Nationwide: Claim targeted at A&O
City giant A&O Shearman can make the argument that others were to blame for a mistake that has so far cost its client Nationwide Building Society £83m, the High Court has ruled.
Sean O’Sullivan KC, sitting as a deputy High Court judge, rejected an application by the Bank of New York Mellon (BNY) for summary judgment on A&O’s part 20 application against it for a contribution to the claim brought by Nationwide.
The failure to list four series of Nationwide’s US medium term notes on the London Stock Exchange in 2018 and 2019 meant that they did not qualify for a tax exemption.
As a result, Nationwide has recently paid £83m to HM Revenue & Customs in respect of the tax owing, with penalties and late payment interest still to be imposed.
BNY was the trustee and paying agent for the notes and A&O was Nationwide’s lawyer. While initially Nationwide had both “in its sights”, the judge said, “now, as a result of some concessions, its guns are aimed only at A&O”.
In its part 20 claim, A&O contends that BNY owed a legal duty to Nationwide, either in contract or in tort, to confirm that the notes had been listed and that its failure to do so gave rise to a liability to provide an indemnity for, or at least a contribution to, any damages which A&O has to pay to Nationwide.
At the core of the hearing of BNY’s application for summary judgment on this were the signing and closing agendas (S&CAs) – essentially checklists – in relation to the unlisted notes and particularly clause 4.1 about post-closing matters.
This said: “Confirmation to be given to the UKLA [UK Listing Authority] and the Stock Exchange that Closing has taken place and the Issuer and Paying Agent to confirm that the Notes have been listed on the Official List and admitted to trading on the Stock Exchange.”
Judge Sullivan said the key question was whether it was properly arguable that the S&CAs had any contractual effect as between Nationwide and BNY – BNY’s primary case was that there was no intention to create legal relations.
While it was accepted that BNY had made the application to list for some earlier series of notes, the bank said this had always followed a clearly documented request from Nationwide or A&O.
A&O did not allege it had made such a request but contended that paragraph 4.1 imposed or evidenced a legally enforceable duty owed by BNY to Nationwide to confirm (alternatively, to exercise reasonable skill and care to confirm) that listing had taken place.
Judge O’Sullivan said there were “a series of reasons why, looked at in the round, it seems unlikely that agreeing or confirming the content of the S&CAs was intended to create an enforceable contract”.
Indeed, he admitted to being “somewhat sceptical” initially about A&O’s claim that it did. But ultimately, he concluded A&O had real prospects of showing there was an intention to create legal relations in respect of paragraph 4.1.
Among the reasons were the “degree of formality and care about the way in which the S&CAs were circulated, finalised and confirmed in the lead up to the issue of a new series of notes”.
The judge said: “When I drilled down into my own reasons for scepticism, it seemed to me that an important part of it was my sense that transactional lawyers would not want their clients to be contractually bound by items in an agenda of this kind; that the idea would horrify them and cause them to include more boilerplate language when dealing with procedural/ organisational matters.”
But there were problems with allowing a “sense” of what transactional lawyers might think to play any substantive role at the summary judgment stage, including that there was no evidence or agreement before him about what transactional lawyers generally would think.
If there was going to be a trial about a contractual obligation, “it would be very unwise for me to prevent [A&O] contending that there was an overlapping tortious obligation”, the judge added.
Judge O’Sullivan refused the application for summary judgment on A&O’s part 20 claim.
Leave a Comment