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LIBOR and hedging product claims struck out due to limitation

Posted on 18 June 2020

NatWest has evaded a claim in excess of £8 million after the court ruled that the Claimant, Boyse (International) Limited (Boyse), had failed to file its claim within the relevant limitation period of less than a fortnight. Chief Master Marsh's judgment in Boyse (International) Ltd v NatWest Markets plc and another [2020] EWHC 1264 (Ch) shows the importance of ensuring claims are brought in time and the difficulty of relying on s.32(1) Limitation Act 1980 (LA) to extend limitation periods.

Boyse, a trust company that held property investments, entered into loan facilities with the Defendants (the Bank) in 2004 and 2007 to purchase two London properties, alongside which it also entered into two LIBOR-linked interest rate hedging products (IRHPs). In 2011 and 2012 Boyse was forced to sell both properties at a significant undervalue due to the cost of the IRHPs.

Following the 2008 financial crisis, the Financial Services Authority (FSA) identified serious failings with the sale of IRHPs, and on 6 February 2013 issued a Final Notice and fine to the Bank for LIBOR misconduct. In October 2014, the Bank repaid Boyse the sums spent by it on the IRHPs but did not agree to pay any alleged consequential losses suffered by Boyse on the property sales. Boyse issued a claim for these losses on 19 February 2019. This was six years and 13 days after the date of the Final Notice. The standard limitation period for contract claims in England is six years.

In order to circumvent the limitation issue, Boyse sought to rely on s.32(1) LA which states that where a claim alleges fraud, the period of limitation does not begin until a claimant has either discovered the fraud or could, with reasonable diligence, have discovered it. Boyse argued that the limitation period for its claim should not have started from the date of the Final Notice but from when it could, with reasonable diligence, have discovered the Bank's misconduct, which was at least two weeks after the publication of the Final Notice. The Bank countered that the publication of the Final Notice itself meant that Boyse could have discovered the alleged fraud with reasonable diligence. The Bank also relied on the contemporaneous publicity about LIBOR misconduct before the Final Notice was issued.

The Court therefore had to consider what may amount to a trigger to a claimant to exercise reasonable diligence to uncover fraud. It concluded that s.32(1) LA assumes that there will be something which objectively puts a claimant on notice of the need to investigate for fraud. The claimant must then carry out such a search with reasonable diligence. The Court noted, however, that "[t]o speak of a trigger may mask the fact that objective discovery for the purposes of section 32(1) may be the culmination of a series of events".

The Court concluded that Boyse's limitation case under s.32(1) LA failed because Boyse was objectively "on notice that something had gone wrong" before the Final Notice. It was aware that the IRHPs were referenced to LIBOR and it had needed to sell the properties because of the cost of the IRHPs and the effect on its cash flow and profitability. Further, it was held that a "reasonably diligent person in Boyse's shoes would have been alert to the widespread publicity about LIBOR even before 6 February 2013. The Final Notice was a trigger".

As a result, Boyse's claim was issued 13 days too late. The Court noted that Boyse's "attempts to bridge that short period are artificial because the 6 year period of limitation provides ample time to obtain advice and formulate a claim". This case underlines the importance of acting quickly to ascertain the relevant limitation period for a claim as soon as an issue which may lead to proceedings is discovered. This is particularly important in fraud cases where it is key to establish exactly when relevant knowledge was acquired.

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