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By Matt Scuffham and Estelle Shirbon
LONDON, Oct 15 (Reuters) - 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 interestrate swap which is now at the centre of a landmark UK courtcase.
The comments were disclosed in papers submitted to the Courtof Appeal on the first day of a three-day hearing into casesinvolving Deutsche and Barclays, which could set aprecedent for whether attempted manipulation of the benchmarkinterest rate Libor can invalidate bank loans and other deals.
Indian property firm Unitech is appealing againsta lower court's earlier ruling that attempts to manipulate Liborwere not relevant to its dispute over a loan and interest rateswap arrangement it took out with Deutsche Bank in2007.
Meanwhile, Barclays is being sued for up to 70 millionpounds ($112 million) by Guardian Care Homes, a UK residentialcare home operator, which alleges the bank mis-sold it interestrate 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 inrelation to the Unitech deal on Sept. 12, 2007, that "no onelikes to know he got screwed".
In another email sent on Sept. 17, 2007, Deutsche Bankemployee Ashish Kapoor referred to a call with a Deutsche Bankcolleague who referred to the arrangement as a "stupid (customerunfriendly) swap etc etc".
Unitech was told by the High Court in London in Februarythat it wouldn't be allowed to link attempts to manipulate Liborrates to its dispute over a $150 million loan and relatedinterest rate swap agreed in 2007. In a further ruling inSeptember, it was ordered by the High Court to repay the $150million loan but a further repayment of $11 million it owed inrelation to the swap remains in dispute.
"The communications cited by the defendant have been takenout of context, are irrelevant to the specific appeals courthearing, and are another attempt to divert attention from itsunpaid debt and the recent high court ruling that we, along withthe other lenders, are entitled to have an outstanding loanrepaid," Deutsche Bank said in a statement on Tuesday.
Unitech argues that the swap should be invalidated becauseDeutsche Bank is among several banks under investigation for theattempted manipulation of the setting of Libor (London InterbankOffered Rate), which is used to price over $300 trillion offinancial contracts around the world.
"Unitech would not have incurred this liability at all if ithad known Deutsche Bank was up to dodgy practices," John Brisby,a lawyer for Unitech, told the Court of Appeal on Tuesday.
Lawyers for Unitech also argued that Unitech would haveexpected to be informed by Deutsche Bank of attempted Libormanipulation by banks and that its failure to do so counted asan "implied misrepresentation" which gave Unitech the right torescind the agreement.
The Court of Appeal will make a ruling in relation to thetwo cases later in the year. If the decisions go against thebanks, it could open the door to many more cases being broughtby companies citing Libor manipulation, opening banks up tocompensation claims worth billions of pounds.
"In addition to Graiseley and Unitech there are many othercases going through the courts now where points are being takenabout Libor manipulation. Like Graiseley, we are in factalleging dishonesty," Brisby told the court.
