The transition from LIBOR to risk-free rates has generated a wave of litigation concerning the validity and enforceability of legacy derivative contracts. This article examines the key legal issues and the developing case law.
The global financial system's transition away from LIBOR has created significant legal uncertainty for parties to legacy derivative contracts. The question of whether LIBOR manipulation vitiates the consent of counterparties to LIBOR-linked transactions has been addressed by the English courts in a series of recent decisions, culminating in the landmark judgment in Global Maritime Bank v. Sovereign Shipping Co [2022] EWHC 3104 (Comm).
The court's analysis in that case confirms that a party's undisclosed participation in the LIBOR manipulation conspiracy may constitute a fraudulent misrepresentation by omission, entitling the innocent counterparty to rescind the contract and recover its losses. This analysis has profound implications for the many thousands of legacy contracts that remain outstanding.
The article examines the elements of the cause of action, the defences available to defendant institutions, and the practical steps that parties should take to assess their exposure.
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About the Author
Eleanor Pemberton KC
King's Counsel
Eleanor Pemberton KC is a leading silk with a dual practice in commercial litigation and public international law. She has appeared before the International Court of Justice, the European Court of Human Rights, and the International Tribunal for the Law of the Sea, as well as in the Commercial Court and Court of Appeal. Eleanor is a Visiting Professor at the London School of Economics and a member of the UN International Law Commission. She is described by The Legal 500 as 'one of the finest minds at the Bar — intellectually rigorous, strategically astute, and a compelling advocate.'