Court of Appeal strikes out pass-on defence in Forex manipulation claim

On 23 March 2022 the Court of Appeal struck out arguments put forward by the Forex defendants that investment funds had passed on their losses by cashing out of investments.

The Court of Appeal judgment in Allianz Global Investors GmbH and Others v Barclays and Others [2022] EWCA Civ 353 is a welcome ruling for claimants in competition damages claims. If successful, the defendants’ arguments would have had wide-ranging consequences regarding entities able to claim for losses arising from competition law infringements, and potentially made damages claims unduly complex and burdensome.


In 2018 a number of claimants, including investment funds structured as trusts, companies and limited partnerships, issued a competition damages claim in the English High Court in relation to Forex manipulation. The claim was made against several banks found by the European Commission to have colluded to exchange commercially sensitive information and coordinate certain benchmark foreign-exchange (Forex) rates between 2003 and 2013. The banks ran a pass-on defence, among other defences, arguing that the investment funds would have passed on any losses incurred to investors. The banks took the position that even if the Forex manipulation had resulted in less advantageous Forex transactions and these lowered the value of the fund, the investors had ultimately suffered that loss, rather than the fund itself.

Strike out application

In January 2020, a number of investment funds applied to strike out the defendants’ pass-on arguments. The applicants asserted that it was not arguable that losses suffered by an investment fund were passed on to investors who redeem their investments at a lower value. The applicants argued that to the extent that any investor suffered a reduction in value of investments due to Forex manipulation, the investor itself does not have the right to claim for this reduction.

The High Court dismissed the strike out application, ruling in February 2021 that the defence of pass-on was in principle available on the basis alleged. The High Court determined that the defence was not defeated by the trust principle, the reflective loss principle (referred to in the judgment as the company issue), or the partnership principle. The defence therefore had a real prospect of success in this case and should proceed to trial.


The applicants appealed to the Court of Appeal (the Court). The three grounds of appeal challenged the High Court’s findings on each of the trust, company and partnership issues, and argued that the High Court had been wrong to find that the investors themselves had the right to claim.

Court of Appeal decision

Avoided Loss

The Court considered the argument that the applicants had avoided loss, emphasising that the true question was whether the applicants had avoided or mitigated their loss by reason of redemption of investments, so that the amount recoverable by the applicants was reduced. There was a potential answer to this purported defence, which was that the investors cashing out at a lower price was merely a “collateral benefit” and as such did not affect the applicants’ entitlement to recover from the banks. This question could be determined at the appeal stage, as it was both important and straightforward.

Regarding importance, the Court highlighted that the scope and impact of this question was considerable. If the defendants’ argument was correct, it would impact every claim for damages brought by a company, trust or partnership, whether for breach of contract or in tort. These claims would require investigation and assessment of every change in share capital, or beneficial or partnership interests from the date damage was suffered until the date of judgment, clearly making the assessment of damages highly complicated and burdensome.

The defendants argued that the benefit to the applicants of lower redemptions arose directly from the alleged infringement, being the passing on of the loss suffered to the investor in the form of a reduced share of the relevant fund’s net assets. They took the position that this was not a collateral benefit.

However, the Court ultimately held that the redemptions, and any benefit the applicants derived from them, were independent of the applicants’ losses as:

  • the redemptions of the investments took place under contracts, trust deeds, articles or partnership deeds which governed the relevant relationships with investors. These pre-existed the alleged Forex infringement and therefore the benefit arose from independent contracts which were structured to ensure that the applicants received that benefit;
  • investment redemptions were dealings with the applicants’ capital structure. These had no bearing on their profit or loss, and were not transactions entered in the course of the applicants’ investment business. They were certainly not the consequence of or in mitigation of the overcharges by the defendants;
  • redemptions occurred over time, and the applicant investment funds were structured so as to pass on all losses (as well as all gains) to their investors over time. The ultimate conclusion of the defendants’ argument therefore had to be that an investment fund itself cannot suffer any recoverable loss, because that loss would inevitably be avoided when the assets were eventually distributed; and
  • the defendants’ argument was in reality a denial of the corporate entity doctrine, which purported to treat losses as having been suffered by the ultimate investors, rather than by the fund established as the vehicle for the investments. The Court described this as “plainly misconceived because the investors sit behind a curtain created by the constitutional structure of the Funds”.

The Court considered that the defendants’ argument in this case would give future defendants opportunities to resist damages claims for otherwise readily established losses. This would therefore be contrary to well-established principles, as well as unfortunate as a matter of policy.

In conclusion, the Court determined that redeeming investors did not have a claim for the reduction in the amount they received on redemption by reason of the defendants’ alleged Forex infringement.

The company issue

The defendants argued that shareholders who redeem their shares are in a different position to shareholders who sell. The Court stated that it is a firmly established principle that a shareholder suffers loss when the value of their shareholding is reduced as a result of damage to the company. Nonetheless this loss is not actionable due to the rule against so-called “reflective loss” set out in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 2004. Accordingly, a shareholder cannot bring a claim in respect of a reduction in the value of their shareholding or a reduction in related distributions which is merely the result of the loss suffered by the company. The Court stated that this rule must apply equally to a shareholder redeeming shares and shareholder selling shares.

The defendants argued that the Prudential rule meant that on redemption by the shareholder, the company avoids or passes on its loss to the shareholder and therefore no longer has a cause of action for that loss. The Court found that this argument raised the prior question of whether the company’s losses were in fact avoided. As the Court rejected the argument that redemptions were to be taken into account in calculating a company’s loss, the Court therefore also rejected the defendants’ assertion that redeeming shareholders had their own separate claim that fell outside of the Prudential rule.

The trust issue

The general rule regarding damaged trust property is that the trustee can bring claims in respect of the damage as the legal owner of the trust fund. This means that beneficiaries of the trust do not normally have the right to bring claims for that damage. The defendants argued that this trust principle does not prevent redeeming beneficiaries from claiming redemption losses, as the defendants owe a duty to investor beneficiaries of the applicants, and the beneficiaries suffered loss in the form of reduced value of their interests, which crystallised on redemption.

The Court determined that this argument failed at each stage. This was because:

  • any statutory duties owed in relation to transactions entered with an applicant investment fund which is a trust are owed to the trustees and not the beneficiaries;
  • the beneficiaries did not suffer any distinct loss from that of the applicants at the time of the alleged Forex infringement. The subsequent redemption of their interests terminated their relationship with the respective fund at a pre-agreed price, leaving the loss with the fund and for the fund to claim; and
  • any cause of action for damage to a trust vests in the trustee of the applicant fund and remains with the applicant fund upon redemption.

The Court therefore rejected the argument that redeeming beneficiaries have their own separate claim for loss that escapes the trust principle.

The partnership issue

It is well established that any claim against a third party in relation to damage to a limited partnership investment fund is a partnership asset and that only the general partner of the fund can bring proceedings against the infringing party. However, the defendants put forward a parallel argument, stating that a limited partner in a fund is owed a duty and suffers a separate loss. This was on the purported basis that there was a debt owed to the partner on redemption, as this took place at a lower value due to the alleged infringement damaging the partnership assets.

The Court stated that, as a matter of English law, the duty is owed to the partnership and the loss is that of the partnership. The limited partner of an investment fund accordingly has no right to claim and does not acquire one on redemption. The defendants had raised questions of EU law, but the Court stated that English law provides that the rights of shareholders, beneficiaries and limited partners are protected by action through the entity, rather than by the individuals directly. This was as a result of both principle and policy and there was no EU authority which suggested otherwise.


The Court of Appeal’s decision in this case is welcome news for competition damages claimants, in particular in the financial services sector where claims are often brought by financial entities formed as trusts, partnerships and companies. Defendants will continue to raise a variety of different pass-on arguments as a shield to competition damages claims, but in this context at least the door has been firmly shut to the pass-on defence.