On November 8, 2013, a three-judge panel of the UK Court of Appeals handed down a much awaited ruling in two LIBOR-related cases. The ruling allows plaintiffs in two cases involving interest rate swap transactions referencing LIBOR to amend their claims to allege that the defendant banks made implied representations that their participation in setting the LIBOR rate was honest. In other words, the plaintiffs are now able to allege that at the time the swap transactions were entered into, the defendant banks knew or should have known that LIBOR was being manipulated, but represented otherwise.
In these cases, Graisley Properties Limited & ORS v. Barclays Bank PLC and Deutsche Bank and others v. Unitech Global Limited and Unitech Limited, (Court of Appeal, Civil Division, EWCA Civ 1372, Nov. 8, 2013), the plaintiffs are seeking to recover losses they incurred under interest rate swap transactions with the defendant banks. The plaintiffs have alleged that Barclays Bank Plc and Deutsche Bank sold them interest rate swaps (which referenced LIBOR) which were unsuitable. In 2012, when LIBOR rate manipulation, and Barclays’ and Deutsche Bank’s participation in the manipulation came to light, the plaintiffs in both cases sought to amend their complaints to include allegations that the banks had breached representations related to the integrity of LIBOR.
The UK Appeals Court has ruled that since the banks proposed the use of LIBOR as a reference rate in the swaps transactions, at the very least they were representing that their own participation in setting the LIBOR rate was fair and honest. The court’s decision opens the door to investors and customers to sue banks that sold them LIBOR-related financial products based on the notion that the banks were aware that their employees were actively attempting to manipulate LIBOR rates. The trial date for the Graisley case is set for April 2014. The outcome of this case will have far reaching affects on the future of LIBOR-related litigation.