WW PROPERTY INVESTMENTS LTD V NATIONAL WESTMINSTER BANK PLC

[2016] EWCA Civ 1142, Court of Appeal, Lord Justice Briggs and Lord Justice Christopher Clarke, 29 November 2016

Banking - Interest Rate Swaps - Wager - Manipulation of LIBOR - Duty of care - Gaming Act 1845, section 18 - Gambling Act 2005, sections 9 and 10 - Financial Services and Markets Act 2000, section 22 - Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, articles 3, 14 and 85

Between 2004 and 2010 WW borrowed money from NatWest, with interest to be paid at a percentage above NatWest's base rate. It was a term of the loans that they should be hedged, and the parties entered into four interest rate hedging contracts. The first three were "Collars", whereby if NatWest's weighted average sterling base rate for each calculation period exceeded a certain amount NatWest would pay WW under the instrument but if the rate dropped below a certain level WW would pay NatWest. The fourth was a "Swap" agreement under which WW had a fixed rate of 4.4 per cent and NatWest had a floating rate of one month sterling Libor. Rates dropped in 2008, so that the agreements were disadvantageous to WW. In 2013, following regulatory intervention, NatWest carried out an Interest Rate Hedging Product Review (IRHPR). The parties entered into a compromise agreement in respect of the Collars in 2014 under which WW received compensation of £424,152.06 from NatWest. The settlement provided that it was full and final, subject to WW being able to claim consequential losses. In the present proceedings WW sought compensation for consequential loss, arguing that: the Collars and Swap were wagering contracts at common law and were invalid because NatWest had greater knowledge than WW of the prospects for the hedge and more favourable chances; and that it was an implied term that NatWest had not and would not manipulate any LIBOR index. The judge struck out WW's claims in respect of the Collars by reason of the compromise agreement, and held that the Swap claims had no reasonable prospect of success. He also refused to allow an amendment to the pleadings by WW introducing a claim for breach of duty of care. WW sought permission to appeal.