A high court judge has ruled that a landmark trial into Barclays' role in rigging the London interbank lending rate (Libor) must go ahead, with the bank's bosses, including Diamond, called into the witness box.
"There is obviously a question as to what Mr Diamond knew [about Libor-rigging] and when he knew it," Mr Justice Flaux said during a preliminary hearing into the case at the high court.
Guardian Care Homes (GCH) is suing Barclays for up to £37m over the alleged mis-selling of interest rate hedging products (swaps). The residential care homes operator says it should be fully compensated as the swaps were based on Libor rates that had been fiddled by banks.
Barclays has agreed to pay £290m of fines to US and British authorities over its role in the manipulation of Libor and other key interest rates.
The judge said Barclays was "being very coy" about identifying which of its staff were involved in the Libor fixing scandal, adding that the court would draw its own inference "unless and until they go into the witness box".
In an extraordinary attack on Barclays bosses, Flaux told Adrian Beltrami QC, for the bank: "Your client knows who it is who is responsible for all this – they must do." He went on to accuse Barclays of trying to use complex legal arguments to "shut out" the case.
"This is all shadow-boxing. Your client knows jolly well what this is being alleged," Flaux said. "The real issue is that they are trying to shut it out at this stage because they don't like it. What they're trying to do is shut it out altogether." Beltrami had argued that the swap contract Barclays sold in the case did not mention how the Libor rate was set, so the claim should not be allowed.
Tim Lord QC, representing GCH, said Libor products should come with a health warning similar to cigarettes: "Entering into these Libor swaps will seriously damage your financial health."
Flaux ruled that the GCH case should go to trial at the end of October.
Barclays had argued that GCH's advisers included Rothschild bankers and prominent law firms with financial expertise, so it should have understood the products it was buying and their terms. "[GCH] is a significant business that owes Barclays £70m. We do not believe any aspect of the case has merit and are defending it," a Barclays spokesman said.
Gary Hartland, GCH chief executive, said: "Today is a huge milestone with a trial now going forward. Our claim is not just based on mis-selling but on the effect of senior management at Barclays instructing the aggressive selling of [financial products] while attempting to rig Libor." John Walker, chairman of the Federation of Small Businesses, said: "This legal battle will be watched carefully by the thousands of small businesses affected by mis-selling who may decide to take a similar route."
Lord said the case is "likely to be the tip of the iceberg", leading to other claims against banks over the Libor scandal.
The Financial Services Authority estimates 44,000 interest rate swaps – a form of insurance to protect companies from interest rate changes – have been mis-sold to UK companies since 2001.
The test case is also likely to lead to the disclosure of hundreds of thousands of internal emails related to the Libor scandal. The court heard that lawyers for GCH had requested the disclosure of more than 1.3m documents from Barclays. The bank's lawyers said GCH had requested "indiscriminate disclosure" and Barclays wanted to limit the number of documents it would be forced to hand over.
The ruling came as French prosecutors announced that they had opened a preliminary investigation into whether banks in France were also involved. UK and US authorities have already begun detailed probes into the Libor affair.
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