Finance: Forex rigging case represents greater appetite for US-style class actions in Europe
Jonathan WatsonFriday 6 March 2020
A case involving five major banks alleged to have rigged the multitrillion-dollar foreign exchange (‘forex’ or ‘FX’) market, following the financial crisis of 2008, received its first hearing at the United Kingdom Competition Appeal Tribunal at the end of 2019.
The civil lawsuit, filed in July against JPMorgan, Royal Bank of Scotland (RBS), UBS, Barclays and Citigroup, is a collective action on an opt-out basis, which means all eligible entities affected will automatically benefit from any damages awarded without incurring the costs of bringing individual claims. Non-UK domiciled entities affected, however, need to actively opt in if they are to receive any eventual compensation.
Michael O’Higgins, the former Chairman of The Pensions Regulator, is leading the claim on behalf of affected corporate entities, including pension funds and asset managers. The case is being brought by Scott + Scott, the United States law firm that co-led a similar US case against 15 banks and helped secure $2.3bn in settlements for claimants. Litigation finance group Therium is funding the case, which is being brought under the Consumer Rights Act 2015 (CRA).
There’s been an overwhelming shift in people’s approach to litigation and class litigation in Europe
David Scott
Managing Partner, Scott + Scott
‘The CRA regime gives people an opportunity to come together and to get their money back, which they clearly should be entitled to,’ says David Scott, Managing Partner at Scott + Scott, who is the lead counsel in the case. UBS, Barclays and Citigroup declined to comment on the lawsuit. RBS and JPMorgan had not responded to requests for comment at the time of publication.
At the hearing, the judge revealed that Hausfeld, the other firm that co-led a similar case in the US, has communicated to the defendant banks that it plans to file its own proceedings. This could complicate matters for Scott + Scott as it could create a ‘carriage dispute’ over who is entitled to proceed as counsel on behalf of the plaintiffs. ‘The FX class proceedings in the US have seen settlements totalling [more than] $2.3bn in respect of US FX trading,’ says Anthony Maton, Managing Partner at Hausfeld. ‘The daily average total turnover in foreign currency traded in London is twice that of New York. The London class proceedings offer the opportunity for those who trade through London to obtain restitution.’
The case follows the European Commission’s two settlement decisions in May 2019, which related to banks’ participation in foreign exchange spot trading cartels. The first related to the so-called ‘Forex - Three Way Banana Split’ cartel and saw the Commission issue a total fine of over €811m to Barclays, RBS, Citigroup and JPMorgan. The second decision addressed the ‘Forex - Essex Express’ cartel and saw the Commission hand a total fine of €257m to Barclays, RBS and MUFG Bank. As an addressee of both decisions, UBS escaped a fine given its role in revealing the cartels to the Commission.
Up to now, US-style class actions have generally not taken off in the UK. The economics of such cases have been very difficult, says Clive Zietman, Head of Commercial Litigation at Stewarts.
O’Higgins meanwhile tells Global Insight that under the CRA regime, costs are less of a deterrent. ‘A lot of people still think of class actions as either the lawyers taking the risk, as in the US, or the people litigating taking the risk, as previously in the UK,’ he says. ‘This regime is genuinely quite different and there is no cost risk.’
A CRA case cannot be carried out unless you have a funder in place, adds Scott, one who ‘has the economic reach to ensure that all the costs are covered. The ultimate victims don’t have anything to worry about.’
‘Third party funding is fundamental to the bringing of claims under the CRA regime and group actions more generally,’ says Rosemary Ioannou, a Member of the IBA Antitrust Litigation Working Group and Regional Managing Director at Vannin Capital. ‘The growth of third party funding in the UK, and the rapid expansion and professionalisation of the industry, has enabled many of these claims, which otherwise would have been stymied by the high costs of litigating them, to be brought.’
Regulatory intervention seems to be a common theme. While not essential, it does seem to help, says Jonathan Kitchin, Head of the Commercial & Regulatory Disputes team at Michelmores. ‘Regulatory investigations can pave the way for claimants because they mean that a lot of document gathering and analysis is already taken care of,’ he says. ‘Claimants and litigation funders, knowing that a party’s been through that, see it as a streamlined way to get stuck into their opponent and identify potential classes of claimant for group actions.’
O’Higgins believes that more lawsuits are coming. ‘I think that once we’ve had a number of these cases litigated and settled, which may be five to seven years down the line, people will settle them much more rapidly under the CRA regime because the case law will have been established,’ he says. ‘At the moment, there’s still a certain amount of sabre-rattling going on.’
In many ways, this will depend upon a change in legal culture, which will take time but is already happening. ‘It used to be very difficult for me to come and talk to people about US class actions,’ says Scott. ‘But I think there’s been an overwhelming shift in people’s approach to litigation and class litigation in Europe.’