But in a judgment on Monday, High Court Judge Sara Cockerill rejected the offer of advice, saying she had “no real prospect of success.”
Leeds sought to write off £ 110million in loans, while Sheffield wanted £ 33million in loans canceled by Barclays.
The councils claimed the loans were “tainted” because their interest rates were set using the London Interbank Offered Rate – or Libor – a measure of average interest rates in the banking industry that Barclays and Other banks have manipulated for their own profit, as exposed in the 2012 Libor Rig Scandal.
The loans are expected to last 60 to 70 years and have been structured so that Barclays can change the interest rate on certain dates, which boards can either agree to or repay the entire loan at once.
At the High Court hearing in January, counsel claimed Barclays had engaged in a “fraudulent misrepresentation” of the loans by suggesting that Libor was being settled honestly when it was not.
The bank argued that it never hinted at this – and claimed that even if it did, the boards would not be able to prove that it consciously affected their decision to take the loans.
Madam Justice Cockerill sided with the bank and struck off the legal offer of advice.
A spokesperson for Leeds City Council said she was “disappointed” with the verdict.
“We aare currently considering our position and our options for moving forward, ”she said.
A spokeswoman for Sheffield City Council said she was consulting lawyers and other advice.
The councils can still apply to the Court of Appeal.
Sheffield and Leeds councils have sued Barclays alongside the Greater Manchester Combined Authority, Newcastle City Council, North East Lincolnshire Council, Nottingham City Council and Oldham Council.
What is the Libor-rigging scandal?
The London Interbank Offering Rate, known as Libor, is supposed to reflect the average cost of borrowing in the London financial market.
Every day, banks are asked what they think the interest rate would be if they took out a loan from another bank.
But in 2012, it was discovered that a number of banks, including Barclays, were manipulating Libor. Instead of submitting their true assessment of interest rates, they declared rates that served their own purposes.
In her written judgment on the legal offer of advice, Justice Cockerill wrote that it was “common ground” that Barclays was involved in the Libor rigging, but the “precise nature and” extent “of the The bank’s involvement is still debated.