* London court hears test case on Libor manipulation
* Legal papers reveal details of alleged Barclays wrongdoing
* Case could open floodgates for lawsuits against banks
By Estelle Shirbon
LONDON, Oct 17 (Reuters) - Barclays employeesmanipulated Libor benchmark interest rates to benefit one of theBritish lender's sterling investment funds between 2006 and2010, according to evidence disclosed in court filings by acompany that is suing the bank.
The details came to light on Thursday during a hearing atthe Court of Appeal in London into a dispute between Barclaysand residential care home operator Guardian Care Homes, a testcase that could affect all banks tainted by the Libor scandal.
The key issue is whether Guardian Care Homes can rely onalleged Libor-rigging by Barclays to invalidate two interestrate swaps it entered into with the bank in 2007 and 2008.
Guardian Care Homes had taken out two loans totaling 70million pounds ($113 million) from Barclays and alleges the bankmis-sold it inappropriate interest rate hedging products basedon Libor that ended up costing it millions as rates fell.
Barclays denies mis-selling and says the Libor-riggingallegations are irrelevant to the dispute.
The bank has been fined $453 million by U.S. and Britishauthorities in June 2012 over attempted manipulation of Liborrates, a scandal that led to the resignation of the bank's thenchief executive Bob Diamond.
In legal papers filed to the court, Guardian Care Homescites a letter from Barclays lawyers to the Singapore regulatorthat contains details of an internal investigation by Barclayscovering the period between January 2006 and April 2010.
The investigation was into alleged manipulation of thethree-month sterling Libor rate by bank employees, whichGuardian Care Homes says is relevant to its case because thatwas the rate its two swaps with Barclays were tied to.
"Barclays continues to bury its head in the sand despiteoverwhelming evidence that the bank was manipulating Libor inorder to profit from swaps," said Guardian Care Homes CEO GaryHartland. "My swaps have cost me 12 million pounds so thesuggestion that these allegations are irrelevant is fanciful."
GO LOWER
According to Guardian Care Homes, the probe found thatex-Barclays employee Quan Hui Lee, now working at an investmentfund run by Barclays called Ricardo Master Fund, had asked bankemployees to manipulate the rate to boost the fund's returns.
"Go get Libor down," Lee was cited as saying in an email toIan Pike, a London-based Barclays sterling Libor submitter, towhich Pike responded: "I'll do my best boss!"
In another email, Lee was quoted as saying: "LOWER! Go for 3percent ... I want yr end 3mL (three-month Libor) to be 2.8percent or at worst 2.88 percent."
Citing the contents of the letter from Barclays lawyers tothe Monetary Authority of Singapore, dated May 9, 2013, GuardianCare Homes said: "The purpose of the fraud was to make profit oravoid losses on 'Ricardo Master Fund'".
"The documents ... show that Barclays' misconduct goesfurther and wider than the regulatory findings and, importantly,compound the existing evidence that this misconduct in relationto Libor had a material economic impact upon the (swaps) enteredinto by (Guardian Care Homes)," the firm's lawyers wrote.
Barclays is trying to have the Libor-related elements of thecase thrown out by the Court of Appeal, which is hearing thecase in conjunction with a similar dispute between Deutsche Bank and Indian real estate developer Unitech.
"(The case) is not concerned with the extent to whichBarclays manipulated Libor or the regulators' reports," thebank's lead counsel Robin Dicker told the court.
"It is concerned with a much narrower issue, whetherGuardian Care Homes can rely on such conduct to avoid or reduceits obligations."
The three Court of Appeal judges are due to give theirruling later this year. Depending on which way it goes, it couldeither open the floodgates for similar lawsuits by small andmedium-sized firms which had agreed deals pegged to Libor ratesagainst banks involved in the scandal, or on the contrary makeit much harder to launch such lawsuits.
"The nature of the case asserted by (Guardian Care Homes) iswide-ranging in its scope and indiscriminate in its applicationto any customer who contracted with a Libor-submitting panelbank," Barclays told the court in one of its own filings.
"The potential ramifications of (Guardian Care Homes') case... are extensive, given the quantity and value of contractsreferenced to Libor rates across the world."
Barclays (BARC)
