Home Information Cases Royal Bank of Scotland PLC v Highland Financial Partners LP (2013)

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Royal Bank of Scotland PLC v Highland Financial Partners LP (2013)


In a claim for the recovery of advances made in connection with a collateralised debt obligation transaction the claimant bank had obtained judgment on liability by fraud through the misstatement and concealment of facts by its key witness. Therefore the liability judgment, the Court of Appeal's judgment on liability and the trial judge's quantum judgment all had to be set aside. In any event, the judge had been right to refuse to grant the bank an anti-suit injunction restraining the defendants from pursuing proceedings in Texas on the ground that the bank's key witness's misconduct was sufficiently closely related to the equitable relief it sought.


The appellant bank (R) appealed against a decision ([2012] EWHC 1278 (Comm), [2012] 2 C.L.C. 109) refusing to grant an anti-suit injunction to restrain proceedings in the United States, and the first to fourth respondents (H) cross-appealed against the dismissal of their claim to set aside a judgment in favour of R.

H were part of a US group which had arranged a collateralised debt obligation (CDO) which involved the acquisition of a portfolio of loans and the issue of notes by a special purpose vehicle. R had financed the purchase of the loans. Because of the collapse of the financial markets the notes were never issued and the transaction never closed. In those circumstances the interim servicing deed entered into by the parties provided for the sale of the loans by R. R invited market participants to bid for the loans in an auction process, but purchased all the loans itself. It then sought to recover the shortfall from H and obtained summary judgment on liability. That decision was upheld on appeal. In the subsequent proceedings to determine the amount to be credited in H's favour as a result of the acquisition of the loans by R, it transpired that for accounting reasons R had decided to keep some of the loans and had transferred them from its trading book to its banking book before the auction process. H alleged that the auction process was accordingly a sham and that R was in breach of contract and its equitable duties as mortgagee. H claimed that if R had properly auctioned the loans there would have been no shortfall. The judge at the quantum hearing held that R had misconducted itself but that H owed a sum to R on the proper valuation of the loans. The respondents then commenced proceedings against R in Texas alleging fraud and R applied for an anti-suit injunction. H then claimed that the original judgment on liability should be set aside as having been obtained by fraud. The judge refused to set aside the liability judgment holding that concealment by R's employee (G) of the transfer of the loans before the auction had not been dishonest and that there would be no point in setting the judgment aside since the decision in the quantum judgment was correct and reflected the true position. He held that the Texan claims fell within an exclusive English jurisdiction clause but that R was not entitled to an anti-suit injunction because it had "unclean hands".


(1) There had been more than simple concealment of the transfer of the loans before the auction. The evidence and the findings of the judge overall led to the inevitable conclusion that at the time of the liability hearing and judgment G was continuing positively to mislead both H and the court as to what had happened in relation to the loans and was doing so consciously and deliberately. The acts of G were to be attributed to R, so there was a positive misstatement by R of the true position (see para.122 of judgment). The evidence and findings of the judge led to the conclusion that G's misstatement or concealment was dishonest (para.127). But for the deliberate and dishonest concealment there would have been no summary judgment on liability because R would not have applied for it (paras 134-139). The liability judgment had to be set aside as obtained by fraud. The fact that, subsequently, the judge was able to conduct the quantum trial on proper evidence was not relevant, Odyssey Re (London) Ltd & anr v OIC Run-Off Ltd (formerly Orion Insurance Co plc) applied (paras 141-142). It followed that the Court of Appeal judgment on liability and the quantum judgment had to be set aside (paras 144-145). (2) When G gave his evidence he had the status necessary to make his evidence that of R for the purposes of the "unclean hands" issue, Odyssey Re (london) Ltd v Oic Run-off Ltd applied (paras 155-157). The judge was entitled to conclude that there was a sufficient "immediate and necessary" relation between the misconduct of G and the claim by R for equitable relief in the form of an anti-suit injunction, such that R was to be denied it under the "unclean hands" doctrine. The judge had found that R, through G, had lied about central facts on which H founded the allegations that were made against R in the Texan proceedings; R, through G, had relied on that false evidence in the course of the English proceedings whose very object was to stop the Texan action; the misconduct could not be more immediately related to the equity that was sued for (paras 158-171).

Appeal dismissed, cross-appeal allowed

Court of Appeal
Maurice Kay LJ, Toulson LJ, Aikens LJ
Judgment date
12 April 2013

LTL 12/4/2013 : [2013] EWCA Civ 328