Tom Hayes and Carlo Palombo were convicted of conspiracy to defraud for attempting to manipulate LIBOR and EURIBOR benchmark interest rates. The Supreme Court quashed both convictions, holding that trial judges wrongly directed juries that taking account of trading advantage automatically meant submissions were not genuine — a question of fact for the jury, not law for the judge.
Background
Tom Hayes and Carlo Palombo were each convicted of conspiracy to defraud in connection with attempts to influence key benchmark interest rates used in financial markets. Mr Hayes, a derivatives trader employed by UBS and then Citigroup in Tokyo, was convicted in August 2015 on eight counts relating to Japanese yen LIBOR and sentenced to 14 years’ imprisonment (reduced to 11 on appeal). Mr Palombo, a derivatives trader at Barclays in London, was convicted in March 2019 on one count relating to EURIBOR and sentenced to 4 years’ imprisonment.
LIBOR (the London Inter-bank Offered Rate) and EURIBOR (the Euro Inter-bank Offered Rate) were benchmark interest rates calculated from daily submissions by panels of contributor banks. Each bank submitted the rate at which it perceived it could borrow funds in the inter-bank market. Because this assessment was inherently subjective — particularly during the financial crisis when markets were illiquid — there was typically a range of rates that could reasonably be submitted on any given day. Both appellants admitted attempting to influence the rates submitted by their banks to advantage their derivatives trading positions, but denied agreeing to procure submissions that did not represent the submitter’s genuine opinion of the borrowing rate.
The Criminal Cases Review Commission referred both convictions to the Court of Appeal in 2023, prompted by the decision of the United States Second Circuit Court of Appeals in United States v Connolly and Black, 24 F 4th 821 (2nd Cir 2022), which reversed convictions on similar facts. The Court of Appeal dismissed both appeals. The Supreme Court granted permission to appeal after the Court of Appeal certified a point of law of general public importance.
The Issue(s)
The certified question was:
Whether as a matter of law upon the proper construction of the LIBOR and EURIBOR definitions: (a) If a LIBOR or EURIBOR submission is influenced by trading advantage, it is for that reason not a genuine or honest answer to the question posed by the definitions; and (b) the submission must be an assessment of the single cheapest rate at which the panel bank, or a prime bank, respectively, could borrow at the time of submission, rather than a selection from within a range of borrowing rates.
The fundamental underlying issue was whether the trial judges had wrongly directed the juries by treating the question of whether a rate submission was genuine or honest as a matter of law (determined by judicial construction of the LIBOR/EURIBOR definitions), rather than as a question of fact about the submitter’s state of mind for the jury to decide.
The Parties’ Arguments
The Appellants
Mr Hayes argued that the trial judge (Cooke J) had conflated two distinct questions: (i) whether a submission complied with the LIBOR definition as a matter of law, and (ii) whether the submission represented the submitter’s genuine opinion. His defence was that he had only tried to influence submitters to put forward numbers within a legitimate range of rates — figures the submitter genuinely regarded as valid estimates — and had not intended or agreed to procure rates that did not represent genuine opinions. The effect of the judge’s directions was to remove this defence from the jury’s consideration by instructing them that if any consideration had been given to trading advantage, the rate submitted could not as a matter of law be a genuine assessment.
Mr Palombo made similar arguments, and additionally challenged both the contractual status and proper construction of the EURIBOR Code of Conduct. He submitted that the judge had misdirected the jury by treating proof that a submitter had taken commercial interests into account as tantamount to proof that the submission was false.
The Respondent (SFO)
The Serious Fraud Office defended the convictions, arguing that the legal directions given were correct applications of the LIBOR and EURIBOR definitions as construed by the courts. They contended that the directions merely spelled out for the jury the legal effect of those definitions, and that dishonesty was the central and only real issue at the trials. The SFO also argued that prior Court of Appeal decisions had consistently upheld this approach.
The Court’s Reasoning
The Role of Construction and the Distinction Between Law and Fact
Lord Leggatt, delivering the unanimous judgment, undertook a detailed analysis of when and why the construction of a document is treated as a question of law. He emphasised that a court construes a document to determine its legal effect — what legal relations it creates. However, whether an answer to a question posed by a document is genuine or honest depends not on what the document legally requires, but on the state of mind of the person answering it: what that person understood the question to mean, how they believed the answer would be understood, and whether it accorded with what they actually believed.
Whether an answer to a question is a genuine or honest answer is never a matter of law. It depends on what the person who answers the question understands the question to mean, how he or she believes that the answer given will be understood and whether that accords with what that person actually believes. These are matters of fact.
The court drew on the distinction articulated by Sir John Smith in his note on R v Adams [1993] Crim LR 525, 526, approved by the Supreme Court in R v Perry [2025] UKSC 17:
A distinction must be made according to whether the issue is as to: (i) the legal effect of the document or (ii) the meaning of the document as (a) understood or intended by the person making it and (b) understood by the person reading it. Where the issue is as to the legal effect of the document, it is submitted that it is a matter for the judge. Where the issue is as to meaning intended or understood by the parties it is a matter for the jury.
The Misdirection at Mr Hayes’ Trial
Lord Leggatt found that Cooke J had made a fundamental error in conflating the question whether a submission complied with the LIBOR definition (a question of law) with the question whether it represented the submitter’s genuine opinion (a question of fact). The judge’s directions repeatedly equated the two, telling the jury that if trading advantage was taken into account, the submission could not, as a matter of law, be a genuine or honest answer to the LIBOR question.
The message conveyed here and repeated many times was that a submission which took any account of commercial interests would not only be contrary to the LIBOR definition as a matter of law, it would also not be the bank’s genuine opinion of its borrowing rate.
This had the effect of removing Mr Hayes’ defence from the jury entirely:
Instead, the effect of the judge’s directions was to remove that defence from the jury’s consideration. The jury was told, in substance, that the fact that Mr Hayes had intended trading advantage to be taken into account necessarily meant, as a matter of law, that he intended figures which were not genuine assessments of the bank’s borrowing rate to be submitted.
The court also criticised the repeated use of the word “honest” in the context of the LIBOR definition directions, when “honest” was also central to the separate element of dishonesty. This risked prejudicing the jury’s assessment of dishonesty.
The “Cheapest Rate” Theory
The Supreme Court rejected the Court of Appeal’s reasoning that there could only ever be one correct answer to the LIBOR question (the cheapest available rate). Lord Leggatt explained that in practice, submitters were answering a hypothetical question about the rate at which the bank could have borrowed if it had sought offers — which it typically had not. There was often genuinely a range of rates that could reasonably be submitted:
A submitter might well, properly and in good faith, take the view: “I do not know at exactly what rate my bank could (most cheaply) have borrowed funds if it had asked for and then accepted inter-bank offers for the relevant currency and tenor just prior to 11 am. The most I can say with reasonable confidence is that the rate obtained would have been somewhere between 2.50% and 2.53%”.
The court held that submitting the lowest figure in the range would not be rational but rather “an expression of irrational optimism.”
The EURIBOR Code and Mr Palombo’s Case
The Supreme Court upheld the finding that the EURIBOR Code of Conduct was contractually binding and that it prohibited panel banks from taking commercial interests into account when making submissions. However, this did not resolve the critical issue in Mr Palombo’s case. Lord Leggatt identified several flaws in the jury directions at his trial:
First, the directions at point (iv) treated proof that a submitter had taken commercial interests into account as proof that the submission was false, involving the same fundamental error as in Mr Hayes’ case — albeit less patently.
Second, the directions on “deliberate disregard” were unclear. The prosecution did not allege that Mr Palombo had any knowledge of the Code itself. The basis on which the jury was told to assess “deliberate disregard” was left vague and poorly defined, collapsing it into the question of dishonesty.
Third, the jury was told that taking commercial interests into account when making a EURIBOR submission was contrary to “the law of England and Wales” — a statement naturally understood as referring to the criminal law, when in truth the only law breached would have been the Belgian law of contract. This was prejudicial:
The jury was given the impression that such conduct of itself involved trying to influence submitters to break the criminal law, when in truth all that the Court of Appeal had decided in January 2018 was that taking into account commercial interests would be a breach of Barclays’ contractual obligations under its contract with the Belgian entities that administered EURIBOR.
The Court of Appeal’s Handling of the Appeals
Lord Leggatt expressed concern about the Court of Appeal’s treatment of the case across multiple hearings. On Mr Hayes’ first appeal, the ground challenging the jury directions was given cursory treatment. On the second appeal (the reference), the Court of Appeal placed Mr Hayes in a dilemma: in so far as arguments had been made before and rejected, it would not depart from prior decisions; in so far as arguments were new, it considered them unavailable for not having been raised earlier. Lord Leggatt concluded:
The judgment of the Court of Appeal shows no appetite for giving Mr Hayes’ case fresh consideration.
Practical Significance
This decision is of considerable importance in several respects. First, it reaffirms the fundamental distinction between questions of law (for the judge) and questions of fact (for the jury) in criminal trials, particularly concerning whether a representation is genuine or false. The truth or falsity of a factual statement, including a statement of opinion, is always a matter for the jury and cannot be determined by the court’s construction of a document, even one with legal effect.
Second, the judgment clarifies that a submission into a benchmark rate-setting process involves a subjective opinion, and that whether such an opinion was genuinely held cannot be dictated by the legal construction of the benchmark definition. The jury may properly regard the fact that trading advantage influenced a submission as evidence supporting an inference of falsity, but the drawing of that inference is the jury’s function, not the judge’s.
Third, the decision is significant for the criminal appeal system. The Supreme Court’s analysis reveals how a legal error embedded in jury directions at one trial was perpetuated across multiple prosecutions and upheld by the Court of Appeal in five successive decisions without adequate scrutiny. Lord Leggatt’s opening observation that the case “raises concerns about the effectiveness of the criminal appeal system in England and Wales in confronting legal error” is a pointed criticism of institutional resistance to reconsidering settled conclusions.
Fourth, the judgment provides guidance on the limits of judicial directions about documents in criminal proceedings. Where the issue is whether a fraudulent misrepresentation was made, the meaning of a document — even one with legal effect — as understood by the person answering a question posed in it is a matter for the jury, not the judge.
Finally, the case highlights the continuing difficulties caused by the breadth and vagueness of the common law offence of conspiracy to defraud, and the importance of clear and precise particulars in the indictment when that offence is charged.
Verdict: Both appeals were allowed and the convictions of Tom Hayes and Carlo Palombo were quashed. The Supreme Court answered both limbs of the certified question in the negative, holding that the trial judges had materially misdirected the juries by treating questions of fact about whether rate submissions were genuine as questions of law determined by the court’s construction of the LIBOR and EURIBOR definitions. The convictions were unsafe because the misdirections removed from the juries’ consideration key factual questions which should have been for them to decide.
