UK court to hear evidence ahead of landmark Libor ruling

Reuters

By Matt Scuffham

LONDON, Oct 13 (Reuters) - A British court will this weekconsider whether attempted manipulation of the benchmarkinterest rate Libor can invalidate loans and other deals or showthat banks mis-sold products that were based upon the rate.

The Court of Appeal will on Tuesday begin a 3-day hearingexamining two separate cases brought by clients against Barclays and Deutsche Bank. It is expected to handdown a landmark ruling later in the year, according to sourcesfamiliar with the cases.

If the decision goes against the banks, it could open thedoor to many more cases being brought against the industry bycompanies citing Libor manipulation, opening banks up tocompensation claims worth billions of pounds.

The London interbank offered rate (Libor) is used to priceover $300 trillion of financial contracts around the world.

"To unwind all Libor-linked derivative contracts would befinancial Armageddon," said Abhishek Sachdev, managing directorof Vedanta Hedging, which advises companies on interest ratehedging products.

In previous legal rulings judges have stopped short ofsaying Libor is relevant to all claims against banks but said itcould be used in cases where contracts have been linkedspecifically to the benchmark.

Barclays is being sued for up to 70 million pounds ($112million) by Guardian Care Homes, a UK residential care homeoperator, which alleges the bank mis-sold it interest ratehedging products that were based upon Libor.

The case has been delayed until April 2014 so the appealdecision can be heard. It started out as a complaint about thealleged mis-selling of interest rate swaps but a judge ruledlast October that it could be amended to include claims offraudulent misrepresentation connected to Libor manipulation.

Barclays said the case has no merit because Guardian CareHomes had sufficient understanding of the products to make itsown judgment over whether to enter into the agreements.

"The addition of a claim based on what happened with Libordoes not change the bank's view. This business had a suite ofadvisors and a lot of financial experience and skill in-house,"it said on Friday.

Barclays last year paid a $450 million to settle allegationsit manipulated Libor, and UBS and Royal Bank ofScotland have been fined for manipulating Libor.Deutsche is among several other banks under investigation.

Deutsche Bank last year sued Indian property firm Unitech for the repayment of a $150 million loan made in 2007by a consortium of lenders and for the repayment of $11 millionowed for a related interest-rate swap.

But Unitech counter-sued, saying the loan and swap deal werelinked to Libor interest rates, which at the time were beingmanipulated by some banks.

A UK court last month said Unitech must repay the loan, butsaid the dispute over the related swap should go to trial.

The judge said just because there was evidence the Liborrate had been manipulated did not make a loan void. But he saidthe terms of the swap agreement and its specific link to a Liborcontract were more contentious.

"The defendant's attempts to introduce broad and unsupportedallegations about Libor, which have already been rejected onceby the High Court, are a bid to delay payment and divertattention from its unpaid debts," Deutsche Bank said on Friday.

Lawyers for Guardian Care Homes and Unitech declined tocomment.

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