Deutsche Bank AG and Barclays Plc lost a court bid to stop companies from linking claims about the manipulation of benchmark rates to lawsuits initially filed over improper sales of interest-rate hedging products.
The U.K. Court of Appeal in London said Unitech Ltd. and Guardian Care Homes could try to void money-losing swap contracts because they were pegged to the London interbank offered rate. The ruling resolves split decisions from lower courts.
Judge Andrew Longmore said that while the issues were complicated, they should be resolved at a full trial. “The banks did propose the use of Libor and it must be arguable that, at very least, they were representing that their own participation in setting of the rate was an honest one.”
Regulatory probes into banks’ attempts to manipulate Libor have led to fines and settlements totaling about $3.7 billion for firms including Barclays, Royal Bank of Scotland Group Plc, UBS AG and ICAP Plc. Guardian and Unitech said they wouldn’t have signed swap deals if they had known about the misconduct.
“With or without the Libor claims, the allegations of mis-selling have no merit,” London-based Barclays said in a statement. Guardian “entered into their swap agreements with sufficient understanding to exercise their own judgment as to whether the products would meet their business objectives.”
Kathryn Hanes, a spokeswoman for Deutsche Bank, said in a separate statement that the allegations about Libor were a bid to divert attention from Unitech’s unpaid debts. “This is a long-standing case of a loan that was made and not paid back.”
Thousands of businesses, from fried-fish cafes to dentists and Italian regional governments, have sued banks over interest-rate swaps that were supposed to protect against rising rates, and that turned out to be costly when interest rates plunged following the financial crisis. The Bank of England has held rates at a record low since March 2009.
The Financial Conduct Authority reached an agreement earlier this year for lenders including RBS, Barclays and HSBC Holdings Plc to review deals and compensate customers after it found “serious failings” in the sale of the products to small businesses.
“My swap has cost me 12 million pounds ($19.3 million) in interest alone so any suggestion by Barclays that this claim is irrelevant is nonsense,” said Gary Hartland, the chief executive officer of Guardian Care Homes. The trial is scheduled for April.
Unitech’s lawyer, Richard Gwynne, declined to comment.
The two lawsuits are the first in the U.K. to accuse banks of benefiting from rigging Libor. Today’s ruling may open the door for more bank customers to claim they lost out because of the banks’ misconduct.
In the U.S., the city of Houston, Virginia-based regulator National Credit Union Administration, and the University of California have sued lenders over manipulation of the benchmark.
The cases are Graiseley Properties Ltd & Ors. v. Barclays Bank Plc, High Court of Justice, Queen’s Bench Division, Commercial Court, 12-1259; and Deutsche Bank AG & Ors v. Unitech Global Limited & Anr, High Court of Justice, Queen’s Bench Division, Commercial Court, 11-1199 (X1Q6M1JRB282)