Barclays is hauled to High Court over rate-fix scandal

Judge orders test case over care home operator's £38m Libor-rigging and swap mis-selling claim but bank says action has 'no merit'. Simon Read reports
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Barclays yesterday became the first British bank to face a legal claim for damages arising out of the Libor scandal after a High Court judge ruled that a claim brought against the bank by Guardian Care Homes (GCH) must go to a full trial.

The decision by Mr Justice Julian Flaux is set to lead to a test case for how courts will decide on swap mis-selling and Libor-rigging cases. Gary Hartland, boss of the care homes group, called the decision a "huge milestone" in his £38m battle against the banking giant.

"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," Mr Hartland said.

"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."

But Barclays said last night that it will fight GCH, owned by Graiseley Properties and Graiseley Investments, all the way. The bank said: "This business had a suite of advisers and a lot of financial experience and skill in-house, and entered into their swaps with sufficient understanding to exercise their own judgement as to whether the products would meet its business objectives. We do not believe the case has merit and will defend it."

The bank also pointed out that GCH owes Barclays £70m, almost twice as much as it is claiming from the bank. The case revolves around loan and finance deals between Barclays and GCH stretching back to 2007 and 2008 when the care homes group took out two multi-million-pound interest-rate hedges, known as swaps.

Thousands of small firms were sold swaps by British banks as a hedge against rising interest rates but fell foul of the deals when rates sank to record lows, forcing interest repayment to soar and leaving businesses unable to escape because of huge penalty charges.

In June, the Financial Services Authority reported "serious failings" in the sale of swaps and ordered Barclays, Royal Bank of Scotland, HSBC and Lloyds to compensate customers. Barclays set aside £450m in its customer compensation pot. Meanwhile, several banks were found guilty of attempting to manipulate Libor, including Barclays which had to pay £290m in fines to British and US authorities in a scandal that led to the departure of Barclays chief executive Bob Diamond

However, the bank's fine related to dollar-libor and euro-libor rates while GCH's swaps were linked to sterling-libor. The bank will argue that its attempted manipulation had no bearing on its arrangement with GCH.

It will also point to Mr Hartland's knowledge and sophistication as "an extremely successful and capable businessman" to suggest the firm knew what it was doing.

GCH's lawyers must now sift through more than a million Barclays emails relating to the attempted Libor-rigging in an effort to find evidence to support their case. It is unlikely to reach court before next summer, angering John Walker, chairman of the Federation of Small Businesses, who said: "This will just extend the time it takes to get redress for small firms and be very costly."