A British court will this week consider whether attempted manipulation of the benchmark interest rate Libor - London interbank offered rate - can invalidate loans and other deals or show that banks mis-sold products that were based on the rate.
The Court of Appeal will begin a three-day hearing tomorrow examining two separate cases brought by clients against Barclays and Deutsche Bank and is expected to hand down a landmark ruling later in the year.
If the decision goes against the banks, it could open the door to many more cases being brought against the industry by companies citing Libor manipulation, opening banks up to compensation claims worth billions of pounds.
Libor is used to price more than US$300 trillion of financial contracts around the world.
"To unwind all Libor-linked derivative contracts would be financial Armageddon," said Abhishek Sachdev, the managing director of Vedanta Hedging, which advises companies on interest rate hedging products.
In previous legal rulings, judges have stopped short of saying Libor was relevant to all claims against banks but said it could be used in cases where contracts had been linked specifically to the benchmark.
Barclays is being sued for up to £70 million (HK$866 million) by Guardian Care Homes, a British residential care home operator, which alleges the bank mis-sold it interest rate hedging products that were based on Libor.
The case has been delayed until April next year so the appeal decision can be heard.
It started out as a complaint about the alleged mis-selling of interest rate swaps but a judge ruled in October last year that it could be amended to include claims of fraudulent misrepresentation connected to Libor manipulation.
Barclays said the case had no merit because Guardian Care had sufficient understanding of the products to make its own judgment over whether to enter into the agreements.
"The addition of a claim based on what happened with Libor does not change the bank's view. This business had a suite of advisers and a lot of financial experience and skill in-house," it said.
Barclays last year paid US$450 million to settle allegations it had manipulated Libor, and UBS and Royal Bank of Scotland have been fined for manipulating Libor.
Deutsche is among several other banks under investigation.