R v Hayes; R v Palombo [2025] UKSC 29[2025] UKSC 29 (23 July 2025)

Tom Hayes and Carlo Palombo were convicted of conspiracy to defraud for attempting to manipulate LIBOR and EURIBOR benchmark interest rates to benefit their derivatives trading. The Supreme Court allowed their appeals, finding that trial judges wrongly directed juries that taking account of trading advantage necessarily meant submissions were not genuine opinions as a matter of law, when this was a factual question for the jury.

Facts

Tom Hayes, a derivatives trader at UBS and Citigroup in Tokyo, and Carlo Palombo, a derivatives trader at Barclays in London, were convicted of conspiracy to defraud in relation to attempts to influence LIBOR and EURIBOR benchmark interest rates respectively. Hayes was convicted in August 2015 on eight counts and sentenced to 14 years (reduced to 11 on appeal). Palombo was convicted in March 2019 and sentenced to 4 years.

Both appellants had attempted to influence rate submissions to benefit their trading positions in interest rate derivatives. Hayes admitted asking submitters to put forward rates intended to advantage his trading, but denied agreeing to procure submissions that did not represent genuine opinions of borrowing rates. He argued that where there was a range of legitimate rates, selecting one within that range to benefit trading was not dishonest.

Issues

The certified question was whether, as a matter of law upon the proper construction of the LIBOR and EURIBOR definitions: (a) if a 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 rather than a selection from within a range of borrowing rates.

Key Legal Issue

The central issue was whether the trial judges had wrongly treated a question of fact (whether submissions represented genuine opinions) as a question of law determined by construction of the LIBOR/EURIBOR definitions.

Judgment

The Supreme Court unanimously allowed both appeals and quashed the convictions. Lord Leggatt delivered the judgment.

Law and Fact Distinguished

The Court held that whether a rate submission was genuine or honest was a question of fact dependent on the submitter’s state of mind, not a question of law determined by construction of the LIBOR or EURIBOR documents. The construction of a document determines its legal effect, but whether a representation is false depends on whether it represents the maker’s genuine opinion.

Misdirection on Trading Advantage

The trial judge in Hayes’s case wrongly directed the jury that if any consideration was given to trading advantage, the submission could not as a matter of law be a genuine assessment. This removed from the jury’s consideration a key factual question that should have been theirs to decide.

Range of Rates

The Court rejected the Court of Appeal’s ‘cheapest rate theory’. LIBOR and EURIBOR submissions typically involved subjective judgment where multiple rates could legitimately be submitted, particularly in illiquid markets.

Implications

This decision has significant implications for criminal trials involving allegations of fraudulent misrepresentation. Courts must distinguish between questions of law (the legal effect of documents) and questions of fact (whether a representation was genuinely held). The trial judge’s role is to direct on law, not to determine factual questions about a defendant’s state of mind.

The case also highlights concerns about the criminal appeal system’s effectiveness in confronting legal error, given that these arguments were raised but rejected multiple times before reaching the Supreme Court.

While there was ample evidence from which a properly directed jury could have convicted, the misdirections undermined the fairness of both trials, rendering the convictions unsafe.

Verdict: Both appeals allowed; convictions of Tom Hayes and Carlo Palombo quashed as unsafe due to material misdirections to the jury.

Source: Hayes, R. & Palombo, R. [2025] UKSC 29 (23 July 2025)