This week has brought further news on the Libor interest rate fixing saga, with UK broker ICAP receiving an $87m fine.
However, whilst the media spotlight remains on the worldwide regulatory and criminal proceedings, a large number of potential claimants are waiting in the wings to bring private damages claims against those responsible for fixing the rates. Perhaps the biggest problem facing such claimants is how to quantify their loss. It is enormously complex, and therefore expensive, to try to work out whether the rate fixing harmed a particular person, and if so by how much.
Anyone trying to think of a way around this problem should pay attention to last week’s case management decision in Deutsche Bank AG and others v Unitech Global Limited and another  EWHC 2793 (Comm). The Claimants are suing for monies which they say are due to them under a bank loan and under an interest rate swap agreement. One of the issues addressed in last week’s decision is whether the Defendants should be allowed to amend their Defence to plead that the bank loan and the swap agreement are both void because they rely upon the Libor interest rate, which was itself set and manipulated in a manner contrary to the Competition Act 1998.
The Defendants’ Skeleton Argument summarised their case in this way:
“Given that LIBOR constitutes the basis of calculating the price of money in the Credit Agreement, and is central to the Swap and forms the basis on which the Guarantee and Indemnity was entered into, it is submitted that all three arrangements, indissolubly linked as they are, must fail. This is the legal consequence of illegality and, moreover, is right in policy terms as parties should not obtain any benefit from their illegal conduct.”
It is difficult to argue with the principle that people should not benefit from their illegal conduct. But if a person has suffered loss because of unlawful Libor setting, he is entitled to sue for damages. For the public policy argument to work, one would need to explain why the right to sue for damages is insufficient recompense.
In any event, as Mr Justice Teare noted at paragraph 20, if the Defendants’ argument were correct then its potential effects would be vast. It would call into question the validity of every single agreement based upon Libor – of which there are countless. Needless to say, such an outcome would be music to the ears of those potential claimants waiting to bring Libor damages actions.
Unfortunately for those potential claimants (but perhaps fortunately for global financial stability), the Judge rejected the Defendants’ application to amend. He held that just because agreements to set Libor are unlawful and void, it does not follow that other agreements which rely upon Libor but which are not themselves contrary to the Competition Act are also void.