In a recent judgment, the High Court (Waksman J) held that a claim for fraudulent misrepresentation by Amanda Staveley’s PCP Capital Partners (“PCP”) against Barclays Bank in relation to its 2008 refinancing was proven.
The judge nevertheless refused any damages because PCP could not show that “serious deceit” by Barclays had caused it any loss. PCP valued its claim at up to £660 million.
Following the handing down of judgment, Waksman J unusually also refused Barclays’ application to recover £37 million of costs incurred in defending PCP’s claim. The judge said Barclays was not entitled to its costs as a result of its deceit. PCP’s application for its costs of £22 million against Barclays was also refused.
In late 2008, Barclays was struggling to maintain sufficient regulatory capital (“Tier 1 capital”) as a result of market disruption caused by the collapse of Lehman Brothers and the sub-prime lending crisis.
Barclays estimated it needed a further £6.5 billion to meet its Tier 1 capital ratio. Barclays was reluctant to accept fresh capital from the UK government. Barclays instead looked to private investors to take new shares in Barclays in order to raise its Tier 1 capital.
Barclays opened negotiations with the Qatar sovereign wealth fund, the Qatar Investment Authority (“QIA”). The QIA considered investing £3 billion in Barclays.
At around the same time, PCP introduced HH Sheikh Mansour Bin Zayed Al Nahyan (“Sheikh Mansour”), a member of the Qatari royal family, who was exploring whether to make his own private investment in Barclays. Sheikh Mansour was considering investing up to £3.5 billion. Sheikh Mansour’s investment would be structured via three different special purpose vehicles owned jointly with PCP. PCP would have an equity stake and receive a performance fee as the price of investing in those vehicles.
PCP claims Barclays promised the “same deal” as the QIA in relation to any money Sheikh Mansour invested in Barclays. PCP stood to receive significant transaction fees, valued at up to £660 million, if Sheikh Mansour’s investments went ahead.
Before the deal over Sheikh Mansour’s investments could be completed, PCP’s case was that Sheikh Mansour reneged on sharing the investment with PCP and required PCP to transfer its investments to a company controlled by him.
PCP received a fee of £30 million for its work. Sheikh Mansour invested £3.25 billion in Barclays. The deal with Sheikh Mansour and the QIA were completed in November 2008. Barclays disclosed to the market that it had paid the QIA a fee of £66 million in relation to an earlier fundraising. Barclays repeated that representation to PCP.
In 2013, PCP learned that as a result of a Serious Fraud Office (“SFO”) investigation into Barclays, that Qatar had received payments of around £320 million from Barclays in exchange for providing the £3 billion of funding in November 2008.
PCP also learned that the £66 million payment to the QIA was actually an introduction fee for introducing Sheikh Mansour to provide capital.
The SFO investigated whether these payments amounted to unlawful financial assistance given by Barclays for the purchase of its own shares. This did not result in any prosecution of Barclays. The SFO also attempted to prosecute several former senior executives of Barclays for fraud over the same transaction. The executives were acquitted.
PCP claimed that Barclays had deceived it into believing that PCP was being offered the same terms as QIA. PCP argued that it had been deceived by fraudulent misrepresentations made by senior Barclays executives as to the amounts actually being paid by Barclays to QIA. PCP argued that alone was entitled to fees for introducing Sheikh Mansour. PCP also argued it would have generated significant further fees for itself had Barclays honoured the terms of its agreement with PCP.
In order to succeed in its claim, PCP had to demonstrate each of the following:
- Barclays had made statements regarding PCP’s remuneration being equivalent to QIA’s fees that were false or made with recklessly, without regard to their accuracy; and
- PCP relied on those statements; and
- In the counterfactual world, Barclays would have dealt with PCP on the same terms as QIA; and
- PCP would have been able to complete the complex financing necessary to provide similar amounts of money to QIA in order to generate the fees of £660 million claimed.
The judgment on liability
Waksman J found that Barclays had “seriously deceived” PCP as to the nature of its arrangements with QIA. The judge held that Barclays had done this deliberately or with no regard as to whether it was telling the truth. This behaviour amounted to a fraudulent misrepresentation.
Judgment on causation
PCP’s case on damages was that it had lost the chance to earn significant fees as a result of Barclays concealing the substance of its arrangements with QIA. PCP argued that in a counterfactual world, Barclays would have dealt with PCP on radically different terms. PCP said that it would have been able to raise the additional money necessary to participate in the joint ventures with Sheikh Mansour.
Waksman J held that whilst the evidence was that Barclays would have dealt with PCP, it was up to PCP to prove on the balance of probabilities that PCP would have been able to do the things it was necessary to do in order to earn the fees claimed.
The judge held that on the balance of probabilities PCP could not show it would have been able to complete the many complex tasks involved in raising additional financing necessary to participate in the joint ventures with Sheikh Mansour. As such, PCP’s claim failed.
This particular misrepresentation claim was difficult because it relied on PCP demonstrating what would have happened if it had not been deceived. This in turn required demonstrating that a number of pieces of complicated high-finance puzzle would have fallen into place.
PCP argued that if it demonstrated the falsity of the representations made by Barclays, it should not have to demonstrate that it would have been able to do the things necessary to generate additional fees on the balance of probabilities. Instead, PCP argued that it should only be required to demonstrate that it had a substantial chance of completing the tasks necessary to generate its fees.
The decision on costs is also of note. Ordinarily, PCP would have been expected to pay Barclays’ costs (estimated at £37 million) on the basis of that costs follow the event, or “loser pays”. The judge decided that each party should pay its own costs in light of his finding on liability. PCP’s costs ran to £22 million.
The case also illustrates that litigation for regulated entities may also have adverse regulatory findings. Whilst the criminal prosecutions against Barclays and its senior executives failed, the judge’s findings on the dishonest conduct of some of those executives may yet give rise to regulatory action by the U.K. Financial Conduct Authority.
 EWHC 307 (Comm), judgment available here: https://www.bailii.org/ew/cases/EWHC/Comm/2021/307.html