This case is one of the leading cases with regard to Novus actus interveniens. The defence rests upon the definition: that the actions of a third party will produce an outcome that few would have expected: making the plaintiff’s claim too remote.

Facts of the Case.

Borstal Officers, supervising Borstal inmates who were working outside the borstal premises on Brownsea Island in Poole Harbour. The Officers went to sleep, against instructions [orders] allowing the inmates to escape. A number of the inmates had previous histories of escape and all [most] had criminal records.

In the escape, damage was done to private property, yachts. The claim for damages against the Home Office was for the value of the damage.

The Home Office claimed that they owed no duty of care to the plaintiffs or any member of the public. The Home Office advanced its defence on two primary points: [i] that there is [virtually] no authority for imposing a duty of this kind and [ii] it is said that no person can be liable for a wrong done by another who is of full age and capacity and who is not the servant or acting on behalf of that person.

The negligence however is not owed by the borstal detainees, rather by the borstal Officers. The detainees were the mechanism of the damage, albeit, and this is the point of contention, human intervention via action. The Home Office claims “novus actus interveniens” as their defence. This is a question of “remoteness”.

“Remoteness” is decided in law rather than in fact. Which in reality means the arbitrary decision of the Judge, although he may well consider the precedent cases, ultimately, “policy” seems to be a major factor. Of course if there is a jury, the jury supposedly only finding on the facts, may well find on the law, confusing the two issues.

What about the “but for” test? The “but for” test is apparently a test for factual causation. Therefore for deciding in law it would not be employed. The “but for” test would clearly make the Officers liable and vicariously the Home Office.

The two tests therefore form the basis of proceeding in tort: first, determination is made whether “but for” in respect to all and any that may stand in the tortfeasor’s shoes, whether there is any liability.

If it found that there is liability, then the second leg of the test is applied. This is that on one hand the claimant would not be worse off as a result, nor any better off as a result.

The Court found that the Home Office was negligent. That the state owed a duty of care to the respondents. As such, the Justices extended the category of negligence to include the State, which prior to this case was held to be “above the law” based on policy considerations.

LIBOR spreads are again very wide, which adds pain to Option ARM mortgages, and they really don’t need any more pain.

Federal Reserve Target Rate…………. 2.00 2.00 2.25 4.25 5.25
1-Month Libor……………………………… 2.48 2.38 2.61 4.86 5.32
3-Month Libor……………………………… 2.80 2.65 2.61 4.86 5.36

Libor Set for Overhaul as BBA Responds to Credibility Concern

By Ben Livesey and Gavin Finch

May 13 (Bloomberg) — The benchmark interest rate for $62 trillion of credit derivatives and mortgages for 6 million U.S. homeowners is set for its biggest shakeup in a decade on concern that banks misquoted their true borrowing costs.

“We have not run away or hidden from the need for reform or the need for review” of “serious issues” in the U.K. financial-services industry, British Bankers’ Association Chief Executive Officer Angela Knight said at a hearing of a parliamentary committee in London today.” The BBA is set to announce the results of its most far-reaching review of the way it sets the London interbank offered rate in a decade on May 30.

The association, an unregulated London-based trade group, is under pressure to show that Libor is reliable following complaints by investors that financial institutions weren’t telling the truth about their funding costs after rising mortgage defaults contaminated credit markets and drove up borrowing costs.

While the association set the one-month dollar Libor rate at 2.72 percent on April 7, the Federal Reserve said banks paid 2.82 percent for secured loans later that day. Secured loans typically yield less than unsecured debt.

“The Libor numbers that banks reported to the BBA were a lie,” said Tim Bond, head of global asset allocation at Barclays Capital in London. “They had been all along. The BBA has been trying to investigate them and that’s why banks have started to report the right numbers.”

April Warning

Libor rates jumped after the association said April 16 that any member banks found to be misquoting rates will be banned. The cost of borrowing in dollars for three months rose 18 basis points to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze last August. The one-month rate climbed 14 basis points, the most since November.

The cost of borrowing in dollars for three months should be as much as 30 basis points, or 0.30 percentage point, higher than the current rate, Citigroup Inc. said in a report last month.

Banks are understating borrowing costs on concern they will be perceived as “weakened” by the credit turmoil that forced financial companies to record $323 billion of losses and credit- markets writedowns, said Peter Hahn, a fellow at the London-based Cass Business School.

“Since the credit crunch, it’s something that appears to have been manipulated,” said Hahn, a former managing director at Citigroup. “We are in an extraordinarily delicate confidence time where a small event can shatter things quite easily.”

Review Brought Forward

The BBA accelerated its annual review of Libor to assess if there’s a fault with how the rate is computed, if it reflects “difficult markets” or is “giving the right answer, just one that people don’t want to hear,” Knight said yesterday.

“Libor has stood the test of two decades,” she said at today’s parliamentary committee hearing. While the association has contacted all the member banks to investigate Libor “volatility,” the swings in the rate are “hardly surprising” amid the credit turmoil, Knight said.

The association has submitted a report based on discussions with member banks to its independent Foreign Exchange and Money Market Committee, which is carrying out the review of Libor, said Brian Mairs, a spokesman for the BBA in London.

The banking group, which represents Citigroup, HSBC Holdings Plc and 14 other lenders, asks members each morning to say how much it would cost them to borrow from each other for 15 different periods ranging from a day to a year in dollars, British pounds, euros and eight other currencies.

BIS Report

The Bank for International Settlements said in a March report some lenders were manipulating the rates to prevent their borrowing costs from escalating. The system still worked as it was meant to do as the credit crunch began in the middle of last year, the Basel, Switzerland-based BIS said.

Libor is used to guide banks in setting rates on most adjustable-rate mortgages. The prices they quote for credit default swaps are also linked to Libor.

“Libor is a proxy for the effective rates of the economy,” said Rav Singh, an interest-rate strategist at Morgan Stanley in London. “Libor eventually feeds into the economy. There’s so much on the back of the Libor problem. There are structured products, all the swaps and then there are the hedging positions.”

To ease the credit crunch, the Fed cut rates seven times, created three lending facilities to help both banks and securities firms obtain funds and backed the takeover of Bear Stearns Cos., which was on the verge of collapse. In all, the central bank made more than $600 billion available to lenders and allowed Wall Street firms to borrow money overnight at the same so-called discount rate charged to commercial banks. Fed Chairman Ben S. Bernanke provided $29 billion of financing to back JPMorgan Chase & Co.’s bailout of Bear Stearns in March.

No Comment

Bank representatives declined to say what recommendations they are making to change Libor.

HSBC and HBOS Plc spokesmen declined to comment, as did Bank of America Corp. spokesman Scott Silvestri. Barclays, Royal Bank of Scotland Group Plc, Lloyds TSB Group Plc also declined to comment. Deutsche Bank AG spokesman Ronald Weichert wasn’t immediately able to comment.

“I can confirm that along with the other 15 members of the BBA, as happens every year, we have been in consultations,” said Richard Bassett, a London-based spokesman for WestLB AG. Rabobank Groep NV spokesman Anthony Arthur wasn’t immediately available for comment.

Spokesmen for Mitsubishi UFJ Financial Group Inc. and Norinchukin Bank Ltd. weren’t immediately available. A Royal Bank of Canada spokeswoman said it had discussions with the BBA as part of consultations with all Libor panel members and awaits the association’s recommendations.