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LIBOR rigging: Difference between revisions
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was indirectly so: failure to comply with their provisions could give rise to regulatory consequences. | was indirectly so: failure to comply with their provisions could give rise to regulatory consequences. | ||
}} | }} | ||
{{casenote|R|Spens}} concerned a breach of the Takeover Code, and expressed the view that “[the Takeover Code] sufficiently resembles legislation as to be likewise regarded as demanding construction of its provisions by a judge.” But inasmuch as the Takeover Code regulates the behaviour in connection with mergers and acquisitions it ''is'' a quasi-regulatory arrangement. | {{casenote|R|Spens}} concerned a breach of the Takeover Code, and expressed the view that “[the Takeover Code] sufficiently resembles legislation as to be likewise regarded as demanding construction of its provisions by a judge.” But inasmuch as the Takeover Code regulates the behaviour in connection with mergers and acquisitions it ''is'' a quasi-regulatory arrangement.<ref>“The function of the ''City Code on Takeovers and Mergers'' is to supervise and regulate takeovers and other matters to which the Code applies in accordance with the rules set out in the Code.” | ||
— ''{{Pl|https://code.thetakeoverpanel.org.uk/tp/introduction/section-1.html|Overview, The Takeover Code}}''</ref> The calculation of an interest rate benchmark is not. That failure to comply with its terms indirectly “could give rise to regulatory consequences” is beside the point, and true of any contract. | |||
For, unlike crimes and torts, contracts do not admit of mental states or “culpability”. There is no need for ''[[Mens rea and actus reus|mens rea]]''. You either comply with a contract, on the facts, or you don’t. One’s [[Degrees of liability|intention, recklessness or negligence]] in your performance does not come into it.<ref>Any number of tedious JC tracts refer, such as[[contractual negligence|this one]] and [[degrees of liability|this one]].</ref> | |||
But again, this does not hold for contract. Quite the opposite: under the intellectual theory of contract the parties ''are required to be'' materially cognisant of the whole thing. That is what [[offer]] and [[acceptance]] requires: if they | Furthermore, under the intellectual theory of criminal law, ''ignorance is no excuse''. This is as axiomatic for an effective criminal justice system as “all interests in cash pass by delivery” is to finance: the criminal justice system would not work were defendants allowed to plead ignorance, even presumptively. ''Ignorantia legis non excusat'', if you are blameless in your inadvertence, is a moral iniquity but still a practical imperative of good government. | ||
But again, this does not hold for contract. Quite the opposite: under the intellectual theory of contract the parties ''are required to be'' materially cognisant of the whole thing. That is what [[offer]] and [[acceptance]] requires: if they do not, ''there is no contract''. | |||
So the rules of contractual interpretation have forged a different path: | So the rules of contractual interpretation have forged a different path: | ||
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Interpreting the ''[[consensus ad idem]]'' manifested under a contract demands a wholly different approach than does construction of criminal legislation where the defendant’s understanding of the legislation is irrelevant. | Interpreting the ''[[consensus ad idem]]'' manifested under a contract demands a wholly different approach than does construction of criminal legislation where the defendant’s understanding of the legislation is irrelevant. | ||
Surely, evidence of how ''everyone'' behaved when interacting with the LIBOR Definition will help with what [[reasonable person|a reasonable person]] would have understood it to mean. There can be no better indication of reasonableness than direct evidence of the behaviour of fellow [[Man on the Clapham Omnibus|passengers on the Clapham Omnibus]]. | |||
Surely, evidence of how ''everyone'' behaved when interacting with the LIBOR Definition will help with what [[reasonable person|a reasonable person]] would have understood it to mean. There can be no better indication of reasonableness than direct evidence of the behaviour of fellow [[Man on the Clapham Omnibus|passengers on the Clapham Omnibus]]. | |||
There is here the odd spectre of the law of [[contract]] forming the backdrop to a criminal allegation. This is rare. Usually, the criminal authorities stay well out of commercial disputes, even where allegations of fraud are flying around, seeing them as a matter of civil loss between merchants perfectly able to look after themselves, and not requiring the machinery of the state. | There is here the odd spectre of the law of [[contract]] forming the backdrop to a criminal allegation. This is rare. Usually, the criminal authorities stay well out of commercial disputes, even where allegations of fraud are flying around, seeing them as a matter of civil loss between merchants perfectly able to look after themselves, and not requiring the machinery of the state. | ||
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Nevertheless, still one must apply contractual principles, not criminal ones, to matters of contractual practice. | Nevertheless, still one must apply contractual principles, not criminal ones, to matters of contractual practice. | ||
And the argument here is not about economic reality but legal meaning, and legal meaning follows natural, ordinary meaning, and in the world of contractual interpretation, that is viewed from the perspective of the person performing the contract, [[Contra proferentem|''contra proferentem'']] — [[Contra proferentem|against the draftsperson’s interest]] — giving the benefit of the doubt to the | And the argument here is not about economic reality but legal meaning, and legal meaning follows natural, ordinary meaning, and in the world of contractual interpretation, that is viewed from the perspective of the person performing the contract, “[[Contra proferentem|''contra proferentem'']]” — [[Contra proferentem|against the draftsperson’s interest]] — giving the benefit of the doubt to the person on whom the terms are imposed. | ||
Defendants get the benefit of the same doubt in case of ambiguously framed crimes.<ref>{{Cite|Sweet|Parsley|1970|AC|132}}</ref> For if the LIBOR Definition meant to mandate this “obvious” outcome, it did not do a very good job of it. As a matter of plain English, “could borrow” does not rule out a higher rate, but rather implies it: the Court of Appeal concedes as much, at para 89: | Defendants get the benefit of the same doubt in case of ambiguously framed crimes.<ref>{{Cite|Sweet|Parsley|1970|AC|132}}</ref> For if the LIBOR Definition meant to mandate this “obvious” outcome, it did not do a very good job of it. As a matter of plain English, “could borrow” does not rule out a higher rate, but rather implies it: the Court of Appeal concedes as much, at para 89: | ||
{{Quote|“The bank “could” borrow at that [''higher''] rate in the sense that it was a rate which was available, but that is obviously not what “could” means.”}} | {{Quote|“The bank “could” borrow at that [''higher''] rate in the sense that it was a rate which was available, but that is obviously not what “could” means.”}} | ||
The “obviousness” to which the Court appeals here is not a legal one — there is no authority for that proposition at all — but the Court’s ''economic'' intuition based upon an abstract conceptualisation of “borrowing”. | The “obviousness” to which the Court appeals here is not a legal one — there is no authority for that proposition at all — but the Court’s ''economic'' intuition based upon an abstract conceptualisation of “borrowing”. Why would anyone borrow at rate higher than one on offer? | ||
But borrowing does not happen in the abstract. | But borrowing does not happen in the abstract. | ||
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Per the plain words of the LIBOR Definition there is an upper bound delimited by the range of “inter-bank offers in reasonable market size just prior to 1100”. A submitter could not submit a rate higher than any actually offered, any more than it could submit a rate lower than one actually offered. | Per the plain words of the LIBOR Definition there is an upper bound delimited by the range of “inter-bank offers in reasonable market size just prior to 1100”. A submitter could not submit a rate higher than any actually offered, any more than it could submit a rate lower than one actually offered. | ||
So, to construe “the rate at which it could borrow funds” to mean “the ''lowest'' rate ... ”, one must [[Implied term|imply]] a term into the contract that is not there. Courts do not do this lightly | So, to construe “the rate at which it could borrow funds” to mean “the ''lowest'' rate ... ”, one must [[Implied term|imply]] a term into the contract that easily could have been, but is not, there. Courts do not do this lightly: | ||
{{Quote|“That which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’”}} | {{Quote|“That which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’”<ref>''Shirlaw v Southern Foundries'' [1939] 2 KB 206</ref>}} | ||
There are good reasons to imagine at least thirty-seven LIBOR submitters might not have done this. Especially since it would have been easy enough for the old grandees to have put the matter beyond doubt, with a single modifying adjective: | There are good reasons to imagine at least thirty-seven LIBOR submitters might not have done this. Especially since it would have been easy enough for the old grandees to have put the matter beyond doubt, with a single modifying adjective: | ||