Allianz Global Investors GmbH & Ors v Barclays Bank Plc & Ors

The claimants, a large group of predominantly investment funds, alleged unlawful manipulation of foreign exchange markets and sought damages for breaches of Article 101 TFEU and section 2 of the Competition Act 1998. The defendants pleaded a pass-on defence, alleging that some funds had passed on or avoided loss when investors redeemed or withdrew investments at net asset values (NAVs) affected by the alleged misconduct.

The court considered whether parts of the defendants’ further particulars of the pass-on defence should be struck out as having no real prospect of success. Applying the principles from Sainsbury’s (pass-on evidence a question of fact) and summary disposal jurisprudence, the judge decided it was appropriate to determine certain pure questions of law now while other issues required trial.

Key legal conclusions were:

• Trusts: beneficiaries who redeem or withdraw and thereby crystallise loss can, in principle, have a cause of action for damages where a duty is owed to them (so the pass-on plea was not bound to fail in respect of trust claimants).
• Companies: the rule against reflective loss (Prudential, as restated in Marex) does not, on the facts assumed for this application, bar ex-shareholders who have had loss passed on to them by the company; the pass-on plea was not bound to fail for corporate claimants.
• Partnerships: an ex-partner who redeems or withdraws may bring a claim for crystallised loss; the pass-on plea could not be struck out on partnership grounds.

The court refused to decide the contract/implication issue on this application and directed further procedural steps on tax particulars, foreign law, disclosure and liquidation-related matters.

The claimants (over 170 funds and related entities) alleged that multiple defendant banks engaged in illegal and anti-competitive manipulation of FX markets between 2003 and 2013. Many claims were follow-on from European Commission decisions and others were stand-alone. The defendants pleaded, among other defences, that losses caused by any unlawful conduct had been in part passed on or avoided by the funds when investors redeemed or withdrew at NAVs reduced by the alleged misconduct.

Nature of the application: the claimants applied to strike out paragraphs of the defendants’ further particulars alleging pass-on (and sought to prevent the defendants incorporating those particulars into amended defences). The court heard argument on whether the pass-on particulars had no real prospect of success in law.

Issues framed:

• whether beneficiaries (trusts) can sue where redemption/withdrawal has crystallised a loss passed on to them;
• whether the rule against reflective loss (Prudential, as restated in Marex) bars claims by shareholders who have redeemed/withdrawn;
• whether partners who have withdrawn have a cause of action;
• whether contractual terms (NAV finality) impliedly prevent investors suing third parties;
• particularisation and disclosure of tax mitigation and the possible relevance of foreign law;
• miscellaneous factual points (closed-end funds, indirect investors, liquidation).

Court’s reasoning and outcome on key points:

The court started from the procedural threshold for strike-out/summary disposal (realistic vs fanciful prospects and avoidance of mini-trials). It emphasised that pass-on is, normally, a question of fact requiring disclosure and evidence but accepted that some pure legal points could properly be decided at this stage.

On trusts the judge accepted the general rule that trustees hold the right to sue for damage to trust property but observed recognised exceptions: where a duty is owed directly to a beneficiary and the beneficiary suffers a distinct loss (Hedley Byrne principle and authorities such as Yudt) the beneficiary may sue. Article 101 TFEU and section 2 Competition Act 1998 create duties that can be owed to individuals; beneficiaries who redeem crystallise personal loss and (on the assumptions for this application) may sue. Accordingly the pass-on plea could not be struck out as bound to fail in respect of trust claimants.

On companies, the court accepted the force of the rule in Prudential as restated in Marex that prevents a shareholder bringing claims in respect of reflective loss suffered by the company. However, the judge concluded that where the company has passed its loss to a former shareholder who has redeemed or withdrawn and thus crystallised the loss, the justification for the Prudential rule (avoiding subversion of Foss v Harbottle, concurrent claims and double recovery) is absent. The court found it arguable that an ex-shareholder’s crystallised loss may be treated as separate and allowed the pass-on plea to stand for corporate claimants, to be resolved at trial.

On partnerships the judge reached the same conclusion as for trusts and companies: an ex-partner who has crystallised a loss by withdrawal may have a cause of action and the pass-on defence could not be struck out.

The court refused to decide the contractual implication point on the strike-out application because implication requires a full factual and contractual matrix analysis better suited to trial; it also noted remedies issues (injunctions vs damages) that bear on whether an investor can be treated as having an enforceable bar on suing third parties.

The judge permitted the tax mitigation plea to stand but ordered procedural steps to particularise the allegation and limited the scope of anticipated disclosure as disproportionate otherwise. Directions were given for identification of any applicable foreign law, notification of liquidations, and further liaison on disclosure categories. The court accordingly declined to strike out the challenged pass-on paragraphs and left the matters to be resolved at trial, with some targeted procedural directions.

This was a first-instance disposal. The claimants’ strike-out application was largely dismissed in that the court refused to strike out the defendants’ pass-on particulars in respect of trust, company and partnership claimants (finding those pleas not bound to fail and having a real prospect of success). The contractual implication issue was referred for trial. The court gave directions on tax particularisation, foreign law, disclosure and liquidation notification. The rationale was that beneficiaries, former shareholders and former partners may, on the assumed facts, have crystallised losses and may therefore have causes of action such that the defendants’ pass-on defence is arguable and should be investigated at trial; purely legal questions that were suitable for decision were determined, while fact-dependent or contract-implication questions were remitted to trial.