Hayes appeal: British and US courts ‘left on different wavelengths’


As published by the Times

Every morning, 16 banks across the City of London and Canary Wharf had to answer a question: “At what rate could the bank borrow funds by asking for and accepting inter-bank offers in a reasonable market size just prior to 11am?”

This unwieldy “Libor question” bears repeating in any analysis of Tom Hayes’s long, and so far consistently unsuccessful, protests that he was wrongly convicted of “rigging” the interest rate benchmark.

As the Court of Appeal rejected the appeals of Hayes, 44, and Carlo Palombo, 45, another trader, on all grounds on Wednesday, it backed up an interpretation of that question long preferred by English courts which convicted traders have long railed against — and one which appears to contradict the findings of a United States court in 2022.

Libor, like Euribor, its European equivalent, was meant to reflect the rates at which banks could borrow from each other. It was a key benchmark in the financial system, used as the basis for pricing products ranging from mortgages to commercial debt to student loans. Lenders would often set interest rates underpinning loans at “Libor plus 1 per cent” or “Libor plus 2 per cent”, for example.

In 2015, Hayes was jailed for 14 years, one of the longest sentences ever imposed in a British court for a white-collar crime, for multiple charges related to his requests for Libor submissions, or answers to that Libor question, which suited his employer’s financial interests.

Hayes does not deny that he made submissions on this basis but claims that this was not a breach of Libor rules since his requests reflected genuine rates he could borrow at.

During Hayes’s original trial, Mr Justice Cooke said it was “self-evident” that Libor rules must not be picked to suit commercial advantage and directed the jury as such.

At a three-day hearing at the Court of Appeal this month, Hayes’s legal team unsuccessfully claimed that this direction was “wrong in law” and had “fatally compromised” the trial because the jury had not been left to weigh up the evidence of the conspiracy that was alleged.

Dismissing the appeals, Lord Justice Bean noted that Hayes’s attempts to move the Libor rate had been “accompanied by attempts to maintain secrecy” with the “clear implication” he “knew what he was doing was not permitted”. He said there was “no misdirection” by Cooke.

The Court of Appeal had been considering their cases after a referral by the Criminal Cases Review Commission, which had said there was a “real possibility” their convictions could be overturned if English judges followed the approach taken to the Libor question by a US court in 2022.

This had overturned the convictions of two other former traders and resulted in charges against Hayes in America being dropped. In the US, the court said that there was “no prohibition” of taking commercial considerations into account. More importantly, American judges said the question of whether or not there was any such prohibition — or any resulting false representation — was a “question of fact”, not one of law to be directed by judges.

In sharp contrast to this, the Court of Appeal has determined that this issue was indeed a matter of law to be determined by the judge — and therefore Cooke and other English judges had not been wrong to tell juries that the “true construction” of the Libor and Euribor codes meant commercial considerations were banned.

Bean said the US judgment “is not, and could not be, relevant to the issue of whether in an English criminal trial the meaning of Libor is a matter of law for the judge or of fact for the jury”.

Rejecting arguments from Hayes and Palombo that Libor and Euribor rules were too vague to give rise to criminal prosecutions, Bean said they were “binding contracts, resembling legislation” which made them an “issue of law” for a judge to determine. “Asking a jury to decide on the meaning of such documents could result in inconsistent decisions,” he said.

QEB Hollis Whiteman, the barristers’ chambers used by Hayes’s defence, said the judgment raised “controversial and in some ways disturbing issues about the border between fact and law and the respective roles of the judge and jury in an English criminal trial”.

The UK is now the only country in which traders remain criminally convicted of manipulating the benchmarks.

Speaking outside court on Wednesday, Sir David Davis, the former Brexit secretary, who has previously said that the traders have been victims of a “massive miscarriage of justice”, said: “We have now got a spectacular difference of law [between England and the US].”

Davis added: “That seems to me a commercial problem, and actually a natural justice problem that needs to be resolved at the highest level, namely the Supreme Court. They are the only people who can make the judgment on something as controversial and problematic as this.”

Hayes, who was released in 2021, described the differing approaches as an “Alice in Wonderland situation” that had left the UK as an “international outlier”.

His legal team said it would apply to the Court of Appeal for the matter to be certified as a point of law of “general public importance” so it can be considered by the Supreme Court.

Hayes described the judgment as a “shock” but said: “I’m afighter not a quitter … as are the other traders.”