Westpac suffers setback in court facing ASIC's rate rigging allegations

Westpac has suffered a massive setback in its defence of allegations by the corporate watchdog that it rigged one of Australia's most important interest rates, with the Federal Court throwing out its claim that it was being unfairly prejudiced.

Justice Jonathan Beach delivered the blow to the bank on Wednesday after Westpac claimed the way the Australian Securities and Investments Commission was running its case against the bank.

ASIC has accused Westpac of rigging the bank bill swap rate on specific dates. The bank bill swap rate is a benchmark interest rate used to set interest rates for a range of financial products including business loans.

ASIC also alleges that over a three-year period Westpac "from time to time" engaged in the alleged manipulation of the rate.

Justice Jonathan Beach described Westpac's argument as "nebulous" before finding in favour of ASIC.Credit: Carla Gottgens

Lawyer for Westpac Matthew Darke told the court last week that Westpac was unprepared to defend ASIC's allegations outside of the seven specific dates.

But on Wednesday, Justice Beach described Westpac's argument as "nebulous" before finding in favour of ASIC.

"It was always apparent that Westpac had to make this case not just on the specific contravention dates... but over the entire relevant period," Justice Beach said.

Justice Beach gave permission to ASIC to tweak its case against Westpac so that certain elements of the regulator's case are clearer.

The judge also granted ASIC leave to correct an error in its pleadings regarding Westpac's alleged market manipulation.