* Libor probe to turn British investors into legal tourists
* Banks quick to secure legal counsel, conflicts abound
By Sinead Cruise
LONDON, March 20 (Reuters) - Banks under investigation for conspiring to rig the interest rate used as a benchmark for transactions worth trillions of dollars have almost cornered the market in expert legal advice in Britain, making it hard for potential victims to find lawyers to handle their claims.
Investors considering lawsuits against banks which contributed data to the London Interbank Offered Rate, or Libor, may be forced to take their cases abroad to stand the best chance of winning damages, as banks and their traders render scores of British law firms 'off-limits' as they scramble to put together the best defence.
"It is a pretty wide-ranging investigation and you need lawyers for the institutions as well as for the individuals, so it starts to take out a number of people," said Harvey Knight, head of the British financial services practice at law firm Withers.
Legal circles have been buzzing about the scale of the probe into Libor and the number of new clients - ranging from sophisticated investment funds to pension investors - who may need lawyers to fight cases in multiple jurisdictions.
Libor is the benchmark for around $360 trillion worth of financial contracts worldwide. A daily poll asks banks at what rate they think they will be able to borrow money from each other in 10 major currencies and for 15 borrowing periods ranging from overnight loans to 12 months.
Between 7 and 18 banks contribute rates for each currency, the British Bankers' Association website shows. The rates are then collected by Thomson Reuters, which trims off the top and bottom quartiles and averages the rest to produce Libor.
The investigations are examining whether banks mis-reported the rate as artificially low for years, either to project an illusion of strength in credit markets or to cash in on bets struck by their own traders on the direction of Libor.
But while defendants race to sign up law firms, claimants who prefer to keep their powder dry until authorities find proof of collusion are moving much more slowly, and the pool of available lawyers to represent them is dwindling by the day.
"Once you have got counsel to the banks, each will have potentially anything from 5 to 25 individuals they will need to have looked after by separate counsel," one British lawyer said, requesting anonymity because of his involvement in a Libor case.
"And although initially it was the white collar crime experts who were in the first list of people they (the banks) wanted to instruct, they have long since been exhausted and they have moved onto hiring general litigators," he added.
Britain's Financial Services Authority, the U.S. Securities and Trading Commission, the European Commission, the U.S. Department of Justice and the Japanese Financial Services Authority have approached banks around the world to investigate their involvement in determining Libor rates.
European banks including Barclays, UBS, Deutsche Bank Lloyds Banking Group and HSBC have been named as defendants in a variety of class action complaints filed in the United States.
Deutsche Bank confirmed on Tuesday it had received subpoenas and requests for information related to Libor rates between 2005 and 2011.
In its annual report, Barclays said it had been advised by certain authorities that proceedings against it may be recommended with respect to some aspects of the Libor probe and it was discussing potential resolution of those aspects.
Royal Bank of Scotland also confirmed in its annual report that some staff were under investigation but it had "substantial and credible legal defences" to claims arising from the probe.
Even if a law firm is not actively representing a Libor defendant, various commercial conflicts could also prevent it from acting for claimants against financial institutions.
"You might be acting for a bank on an entirely different issue and they will have panel terms whereby firms appointed to that panel won't be able act adversely to the bank or at least not without their consent," said a second lawyer, also speaking unattributably because of his connection to a Libor lawsuit.
Lawyers are expecting an increase in so-called 'legal tourism' as a result of the high demand for lawyers and law firms with a successful record in these types of cases, with plaintiffs based in Britain and continental Europe eschewing domestic legal options for alternatives abroad, most likely in the United States.
Litigants who file cases outside their home countries to exploit laws or judicial systems that favour specific legal actions are commonly called 'legal tourists'. This process of shopping around for the friendliest legal jurisdiction is often seen in libel lawsuits, where defendants are usually sued in countries with tighter media laws.
Some experts said British-based investors might find quicker results if they had their cases heard in the United States, where plaintiffs have made progress with claims for damages in a legal system far more used to class action suits.
By contrast, just 75 group litigation orders have been filed to the division of the High Court in London which deals with claims in respect of negligence and breach of contract since 1999.
"The class actions in the States are always quicker off the mark," the second lawyer added. "As a general rule, their pleading requirements are less."
But the lure of the U.S. legal system perhaps has less to do with speed and more to do with the damages that courts across the Atlantic are known to award, the first lawyer said.
Most U.S. collective actions have been based on alleged violations of tough antitrust and market competition rules.
In one such complaint filed by the City Council of Baltimore, claimants are seeking damages from Bank of America, Barclays, WestLB, Lloyds, HSBC, Citi, JPMorgan Chase and UBS to top up the low returns they were paid on financial products whose payouts were tied to Libor.
But British-based investors who prefer to retain control of independent lawsuits in a more familiar legal system have less-tested legal weapons in their arsenal, and face a tougher task to convince a judge of their entitlement to compensation.
"This isn't simple litigation. Even if you establish that Trader X with Bank Y was putting in artificially low Libor reports, you still have quite a battle to prove an effect and indeed the kind of the effect it had. Without that you cannot justify your claim or value it," the first lawyer said.
Withers' Knight said that some prospective claimants could be better off waiting for regulators to find evidence of malpractice before mounting costly private lawsuits against banks with big resources to fund protracted legal battles.
Even if regulators find that the banks and bank staff responsible for compiling Libor abused their powers for financial gain, claimants would still need to prove that they had neglected a duty of care to them - something tough to prove under British law without a formal contract.
Institutions are also unlikely to say that staff were acting on the authority of the bank, the lawyers said, meaning awards would most likely be targetted at single members of staff rather than the deep pocket of an institution.
"Aside from the fact that loss in this situation is incredibly hard to ascertain, the claim would almost inevitably be non-contractual," a third partner at a London law firm which acts for two banks co-operating with the probe.
"The fact that it is non-contractual means that loss of profits are unlikely to be awardable...it is very unlikely that you'd get punitive damages out of a UK court," he added.