Welcome to the Spring 2023 edition of our biannual Banking Litigation Update, in which we highlight the most important cases and developments affecting UK financial institutions over the past six months.
In our last update, we discussed the increased risk of disputes arising from sanctions against Russian individuals and entities in light of the invasion of Ukraine. These developments pose many and varied legal issues for banks and we are now starting to see guidance emerge from the court. The Court of Appeal had the opportunity to consider whether a force majeure clause was engaged as a consequence of US sanctions imposed on a party's parent company in MUR Shipping (see case 21 in the update). Although force majeure clauses are a creature of contract, and each case will turn on the specific drafting and relevant factual matrix, the court took a pragmatic approach and found that payment in a currency other than US dollars (which was specified in the contract, but would have resulted in delay and difficulties because of the US sanctions) would achieve the same result under the contract. In the important Mints decision (see case 22), the High Court confirmed that UK sanctions do not prevent the courts of England & Wales from entering a judgment on a pre-existing (i.e. pre-sanctions) claim brought by a sanctioned person, and that there is no need for an Office of Financial Sanctions Implementation (OFSI) licence. This decision will have wide implications for litigation involving sanctioned entities, although we note that the High Court has granted permission to appeal. More recently, the court has looked at the impact of sanctions on payment obligations in trade finance documentation, which is likely to be of significant interest to all parties to transactions which are impacted by sanctions issues (Celestial v UniCredit, banking litigation blog post coming soon).
Since our last update, the global financial system has faced significant challenges, with the failure of three US banks and the sale of Credit Suisse to UBS. It seems clear that these events will give rise to disputes, with news reports that a claimant law firm has issued proceedings against the Swiss authorities already, on behalf of Credit Suisse AT1 bondholders. While these developments may give rise to legal issues for banks across the broader financial system, there will be an inevitable delay before we see any substantive court decisions.
The so-called Quincecare duty continues to be a hot topic, in part because its parameters remain unclear and in part because of the potential for broad application of the duty to any situation where a financial institution is instructed by its customer to transfer payments out of the customer's account. In February 2023, the Supreme Court heard an important appeal in the Philipp v Barclays case, and it is possible that the highest court will use this opportunity to overhaul the duty completely. While this judgment is awaited, we continue to monitor all other decisions considering this controversial duty of care. In our update we consider the recent judgment in Stanford International Bank v HSBC (see case 2), and an interesting judgment handed down by the Hong Kong Court of Final Appeal (CFA) on this topic. While not binding on the courts of England and Wales, the leading judgment was delivered by Lord Sumption (a former Justice of the UK Supreme Court who was sitting as a Non-Permanent Judge of the CFA) and is likely to have influence within this jurisdiction.
Securities class actions remain an increasingly significant area of law and procedure, with growing numbers of claims being brought by large groups of claimant shareholders against listed corporates. For those monitoring the risk profile of claims under s.90A of the Financial Services and Markets Act 2000 (FSMA), we have considered below a recent case management decision in the Serco litigation (see case 20), which includes some interesting observations made by the defendant and the court on the critical question of reliance, which has become a central battleground in such claims. The procedural regimes for bringing group litigation are also important to understanding the risks faced by large corporates. Accordingly, we have also included in this edition our thoughts on Marks & Clerk (see case 19), in which the High Court adopted a liberal approach to the "same interest" requirement to bring a representative action under CPR 19.8 (formerly CPR 19.6), allowing the claim to proceed on an "opt-out" basis (typically favoured by claimants because individual class members do not need to be identified). Another highlight to note in this area, is the launch of the second edition of our text Class Actions in England and Wales, which has become the seminal handbook in this jurisdiction for comprehensive guidance for those looking to bring or defend class action litigation.
Over the past year or so, we have seen an uptick in the number of financial services cases looking at the issue of contractual discretions (i.e. the right to make an assessment or choose from a range of options) versus contractual rights (i.e. a unilateral right to make a binary decision). The distinction between the two is not always straightforward to draw, with mixed terminology in both the case law and in contracts themselves. The distinction is particularly important in a financial services context, because it will determine the approach that the bank, as contractual decision maker, should take to exercising the contractual provision in question. If the clause gives the decision maker a discretion rather than an absolute contractual right (which is a matter of contractual interpretation), then that discretion may be subject to an implied duty to act in good faith or to refrain from acting in a way which was arbitrary, capricious or irrational (i.e. the Braganza duty). We consider some recent cases considering these issues below.
n terms of key procedural developments, during the last period there has been a veritable torrent of decisions considering the issue of privilege. We have included links to our analysis of the key judgments below. One of the most topical updates, is the decision in Loreley v Credit Suisse (see case 28), in which the Court of Appeal confirmed that the identity of those instructing lawyers is not generally protected by litigation privilege. The 12 to 16-week trial of this claim began at the beginning of the Easter term. Another procedural nugget to draw your attention to, is one of the first cases post-Brexit in which an anti-suit injunction has been granted by an English court restraining proceedings in an EU member state. Prior to Brexit, the English court could not grant an anti-suit injunction in respect of EU proceedings, as this would have been contrary to the Brussels regime. We have included a link to our discussion of this interesting development in the update.
We hope you find our update useful and, as ever, please feel free to contact one of us or your usual Herbert Smith Freehills contact if there are any topics which you would like to discuss further.
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