In March last year Deutsche Bank AG sued the Indian property developer, Unitech Limited, alleging it owed $11 million under an interest-rate swap agreement. Unitech counterclaimed in May alleging the swap wasn’t suitable or properly explained.
On Tuesday Unitech wanted to amend their claim to include allegations that their $150 million loan and swap contract are invalid because they were linked to Libor*.
Deutsche are under investigation for Libor rate fixing, but has not yet been fined. As previously commented in this blog, Libor rate fixing could have the knock on effect of invalidating other contracts that are linked to Libor, including interest rate swaps.
Barclays was the first bank to be fined for their involvement in Libor rate fixing and are also the first bank to have a claim for damages brought against them in England in relation to Libor manipulation. Guardian Care Homes is claiming around £38m from Barclays on the basis that it was induced by implied representations – effectively that Barclays had not attempted to manipulate Libor – to enter into the loan agreements and related interest rate swaps. At the beginning of November the case survived the early stages in the English courts, with Guardian being found to have a sufficiently arguable case to take forward to trial.
Unitech has not yet been given permission to amend its claim, with another hearing to take place in February. As more banks face fines for Libor rate fixing - UBS having been fined close to £1 billion and RBS expected to make settlements in the region of £500 million – it seems likely that more court actions will be raised seeking to challenge Libor-linked contracts.
The case is: Deutsche Bank AG v. Unitech Limited, High Court of Justice, Queen’s Bench Division, 12-464
* The London Interbank Offered Rate (Libor) is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. For more info see http://www.bbalibor.com/bbalibor-explained/the-basics