LIBOR rigging: Difference between revisions

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+{{drop|“T|he courts have}} for many years been developing and using a broad concept which at times has threatened to bring chaos rather than light to the solution of the legal problems it has affected. This concept enunciates the division between questions of law and questions of fact.
+:—''{{plainlink|https://scholarship.law.wm.edu/facpubs/810/|What is a “Question of Law”?}}'', Arthur W. Phelps, 1949, bringing yet more chaos to the table.
+}}{{quote|
 {{drop|“I|f the law}} supposes that,” said Mr. Bumble,… “the law is a ass—a idiot. If that’s the eye of the law, the law is a bachelor; and the worst I wish the law is that his eye may be opened by experience—by experience.”
 :— Charles Dickens, ''Oliver Twist''}}
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 Whose job was it to decide what they meant? Was it, in other words, a matter of fact or law?</ol>
-US courts, in acquitting Connolly and Black,<ref>{{citer|United States|Connolly and Black|2d Cir. 2022|No. 19-3806|}} </ref> had considered them to be matters of ''fact'': the text of the “LIBOR Definition” as filtered through the prisms of grammar, usage, subject matter expert opinion and industry practice.The English court considered it to be  question of law: if the interpretation of a (quasi) contractual term is not “a question of law,” then what is? This seems the right answer, though to a different question than the one before the court.
+====“A conspiracy to defraud”====
+Hayes and Palombo were indicted on the ancient [[common law]] offence of “conspiracy to defraud”, rather than under the Fraud Act of 2006, an act passed following a Law Commission report which recommended the common law offence be abolished, considering it to be “unfairly uncertain, and wide enough to have the potential to catch behaviour that should not be criminal”.<ref>{{plainlink|https://www.gov.uk/guidance/use-of-the-common-law-offence-of-conspiracy-to-defraud--6|Attorney General guidance to the legal profession on use of conspiracy to defraud}}, November 2012.</ref> The common law offence was retained “for the time being” on a “just in case we’ve missed something” basis.<ref>The government decided to retain it for the meantime, but accepted the case for considering repeal in the longer term. Whether there is a continuing need for retention of the common law offence is one of the issues that will be addressed in the Home Office review of the operation of the Fraud Act 2006, which will take place 3 years after its implementation. (op cit)</ref>
+In any case, the elements of the common law offence are, more or less:
+{{L1}}'''Conspiracy''': That there was an agreement between two or more persons. <li>
+'''Fraudulent intent''': That they intended to defraud another person or group. <li>
+'''Dishonesty''': Their agreement involved doing something dishonest, like misrepresenting or making false promises. <li>
+'''Likelihood of loss''': That there was a likelihood of resulting loss or disadvantage even if no loss ever occurred.</ol>
+These are the legal principles. Their application, it seems to this old commercial hack, demands marrying the facts — who did what to whom — to their specific legal meanings as “terms of legal art”.
+Was Hayes ''dishonest'' when he submitted his LIBOR rates? That, in turn, came down to whether he “deliberately disregarded the proper basis for the submission of those rates”, intending thereby to prejudice the economic interests of others.
+Whether the submissions were dishonest came down, so thought the court, to whether they conformed to the “Instructions to BBA LIBOR Contributor Banks” in the BBA’s “The BBA Libor Fixing – Definition” document. The critical part of the instructions — what the court calls the “LIBOR Definition” ran as follows:
+{{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute '''''the rate at which it could borrow funds''''', were it to do so by asking for and then accepting inter-bank offers in reasonable market size just prior to 1100.”}}
 ====Facts and law====
-{{Drop|A|ll questions of}} law must, ultimately, draw on facts, for without them there is nothing. The meaning of a contract is beside the point without evidence there was a contract. In our times we might answer the legal question by paying attention not just to the semantic expression, but the parties’ behaviour. It is not true that a question of law can ignore facts or contradict them: it just means the job of figuring out the legal significance of facts, found by a jury, falls to a judge.
+{{drop|N|ow, US Courts}}, in acquitting Connolly and Black,<ref>{{citer|United States|Connolly and Black|2d Cir. 2022|No. 19-3806|}}</ref> had considered the question before them to be one of ''fact'': the text of the “LIBOR Definition” as filtered through the prisms of grammar, usage, subject matter expert opinion and industry practice. This question of law — whether it was dishonest — depended a great deal on matters of ''fact'' — what did Hayes believe the LIBOR Definition required, and if that seemed far-fetched, what a reasonable person reading the definition would think it required.
+The English court considered it to be purely a question of ''law'': if the interpretation of a (quasi) contractual term is not “a question of law,” then what is?
-It is not open to a judge, therefore, to ignore the factual setting just because the question to be answered is a legal one.
 ====Crimes and contracts====
-{{Drop|N|or should we}} forget the legal question to be answered here is one of criminal law, not contract.
+{{Drop|N|or should we}} forget the “legal question” to be answered here is one of criminal law, not contract.
+Under the intellectual theory of criminal law, ignorance or misunderstanding of the law is no excuse. This is axiomatic for an effective criminal justice system, the same way “all interests in cash pass by delivery” is to finance. The system would not work if it were otherwise: unlike contract law, it has no natural equilibrium. ''Ignorantia legis non excusat'', if you really are blamelessly ignorant, is a moral iniquity but still a logical imperative of government.
+The same imperative does not hold for a contract. The whole theory of contract is that you are fully congnisant of the whole thing. That is what offer and acceptance requires.
+The rules of contractual interpretation have forged a different path:
-Under the intellectual theory of criminal law, ignorance or misunderstanding of the law is no excuse. This is axiomatic for an effective criminal justice system, the same way “all interests in cash pass by delivery” is to finance. The system would not work if it were otherwise: unlike contract law, it has no natural equilibrium. “''Ignorantia legis non excusat''” is a moral iniquity but a logical imperative of government. It is the dilemma of the human condition that should demolish
+{{quote|
+Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. [...] '''The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include'''. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
+:—Lord Hoffman in {{cite|Investors Compensation Scheme Ltd|West Bromwich Building Society|1998|1 WLR|896}}}}
 That one was under a misapprehension goes only to mitigation and not liability, though — as we will see — in a market where plainly ''everyone'' shared an opinion, different from the judge’s one, about what the “LIBOR Definition” meant, this risks rendering the law “a ass”.
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 Either (a) there was a colossal conspiracy at which everyone was trying to rip off the general public for personal gain and, since their efforts would naturally cancel each other out, probably failing or (b) ''this is how everyone understood to the LIBOR system to work''. It might not be edifying, but employees have fiduciary obligations to their shareholders, and if everyone acts according to those fiduciary obligations — or even their own personal self interests — the selfishness cancels itself out. This is ''exactly'' the logic of Adam Smith’s [[Free market|invisible hand]].
-=== The “LIBOR Definition” ===
-The dispute comes down to the meaning of the rules LIBOR submitters were meant to follow when submitting their rates. The “LIBOR Definition” provided:
-{{Quote|“An individual BBA LIBOR Contributor Panel Bank will contribute ''the rate at which it could borrow funds'', were it to do so by asking for and then accepting inter-bank offers in reasonable market size just prior to 1100.”}}
 Now, seeing as the different desks and functions of a universal bank borrow in different markets, from different counterparties and in different circumstances, clearly there will be no single unitary rate that the market will offer. The submitter will be confronted with a range of rates. Plainly it would be odd to submit a rate that was completely ''outside'' that range, but each of those rates counts as “''a'' rate at which it could borrow funds”.