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Impact of sanctions on financial services disputes

The evolving Russian sanctions regimes in the UK, EU and US have been challenging for financial institutions to navigate. There have been a number of recent decisions in which the court has demonstrated its willingness to allow contractual obligations to be fulfilled in ways which do not contravene applicable sanctions regimes, but which may go beyond the scope of a strict approach to the agreement between the parties (particularly where there would otherwise be detriment to those who have no association with a designated person or the sanctioned jurisdiction). See here and here for examples. The approach taken by the court has the potential to increase the jeopardy for responsible financial institutions, likely to be inclined to take a cautious approach to fulfilling contractual obligations which might otherwise be regarded as breaching sanctions. There have also been important recent decisions on procedural aspects related to litigation with sanctioned entities, including: Court of Appeal confirms judgments can be entered in favour of Russian sanctioned parties but leaves uncertainty in relation to the “ownership and control” testHigh Court refuses interim payment application in Russian sanctions-related litigation and Trilogy of applications for anti-suit injunctions.

Class actions against banks

Class actions have become an increasingly significant area of law and procedure for our clients, with growing numbers of high-value and high-profile claims being brought by large groups of claimants in this jurisdiction. UK listed banks are a natural defendant to securities class actions, particularly claims under Section 90 (s90) and Section 90A (s90A) of the Financial Services and Markets Act 2000 (FSMA). For our insights on why these claims have become more prevalent in the English courts in recent years, the mechanisms for bringing claims and how these differ from US-style class actions, the main legal bases and some of the key battlegrounds, please check out our shareholder class actions podcast. As noted in the Commercial Litigation section, claimants' attempts to use the CPR 19.8 procedure in a number of securities class actions have been knocked back following a strike-out decision in one case (see here). While to date such actions have been brought on an opt-in basis, future claimants may look to the procedural advantages of the opt out mechanism to pursue s.90/90A FSMA claims, which would be an unwelcome development from the defendant perspective. While the Supreme Court in Lloyd v Google confirmed that CPR 19.8 imposes a high bar with its same interest requirement (see here), since then there has been conflicting High Court authority on the application of the test (see here) and here). There is also a trend towards banks as defendants to both follow-on and standalone competition class actions under the Collective Proceedings Order regime in the Competition Appeal Tribunal, which allows claims to be brought on either an opt-in or opt-out basis (see here), although the Supreme Court's recent decision on litigation funding agreements may impact this trend (see section on litigation funding below).

ESG litigation risks for banks

Financial institutions are facing increasing demands to disclose how their operations and products might impact the climate, with the reporting burden moving from being voluntary or investor led towards mandatory regulatory requirements. However, the more public declarations made, the greater the risk of a discrepancy between words and action. Regulatory fines against banks for ESG mis-statements (emerging in the US, with likely contagion in the UK market) will inevitably lead to civil claims from investors where a drop in stock price is alleged to be linked to the relevant mis-statement, or customer claims in relation to product-specific disclosures. For banks listed in the UK, there is a particular risk of claims under s90 and s90A FSMA (see section on class actions above).

For more information on the key areas in which climate change disputes may arise, please see our new series of articles: Climate disputes here. However, claims in the ESG space are expanding beyond issues relating to climate change and claimant law firms and funders appear to be taking a broad approach to actions falling under the ESG umbrella. What constitutes ESG securities litigation will clearly be impacted by increasing emphasis and scope of the S and the G, with litigation risks for s90/90A claims encompassing the full spectrum of ESG issues, including issues such as human rights, diversity and inclusion, supply chain transparency, and fraud and corruption.

The Quincecare duty of care

In July 2023, the UK Supreme Court handed down its much-awaited judgment in Philipp v Barclays Bank UK plc [2023] UKSC 25, confirming that firms processing payments do not owe a legal duty to protect their customers from authorised push payment (APP) frauds. The ruling emphasises that the reimbursement model for victims of such fraud is a question for the regulators and government. However, the implications of this decision extend much further than APP fraud, with the Supreme Court taking the opportunity to re-write the rulebook on the duties owed by all firms processing customer payment requests. The highest court has now confirmed that there is no special duty known as the Quincecare duty. Rather, the line of so-called Quincecare cases are simply examples of the court applying the general duty of reasonable skill and care, which is actually a very narrow duty, limited to interpreting, ascertaining and acting in accordance with the instructions of a customer. Previous authorities considering the Quincecare duty were simply examples of the court applying the general duty of reasonable skill and care to the scenario where a third-party agent purported to give a payment instruction on the customer’s behalf. For the key takeaways for financial institutions executing customer payments, see our post here.

The impact of litigation funding on claims against banks

In July, in a decision which took many by surprise, the Supreme Court held that third party litigation funding agreements which provide for the funder to be paid a share of any damages recovered by the claimant are damages-based agreements (DBAs) and therefore unenforceable unless they comply with the regulatory regime for such agreements. Since participants in the litigation funding market had generally assumed that their agreements were not DBAs, and therefore did not need to comply, the effect of the decision was to render most litigation funding agreements unenforceable.

Key contacts

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Rupert Lewis

Partner, Head of Banking Litigation, London

Rupert Lewis
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Chris Bushell

Partner, London

Chris Bushell
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Ceri Morgan

Professional Support Consultant, London

Ceri Morgan
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Nihar Lovell

Professional Support Lawyer, London

Nihar Lovell

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Europe Dispute Resolution Rupert Lewis Chris Bushell Ceri Morgan Nihar Lovell