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LIBOR rigging: Difference between revisions
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{{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 | 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 are blameless in your inadvertebce, is a moral iniquity but still a logical imperative of government. | ||
The same imperative does not hold for a contract. | The same imperative does not hold for a contract. ''Au contraire''; the whole theory of contract is that the parties are fully cognisant of the whole thing. That is what offer and acceptance requires. The rules of contractual interpretation have forged a different path: | ||
The rules of contractual interpretation have forged a different path: | |||
{{quote| | {{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. | 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}}}} | :—Lord Hoffman in {{cite|Investors Compensation Scheme Ltd|West Bromwich Building Society|1998|1 WLR|896}}}} | ||
A couple of observations: one: plainly, what a contract means is, in some way, fact-dependent. It is not, purely, a matter of law. | |||
Another is that how everyone else behaved when interacting with the same LIBOR Definition is instructive in determining what a reasonable person would have understood. There is no better indication of reasonableness that direct evidence of the actual belief of fellow passengers on the Clapham omnibus. | |||
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”. | 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”. | ||
There is also the odd spectre of the law of [[contract]] forming the backdrop, and comprising some of the elements of a criminal allegation. This is rare. Usually, the | There is also the odd spectre of the law of [[contract]] forming the backdrop, and comprising some of the elements of a criminal allegation. This is rare. Usually, the criminal authorities stay well out of commercial disputes, even where allegations of fraud are flying around — there is a civil tort of fraud — seeing it as a matter of civil loss between merchants perfectly able to look after themselves, and not one requiring the machinery of the state. | ||
[[LIBOR]], on whom the mortgage repayments of unwitting retail punters depend, made things a bit different. This is no private matter to be sorted out between gentlemen with revolvers. But nonetheless, still one must apply contractual principles, not criminal ones, to matters of contractual practice. | [[LIBOR]], on whom the mortgage repayments of unwitting retail punters depend, made things a bit different. This is no private matter to be sorted out between gentlemen with revolvers. But nonetheless, still one must apply contractual principles, not criminal ones, to matters of contractual practice. | ||
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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]]. | 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]]. | ||
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”. | 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”. | ||
The judgment interpreted that as the ''lowest'' of the submitted rates in the range. | The judgment interpreted that as the ''lowest'' of the submitted rates in the range. | ||
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{{sa}} | {{sa}} | ||
*[[Contract]] | |||
*[[LIBOR]] | *[[LIBOR]] | ||
{{ref}} | {{ref}} | ||