Traders cleared

But Supreme Court says their cases raise concerns about criminal appeals

Clearing two traders yesterday of fraud offences for which they had served substantial prison sentences, five justices of the UK Supreme Court said the history of the cases brought against Tom Hayes and Carlo Palombo by the Serious Fraud Office “raises concerns about the effectiveness of the criminal appeal system in England and Wales in confronting legal error”.

That proved to be something of an understatement. The 82-page written ruling drafted by Lord Leggatt amounted to an excoriating indictment of the Serious Fraud Office as prosecutor, of the two trial judges he said had misdirected the juries that convicted Hayes and Palombo and of the Court of Appeal judges who rejected five separate appeals.

It should also sound the death-knell for the Court of Appeal’s power to block a criminal appeal to the Supreme Court by refusing to certify that it raises a point of general public importance.

For once, though, the Criminal Cases Review Commission was hero of the hour. It had referred the two traders’ convictions back to the Court of Appeal in 2023 after a leading court in the United States decided that similar behaviour would not have been illegal in the US. Ahead of the hearing in March, I discussed the chances of a successful appeal on an episode of A Lawyer Talks.

Leggatt’s judgment yesterday was supported by the Supreme Court’s three most senior members — Lords Reed, Hodge and Lloyd-Jones — as well as Lady Simler. It followed a three-day hearing in front of the five justices.

In the video below, Tom Hayes thanks his solicitor Karen Todner, his barristers Adrian Darbishire KC and Tom Doble. He also thanks Sir David Davis KCB MP for his support. Click the ► symbol to watch.

Convictions

As Leggatt explained, Libor was a key benchmark interest rate used in financial markets. It reflected the current cost of borrowing in that market.

Hayes was convicted of conspiring with others to manipulate Libor. Palomobo was convicted of conspiracy to defraud in connection with Euribor, the Euro equivalent.

Identifying the rate at which a bank could borrow funds at the specified time required a subjective assessment of various data sources, said the Supreme Court. It was a matter of opinion.

An essential part of the prosecution case was that Hayes and Palombo, who were prosecuted in separate cases some years apart, had agreed with others to procure submissions of rates that were “false or misleading”.

But since the Libor and Euribor rates were was matters of opinion, Leggatt explained, submitting a rate could be “false or misleading” only if it did not represent the submitter’s actual opinion of the relevant borrowing rate.

The opinion that the submitter held — and whether the submitted rate accurately reflected that opinion — were questions of fact. In a criminal trial, facts are matters for the jury to decide.

Hayes admitted that, when there was a range of potential borrowing rates, he had tried to influence submitters to put forward numbers within that range which would advantage his trading. But he denied that he had attempted or agreed with others to induce submitters to put forward rates which did not represent their genuine opinion.

As it was not disputed that Hayes had asked submitters to put forward rates intended to advantage his trading, Mr Justice Cooke had in effect instructed the jury — as a matter of law that they had to accept — that Hayes had agreed to procure the submission of rates which were not genuine or honest assessments of the bank’s borrowing rate and were therefore false or misleading.

That was an error, said Leggatt. The law could not dictate whether the answer to the “Libor question” — the rate at which a bank could borrow funds — represented the submitter’s genuine opinion. That was a matter for the jury.

If the jury had been properly directed, Leggatt continued, there was ample evidence on which it could have found Hayes guilty of conspiracy to defraud. But the effect of the judge’s directions was to usurp the function of the jury members and stop them considering his defence. That made the trial unfair. His convictions were unsafe and had to be quashed.

In Palombo’s case, said Leggatt, the jury directions given by Judge Gledhill QC were not open to the same degree of criticism. But they still involved the same essential error of treating a question of fact as if it were a matter of law. Compounded with other errors and ambiguities in the judge’s directions, that meant Palombo’s conviction was also unsafe and must be quashed.

Court of Appeal

Regrettably, said the Supreme Court, the Hayes indictment — the list of charges he faced — didn’t include enough information to enable the defence or the trial judge to know clearly and precisely the nature of case being brought by the Serious Fraud Office. “Had it done so, the problems which have beset this case might have been avoided.”

As originally drafted, the first object of the conspiracy was “hopelessly vague”. Attempts to clarify it sowed the seeds of subsequent confusion.

Ahead of the Hayes trial, Cooke had made three rulings. These were challenged in the Court of Appeal. In January 2015. Lord Justice Davis, Mr Justice Simon and Mr Justice Holgate upheld Cooke’s rulings. No criticism is made by the Supreme Court of that decision.

But it was when Cooke came to direct the jury at the end of the Hayes trial that, in the justices’ view, the case took a wrong turn. “What was material was not how the court construed the Libor definition but how Mr Hayes (and other relevant individuals) had understood it. That was a matter of fact, and not law.”

Cooke’s “fundamental error”, said the Supreme Court, was to treat what would be a genuine answer to the Libor question as a proper subject at all for legal directions from a judge. He also “used language liable to prejudice the jury’s consideration of the issue of dishonesty”.

He did give counsel an opportunity to object to the directions he had drafted for the jury. Neil Hawes QC “pointed out clearly the basic error in the directions” and requested substantial amendments. But Cooke refused.

Hayes appealed against his conviction. In December 2015, the lord chief justice Lord Thomas of Cwmgiedd, the president of the Queen’s Bench division Sir Brian Leveson and the appeal judge Lady Justice Gloster dismissed his appeal but reduced his sentence from 14 years to 11 years, of which he served half in custody.

That was followed by Palombo’s first trial in 2018. The Court of Appeal had dismissed an interlocutory appeal by a co-defendant in 2018 relating to Belgian law. After the jury failed to agree, Palombo was convicted by a majority of 10 to two at a retrial in 2019 and sentenced to four years. An appeal against conviction was dismissed in 2020 by Lord Justice Fulford, Mrs Justice Cutts and Sir Nicholas Blake.

The Criminal Cases Review Commission subsequently referred the convictions of both Hayes and Palombo to the Court of Appeal. As far as Hayes was concerned, the court’s approach placed him in what the Supreme Court saw as something of a dilemma:

In so far as the arguments advanced had been made previously and rejected by the Court of Appeal, the court considered that it should not depart from its previous decisions. In so far as the arguments advanced were new, the Court of Appeal considered that it should not entertain them when, although available, they had not been made before.

Lord Justice Bean, Lord Justice Popplewell and Mr Justice Bryan dismissed appeals by both Hayes and Palombo in March last year. The judges said somewhat wearily that “their convictions are said by the appellants to have depended on the construction of Libor and Euribor adopted at their trials, a construction which has been consistently adopted and confirmed in five decisions of this court, including two which dismissed appeals against conviction by each of them”.

I reported the court’s judgment shortly afterwards and referred to some of the criticism it had received.

Another eight weeks passed before the Court of Appeal agreed to certify a point of law of general public importance — without which the Supreme Court would not have been able to hear the case. Bean and his follow judges refused permission to appeal, adding what struck me at the time as an unusually defensive remark:

It should be for the Supreme Court to decide whether the point of law is one which it ought to consider in the light of the consistent series of decisions of the Court of Appeal.

In the event, the Supreme Court made it clear that it could now consider any point of law it liked.

Comment

The Serious Fraud Office said yesterday:

Today’s Supreme Court decision comes thirteen years after we first investigated the practice used by some traders and submitters at selected banks to influence key benchmark rates of interest in financial markets…

Our investigation led to nine convictions of senior bankers for fraud offences, with two of these individuals pleading guilty and seven found guilty by juries.

This judgment has determined that the legal directions given by the judge to the jury at the conclusion of trial were incorrect in Hayes’s and Palombo’s trials and for that reason their convictions have today been found unsafe.

We have considered this judgment and the full circumstances carefully and determined it would not be in the public interest for us to seek a retrial.

The prosecutor’s reference to nine convictions overlooks the fact that once the Court of Appeal had upheld Cooke’s “flawed approach” and “erroneous message”, acquittals were less likely. As the Supreme Court put it, “unsurprisingly, after receiving the imprimatur of the Court of Appeal the approach of Mr Justice Cooke in directing the jury at Mr Hayes’s trial was followed at subsequent Libor trials… By the time of Mr Palombo’s indictment in 2017, the notion that the truth or falsity of a rate submission depended upon the proper construction of the Libor document, as decided by a court, had taken firm root.”

That raises the question of whether any of those nine convicted defendants will now seek permission to appeal out of time. And that presumably depends on how closely their cases adopted Cooke’s approach in the Hayes case.

Their lawyers will also pay attention to the Supreme Court’s conclusions on his appeal:

There was ample evidence adduced at Mr Hayes’s trial from which a jury could have concluded that he agreed with others to make or procure Libor submissions which were not genuine assessments of the bank’s borrowing rate but were deliberately distorted in pursuit of financial gain. Much of that evidence came from Mr Hayes himself in the course of many hours of interviews conducted by the Serious Fraud Office…

But Mr Hayes was entitled to have his defence to the allegation that he agreed to procure false submissions as well as his denial that he had acted dishonestly left fairly to the jury. He was deprived of that opportunity by directions which were legally inaccurate and unfair.

It is not possible to say that, if the jury had been properly directed, they would have been bound to return verdicts of guilty. The convictions are therefore unsafe and cannot stand.

That seems to rule out the prospect of compensation, at least for Hayes. Current legislation says this is available if and only if a “new or newly discovered fact shows beyond reasonable doubt that the person did not commit the offence”.

There was no further reference in Leggatt’s judgment to his introductory sentence:

The history of these two cases raises concerns about the effectiveness of the criminal appeal system in England and Wales in confronting legal error.

But perhaps “confronting legal error” can be read as referring to the most recent decision from the Court of Appeal to the effect that the issue had now been decided five times — so why would anybody expect the Supreme Court to take a different view?

In principle, five appeals should be more than sufficient— but not if appeal judges were unwilling to confront the possibility that an experienced High Court judge had taken a “flawed approach” and that they themselves had gone down what the Supreme Court called a “blind alley”.

Maybe “effectiveness” is a reference to the ineffectiveness of the Supreme Court if the Court of Appeal refuses to certify a point of law.

Underlying all this is a long-standing tension between the appeal court of England and Wales and the Supreme Court of the United Kingdom, based on the assumption that the Supreme Court justices come from such rarified backgrounds and know so little about the criminal law that they really can’t be trusted with it.

That view may now be held even more strongly by some. Others will conclude that it is utterly discredited.