A series of cases in 2016 have demonstrated the importance of Lord Neuberger's guidance in Arnold v Britton (the Arnold guidance) ([2015] UKSC 36; www.practicallaw.com/9-616-5783). The Arnold guidance helped to explain the court's task of identifying the intention of the parties by reference to what a reasonable person having all the available background knowledge would have understood the parties to be using the language in the contract to mean. The Arnold guidance focuses on the meaning of the words in their documentary, factual and commercial context. Several of these decisions are also interesting because they have discussed the contra proferentem rule (that is, that where there is doubt about the meaning of the contract, the words will be construed against the person that put them forward) in light of the Arnold guidance.

In Impact Funding Solutions Limited v AIG Europe Insurance Ltd, the Supreme Court, in interpreting an exclusion clause in a solicitor's professional indemnity insurance policy, clarified that the general doctrine that exclusion clauses should be construed narrowly did not apply here ([2016] UKSC 57). This general doctrine applies in cases of ambiguity where a clause excludes or limits a liability which arises by operation of law, such as negligence. As the clause in Impact was not of that nature, following Arnold and Rainy Sky SA and others v Kookmin Bank, the extent of the insurer's liability was to be ascertained by ordinary construction principles ([2011] UKSC 50; see News brief "Contractual interpretation: let commercial common sense prevail"). The court looked at the meaning of the relevant words in their documentary, factual and commercial context, without recourse to the general doctrine relating to exclusion clauses.

The limits of the Arnold guidance were tested in Nobahar-Cookson v The Hut Group Limited ([2016] EWCA Civ 128; see News brief "Contractual interpretation and time limits: clarity is key"). The Court of Appeal was encouraged by the Arnold guidance to treat the natural meaning of the language as the best guide to the interpretation of the exclusion clause in question. However, by doing this, the court was unable to find a clear answer. Instead, the court found assistance in the contra proferentem rule to prefer the narrowest of the three possible interpretations.

LSREF III Wight Ltd v Millvalley Ltd demonstrates the continuing importance of rectification in fixing drafting errors that cannot be resolved through principles of construction ([2016] EWHC 466 (Comm)). Millvalley Ltd had entered an interest rate swap agreement with a bank which was intended to incorporate the 1992 International Swaps and Derivatives Association (ISDA) Master Agreement. The swap was later restructured and the parties entered into a 2002 ISDA Master Agreement (2002 agreement). However, the restructured swap agreement still referred to the 1992 version. LSREF III Wight Ltd, to whom the bank had assigned rights under the swap, sought a declaration as to the true construction of the restructured swap agreement or, alternatively, sought rectification so that it could rely on termination provisions in the 2002 agreement. The High Court rejected the construction claim but upheld the rectification claim, finding an objective common intention that the 2002 agreement should govern the swap.

In Taberna Europe CDO II Plc v Selskabet AF 1 September 2008 in bankruptcy (formerly known as Roskilde Bank A/S), the Court of Appeal held that Selskabet was not liable for damages under section 2(1) of the Misrepresentation Act 1967 (1967 Act) (section 2(1)) in respect of representations contained in an investor presentation ([2016] EWCA Civ 1262; see News brief "Liability to secondary market investor: investor presentation disclaimers", this issue). Taberna Europe CDO II had relied on the presentation to decide to buy notes issued by Selskabet. The presentation had been produced for use at a roadshow aimed at potential investors of the notes, which took place before the notes were issued. Taberna had not attended the roadshow but had seen the presentation on Selskabet‘s website. Nevertheless, the court agreed that Selskabet had published the presentation on its website specifically with the intention that potential investors in the secondary market might rely on it to buy the notes, although publication without this intention would not have been sufficient.

However, the court also held that Selskabet was entitled to rely on the disclaimer contained in the presentation, which was effective for the purposes of section 2(1) even though it was non-contractual, and therefore not expressly mentioned in the 1967 Act. Even if there had been no disclaimer, Taberna's claim would have failed because section 2(1) only applies when the representation induces the representee to enter into a contract with the representor. This decision illustrates the importance of the content of documents available to investors and the ability of banks to disclaim liability to potential investors.

In Libyan Investment Authority v Goldman Sachs International, the High Court dismissed a claim for rescission of a series of synthetic derivatives trades ([2016] EWHC 2530 (Ch)). The claim had been brought on grounds of undue influence and that the trades amounted to unconscionable bargains. The Libyan Investment Authority (the Authority) argued that Goldman Sachs International (Goldman) had taken advantage of it as an unsophisticated investor that had not understood the disputed trades, and that a protected relationship of trust and confidence had developed which went beyond the usual banker-customer relationship. The court found that Goldman had not exercised any actual undue influence, and that its relationship with the Authority had not crossed the line from a cordial business relationship to a protected relationship of trust and confidence which would give rise to any presumed undue influence.

The court held that it did not matter that Goldman had provided particular benefits to the Authority when competing for its business. There was no evidence that these benefits had influenced the Authority's investment decisions. Nothing about the disputed trades that would raise a presumption that they resulted from undue influence. Goldman's profits were not excessive and, although the disputed trades might be regarded as unsuitable, there were other reasons why the Authority wanted to enter into them, and they were no different from other investments that it made over the same period.

In O'Hare and another v Coutts and Co, the High Court held that the relevant test in assessing Coutts and Co's contractual and tortious duties to explain the risks attaching to investments that it recommended was whether it had taken reasonable care to inform the investor of any material risks attaching to the recommended investments ([2016] EWHC 2224 (QB); www.practicallaw.com/7-634-8901). Whether a risk is material depends on whether a reasonable person in the investor's position would be likely to attach significance to the risk, or whether the adviser was, or should have been, aware that the particular investor would be likely to attach significance to it.

Property Alliance Group Ltd v The Royal Bank of Scotland plc is the first major civil claim in England and Wales relating to the manipulation of the Sterling London Interbank Offered Rate (LIBOR) to reach trial (see "LIBOR mis-selling: claims dismissed", Bulletin, Securities and corporate finance, this issue). The claim by Property Alliance Group (PAG) concerned four interest rate swap products sold to it by The Royal Bank of Scotland (RBS). PAG claimed damages and rescission of the swaps for mis-selling and breach of contract, and in the alternative claimed rescission of the swaps and/or damages for misrepresentation (including fraudulent misrepresentation) and/or breach of implied contractual terms, arising out of RBS's alleged participation in and knowledge of the manipulation of the LIBOR by both RBS and other LIBOR panel banks. PAG';s claims were all unsuccessful. It was held that RBS had not been involved in the manipulation of LIBOR. Furthermore, while the court was prepared to imply a term of the contracts that the floating rate payable by or to RBS under each of the swaps would be calculated by reference to LIBOR, this term would have been restricted to RBS's conduct only. So, RBS was not in breach of that term as it had not been involved in manipulating LIBOR.

In Hayward v Zurich Insurance Company plc, the Supreme Court set aside a settlement agreement for fraudulent misstatement even though Zurich Insurance Company plc had suspected Mr Hayward's statements about his injury to be false before entering into the agreement ([2016] UKSC 48, www.practicallaw.com/7-631-5665). Zurich did not need to prove that it believed the representations to be true: it was sufficient that Zurich was induced to enter into the settlement agreement by the belief that the representations would be put to the court as being true during the personal injury proceedings, and that there was a real risk that the court would accept them and make a larger award in favour of Mr Hayward.

In Versloot Dredging v HDI Gerling Industrie Versicherung, the Supreme Court held that the fraudulent devices rule which permits insurers to reject fraudulent claims does not extend to "collateral lies", which are immaterial to the question of liability ([2016] UKSC 45).

The Court of Appeal in MWB Business Exchange Centres Ltd v Rock Advertising Ltd held that an anti-oral variation clause did not preclude a valid variation by oral agreement, endorsing obiter comments made in Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd ([2016] EWCA Civ 553, www.practicallaw.com/3-631-3833; [2016] EWCA Civ 396, see News brief "Long-term contracts: another vote for literal interpretation").

In Banco Santander Totta SA v Companhia de Carris de Ferro de Lisboa SA, the Court of Appeal upheld the High Court's decision which had reaffirmed the priority to be given to choice of law clauses for the purposes of Article 3 of the Rome Convention, and rejected attempts to imply foreign law mandatory rules into an ISDA Master Agreement ([2016] EWCA Civ 1267). This was the first case to have been transferred to the Financial List, in October 2015, and it demonstrates the Financial List's speed and efficiency.

In R (Holmcroft Properties Ltd) v KPMG LLP, the High Court dismissed an application for judicial review of the decisions of a skilled person appointed under section 166 of the Financial Services and Markets Act 2000 ([2016] EWHC 323). It found that, on the facts, the skilled person's functions did not have sufficient public law flavour to render its acts amenable to judicial review.