Finance litigation trends: Autumn 2024 update
In this banking and finance litigation update, we focus on key cases, developments and hot topics to help in-house counsel to stay up to date. Most of the points covered by this autumn’s update encapsulate the major global events of the past few years: sanctions, force majeure clauses, novel cryptocurrency issues, and enforcement of English judgments abroad. Our statistical market analysis provides insight into the macro trends in English High Court litigation, including developing trends, such as APP fraud and de-banking risks.
- Sanctions and the performance of cross-border payments;
- APP Fraud
- Cryptocurrency exchanges’ liability for APP Fraud
- Recognition and enforcement of UK judgments - the 2019 Hague Convention
- Anti-suit injunctions
- Reasonable endeavours must be for contractual performance
- LIBOR cessation
- De-banking: recent developments and litigation and regulatory risk
- Market analysis
You can access more detailed briefings using the links; and if you would like further information on a topic then please contact us.
1. Sanctions and the performance of cross-border payments
In Celestial Aviation Services Ltd v UniCredit Bank AG (London Branch) [2024] EWCA Civ 628, the Court of Appeal has overturned a High Court decision which sparked significant concern among financial institutions and corporates alike as to the performance of contracting parties’ obligations when impacted by sanctions. In particular, the decision limits the extent to which payments in cash may be required where a party is prevented by sanctions from making a payment by way of bank transfer.
In 2023, the High Court had found that UniCredit was not necessarily prohibited by US sanctions from paying out under letters of credit, as payment could be made in cash, rather than through a US account. Among the Court of Appeal’s finding, it helpfully rejected the assumption that payment obligations might always be performed through payment in cash or alternative currencies with a view to avoiding violations of US sanctions.
Our team has considered the judgment and prepared a summary of the key takeaways which is available here.
2. APP Fraud
The UK Payment Systems Regulator (PSR) made a significant reduction to the reimbursement limit for Authorised Push Payment fraud claims from £415,000 to £85,000. The new cap aligns with the Financial Services Compensation Scheme reimbursement limit and, according to the PSR, aims to protect consumers while ensuring that the fraud reimbursement scheme is sustainable. The new measures came into force on 7 October 2024.
Our team has prepared a summary of the PSR’s changes, and the potential impacts and risks to payment service providers which is available here.
On 3 October 2024, HM Treasury published a final draft statutory instrument – The Payment Services (Amendment) Regulations 2024. The statutory instrument would amend the Payment Services Regulations 2017 to allow payment service providers to delay the execution of an outbound payment transaction by up to four business days where there are reasonable grounds to suspect fraud or dishonesty, thereby supporting efforts to tackle APP fraud. The draft will be laid before Parliament shortly.
3. Cryptocurrency exchanges’ liability for APP Fraud
A recent High Court decision considered whether cryptocurrency exchanges could be liable for the return of fraudulently misappropriated cryptocurrency. While the court found in favour of the exchange, on the basis that the cryptocurrency could not be traced to it, the decision merits careful attention by cryptocurrency exchanges. The judge found that the exchange had sufficient knowledge to found liability for allowing the fraudster to withdraw funds from its account. If the claimant had been able to provide more evidence on the movement of the cryptocurrency through different accounts to allow it to be traced, the cryptocurrency exchange might have been held liable.
Of wider interest to all financial institutions dealing with cryptocurrencies will be the judge’s finding that the cryptocurrency constituted property, following a detailed analysis of the authorities and academic arguments. Taken together with the Property (Digital Assets etc) Bill introduced the day before this judgment, the property status of digital assets in English law is very close to being definitively settled.
Interestingly, the judge also found that the cryptocurrency in question was persistent. In other words, coins that were sent from the first account were the same coins that arrived in the second account. The Law Commission had suggested that the transfer of digital currencies might be more likely to take place by the destruction of the coins in the first account and the creation of new coins in the second account. Persistence of digital currencies will affect tracing and proprietary remedies.
Our team has produced an overview of the decision: Digital assets push payment fraud which is available here.
4. Recognition and enforcement of UK judgments - the 2019 Hague Convention
The 2019 Hague Convention (the Convention) will come into force for the United Kingdom on 1 July 2025. The Convention provides for the judgments of UK courts to be recognised and enforced in the courts of other nations. Crucially, the Convention extends to the enforcement of a judgment obtained under a non-exclusive jurisdiction agreement. It is therefore likely to provide a solution to the issue of the enforcement and recognition of asymmetric jurisdiction clauses. If you would like to discuss the practical implications of the Convention, please get in touch.
Our interactive cross-border guide on enforcement in the EU – which deals specifically with asymmetric jurisdiction clauses – remains a popular tool with our clients which is available here.
5. Anti-suit injunctions
Over the past couple of years, the English courts have been increasingly willing to grant anti-suit injunctions and anti-enforcement injunctions to restrain the breach of exclusive jurisdiction clauses in favour of the English courts. A recent decision has shown that this willingness extends to granting injunctions to restrain the breach of asymmetric jurisdiction clauses, where the exclusivity of the English courts only applies to one party. This is particularly helpful for banks and other financial institutions, as these clauses are common in finance documents.
While the decision is helpful, the judgment emphasises the importance of the prompt timing of the relevant applications to the court. Our team has prepared a summary of the decision and the key takeaways.
6. Reasonable endeavours must be for contractual performance
The Supreme Court has found that an obligation to take “reasonable endeavours” to overcome a force majeure event does not require parties to accept offers of non-contractual performance, absent clear words in the agreement to that effect. In the context of this case, this meant that a party was not required to accept payment in Euros when the agreement expressly provided for payment in US Dollars.
After conflicting decisions by lower courts, the Supreme Court’s decision signifies a return to core contractual principles, namely the importance of the bargain that the parties have struck and the need for clear wording to deviate from that bargain.
Our team’s summary of the decision includes key points to consider when negotiating force majeure clauses.
7. LIBOR cessation
On 15 October 2024, in Standard Chartered PLC v Guaranty Nominees Ltd & Ors [2024] EWHC 2605 (Comm), the English High Court gave its first judgment on the effect of the cessation of LIBOR on contracts which reference LIBOR.
The case was determined under the Financial Markets Test Case Schedule for cases which raise issues of general importance to the financial markets.
The Court concluded that the contract, which referenced three-month USD LIBOR, contains an implied term that the reasonable alternative to three-month USD LIBOR is to be used where the definition of three-month USD LIBOR is no longer operative. The Court found that the reasonable alternative rate for the relevant contract should be based on the Federal Reserve’s Secured Overnight Funds Rate (SOFR) with a Spead Adjustment which had been recommended by ISDA and endorsed by a number of regulators and market participants.
Financial institutions are likely to welcome the decision, because it upholds contracts that refer to LIBOR by implying a term for a reasonable alternative rate.
Our team has prepared a more detailed summary of the judgment which is available here.
8. De-banking: recent developments and litigation and regulatory risk
Following a spate of recent high-profile reports on the closure of customer bank accounts, we have prepared a summary of the litigation and regulatory risks faced by banks, as well as recent guidance the courts. Our summary pulls these together and provides a practical checklist of points to consider around account closures, both pre- and post- decision.
9. Market analysis
Our analysis of all claims issued since the Financial List was created reveals some fascinating trends about large-scale financial litigation in the UK. After initial growth, the number of claims issued on the Financial List has been steadily declining – so far in 2024, there have been only eight claims, three of which have the same defendant.
Some financial claims start outside the Financial List: for instance, smaller financial claims may start in the London Circuit Commercial Court. But, in general, the reduction in Financial List claims reflects an overall reduction in High Court claims involving banks and financial institutions. The biggest single category is derivatives and this has been the case every year. A large proportion of derivatives claims involve Italian local authorities. Banking/loans/project finance has seen a relative decline since the Financial List was established. There are no clear trends in the other categories.