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Cite as: [2015] EWHC 3272 (Ch)

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		Neutral Citation Number: [2015] EWHC 3272 (Ch)
		Case No: HC 2013 000459

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL

13/11/2015

B e f o r e :

MR JUSTICE BIRSS
____________________

Between:

	PROPERTY ALLIANCE GROUP LIMITED	Claimant
	- and -
	THE ROYAL BANK OF SCOTLAND PLC	Defendant

____________________

Tim Lord QC and Kyle Lawson (instructed by Cooke Young & Keidan) for the Claimant
David Railton QC and Adam Sher (instructed by Dentons) for the Defendant
Hearing dates: 5th and 6th November 2015
____________________

HTML VERSION OF JUDGMENT
____________________

Mr Justice Birss:

This is another judgment dealing with the management of these proceedings. Since it marks a significant stage in the development of the litigation, it is worth reviewing what the action is about and how it has arrived where it is. The Claimant (PAG) is a property developer with a portfolio worth about £200 million. PAG is a former customer of the Defendant bank (RBS).

In May 2003 RBS became one of two commercial banks with which PAG had a relationship. The relationship included various loan facilities. It also included four interest rate swap contracts to hedge the interest due under the loans. The four swap contracts were entered into in October 2004, September 2007, January 2008 and April 2008. The terms of the contracts varied, including the notional amounts and period (subject to termination rights). The first swap contract was for a notional value of £10 million with a ten year term, the second swap was for £15 million rising to £30 million with a ten year term, the third was for £20 million with a three or five year term and the fourth swap was for £15 million with a five year term. By April 2008 PAG had borrowed about £71 million from RBS under the various loan facilities. Each of the swaps used 3 month GBP LIBOR as a reference rate.

PAG terminated the swaps in June 2011 by paying RBS about £8 million. PAG contends that it did so to stem its substantial ongoing losses caused by entering into them. In September 2013 PAG issued the Claim Form in this case and in January 2014 served Particulars of Claim. RBS filed its Defence in May 2014. The case was docketed to me and the first CMC took place in November 2014. At that stage directions were given to bring the case to a trial in the window May – July 2016 with an estimate of 6-8 weeks.

PAG contends that various express or implied representations were made by RBS in the course of selling the swaps, including that the swaps were a solution to PAG's interest rate risk and that the swaps were required by RBS in order to provide ongoing finance to PAG. PAG contends these were misrepresentations, entitling PAG to rescission and damages. The damages claimed include the sums paid under the swaps (about £5 million) as well as the approx. £8 million paid to RBS in June 2011 to get out. There are also claims for breach of contract.

The bank denies that the swaps were mis-sold, denies misrepresentation and breach of contract. These allegations are not what this judgment is about nor are they what any of the previous case management judgments have been about.

The GRG issue

A distinct issue relates to the activities of the bank's Global Restructuring Group (GRG). The GRG is described as the bank's turnaround division, to help turnaround financially distressed businesses. The issue is as follows. In March 2010, RBS was concerned about PAG's financial position including a high level of loan to value (LTV), amortisation capacity and cash flow. In May 2010, RBS moved the handling of PAG from its local specialist property team in Manchester to the GRG. PAG contends that a report into the GRG called the Tomlinson Report shows that RBS was unnecessarily engineering defaults by otherwise successful customers in order to move them out of local management and into the GRG. This was ostensibly to turn them around but in fact was to extract maximum revenue by systemic and institutional malpractice, including excessive levels of fees, bureaucracy and restrictions of trading. PAG contends that at the time it was moved into the GRG, it did not need financial restructuring but was complaining about the swaps. PAG's case is that the transfer was a breach of an overarching customer agreement between the parties. The case includes an allegation that one of the purposes of the transfer was to stifle PAG's increasingly vocal complaints about the swaps.

RBS denies the existence of the contractual terms relied on by PAG and denies the transfer was a breach of any term. RBS also denies altogether any improper conduct, including the allegation of systemic and institutional wrongdoing by GRG.

The LIBOR issue

One of the important aspects of this case, not mentioned so far, is a distinct allegation by PAG that further misrepresentations were made by RBS in connection with the swaps. The alleged misrepresentations (or implied terms) were concerned with the conduct of RBS in setting LIBOR and the nature of LIBOR itself.

The LIBOR for a given currency and tenor is a benchmark interest rate organised and defined by the British Banker's Association (BBA). It is set in the following way. There is a panel of banks (including RBS) who contribute to the setting of LIBOR by making daily submissions to the BBA of their rates for the various currencies and tenors. Paragraph 73(1) of the Particulars of Claim describes the rate submitted by a panel bank as follows: it is the average rate at which the contributor bank could borrow funds by asking for and accepting interbank offers in reasonable market size just prior to 11am on the relevant date. There are rules for deriving the LIBOR rate for a given currency and tenor, given the submissions from the panel banks.

As is now well known, a number of banks have been found to be involved in the manipulation of LIBOR rates. RBS is one of those banks. RBS has reached settlements with a number of regulators and prosecuting authorities including the US Department of Justice (DoJ), the US CFTC, the UK Financial Services Authority (as it then was) and the European Commission. There is a Deferred Prosecution Agreement (DPA) between RBS and the US DoJ. In the DPA, RBS has admitted misconduct relating to Japanese Yen (JPY) and Swiss Franc (CHF) LIBOR. The details are set out in Attachment A to the DPA. The FSA imposed a financial penalty on RBS of £87 million, the European Commission imposed a penalty of €391 million and the CFTC imposed a penalty of $325 million.

In its Particulars of Claim, PAG pleaded that RBS made four relevant representations concerning LIBOR. In summary they are: (1) that LIBOR represented what it purported to be, that is the interest rate defined by the BBA; (2) that RBS had no reason to believe that on any given date LIBOR represented or might represent anything other than the rate defined by the BBA; (3) that RBS had not made false or misleading LIBOR submissions to the BBA nor had RBS engaged in attempting to manipulate LIBOR such that it represented a different rate from that defined by the BBA; and (4) that RBS did not intend in future to do the acts in (3).

PAG alleges that each of these was a misrepresentation. The basis for the plea in the original Particulars of Claim was the findings of the regulators that RBS was manipulating LIBOR. PAG claims rescission and damages. There is also a case pleaded based on implied terms.

Importantly, in November 2013 the Court of Appeal in Graiseley v Barclays Bank and others [2013] EWCA Civ 1372 decided that misrepresentation allegations of this kind, supported prior to disclosure by inferences drawn from the conclusions of regulatory authorities, were arguable and should go to trial (see Longmore LJ paragraphs 24-31). The Particulars of Claim in this case was served after Graiseley and the LIBOR allegations follow closely the pleading before the Court of Appeal.

Before turning to the Defence, it is worth noting that as pleaded, the LIBOR allegations in the Particulars of Claim are general in nature. All that PAG and companies in PAG's position really have to go on are the public findings of the regulators (and press comment). The bank is, however, in a different position. Having been through major regulatory investigations with the FSA and the European and American regulators over a number of years, RBS has obviously had to examine what happened in great detail. Moreover, leaving aside the regulatory matters, simply as a matter of sound administration, RBS must have made it its business to find out what happened. As counsel for PAG has submitted in these proceedings a number of times, from before these proceedings began, RBS has known what was going on.

In its Defence in these proceedings, RBS denied making any of the alleged representations. As to the falsity of the representations, RBS formally admitted misconduct relating to JPY and CHF LIBOR in the same terms as that admitted in public in Attachment A to the DPA. Those were the only admissions RBS made about the falsity of the representations. The remainder of the allegations were denied or not admitted, it was not always entirely clear which. This requires some explanation.

First, as regards other currencies and tenors, the Defence specifically made the point (para 260(3)(c)) that there have been no regulatory findings of misconduct on the part of RBS relating to GBP LIBOR, the currency of PAG's swaps. In the judgments dated 8^th June 2015 [2015] EWHC 1557 (Ch) and 15^th June 2015 [2015] EWHC 2197 (Ch) I held that this put in issue the basis on which the regulatory findings had been made, which mattered given that the FSA's findings were the product of a without prejudice negotiated settlement between the bank and the regulator.

Second, the Defence contained a general plea (para 260(6)) that, save as was dealt with in the Defence, the allegations that the representations were false (in paragraph 77 of the Particulars of Claim) were denied. This appears to be a general denial.

Third, (para 260(7)) the Defence noted that no specific allegations about what RBS did were made other than what was reported in the media or set out in settlements with regulators and stated that it is specifically denied, should such allegation be made, that RBS engaged in any misconduct in connection with GBP LIBOR (including 3 month GBP LIBOR).

This was the state of play when the matter came to the first CMC in November 2014. The major issue was disclosure relating to LIBOR. RBS were willing to undertake a standard disclosure exercise concerning GBP LIBOR. That was clearly appropriate. The question was what to do about wider LIBOR disclosure. I held that LIBOR disclosure should not be limited to GBP but that posed a problem of how to deal with this wider disclosure. Simply ordering standard disclosure on LIBOR in general was likely to lead to review and/or production of some 25 million pages of documents. Nobody (PAG, RBS or the court) wanted that. This and the further case management which arose as a result are addressed in the judgments at [2014] EWHC 4308 (Ch), [2015] EWHC 321 (Ch), [2015] EWHC 322 (Ch) and [2015] EWHC 1557 (Ch).

In essence, in addition to standard disclosure on GBP LIBOR, RBS was directed to produce documents called the Regulatory Review Documents to PAG. These documents were a large group of documents from the overall set which had been identified by RBS or its lawyers during the regulatory process as noteworthy. Some other classes of documents were ordered too but they are not germane.

By about July 2015 the disclosure on GBP LIBOR as well as the Regulatory Review Documents had been given or was just about to be given. A developing dispute between the parties was about what was going to happen next. Both sides had been complaining about the other's case on LIBOR. Given Graiseley, RBS could not sensibly complain about the unspecificity of PAG's pleaded LIBOR case as it was but submitted that, once disclosure was given, PAG should give proper particulars of its case on LIBOR misconduct. On the other hand, PAG complained that given that RBS must be well aware of what happened, its Defence was inadequate and so PAG served a Request for Information (RFI) on RBS. In a judgment in June ([2015] EWHC 2197 (Ch)) I said:

"19. I am not prepared to make the order sought requiring RBS at this stage to answer the Request for Further Information, which is the matter I am dealing with now. My reasons are, first of all, because in fact I have already decided that I would not do that in para.128 of my judgment. Moreover, considering the matter afresh, I remain of the view that the appropriate time to consider requests of this nature is after disclosure. I note that Mr. Justice Roth, in the judgment relied on by PAG, National Grid Electricity v ABB Ltd. [2014] EWHC 1555 Ch was dealing with a Request for Further Information which does, I accept, have parallels to the request Mr Lord is making in this case but it was being considered in a completely different context, after disclosure and witness statements.

20. An important aspect which to some extent applies to both parties is that, just as I have not held now that RBS is correct that the next person to plead in detail is PAG, so I am not holding now that the next person in this litigation to plead in detail is RBS. Thus both sides will need to approach the matter [of their next pleading] without that matter [of the RFI] having been resolved. It seems to me that it is important that PAG take a realistic and sensible approach to the disclosure they have been given. It may be that when they do that Mr. Lord's fears will be realised and it will be such that the disclosure does not help PAG articulate the case which it wishes to bring properly before the court. In those circumstances, PAG will be able to explain this to the court and a Request for Further Information of the kind they have sought, if they wish to maintain it, will have to be considered carefully in those circumstances. Equally it may be the disclosure produced by RBS allows PAG, in fact, to articulate its case with some precision, in which case it will not have been necessary to order this RFI.

21. I would make the same point, completely conversely, to RBS. I was not convinced at all by Mr. Railton's submission that somehow RBS do not know what exculpatory material they need to start thinking about preparing. As Mr. Lord has said to me more times than I care to remember, RBS knows what has been going on; there have been significant investigations; the disclosure will be focused on the Regulatory Review Documents which are to be provided; those documents are characterised by the fact that they have arisen in the context of careful investigations of one sort of another conducted by or on the Bank's behalf. In my judgment, it is highly probable that the Bank knows exactly what it needs to consider when thinking about what evidence it may need to call to deal with the matters which are dealt with in those documents. Accordingly, the court will not be sympathetic to the suggestion that somehow if PAG adjusts its case based on the documents which have been disclosed, that RBS can imagine that they can then approach their preparation as if they have had to start to prepare a response to that from a standing start."

In September RBS applied to amend its Defence. The purpose of the amendment relating to LIBOR was to remove the paragraph (para 260(3)) which I had held put in issue the basis of the FSA's findings. That was relevant because of the finding that by doing this RBS was waiving the without prejudice privilege attached to the negotiations between the bank and the FSA and ordered disclosure. A similar problem arose relating to the GRG allegations in which RBS was relying on a Review conducted by Clifford Chance into GRG but purporting to maintain privilege relating to that review. RBS also sought to amend that part of its Defence.

I rejected both amendments. As I explained in the judgment in September ([2015] EWHC 2635 (Ch)) in relation to the GRG amendments:

"6. [...] By taking out any reference to the Review, one is left not knowing what the Bank's reasons for a denial are. The modern approach to Statements of Case in litigation means that if a party wants to deny something, it needs to give reasons for its denial (CPR r16.5(2)). Equally, if it wants to make a non-admission, there are certain limitations which relate to that as well (CPR r16.5(1)(b)). Although the non-admission is not explained in any detail in the plea in its original form, that was not a significant difficulty because it was clear what the Bank's real case was: it relied on the Clifford Chance Review. However, the amendment simply takes that out and leaves the plea in an unsatisfactory state. There is a denial, without any reasons, and then a blanket non-admission, without any explanation what the state of knowledge of the defendant is or why otherwise it is unable to admit or deny the allegations. "

The problem was the same for the LIBOR amendments (judgment paragraph 10). The proposed amendments there would have taken out the reliance on the regulatory findings without putting anything in its place other than a blanket non-admission and/or denial.

On 16^th October 2015 PAG applied to amend the Particulars of Claim. The amendments involve four aspects. First are amendments to plead a further breach of duty arising from Crestsign v National Westminster Bank [2014] EWHC 3043 (Ch). RBS does not object to that application. I will permit those amendments. Second are amendments in paragraph 57A of the draft Amended Particulars of Claim concerning alleged inadequate information provided by RBS. RBS took a point about the drafting of that paragraph. I will permit the amendment. RBS's point is a fair one and can either be dealt with by adjusting the wording of the paragraph before the amendment is formally made or, if really necessary, by an RFI.

The third set of amendments consist of further details of the allegations of LIBOR misconduct. This in turn consists of three elements. First a reference to a confidential Attachment C to the US DoJ DPA. Second an allegation of actual or attempted manipulation of other LIBOR rates apart from the admitted currencies CHF and JPY, in particular an express allegation of misconduct relating to GBP and USD from at least August 2007 onwards. Paragraph 77(3C) of the draft Amended Particulars of Claim explains that this is supported by detailed allegations in part 1 of a schedule to the Amended Particulars of Claim. The schedule works through documents disclosed by RBS. Third is an allegation 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 inter-bank market or were unable to borrow funds at the rates they were submitting to the BBA. This is supported by detailed allegations in part 2 of the schedule, which work through other documents disclosed by RBS.

Considering this third set of amendments, the point on Attachment C is not now controversial and neither is the schedule itself, based as it is on PAG's analysis of the disclosure. PAG submits that the analysis of the RBS disclosure set out in the schedule shows that the LIBOR related misconduct of RBS did involve GBP and USD as well as CHF and JPY and, therefore, as RBS must have known all along, the misconduct was not confined to the matters admitted in the Defence. One of the significant aspects of part 2 of the schedule is, PAG contends, that it can be seen that RBS staff at the highest level, including members of the group board of directors, were aware of serious problems with LIBOR in the period from August 2007 until well into 2008. PAG also questions how, given the materials in part 2 of the schedule, RBS could ever have taken the position it took in its original Defence. RBS has a number of objections which touch on these issues but they are all advanced in the context of the fourth point, concerning fraud and dishonesty. In my judgment there is no reason to refuse these amendments save as might arise from the fourth fraud/dishonesty point. I will permit them. Nevertheless since the details relate to the fourth point too, it will be necessary to return to the schedule and to PAG's submissions about the bank's Defence so far.

The fourth set of amendments are to introduce by amendment a plea that RBS made the LIBOR representations fraudulently. This also arises from PAG's analysis and review of the disclosure given so far by RBS, addressed in the same parts of the schedule to the Particulars of Claim. RBS objects to this amendment on various grounds. That is the first major issue I have to decide.

Although not a reason to object to the fourth set of amendments, RBS also estimates that the fraud plea, if allowed, will add about 3 weeks to the time estimate and may put the trial date in jeopardy.

On 30^th October 2015 PAG applied for further disclosure from RBS. Three classes of documents are sought. First are all documents in a class called "Non currency specific productions" which are documents of any of ten named individual custodians, all of which are senior bank staff including some board members. Second are communications with the Bank of England to the extent those documents were produced to the FSA in the course of the regulatory investigation. Third are any relevant minutes and papers of the bank's board and any relevant committee of the board.

RBS objects to all three classes. There are points on all three but the main problem relates to the first class. RBS contends that it would involve carrying out a disclosure review on about 8 million pages of documents. That would be inappropriate and disproportionate. It would also jeopardise the trial date. The disclosure is another issue I have to decide.

Finally on 2^nd November (last Monday) RBS applied again to amend its Defence. Although the amendments are plainly informed by the amendments sought by PAG, they do not purport to be responsive to them. One purpose of the application is to try to fix the problem which arose with the application to amend the Defence which was rejected in September. These amendments are also intended to get rid of the waiver of privilege problem but to do so in a way which is acceptable, essentially by adding back into the pleading a basis for any denial or non-admission. Notably in the context of LIBOR, the proposed amended Defence includes a schedule of admissions of the extent of involvement of employees of RBS (or affiliates) in the attempted to actual manipulation of LIBOR. The schedule deals with JPY and CHF but also includes admissions about attempted manipulation of the USD rate in 2008 and 2010. It is admitted that on those occasions two RBS derivatives traders made requests in writing to the RBS money market trader with responsibility for LIBOR submissions improperly seeking to influence those submissions. The schedule states that none of these requests were accommodated by the submitter. At paragraph 6 the schedule provides that RBS is unaware of any other involvement by its employees (or those of its affiliates) in any attempted or actual manipulation of LIBOR. Finally at paragraph 7 the schedule makes the point that all of the admitted facts are encompassed in the various regulatory findings.

PAG objects to this course. Ordinarily in the circumstances one might say that this should simply be left over to the time when RBS respond to PAG's Amended Particulars of Claim. However RBS wish to resolve the waiver issue once and for all. RBS contends that if the amendment is allowed, the right thing to do would be to set aside the orders made on 15^th June 2015 which require inspection by PAG of the privileged material. Apart from anything else that would deal with RBS's outstanding appeal to the Court of Appeal on the privilege issue. PAG contends the amendments should not be allowed in this form at all, not at this stage in the circumstances, and even if they are allowed, the orders for inspection should stand.

Each side also referred to outstanding RFIs. PAG's RFI was served in May 2015. Its focus was to require RBS to state whether it denies any manipulation of LIBOR beyond that set out in public regulatory findings. If so, the basis for the denial should be given and if any further manipulation is admitted, full details are sought. RBS's RFI was served on 29^th October 2015 in response to the draft Amended Particulars of Claim. It seeks further information about the new pleading and in part aims to highlight what RBS contends are deficiencies in the plea.

I heard these applications as part of a hearing last week (Thursday 5^th and Friday 6^th), which also dealt with an application by RBS for disclosure from PAG. That relates to a privileged document inadvertently disclosed to RBS by PAG, to secretly recorded tapes and transcripts of meetings between Mr Russell, the founder and MD of PAG, and certain ex-employees of RBS, and to PAG's claim to privilege generally.

This judgment deals with the amendments to the Particulars of Claim and Defence and PAG's application for disclosure since they have an impact on the trial and need to be addressed promptly to ensure that the case is managed properly and fairly to trial. I will address RBS's application in a second judgment.

The fraud amendments

Allegations of fraud are the subject of special scrutiny by the courts. Paragraph 8.1 of CPR PD 16 requires a claimant to "specifically" set out any allegation of fraud. The Chancery Guide, paragraph 2.8 provides that in addition to matters which PD 16 requires to be set out specifically, a party must set out "full particulars" of any allegation of fraud, dishonesty, malice or illegality and where any inference of fraud or dishonesty is alleged, must set out the facts on the basis of which the inference is alleged. Paragraph 2.9 of the Guide provides that a party should not make allegations of fraud or dishonesty unless there is credible material to support them. It also warns that making such allegations without that material being available risks being struck out and orders for wasted costs.

These provisions reflect a long line of authority. RBS cited judgments to a similar effect in Jonesco v Beard [1930] AC 298 (Lord Buckmaster), Belmont Finance v Williams Furniture [1979] Ch 250 (Buckley LJ) and Three Rivers v Bank of England [2001] UKHL 16 (per Lord Hope at paragraph 55 and Lord Millett at paragraphs 184-186, who was in the minority on the result but that does not matter on this point). A point made by Lord Millett is that there are two principles in play, the plea itself and the basis for it. The latter is not just a matter of pleading but a matter of substance. The facts alleged to be a basis from which fraud is to be inferred must support that inference. It is not open to a court to infer dishonesty from facts which have not been pleaded or which are consistent with honesty. Something must justify the inference of dishonesty and that must be pleaded and proved.

RBS also referred to the judgment of Roth J in Seaton v Seddon [2012] EWHC 735 (Ch) which held that the CPR has not ameliorated the strictness of the rules of pleading fraud. I agree.

These cases and guidelines are all based on the same rationale. Assertions of fraud and dishonesty are easy to make but difficult to prove and can cause a major increase in the cost, complexity and temperature of an action. The court's approach is not intended to stop soundly based allegations of fraud or dishonesty from being made. It is intended to make sure that improper and unfounded assertions are not permitted and to make sure that the party against whom the allegation is made knows what case they have to meet.

In summary PAG's new case on fraud is that RBS made the LIBOR representations (summarised above) fraudulently in that RBS knew the representations were false, had no belief in their truth or was reckless about it. The key knowledge relied on is: (i) knowledge that RBS was proposing to potential customers that they enter into financial transactions containing obligations measured by reference to LIBOR such that the representations were being made; and (ii) knowledge that these representations were false.

In paragraph 77A where this plea is set out the word "might" also appears. RBS asked about it, since it seemed to be insufficient to amount to an allegation of dishonesty at all. The word "might" did not refer to any uncertainty about whether the representations might be made if a swap was offered nor any uncertainty that such a representation might be false, neither of which would be enough. The word refers to the fact that at a given moment in time, the relevant financial transaction might be offered in the future. PAG's case is that, at the relevant time, RBS knew that relevant swap contracts were being or might be offered in future. PAG's case is that RBS had the requisite knowledge in relation to those swap contracts, RBS knew that if such a contract was offered the representations would be made and knew it would be false. Understood that way the plea in paragraph 77A of the Amended Particulars of Claim is a proper plea. I will permit it.

Paragraph 77A goes on to state that subject to further disclosure or further information from RBS, the best particulars PAG can give are that at least each of a named list of ten individuals had the relevant knowledge. The principal basis relied on for this knowledge is set out in the schedule to the Amended Particulars of Claim. As I have said already, that schedule includes detailed allegations arising from the disclosure documents. Distinct and detailed allegations concerning all ten individuals are in the schedule. The various communications relied on are usually either from or to one of them or are at least copied to them. The schedule highlights about forty such documents.

The ten individuals include two members of the RBS Board of Directors: Johnny Cameron, then Chairman of Global Banking and Markets; and Guy Whittaker, Group Finance Director. The other eight individuals are: John Cummins (RBS Group Treasurer), Peter Nielsen (Global Head of Markets, Corporate and Institutional Banking), Brian Crowe (Chief Executive, Global Banking and Markets), Graham Niblock (Global Head of Money Markets and Co-Head of Short Term Markets), Scott Nygaard (Co-Head of Short Term Markets), Kevin Liddy (Global Head of Short Term Interest Rates), Paul Walker (Head of RBS Money Markets in London), and Mark Thomasson (Senior Trader at RBS Short Term Markets and a director of Sterling Money Markets at RBS).

PAG also contends (paragraph 77A at the end) that: "Further, it is to be inferred, including by reason of the nature, extent and seriousness of the matters set out [in the schedule] and the range and seniority of the individuals thereby shown to have had relevant knowledge, that the Relevant Individuals also included other RBS senior executives including, without limitation, the other members of the RBS Group Board of Directors."

PAG contends (paragraph 79A) that in the light of the disclosure given by RBS to date:

i) RBS's actual misconduct in relation to LIBOR extends materially beyond that revealed by the regulatory findings;

ii) RBS's actual LIBOR misconduct includes but is not limited to the wrongdoing and guilty knowledge set out in the schedule;

iii) RBS has not yet pleaded properly or at all to RBS's actual LIBOR misconduct;

iv) RBS is able so to plead since such matters are within its knowledge, information and belief and RBS should be required to do so in accordance with the CPR;

v) PAG should be entitled to rely on such additional instances of actual LIBOR misconduct as may be disclosed by RBS properly pleading to the same or providing proper information and disclosure.

Finally PAG's amendments include in paragraph 79B the allegations that the matters set out in the schedule, by their nature and extent as well as the number of RBS employees involved and their seniority:

i) 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 until well into 2011;

ii) justify the inference that the true extent of actual misconduct goes materially beyond the instances chronicled in the schedule; and

iii) support PAG's complaints about LIBOR misconduct and manipulation by RBS.

The reasons RBS submits that the amendment should not be permitted (in addition to the "might" point addressed already) are as follows. First (RBS RFI Para 4) the allegations are too wide and, in their breadth, unsupported by the material relied on. RBS points to paragraph 77(3C) of the Amended Particulars of Claim which links the new express allegations of misconduct relating to GBP and USD to part 1 of the schedule. It leaves open the possibility of misconduct relating to other currencies which, in the context of a dishonesty plea, RBS contends is without foundation, improper and should be removed. RBS also states that this would not preclude PAG from amending to rely on any further instances which come to light.

Second (RBS RFI para 5) RBS argues that PAG's case is opaque regarding "actual" misconduct. PAG should state if it has a positive case that any specific published LIBOR rate was affected by actual manipulation by RBS and if it does, give full details. Also PAG should state if it has a positive case that the LIBOR rate used to calculate payment obligations by PAG under the swaps was affected by the manipulation such that PAG paid more or received less under the swaps than it should. If it does not have a positive case it should explain the basis for its case on actual manipulation. This is particularly relevant to PAG's alternative case based on implied terms.

Third (RBS RFI paragraphs 6 and 7) there are alleged to be fundamental deficiencies in the allegations of dishonesty against the individuals, both the ten named and the unspecified wider class. RBS requires PAG to identify each individual against whom the fraud or dishonesty is alleged and to provide full particulars, with the basis relied on, relating to each individual and for each representation. PAG should state in terms for each individual whether and on what basis (i) they knew the representation was being made, (ii) they intended it to be relied on, and (iii) they knew it was false.

PAG submits I should permit the amendments in the form sought and order disclosure. The particulars are the best it can give at this stage and provide sufficient support for the allegations to justify permission. There is no reason why RBS cannot plead back to the allegations in this form. The asymmetry of information between PAG and RBS means that what should happen is the amendment should be permitted. PAG submits that what has now been revealed from the disclosure is a picture very far from that which was before the court last year. PAG contends that the allegations of LIBOR misconduct were always very serious matters but what can be seen now are two critical points. First there has been misconduct going further than the admissions in the Defence based on the public findings of the regulators. It extends to both GBP and USD. Both are relevant. The former is the benchmark currency of the swaps and the latter is the most important benchmark currency in general. PAG also submits that the material in part 2 of the schedule shows that those at the highest level in the bank must have been well aware of severe problems with LIBOR in general in the period of about a year onwards from August 2007. This is the very period in which three of the swaps were sold by RBS to PAG. PAG submits that if the court had known in November 2014 what it knows now, the management of this case would have been very different.

Before I turn to the schedule in detail, a number of general points can be made. The interrelationship between actual or attempted manipulation of LIBOR and selling swaps is significant. An interest rate swap fixed to a LIBOR benchmark swaps a fixed rate for the floating benchmark rate. So while one side pays at the fixed rate, the other party pays at the floating rate. The floating rate is the benchmark rate on a given date (the fixing date). A swap contract with a panel bank therefore creates a situation in which the bank selling such a swap could, if it was prepared to make wholly improper submissions for the fixing date, try to move the relevant benchmark to suit its derivative position. 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. Part of PAG's point in this case is that this is exactly what RBS was attempting to do and in fact did do.

It may be that on a given day, even if a bank submitter improperly made a submission along these lines, the submission had no actual effect on LIBOR because the bank's rate was one of the top four or bottom four rates in rank order within the panel. The benchmark is set by the average of the middle eight rates. Nevertheless it is clearly arguable that the fact that an attempted manipulation did not work would be of little consolation to the counterparty to a swap contract. Part of PAG's case is that a party offered a swap benchmarked to a LIBOR rate would be unlikely to countenance entering into such an arrangement with a bank if it knew that the very same bank was attempting to manipulate those kinds of benchmarks for its own ends, whether successfully or not.

A different but related problem is the following. Irrespective of manipulation with a motive derived from the bank's derivative position, PAG submits that in the period from August 2007 there is evidence that the inter-bank lending market was not functioning and evidence that this was appreciated at the highest level in the bank. Without such a functioning inter-bank 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. PAG contends that in this period LIBOR was effectively broken and 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.

These allegations are at the heart of PAG's case on LIBOR. With that introduction I can turn to the schedule to the draft Amended Particulars of Claim. Given the way the bank has presented its case in these proceedings until recently, its contents are striking. It is not necessary to rehearse the whole of the allegations but some should be mentioned:

i) There are a number of documents starting from one dated 9^th August 2007 which provide arguable support for the allegations of misconduct in relation to USD LIBOR. An example is a document dated 16^th August 2007, whereby the submitter at RBS (Paul Walker) seems to have been asked to make a submission that took into account the pricing of a floating rate transaction that would impact the relevant book on the following day. The schedule also refers to documents from June and October 2008 which provide arguable support for an inference that derivatives traders sought to influence the bank's USD submitter on those occasions. These two are notable given the admissions of attempted manipulation on those dates which are now sought to be made by RBS in its Amended Defence, served after this schedule.

ii) There are a number of documents (fewer than for USD) which arguably support the allegations of misconduct relating to GBP LIBOR. For example there is a calendar reminder set on 11 September 2009 whose purpose, PAG submits, should be inferred as having been to remind Mark Thomasson to submit a low 6 month GBP LIBOR rate on 16^th September 2009 at the request of RBS derivatives traders who had transactions set by reference to 6 month LIBOR that were due to fix on that date. On that date Mr Thomasson made a submission that was 5 basis points lower than the submission made on the previous day.

iii) There is an email dated 16^th August 2007 from John Ewan (the managing director of the BBA) to Graham Niblock and Mark Thomasson, both of RBS and other members of the BBA FX and Money Markets committee. The email relates to "ongoing problems with the inter-bank market". Mr Ewan requests a meeting to discuss issues. One issue is the BBA definition of LIBOR as being a rate at which a bank could borrow funds by accepting inter bank offers. He points out that "currently there is no London interbank market". Another issue to be discussed is "how best to defend ourselves against potential accusations that the current rates are not a genuine reflection of the market".

iv) There is a record of a teleconference on 20^th August 2007 involving Paul Walker of RBS with a representative of a hedge fund in which Paul Walker states that liquidity has completely dried up "so no one has really got a cash market anymore to base LIBORs on". He also says "so people are just setting their LIBORs, you know, to suit what they've got on their book."

v) There is an email dated 29^th August 2007 from Ian Bedford of RBS Global Banking and Markets divisions to recipients including Graham Niblock, Scott Nygaard and Kevin Liddy which refers to illiquidity of the interbank cash markets and appears to state that, as regards GBP and USD LIBOR "the 'mechanism' is definitely broken".

vi) There is an email on 15^th November 2007 from Graham Niblock to a group including John Cummins, which refers to LIBORs in GBP and USD still fixing higher than where cash is actually trading in the interbank market. It states "we have stopped lending cash internally at LIBOR as it does not reflect our cost of funds any longer".

vii) There are references in documents in November 2007 to "a meaningless benchmark", "almost an irrelevant indicator", and "LIBOR is kind of false at the moment".

viii) On 29^th November Paul Walker responded to an email from Mark Thomasson relating to a communication from John Ewan at the BBA in which Mr Walker wrote "Citibank, UBS and Deutsche put in regular Libors way below the market … UBS don't really trade cash anyway, they set their Libors as many banks do to suit the Derivative Fixes. With no underlying cash market what do the BBA expect??????"

ix) On 30^th April 2008 Johnny Cameron circulated a note of a meeting he had attended described as the BBA's CEO's meeting. It took place at the Bank of England on 25^th April. The note was sent to a number of people including Mary McCallum (executive assistant to Fred Goodwin, then CEO of the RBS Group), Guy Whittaker, John Cummins, Peter Nielsen and Graham Niblock. It includes the following: "They wanted Banks to play $ libor very 'straight'. I said FED needed to understand and be involved." The word "they" seems to refer to the Bank of England. PAG submits this was a reference to the Bank of England directing banks to make accurate or honest submissions for USD LIBOR as opposed to inaccurate or dishonest submissions. PAG submits that it can be inferred that representatives of the Bank of England and each of the individuals to whom Mr Cameron sent the note were aware that, prior to it, LIBOR panel banks had not been submitting accurate or honest LIBOR rates at least for USD LIBOR. This material on its own does not support a plea of dishonest manipulation as opposed to knowledge that the rates were inaccurate, but it provides a properly arguable foundation for PAG's allegation that those at the highest level in the bank were aware of serious problems with LIBOR.

x) There is an email dated 28^th May 2008 from Johnny Cameron to John Cummins and Graham Niblock in which he states that he has received a call from Paul Tucker, the then Deputy Governor of the Bank of England. The email refers to concerns that the BBA may appear too complacent about the problem of LIBOR fixing. Mr Cummins replies referring to a primary area of concern as being USD LIBOR setting in London and the view that these rates do not reflect reality.

xi) There is a transcript of a conversation between John Cummins and Paul Walker on 2^nd October 2008 which refers to the bank being in "gold medal spot" in the context of LIBOR submissions. Mr Cummins appears not to want RBS to be in that position. "Gold medal spot" seems to refer to having the highest submitted rate amongst the panel banks. PAG submits one can infer that following this call Mr Cummins passed on that instruction to Peter Nielsen and/or Scott Nygaard.

xii) It appears that on 25^th November 2008 John Cummins sent a briefing note to Stephen Hester (then CEO of RBS) for a forthcoming meeting at the Bank of England in which it was noted that, amongst other things, "the inter-bank market is not functioning properly".

The materials set out above are not the totality of matters relied on but they include the most important matters. This is not the trial and I have not heard what RBS says in response to these matters. Nevertheless I am reminded, based on Three Rivers, that in deciding whether to give permission it is necessary to have regard not only to the form of the allegations but to the substance of the material relied on when considering allegations of fraud or dishonesty. The task at this stage is to assess whether the material relied on is capable of providing sufficient support for the inference of fraud or dishonesty which PAG contend should be made. The question is whether the amendment should be permitted so that the next step would be for the bank to respond and so that the matter should go on to trial.

I bear in mind the seriousness of these contentions, both in that they are allegations of fraud and dishonesty and also in that they are levelled against the most senior executives of a major bank.

Taken individually, a number of the points may support an inference which could be consistent with either honesty or dishonesty, but taken overall PAG's case is plainly properly arguable. In my judgment the material relied on by PAG and set out in the Amended Particulars of Claim and its schedule provides ample prima facie support for an inference of fraud and dishonesty at the highest level of RBS. The materials show that, arguably, members of the RBS board were aware that LIBOR was "broken" during a period in which RBS was selling swaps to PAG referable to LIBOR. The ten individuals named in the Amended Particulars of Claim are clearly closely involved in the materials relied on. The fact that PAG cannot at this stage identify which additional members of the RBS board and which other senior executives were most relevant and most involved, does not mean that the pleaded case is defective. RBS knows the case it has to meet. Moreover, since the schedule is based on documents which were disclosed in the Regulatory Review Documents, they are all documents which the bank has identified as noteworthy a long time ago.

What has also now come into focus is that the public regulatory findings are addressed primarily to the conduct of individuals close to the LIBOR submissions and the admissions made by RBS so far based on those findings are similarly focussed at that level. However there is evidence from which a properly arguable inference can be drawn that knowledge of serious problems with LIBOR existed at a senior level inside the bank. The issues raised in this action do not only concern the RBS trading floor, they concern top management with overall responsibility for LIBOR and for swaps. Based on the material relied on by PAG, the bank needs to account for the activities of its senior staff as well as the actions on the trading floor.

This has a knock on effect on the disclosure application and on case management. I will address the detail of the application below but it is manifest that disclosure of some kind ought to be given relating to the high level custodians named in the disclosure application. The bank must always have been aware of the potential relevance of this disclosure, not least to the first and second pleaded representations which have been in the case from the outset. It cannot now complain if the time to trial is only 8 months.

The four aspects of the plea which RBS object to are the inclusion of other, unspecified currencies; the inclusion of other unspecified individuals; the lack of a detailed set of particulars linking each element of fraud to any named individual; and the absence of a statement whether any acts of the bank caused the rate actually to be manipulated in a way which led to PAG paying more or less than they should have done at any stage. In a different context pleadings of that general nature would not be acceptable but in this context these matters do not justify refusing permission to amend. Once RBS has responded to these allegations and once further disclosure has been given, it will be necessary to ensure that PAG's case is focussed down to named individuals and, to the extent necessary, identified currencies. However RBS does not need this information from PAG now. The fact that PAG cannot identify every individual and cannot, at this stage, answer every question posed by RBS in that respect does not mean the amendment should not be permitted. The point on actual as opposed to attempted manipulation is relevant to the case on implied terms but is of much less importance in the context of the main case, based on misrepresentation. It can be addressed in the future. The best particulars PAG can give amply support its plea of fraud and dishonesty.

RBS pointed out that in September when it applied to amend, it submitted that any alleged lack of particularity in the proposed amended plea could be resolved by RFIs afterwards but PAG submitted, and I accepted, that that was not the right course. RBS submitted that to allow PAG to amend while recognising that further details will have to be resolved later is inconsistent with the earlier decision. I do not agree. In September the proposed amended plea contained no detail at all, nor was it clear what the party seeking to amend would put forward as the missing basis for its denial or non-admission. That is why the amendment was refused. In the present case detailed particulars have been given which provide properly arguable support for the central allegations. It is correct that wider aspects have not been addressed but they can fairly be addressed in future. The two situations are not comparable.

One point is worth adding. It is, at least, foreseeable that there will be no need in these proceedings to address any further currencies beyond GBP, USD, CHF and JPY. That matter can be resolved once RBS has responded to the Amended Particulars of Claim and given further disclosure.

Amendments to the Defence

Focussing briefly on the GRG amendments, although PAG submitted they suffered the same vice as the September amendments in that they left the basis on which RBS denied PAG's allegations about the GRG as unclear, I do not agree. The main point is that in the proposed amendments RBS denies the relevance of the Tomlinson Report (on which PAG's case is based) and gives reasons for doing so.

The proposed LIBOR amendments in the Defence would not be sufficient to respond to the Amended Particulars of Claim but then they do not purport to be. In fact the amendments serve to highlight the narrow nature of the admissions before and beg the question why RBS was not prepared a year ago to make the admissions now proposed about attempted manipulation of USD.

I am not going to permit RBS to amend its Defence in the form advanced at this stage. If the amendments related only to the GRG issue, I would permit them but they also relate to LIBOR. For LIBOR the changes are too little, too late. The right thing to do is for RBS to respond to the Amended Particulars of Claim. If the draft Amended Defence had preceded the application to amend the Particulars of Claim then there might have been some reason to entertain it but it did not. Having waited until after the claimant served it draft Amended Particulars of Claim, it just does not make sense to permit amendments to be made to the Defence in this way.

However since the issue was argued out by both sides I will address the submission about the impact of this amendment on the issue of privilege.

The purpose of a pleading is to set out the case a party intends to make at trial (RBS cited the well known case Buttes Gas v Hammer [1970] 1 QB 223 referring to Lord Denning at p246 E-F and Brightman LJ at p268B-D). On the authority of Buttes Gas v Hammer and based on later cases and materials (Rubin v Expandable Ltd [2008] EWCA Civ 59) and Thanki on Privilege (2^nd Ed 2011) paragraph 5.34, as well as the textbook by Passmore (Privilege, 2013) and also Hollander (12^th Ed 2015 at 23-22 to 23-23) RBS submitted that it is open to a party to decide not to rely upon privileged material and therefore amend the relevant pleading, in which case, if the amended pleading is permitted, no waiver will have taken place merely by virtue of having been pleaded before. I accept that submission, which derives from the nature of a pleading.

The draft Amended Defence does remove the plea which I had previously held put in issue the basis for the regulatory findings and similarly led to a waiver relating to the Clifford Chance report on GRG. Accordingly if an amendment in that form is permitted, the waiver of privilege identified in the earlier judgment will not take place.

RBS submitted that if this occurred the right course was for the court to set aside paragraphs 4 and 5 of the order made on 15^th June 2015 which required RBS to produce for inspection the various privileged documents. Those two orders are presently subject to stay pending appeal.

PAG submitted that even if an amendment along these lines was permitted, the privilege had also been waived by RBS during the proceedings by deployment of the privileged material. In Berezovsky v Abramovich [2011] EWHC 1143 (Comm) Gloster J (as she then was) summarised the applicable principles to be derived from the cases up to Somatra Ltd v Sinclair Roche & Temperley [2000] 1 WLR 2453 in paragraph 20 as follows:

20. In my judgment one can extract the following propositions from Somatra Ltd v Sinclair Roche & Temperley from the above cited passages:

i) The Court of Appeal has decided that in this area the principles relating to the circumstances in which the privilege relating to without prejudice materials has been waived are the same as, or at least very similar to, those in which the privilege relating to legal professional privilege materials is waived.

ii) Once a party (on an interlocutory application) has opened up issues on the merits of the case, which will form part of the very questions to be determined by the trial judge, no party which has chosen to refer to privileged material or discussions for the purposes of that application, should be entitled use them to his advantage on the merits of the case in the interlocutory context, but then assert a right to prevent its opponent from doing so on the merits at the trial.

iii) The Court of Appeal in Somatra Ltd v Sinclair Roche & Temperley clearly took the view that one of the ratios of Vinelott J's decision in Derby v Weldon was that the privileged material had been deployed in a significant way at the interlocutory Mareva application stage on the merits of the case. In other words the Court of Appeal rejected the argument that the ratio was solely that leading counsel had deployed, or was about to deploy, the privileged material at trial.

iv) As a matter of principle and policy, it is not just, on the one hand, to permit one party to deploy legally professionally privileged, or without prejudice, material for the purposes of an interlocutory application, in order to advance that party's case on the merits, and thereby to gain a litigation advantage, and, on the other hand, to deny the other party the opportunity to refer to, or deploy, such materials at trial, where, likewise, the merits of the case are in issue.