep IR 535	Materiality of misrepresentation and its effect on inducement.	Applied to reject Defendant’s submission that limited falsity was immaterial.
Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501	Requirement of inducement and presumption of inducement in fraud.	Applied to clarify inducement and reliance requirements.
Downs v Chappell [1997] 1 WLR 426	Distinction between inducement and loss causation.	Applied to clarify reliance and causation issues.
Murad v Al-Saraj [2004] EWHC 1235 (Ch)	Rule against partial rescission of contracts forming part of an indivisible bargain.	Applied to bar Plaintiff’s claim for rescission of swaps alone without rescinding entire transaction.
UBS AG v Kommunale Wasserwerke Leipzig GmbH [2017] EWCA Civ 1567	Nature of agency and fiduciary duties; distinction between full and incomplete agency.	Applied to reject agency claim due to absence of fiduciary duties and authority to affect third parties.
Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480	Apparent authority requires representation by principal and reliance by third party.	Applied to assess Plaintiff’s apparent authority claim and found insufficient.
Marks and Spencer plc v BNP Paribas [2015] UKSC 72	Tests for implication of contract terms.	Applied to reject Plaintiff’s implied terms as vague and commercially unnecessary.
Deutsche Bank AG v Unitech [2016] EWCA Civ 119	Rule against partial rescission applying to interdependent contracts.	Applied to bar Plaintiff’s claim for partial rescission of swaps without rescinding loan.
De Molestina v Ponton [2001] CLC 1412	Partial rescission not allowed when contracts form an indivisible transaction.	Applied to bar partial rescission of swaps alone here.
Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] QB 488	Damages for fraudulent misrepresentation assessed by reference to what would have been negotiated if truth known.	Applied to discuss counterfactual negotiations in damages assessment.
East v Maurer [1991] 1 WLR 461	Assessment of damages for fraudulent misrepresentation via hypothetical profits.	Discussed in relation to damages counterfactual.
OMV Petrom SA v Glencore International AG [2016] EWCA Civ 778	Measure of damages for deceit; no need for detailed hypothetical reconstruction.	Distinguished as not addressing prior question of truth discovery.
Marks and Spencer plc v BNP Paribas [2015] UKSC 72	Principles for implication of terms in commercial contracts.	Applied to reject Plaintiff’s alleged implied terms as vague and not necessary for business efficacy.
Deutsche Bank v Sebastian Holdings [2013] EWHC 3463 (Comm)	ISDA Master Agreement termination provisions constitute a comprehensive code.	Applied to reject Plaintiff’s repudiatory breach termination defence.
Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480	Principles of apparent authority and estoppel.	Applied to assess Plaintiff’s claim of agency and apparent authority of Company A.
Egyptian International Foreign Trade v Soplex Whole Supplies Ltd [1985] 2 Lloyd’s Rep 36	Requirement that third party knew of holding out for apparent authority to arise.	Applied to reject Plaintiff’s reliance on alleged holding out without contemporaneous awareness.
Spooner v Browning [1898] 1 QB 528	Distinction between authority to receive orders and authority to bind principal.	Applied to reject agency claim where authority to bind was absent.
MCI WorldCom International Inc v Primus Telecommunications plc [2004] EWCA Civ 957	Apparent authority must be within scope of agent’s role and actual authority of principal.	Applied to require specificity in scope of apparent authority.
Marks and Spencer plc v BNP Paribas [2015] UKSC 72	Tests for implication of contract terms.	Applied to reject Plaintiff’s alleged implied terms as vague and not necessary for business efficacy.
Murad v Al-Saraj [2004] EWHC 1235 (Ch)	Rule against partial rescission of contracts forming part of an indivisible bargain.	Applied to bar Plaintiff’s claim for rescission of swaps alone without rescinding entire transaction.
UBS AG v Kommunale Wasserwerke Leipzig GmbH [2017] EWCA Civ 1567	Nature of agency and fiduciary duties; distinction between full and incomplete agency.	Applied to reject agency claim due to absence of fiduciary duties and authority to affect third parties.
Deutsche Bank AG v Unitech [2016] EWCA Civ 119	Rule against partial rescission applying to interdependent contracts.	Applied to bar Plaintiff’s claim for partial rescission of swaps without rescinding loan.
Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] QB 488	Damages for fraudulent misrepresentation assessed by reference to what would have been negotiated if truth known.	Applied to discuss counterfactual negotiations in damages assessment.
East v Maurer [1991] 1 WLR 461	Assessment of damages for fraudulent misrepresentation via hypothetical profits.	Discussed in relation to damages counterfactual.
OMV Petrom SA v Glencore International AG [2016] EWCA Civ 778	Measure of damages for deceit; no need for detailed hypothetical reconstruction.	Distinguished as not addressing prior question of truth discovery.
Marks and Spencer plc v BNP Paribas [2015] UKSC 72	Principles for implication of terms in commercial contracts.	Applied to reject Plaintiff’s alleged implied terms as vague and not necessary for business efficacy.
Deutsche Bank v Sebastian Holdings [2013] EWHC 3463 (Comm)	ISDA Master Agreement termination provisions constitute a comprehensive code.	Applied to reject Plaintiff’s repudiatory breach termination defence.
Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480	Principles of apparent authority and estoppel.	Applied to assess Plaintiff’s claim of agency and apparent authority of Company A.
Egyptian International Foreign Trade v Soplex Whole Supplies Ltd [1985] 2 Lloyd’s Rep 36	Requirement that third party knew of holding out for apparent authority to arise.	Applied to reject Plaintiff’s reliance on alleged holding out without contemporaneous awareness.
Spooner v Browning [1898] 1 QB 528	Distinction between authority to receive orders and authority to bind principal.	Applied to reject agency claim where authority to bind was absent.
MCI WorldCom International Inc v Primus Telecommunications plc [2004] EWCA Civ 957	Apparent authority must be within scope of agent’s role and actual authority of principal.	Applied to require specificity in scope of apparent authority.
Marks and Spencer plc v BNP Paribas [2015] UKSC 72	Tests for implication of contract terms.	Applied to reject Plaintiff’s alleged implied terms as vague and not necessary for business efficacy.
Murad v Al-Saraj [2004] EWHC 1235 (Ch)	Rule against partial rescission of contracts forming part of an indivisible bargain.	Applied to bar Plaintiff’s claim for rescission of swaps alone without rescinding entire transaction.
UBS AG v Kommunale Wasserwerke Leipzig GmbH [2017] EWCA Civ 1567	Nature of agency and fiduciary duties; distinction between full and incomplete agency.	Applied to reject agency claim due to absence of fiduciary duties and authority to affect third parties.
Deutsche Bank AG v Unitech [2016] EWCA Civ 119	Rule against partial rescission applying to interdependent contracts.	Applied to bar Plaintiff’s claim for partial rescission of swaps without rescinding loan.
Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] QB 488	Damages for fraudulent misrepresentation assessed by reference to what would have been negotiated if truth known.	Applied to discuss counterfactual negotiations in damages assessment.
East v Maurer [1991] 1 WLR 461	Assessment of damages for fraudulent misrepresentation via hypothetical profits.	Discussed in relation to damages counterfactual.
OMV Petrom SA v Glencore International AG [2016] EWCA Civ 778	Measure of damages for deceit; no need for detailed hypothetical reconstruction.	Distinguished as not addressing prior question of truth discovery.
Marks and Spencer plc v BNP Paribas [2015] UKSC 72	Principles for implication of terms in commercial contracts.	Applied to reject Plaintiff’s alleged implied terms as vague and not necessary for business efficacy.
Deutsche Bank v Sebastian Holdings [2013] EWHC 3463 (Comm)	ISDA Master Agreement termination provisions constitute a comprehensive code.	Applied to reject Plaintiff’s repudiatory breach termination defence.
Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480	Principles of apparent authority and estoppel.	Applied to assess Plaintiff’s claim of agency and apparent authority of Company A.
Egyptian International Foreign Trade v Soplex Whole Supplies Ltd [1985] 2 Lloyd’s Rep 36	Requirement that third party knew of holding out for apparent authority to arise.	Applied to reject Plaintiff’s reliance on alleged holding out without contemporaneous awareness.
Spooner v Browning [1898] 1 QB 528	Distinction between authority to receive orders and authority to bind principal.	Applied to reject agency claim where authority to bind was absent.
MCI WorldCom International Inc v Primus Telecommunications plc [2004] EWCA Civ 957	Apparent authority must be within scope of agent’s role and actual authority of principal.	Applied to require specificity in scope of apparent authority.

Court's Reasoning and Analysis

The Court conducted a detailed and rigorous analysis of the factual and legal issues. It first addressed whether the broad and complex EURIBOR Representations alleged by Plaintiff could be implied. Drawing heavily on precedent, including the Court of Appeal decision in Property Alliance Group Ltd v RBS, the Court found the representations too wide-ranging, vague, and uncertain to be implied from the conduct or words of Company A. The Court acknowledged that a narrower representation—that Company A was not itself manipulating or attempting to manipulate EURIBOR—might be implied but this was not the case pleaded by Plaintiff.

On falsity, the Court found that the direct evidence, especially communications involving the key trader at his previous employer, established that the representations concerning other banks were false. However, there was no reliable evidence that the trader continued such conduct at Company A, which was not a panel bank during the relevant period, and so no falsity as regards Company A itself. The Court declined to draw adverse inferences against Company A for alleged nondisclosure of documents or failure to call witnesses, finding that disclosure was extensive and the evidence did not support Plaintiff’s contentions.

Regarding fraud, the Court found that, assuming the representations had been made and were false, the trader’s knowledge and intention would suffice to establish fraud on Company A’s part. The Court rejected arguments that knowledge and intention must reside in the same individual, holding that knowledge of the fraudulent conduct by one employee who understands the representation is being made, and who intends reliance, can be attributed to the principal.

On reliance, the Court emphasized that Plaintiff’s representative did not have the representations actively present to his mind at the time of entering into the swaps and did not rely upon them. Plaintiff’s evidence showed only an assumption that EURIBOR was honest, without conscious thought of any representation. The Court found that Plaintiff’s reliance case failed regardless of whether the representations were fraudulent or not.

The Court further held that Plaintiff affirmed the swaps by making payments after becoming aware of the alleged misconduct and that partial rescission was barred because the swaps and the Senior Loan were interdependent parts of a single transaction. Rescission of the swaps alone would rewrite the parties’ bargain and cause unjust enrichment. Plaintiff’s alternative damages claim failed on the basis that the counterfactual scenarios were speculative and that Plaintiff would not have been able to negotiate materially different terms, given the commercial realities and evidence from the Defendant banks.

Regarding Plaintiff’s claim against the Non-Company A Defendants based on agency, the Court found no relevant holding out of Company A by those Defendants and no apparent authority for Company A to make representations on their behalf. Even if such holding out existed, it would not extend to the EURIBOR Representations. Plaintiff did not rely on any such holding out in entering into the swaps. The Court emphasized that Company A acted as principal in the swaps and that the Non-Company A Defendants entered into direct principal-to-principal swaps with Plaintiff.

Finally, the Court granted Defendants’ declaratory relief that the swaps were validly terminated following Plaintiff’s default. Plaintiff’s defences, including those based on rescission and repudiatory breach, failed. The Court rejected Plaintiff’s implied terms and repudiatory breach arguments, holding that the ISDA Master Agreement’s termination provisions form a comprehensive code governing termination rights and procedures, which Plaintiff did not follow.

Holding and Implications

DISMISSED

The Court dismissed Plaintiff’s claims for rescission and damages based on alleged fraudulent or negligent misrepresentations concerning EURIBOR. It held that the broad implied representations were not made, and even assuming they were, they were not relied upon. Plaintiff affirmed the swaps and cannot partially rescind them due to interdependence with the Senior Loan. Plaintiff’s damages case failed on the evidence and commercial realities. The agency claim against the Non-Company A Defendants was rejected for lack of holding out and reliance.

The Defendants’ claims for declarations of valid termination and sums due under the swaps succeeded. The decision directly affects the parties by upholding the validity of the swaps and their termination, denying Plaintiff’s claims. No new legal precedent is established beyond the application of existing principles regarding implied representations, agency, rescission, and ISDA termination provisions.