The Competition Appeal Tribunal has ruled that a class action suit against banks for participating in a foreign exchange spot trading cartel must proceed on an opt-in basis, leading to fears that thousands of pension funds could miss their opportunity to join the suit.
In 2019, the European Commission found that traders employed by the banks, who were involved in foreign exchange spot trading, had effectively formed a cartel, exchanging current and forward-looking commercially sensitive information about their activities via online chat rooms.
The commission fined £1bn collectively, but the money was not used to compensate businesses — including pension funds — whose investments were damaged by the cartel’s actions.
Two applications for a class action were then submitted, one by Michael O’Higgins, former chair of the Local Pensions Partnership and once chairman of the Pensions Regulator, and the other by Phillip Evans of FX Claim UK and former inquiry chair at the Competition and Markets Authority.
If these claims are blocked from continuing on an opt-out basis, the result will be that tens of thousands of individuals and businesses will be excluded from the opportunity to recover compensation in relation to admitted anti-competitive behaviour by the banks
Phillip Evans, FX Claim UK
If successful, pension schemes that engaged in foreign currency transactions could stand to benefit from compensation that O’Higgins, in 2019, estimated could amount to billions of pounds.
A similar class action against 16 banks in the US has seen settlements reached totalling $2.3bn (£1.75bn).
Case proceeds on opt-in basis
The CAT met to consider whether the claims could proceed as a class action and, if so, on an opt-out basis. It also considered which of the two prospective class representatives should take the claim forward.
Though the CAT found that the claims should indeed proceed as collective proceedings, concerns around the strength of the claims and the practicability of an opt-out approach compelled it to prefer that prospective claimants should have to opt-in to the class action, though one of the three-member tribunal dissented from this opinion.
Because the question of carriage — who gets to take the case forward as representative — only arises when a class action proceeds on an opt-out basis, the tribunal did not have to decide which of Evans and O’Higgins would be best placed for carriage purposes, though it intimated that, were it forced to choose, Evans’ claim would be preferred.
Opt-in decision will be appealed
Evans said that, though pleased the tribunal had decided the claims were indeed suitable for a class action, he was disappointed by its refusal to proceed on an opt-out basis.
“Based on my background in consumer welfare, I have first-hand knowledge of the practical difficulties of opt-in legal proceedings, which I presented to the tribunal. In my view, the CAT has underestimated these challenges although one of the three CAT members recognised this and stated that the proceedings should be certified on an opt-out basis,” he explained.
In his dissenting opinion, tribunal member Paul Lomas said: “I do not see how the broader objectives of access to justice are met by choosing a method (opt-in) which will either (i) not occur at all or which (ii) if it did occur, would mean that the overwhelming number of what is likely to be in excess of 40,000 proposed class members did not opt in.”
Evans said: “If these claims are blocked from continuing on an opt-out basis, the result will be that tens of thousands of individuals and businesses will be excluded from the opportunity to recover compensation in relation to admitted anti-competitive behaviour by the banks.
“That would be contrary to the principle of access to justice that underpins the collective action regime. These points were recognised in Mr Lomas’ dissenting opinion, which would have granted certification on an opt-out basis. I therefore intend to appeal.”
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Michael O'Higgins likewise said he was “extremely disappointed” by the decision, arguing that the foreign exchange cartel case is “exactly the sort of claim that opt-out proceedings were introduced to facilitate in order to provide access to justice to all entities affected by the illegal behaviour of cartelists”.
“The application I brought was based on strong foundations, solid legal and economic principles and evidence from distinguished experts. In particular, it followed the binding European Commission decisions in which the banks conceded liability and similar proceedings in the US, where the banks agreed to a settlement of over $2bn,” he said.
“In order to best serve the class that we seek to represent we have decided to appeal yesterday’s decision.”
