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12 November 2012

Interest Rate Hedging Products – An Update – November 2012

Our dispute resolution team reports on the latest development in the "Interest Rate Swap Scandal".

Update

Since the last report by Steeles Law, the first major UK mis-selling case in the interest rate swap scandal has been heard in the London High Court.

On Monday 29th October 2012, a preliminary hearing took place between Guardian Care Homes (Graiseley Investments Limited & Ors) and Barclays Bank plc. Guardian Care Homes is claiming approximately £38 million from Barclays over an allegedly mis-sold interest rate swap (hedge agreement) subject to LIBOR that was designed to protect the company from rising interest rates. There are essentially two elements to Guardian Care Homes’ claim, one is the mis-selling of the hedge itself, the other is related to the fixing of LIBOR (in which it is alleged that Barclays’ swaps were increased in price due to the rigging of the LIBOR rates).

At the hearing, Barclays had sought, inter alia, an adjournment of the claim and to resist the inclusion of the LIBOR rigging elements to Guardian Care Homes’ claim for mis-selling. Judge Julian Flaux refused to adjourn the proceedings and granted permission for the LIBOR rigging aspect of the claim to be determined by the Court.

This is the first major UK case of its kind and will be seen as a test case for further claims against banks, being closely watched by thousands of other businesses. The decision by the Court to allow the case to go to trial could potentially lead to several thousands of claims being made by other businesses and individuals against Barclays and other banks involved in selling complex financial products.

After the hearing, Barclays gave this statement:

“The Judge’s decision means these issues will need to be dealt with at full trial in due course.

We understand that Graiseley entered into their swaps with sufficient understanding to exercise their own judgement as to whether the products would meet its business objectives.

They are a significant business which owes Barclays £70 million. We do not believe the case has merit and will defend it.”

Gary Hartland, CEO of Guardian Care Homes gave his response to the Case Management Conference ruling:

“We are delighted that the judge has accepted our pleadings that Barclays should face fraud allegations in relation to attempted Libor-rigging and the aggressive selling of hedging products.

Barclays’ attempt to have this claim thrown out has now been wholeheartedly rejected by the judge.

Despite the fact that our claim has always had the Libor element, Barclays have to date refused to disclose information including the names of senior management involved in attempted rigging.

Mine is a small care home operator, and these products along with the conduct of Barclays throughout this process have had a hugely distressing impact on our staff and residents.

Today is a huge milestone with a trial now going forward to determine whether these financial products should be declared void. Our claim is not just based on mis-selling but on the effect of senior management at Barclays instructing the aggressive selling of swaps while attempting to rig Libor.”

Comments

In our view this could be a landmark case for businesses and individuals affected by the rigging scandal and the mis-selling of complex financial products.

If the case proceeds to a full trial and Barclays loses, it could be disastrous for the banks which would be likely to give many individuals and businesses the confidence to claim for losses that they allege they have suffered as a result of entering into the hedging agreements.

However, just because the Court has granted permission for Guardian Care Homes’ claim to proceed to a full trial does not mean it will succeed in that trial. In fact, the claim itself does have difficulties.

Whilst we can only speculate, we consider that the most likely outcome is that Barclays will try to settle the claim out of Court rather than risk a precedent being set which will be binding in other cases. Further, it is likely that Guardian Care Homes will be receptive to a settlement in light of the challenges it faces in succeeding with its claim.

At Steeles Law we have acted and continue to act for a number of clients involved in disputes with banks including the mis-selling of complex financial products. If you or your business has entered into a hedging agreement, whether that agreement remains in place or not, we would like to hear from you. For a no obligation discussion about interest rate hedging products call us today.

If you require do require assistance please contact us.