LIBOR manipulation claims can go to trial

11 Nov 2013

In a very important judgment against banks, the Court of Appeal on 8 November allowed the bank customers in the cases of Graiseley Properties v Barclays (the Guardian Care Homes case) and Deutsche Bank v Unitech (the Unitech Case) to pursue to trial allegations made about LIBOR manipulation against the two banks.

The cases concern disputes about loan facilities and associated interest rate hedging products linked to LIBOR which were sold to Graiseley and Unitech by Barclays and Deutche Bank respectively.

Barclays and Deutsche Bank are amongst the 16 banks who made submissions about their borrowing costs to the British Banking Association (BBA) for the purpose of setting LIBOR. Following investigations and findings by regulators that the LIBOR rate had been manipulated by a number of banks for their own commercial purposes and fines imposed by regulators against a number of the LIBOR submitting banks, both Graiseley and Unitech applied to amend their cases to include allegations about the manipulation of LIBOR. The allegations include claims about implied misrepresentations made to them by the banks about the integrity of the LIBOR process and breaches of implied terms of the contract about the integrity of the LIBOR process and the banks' submissions to the BBA for the purpose of setting LIBOR.

Both banks strongly resisted the addition of these claims when the applications came before the trial judges. Mr Justice Flaux decided to allow the addition of the LIBOR allegations in the Guardian Care Homes case, but Mr Justice Cooke took a different view in the Unitech case and refused to allow the amendments. Unitech appealed to the Court of Appeal asking them to overturn Mr Justice Cooke's decision, and Barclays then made their own appeal against the decision of Mr Justice Flaux asking the Court of Appeal to prevent Graiseley from continuing with the LIBOR claims.

The Court of Appeal unanimously decided to allow the LIBOR allegations to proceed to trial in both cases because it found that they were arguable and that the facts and legal principles concerned should be examined in detail and decided by the trial judge.

The Banks relied heavily on the suggestion that "doing nothing" (that is not mentioning the integrity or otherwise of the LIBOR rate at all during the sales process) could not be conduct amounting to an implied representation. However, the Court of Appeal commented that the situation where a bank proposes a product linked to LIBOR is similar to that where a customer sits down in a restaurant, and thereby impliedly represents that he has the ability to pay for his meal. The appeal judges considered it at least arguable that proposing a product linked to LIBOR was enough to amount to an implied representation by the bank concerned that their own participation in the setting of the LIBOR rate was honest.

This decision is a very important one because the claims are founded upon implied representations arising from the context and the nature of the products rather than any specific or express communications or discussions about LIBOR with the particular companies before they entered into the interest rate hedging products. Therefore if these companies are successful with their claims at trial, they will pave the way for many other claims by borrowers with interest rate hedging products and other counterparties/investors with contracts/products linked to LIBOR. If the Court holds that either or both of Graiseley and Unitech can recover losses based on these implied representations it seems inevitable that many others will also be in a position to make the same or similar claims.

Click here for the full judgment.

Additional information