Mis-Selling Derivatives: UK Judge Rules Libor Issues Can Be Included in Barclays and Deutsche Bank Court Cases

The UK court of appeal has ruled that evidence relating to Libor rate fixing can be used in two separate cases against Barclays and Deutsche Bank over the mis-selling of complex interest rate derivatives.

Following a three day hearing in the London Court of Appeal last month over manipulation of Libor rates, Barclays and Deutsche Bank have each been battling fresh rate rigging evidence in court.

Unitech and Guardian Care Homes are seeking invalidations of complex derivative products they were sold to by the banks.

Guardian Care Homes and Barclays

GCH, a British care home operator, is suing Barclays for £70m (€82m, $112m) over allegations that the bank mis-sold it IRSAs.

GCH's case centres around loan and finance deals between Barclays and itself during 2007 and 2008 and subsequently two multi-million pound IRSAs attached to it.

The care home's IRSAs were linked to Libor. After first claiming that the bank mis-sold it these derivatives, it added Libor fixing into its filing later on.

Since it first filed in April last year, Barclays won the right, one year later, to try to dismiss the first attempt to bring it to court by GCH.

The court case has now been delayed until 2014.

"The Court of Appeal's decision resolves two conflicting legal judgments. With or without the Libor claims, the allegations of mis-selling have no merit," said Barclays in a statement to IBTimes UK.

Graiseley Properties, the owners of Guardian Care Homes was described as having a lot of financial experience and skill in-house, by Barclays.

"They entered into their swap agreements with sufficient understanding to exercise their own judgment as to whether the products would meet their business objectives. Graiseley is a significant business and owes Barclays £70m," it said.

The Deutsche Bank and Unitech Case

Indian property developer Unitech tried suing Deutsche Bank over the last year for mis-selling derivatives linked to Libor and sought the repayment of a $150m loan made in 2007 by a consortium of lenders.

It also sought the repayment of $11m owed for a related IRSA.

Unitech said it would not have agreed to the loan or swap had it known Deutsche Bank was manipulating Libor, making both agreements invalid.

However in February 2013, Judge Jeremy Cooke rejected Unitech's bid, saying Deutsche Bank did not imply Libor was honest by linking a $150m loan and interest rate swap to the benchmark rate.

Judge Cooke added that requiring banks to make implicit promises about the entire Libor-setting process in contracts was "unrealistic."

Deutsche Bank said of the February ruling: "This is a long-standing case of a loan that was made and not paid back. The High Court has already ruled that we, along with the other lenders, are entitled to have the loan repaid. The defendant's attempts to introduce broad and unsupported allegations about Libor, which have already been rejected once by the High Court, are a bid to delay payment and divert attention from its unpaid debts."

In relation to the submitted email evidence, Deutsche Bank added that "the communications cited by the defendant have been taken out of context, are irrelevant to the specific appeals court hearing, and are another attempt to divert attention from its unpaid debt and the recent high court ruling that we, along with the other lenders, are entitled to have an outstanding loan repaid."

Regarding today's ruling Deutsche Bank told IBTimes UK: "This is a long-standing case of a loan that was made and not paid back. The defendant's introduction of broad and unsupported allegations about Libor is a bid to delay payment and divert attention from its unpaid debts, which we will continue to vigorously pursue."