Demonstrators hold a placard in front of the headquarters
of Germany's largest business bank, Deutsche Bank AG during
a rally against food prices speculation in Frankfurt.
A Deutsche Bank employee referred to a client not liking
to know they were being "screwed" in a 2007 email concerning
the sale of an interest rate swap which is now at the centre of
a landmark UK court case.
The comments were disclosed in papers submitted to the Court
of Appeal on the first day of a three-day hearing into cases
involving Deutsche and Barclays, which could set a precedent
for whether attempted manipulation of the benchmark interest
rate Libor can invalidate bank loans and other deals.
Indian property firm Unitech is appealing against a lower
court's earlier ruling that attempts to manipulate Libor were
not relevant to its dispute over a loan and interest rate
swap arrangement it took out with Deutsche Bank in 2007.
Meanwhile, Barclays is being sued for up to £70 million by
Guardian Care Homes, a UK residential care home operator,
which alleges the bank mis-sold it interest rate hedging
products that were based upon Libor.
In documents submitted to the court by Unitech's lawyers,
Deutsche Bank employee Sanjay Agarwal commented in an email
in relation to the Unitech deal on Sept. 12, 2007, that "no
one likes to know he got screwed".
In another email sent on September 17, 2007, Deutsche Bank
employee Ashish Kapoor referred to a call with a Deutsche
Bank colleague who referred to the arrangement as a "stupid
(customer unfriendly) swap etc etc".
Unitech was told by the High Court in London in February that
it wouldn't be allowed to link attempts to manipulate Libor
rates to its dispute over a $150 million loan and related
interest rate swap agreed in 2007. In a further ruling in
September, it was ordered by the High Court to repay the $150
million loan but a further repayment of $11 million it owed
in relation to the swap remains in dispute.
"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," Deutsche Bank said in a statement on Tuesday.
Unitech argues that the swap should be invalidated because
Deutsche Bank is among several banks under investigation for
the attempted manipulation of the setting of Libor (London
Interbank Offered Rate), which is used to price over $300
trillion of financial contracts around the world.
"Unitech would not have incurred this liability at all if it
had known Deutsche Bank was up to dodgy practices," John
Brisby, a lawyer for Unitech, told the Court of Appeal on
Lawyers for Unitech also argued that Unitech would have
expected to be informed by Deutsche Bank of attempted Libor
manipulation by banks and that its failure to do so counted
as an "implied misrepresentation" which gave Unitech the
right to rescind the agreement.
The Court of Appeal will make a ruling in relation to the two
cases later in the year. If the decisions go against the
banks, it could open the door to many more cases being
brought by companies citing Libor manipulation, opening banks
up to compensation claims worth billions of pounds.
"In addition to Graiseley and Unitech there are many other
cases going through the courts now where points are being
taken about Libor manipulation. Like Graiseley, we are in
fact alleging dishonesty," Brisby told the court.