Ivey and legal certainty in rate-rigging prosecutions
In Bermingham & Anor, the Court of Appeal (Fulford LJ V-P, Cutts J and Sir Nicholas Blake) refused to overturn the convictions of two former Barclays PLC traders for conspiring to manipulate the ‘Euribor’ (Euro Interbank Offered Rate). Amongst other things, the court considered whether the change from the Ghosh test (applicable at the time of the offending) to the Ivey test (proposed by the Supreme Court on 25 October 2017) for dishonesty infringed the need for legal certainty and also whether the jury were impermissibly given a recklessness direction.
On 26 and 28 March 2019, the applicants Palombo and Bermingham were convicted of a single count of conspiracy to defraud following a retrial at Southwark Crown Court. They were sentenced to terms of imprisonment of four and five years respectively, for manipulating the Euribor between 1 January 2005 and 31 December 2009 in order to benefit the trading positions of interest rate derivative traders.
Grounds of Appeal
Palombo and Bermingham jointly advanced two grounds of appeal before the Court of Appeal. On 9 December 2020, the court dismissed the first ground which concerned an allegation of apparent bias and misconduct on the part of “Juror A”, a former UBS intern who provided to the jury extraneous information allegedly researched or known by him which was not given in evidence. The court refused to grant leave for the second ground, which alleged that the trial judge wrongly directed the jury as to the “proper basis” for the submissions made by banks for the purposes of setting the daily Euribor. The court rejected the submission that the jury had been given inadequate guidance in a “legal no man’s land”.
A third ground of appeal was advanced by Palombo alone and concerned legal certainty and mens rea:
Ground 3: i) conspiracy to defraud and the need for legal certainty and (ii) the element of recklessness
It was submitted that the count of conspiracy to defraud brought against Palombo and his co-defendants failed the test of legal certainty at common law, as reinforced by Article 7 of the European Convention on Human Rights (i.e. Palombo was unfairly convicted because he did not realise at the relevant time that what he was doing was wrong and the conduct made him criminally liable).
Palombo relied on Norris v Government of the United States, in which the House of Lords held that mere price fixing, unless accompanied by “aggravated elements” such as fraud and misrepresentation, was not a substantive criminal offence at common law, and therefore extradition to the US under the dual criminality principle was not possible. Norris reviewed the legal requirement of certainty and approved Lord Bingham’s decision in R v Rimmington that:
“no one should be punished under a law unless it is sufficiently clear and certain to enable him to know what conduct is forbidden before he does it; and no one should be punished for any act which was not clearly and ascertainably punishable when the act was done”.
Advancing the submission, leading counsel for Palombo recognised that it conflicted with several decisions of the Court of Appeal, most recently in Barton where the court expressly rejected the suggestion that the offence of conspiracy to defraud lacks certainty.
So far as the element of dishonesty is concerned, it was submitted that legal certainty was seriously damaged by the abandonment of the second limb of the test in Ghosh,which had applied for some 35 years, and changed by the Supreme Court in Ivey (and applied to cases of conspiracy to defraud in Barton). The change being from the two-stage Ghosh test, namely, (a) was the defendant’s conduct dishonest by the ordinary standards of reasonable people? If so, (b) did the defendant appreciate that his conduct was dishonest by those standards? To the alternative two-stage test proposed by the Supreme Court in Ivey (a) what was the defendant’s actual state of knowledge or belief as to the facts; and (b) was his conduct dishonest by the standards of ordinary decent people?
Palombo made a further submission as to the requisite mens rea as pleaded in the indictment. The indicted conduct was alleged to have consisted of the following elements:
“i) Knowing or believing that the (relevant) Banks were party to trading referenced to the Euro Interbank Offered Rate (Euribor)
ii) Dishonestly agreed to procure or make submissions of rates into the Euribor setting process by one or more Euribor Panel Banks which were false and misleading in that they:
a) Were intended to create an advantage to the trading positions of employees of one or more of the above
mentioned banks and
b) Deliberately disregarded the proper basis for the submission of those rates
Thereby intending that the economic interests of others may be prejudiced” (emphasis added).
Palombo contended that the last line of the particulars, along with the directions given by the judge in that context, diluted the requirement of dishonest intent to prejudice others and, by using the word “may”, introduced recklessness as an alternative. The prosecution responded by suggesting that the use of the word “may” merely qualified prejudice and not the intent to prejudice. It was emphasised by the prosecution that it was immaterial that the quantum of any loss might be difficult to establish. This was a “zero-sum” enterprise, and even a marginal difference to the Euribor by reference to impermissible considerations would mean that one party’s gain was at the expense of another’s loss. The prosecution contended that the case law made plain that it was irrelevant that the defendant’s motive in making the false and misleading submissions was to make a gain for the bank and individual trader rather than a loss to another.
The court held that it was not arguable that the count of conspiracy to defraud failed the test of legal certainty, nor had the trial judge impermissibly given a recklessness direction.
The court found that the clarification of the law in Ivey fell within the proper parameters of the developing common law, consistent with Article 7. On the question of dishonesty, it was held that there was a close connection between two issues relating to intention, on which the prosecution needed to satisfy the jury to the criminal standard. First, that each defendant deliberately disregarded the proper basis for the Euribor submissions when they either made or procured them. Secondly, that they did so dishonestly according to the reformulated test in Ivey. In that regard, the court did not accept that the defendants were disadvantaged by the change from Ghosh to Ivey. On the contrary, the first limb of the Ivey test gives a substantial measure of protection from the application of an objective test unrelated to the defendant’s state of mind. Indeed, the court recognised that the two issues relating to intention set a “demanding test” for the prosecution to meet. The court remarked that it was to an extent unsurprising in the circumstances that a number of traders in the Euribor and Libor prosecutions have been acquitted.
In respect of the submission that the particulars and directions had watered down the requirement of dishonest intent to prejudice the rights of others, creating the possibility that mere recklessness would suffice, the court observed that it was “inconceivable” that over two trials (the first and the retrial), experienced leading and junior counsel for each of the parties could have imagined that the jury directions agreed by them somehow rendered the defendants at peril of conviction for something less than an intent to prejudice the rights of others. There was therefore no doubt that the jury understood the directions to mean that they had to be sure that the defendants intended by their actions to prejudice the rights of another. However, the court added this postscript:
“For the avoidance of doubt, indictments in the future would be better framed in this context using, for instance, the expression “thereby intending to prejudice the economic interests of others” rather than “thereby intending that the economic interests of others might be prejudiced”.
Counsel for Palombo reserved the right to challenge elsewhere the decision of the Court of Appeal in Barton in applying Ivey as the correct test for dishonesty in criminal cases, including those of conspiracy to defraud. It remains to be seen whether that challenge will be pursued in the Supreme Court. For now, Barton applying Ivey remains the law and as such does not infringe the need for legal certainty.
  EWCA Crim 1662
  1 AC 920;  UKHL 16 at  et seq
  1 AC 459 at 
  EWCA Crim 575;  2 Cr App R 7
  1 QB 1053
  UKSC 67;  AC 391
 Postscript at