The UK Supreme Court’s decision in R v Hayes and Palombo [2025] UKSC 29 constitutes a landmark judgment in the field of financial crime, clarifying the role of judicial direction in cases involving subjective assessments of dishonesty.
The appellants, Tom Hayes and Carlo Palombo, were convicted of conspiracy to defraud following allegations of manipulating benchmark interest rates LIBOR and EURIBOR, respectively. While earlier appeals were unsuccessful, the Criminal Cases Review Commission referred their convictions back to the Court of Appeal in light of a divergent approach adopted by the U.S. Court of Appeals in United States v Connolly and Black.
At the centre of the Supreme Court’s analysis was whether the trial judges had erred in directing juries that submissions influenced by trading motives could not, as a matter of law, constitute honest assessments. The Court held that such directions usurped the jury’s role in determining the factual question of dishonesty and undermined the fairness of the trial. In doing so, the Court rejected the “cheapest rate” and “single correct answer” theories that had shaped previous appellate reasoning. It affirmed that benchmark submissions are inherently subjective, often involving a legitimate range of plausible assessments.
This judgment not only casts serious doubt on prior convictions involving similar prosecutorial theories but also narrows the scope of prosecution for the common law offence of conspiracy to defraud. It reinforces the centrality of jury fact-finding in dishonesty-based offences and has significant implications for how courts interpret financial regulatory definitions in the context of criminal liability.
Mr Hayes, a former trader at UBS and Citigroup, and Mr Palombo, a former trader at Barclays, were among a group of 37 traders prosecuted and 19 convicted of conspiracy to defraud in the US and the UK, following the global financial benchmark manipulation scandal.
Mr Hayes was the first individual to be convicted in the UK for manipulating the London Interbank Offered Rate (“LIBOR”) in 2015, while Mr Palombo was convicted in 2019 for conspiring to manipulate the Euro Interbank Offered Rate (“EURIBOR”).
Both were charged with conspiracy to defraud, following allegations that they colluded with others to submit rate estimates that favoured their trading positions rather than reflecting genuine assessments of borrowing costs.
LIBOR, now discontinued, and EURIBOR, now being reformed, were critical interest rate benchmarks used to price a wide array of financial products, including derivatives, swaps and trillions of dollars of financial instruments tied to inter-bank lending rates. Especially to set interest rates used for loans between banks, which dictated borrowing costs for the likes of mortgages and car finance deals.
These rates were based on daily estimates submitted by banks regarding the rate at which they believed they could borrow from other banks. The submitted rates were not empirical facts but were subjective judgments made within a permissible range based on market data, internal views, and broker input.
The manipulation scandal, which emerged during the 2008 financial crisis, revealed that some banks were submitting artificially low rates to conceal financial distress, while traders within banks were manipulating submissions to improve their own or their institution’s trading positions. This misconduct prompted global investigations and enforcement action, leading to over $9 billion in corporate fines for banks and brokers worldwide.
The original charges against Mr Hayes were brought by the Serious Fraud Office (“SFO”). He was accused of being the ringleader of a wide-ranging effort to influence LIBOR submissions and was convicted on eight counts of conspiracy to defraud. He was charged by both British and US prosecutors in 2015 and was initially sentenced to 14 years’ imprisonment in the UK, which was reduced to 11 years. He spent a total of five and a half years in prison and has been on probation since January 2021.
As for Mr Palombo, he was convicted of conspiracy to defraud for conspiring with others and was sentenced to four years in prison following a retrial in April 2019.
Both traders accepted that they had tried to influence rate submissions but maintained that such conduct was common in the industry and conducted within a range of reasonable estimates and that they did not conspire to submit false figures.
Mr Hayes’ defence hinged on the argument that LIBOR submissions allowed for discretion and did not preclude taking commercial interests into account, so long as the submission reflected the submitter’s genuine belief. Mr Palombo advanced a similar defence. Both maintained that the trial judges failed to put these defences properly to the jury by treating the act of considering trading motives as inherently dishonest under the law.
The traders faced five failed attempts to appeal their convictions between 2015 and 2019. Then, in 2022, a U.S. appellate ruling (United States v Connolly and Black) reversed similar convictions finding the conduct in question was not criminal, holding that a trader-influenced LIBOR submission could still comply with the LIBOR definition. The ruling also questioned the assumption that commercial influence automatically implied dishonesty or falsity. The US Department of Justice also dropped charges it had brought against Mr Hayes, confirming it no longer sought his extradition to face trial there.
This ruling prompted the CCRC to refer both cases back to the UK Court of Appeal in 2023, believing there was a “real possibility” the Court of Appeal might reconsider the legal foundation of their convictions in light of Connolly and Black.
However, in March 2024, the Court of Appeal again dismissed the appeals and upheld the guilty verdicts, noting the "frank admissions of dishonesty" by Mr Hayes and strong documentary evidence. Yet, recognising the broader legal issue, it certified a point of law of public importance relating to the definition of LIBOR and EURIBOR, enabling the appeals to proceed to the Supreme Court.
During the hearing in March 2025, the arguments advanced for both Mr Hayes and Mr Palombo were the misdirection of the jury by the trial judge in their first hearing. Lawyers for Hayes argued the trial judge’s failure to respect the limits of the role of a judge in a jury trial. Similarly, lawyers for Palombo argued the trial judge’s failure to identify the correct issue for the jury, notably the dishonesty point, which was a “question of fact for the jury to assess” and not “a matter to be shaped by legal directions.”
In a unanimous judgment delivered on 23 July 2025, the UK Supreme Court presided by Lord Reed, overturned the convictions of both Mr Hayes and Mr Palombo. The five Justices found that the trial judges had given incorrect directions to the jury, and so both Mr Hayes and Mr Palombo had been denied a fair trial. Their convictions were found to be unsafe and could not stand.
The Court found that the trial judges had fundamentally misdirected the juries by instructing them that any rate submission influenced by trading advantage was, by definition, dishonest or non-genuine, as a matter of law. Meaning that if the submitter were to take account of the commercial interests of the bank, the submission would automatically be dishonest or non-genuine.
The Court held that this direction was treating the submitter’s intent as a matter of law even though it is a matter of fact, thereby usurping the jury’s role. This misdirection by the trial judges influenced the factual assessment of intent by the juries. The assessment of true belief is in criminal trials, a question for the jury, not the judge.
The Court clarified that LIBOR and EURIBOR submissions are inherently subjective and opinion-based and may fall within a range of reasonable estimates, provided they reflected the submitter's genuine opinion. Genuineness depends on whether the submitter honestly believed the rate reflected market conditions. A submission is only false if it misrepresents the submitter’s true belief of the bank’s borrowing rate. Therefore, a trader acting within that range, even with trading motivations, is not automatically dishonest unless it can be shown they did not genuinely hold the submitted view.
Although the misdirection in Mr Palombo’s case was less explicit, it followed the same flawed logic and was still deemed to have compromised the fairness of the trial.
The Court did not exonerate Mr Hayes or Mr Palombo of wrongdoing. It found there was “ample” and “undisputed” evidence upon which a properly directed jury could have convicted them. However, the role of the Supreme Court was not to reassess that evidence but to review legal errors and determine whether a fair trial had taken place, which the Court found it had not. The SFO also announced that it would not pursue retrials as it would not be in the public interest for them to do so.
This Supreme Court’s ruling is expected to have significant consequences for how dishonesty is assessed in complex financial crime cases. By reaffirming that dishonesty is a question of fact, the Court has clarified that criminal liability cannot be established by reference to industry definitions alone or by assuming that commercial influence necessarily implies deception.
This decision narrows the scope for prosecutors to rely on regulatory or internal benchmarks as conclusive standards of truthfulness. Instead, they must prove that the conduct involved a deliberate misrepresentation, that is, that the submitter did not genuinely believe the rate submitted reflected the bank’s borrowing position. This raises the evidential bar in future fraud prosecutions involving subjective commercial judgment.
Finally, the Court’s criticism of the criminal appeals process highlights systemic issues in safeguarding against miscarriages of justice. It expressed concern over the appeal process itself, noting that the misdirection issue had been raised multiple times and dismissed by the Court of Appeal without adequate scrutiny. They observed that the rigid stance of the appeal courts in rejecting repeated attempts to challenge the legal directions had delayed a proper hearing for nearly a decade, calling into question the responsiveness of the criminal appeal system in addressing judicial error.
For further insight, or if you are involved in or facing allegations of fraud or financial misconduct, please contact us at info@culbertellis.com or call us on +44(0)204 600 9907.
