Amsterdam Court of Appeal grants standing in collective action about alleged manipulation of interest rate benchmarks
On 5 March 2024, the Amsterdam Court of Appeal rendered judgment in a collective action of Stichting Elco Foundation (the Foundation) against several banks and brokers based on alleged manipulation of interest rate benchmarks. The Amsterdam District Court had denied the Foundation standing to bring its claims on the grounds that the represented legal persons would not benefit from the granting of any of the sought declarations of law. The Court of Appeal overturned that judgment. The Court of Appeal's judgment raises questions on how to apply this 'benefit requirement' and whether foundations may be allowed standing if they have not submitted their arrangements with third-party litigation funders.
Background
The Foundation accused Lloyds Bank, UBS, ICAP and Rabobank (collectively, Rabobank et al.) of acting unlawfully by manipulating interest rate benchmarks (the Euro Interbank Offered Rate (EURIBOR) and the London Interbank Offered Rate (LIBOR)). Rabobank et al. allegedly coordinated in submitting to Thomson Reuters the respective interest rates at which they expected to be able to get a loan. Thomson Reuters subsequently calculated and published benchmarks based on the submissions of Rabobank et al., among others. The Foundation alleged that the coordination harmed, among others, investment firms, credit institutions and pension funds worldwide that made transactions or paid loans based on these benchmarks between 2001 and June 2011. The Foundation initiated a collective action on behalf of those parties under the old Dutch regime (the new opt-out 'WAMCA' regime does not apply to facts that predate November 2016).
Jurisdiction
On appeal, Lloyds Bank, UBS and ICAP challenged the Amsterdam District Court’s international jurisdiction to rule on the Foundation’s claims against them.
The Court of Appeal accepted jurisdiction regarding the claims made on the basis of an (alleged) infringement of the cartel prohibition under Article 101 TFEU. In the Court of Appeal’s view, these claims against Lloyds Bank, UBS and ICAP concern the same factual and legal situation as the claim against 'anchor defendant' Rabobank (Article 8(1) Brussels I Regulation (Recast) (grounds 4.8 - 4.12).
However, the Court of Appeal declared that it lacked jurisdiction regarding the claim made on the basis of ‘group liability’ under Dutch law. According to the Court of Appeal, it is implausible that the claims against all the defendants are governed by Dutch law, nor is it sufficiently plausible that the relevant legal systems have similar group liability regimes. These claims against Lloyds Bank, UBS and ICAP therefore do not concern the same factual and legal situation as the claim against 'anchor defendant' Rabobank (ground 4.13).
Admissibility requirements
The judgment further addresses the questions (i) whether the interests of the individual claimants can be bundled in this collective action; (ii) whether the individual claimants may benefit from the outcome of the collective action, rendering the collective action more effective and efficient than individual proceedings; and (iii) whether the Foundation sufficiently safeguards the interests of the individual claimants.
Admissibility of the claims
Under Dutch law, collective actions are admissible only if the interests of the individual claimants are sufficiently similar. Like the District Court, the Court of Appeal decided that, although the alleged influencing of benchmarks might have been beneficial to some of the claimants, the question whether the alleged conduct is unlawful and may have resulted in damage to some of the claimants can be answered without considering the circumstances of the individual claimants. Their interests are therefore sufficiently similar (grounds 4.16 - 4.17).
According to the District Court, the claims were nonetheless inadmissible because in individual follow-up proceedings it would have to be demonstrated that the individual claimant suffered damage, which would depend on whether Rabobank et al. manipulated the specific benchmark of the financial product used by that individual claimant on day x. As a result, a declaration of law in this collective action that, in general, Rabobank et al. unlawfully manipulated interest rate benchmarks over the course of several years did not offer (sufficient) added value.
The Court of Appeal, however, decided differently. It held that the requested declarations of law concerned unlawfulness based on the alleged infringement of the cartel prohibition. Such a declaration of law could be a ‘stepping stone’ for individual claims for damages. In the Court of Appeal’s view, that sufficed to render a collective action more effective and efficient, notwithstanding the need for a further assessment of individual circumstances in individual follow-on proceedings (grounds 4.18 - 4.21).
It is uncertain whether the Court of Appeal would have ruled differently if the new opt-out WAMCA regime had applied. The way the 'class' has been defined by the Foundation in this case bears resemblance to a 'fail-safe class', particularly known in the United States. A fail-safe class is a class of which the membership cannot be determined until the case is resolved on its merits. In the new Dutch WAMCA regime that is problematic, as class members must be given an opportunity to 'opt out' of the collective action well before the merits phase if they wish not to be bound by the court’s rulings. But if it cannot be determined with specificity who falls within the class definition, then how can the relevant 'class members' be notified of the need to opt out of the proceedings to preserve their individual rights of action? And if a court rules in favour of the defendant and dismisses the collective action, how confident can the defendant be that the 'class members' will respect that outcome and consider themselves bound by it?
Standing
The Foundation was established for the sole purpose of bringing the collective action. Rabobank et al. therefore argued that the Foundation is no more than an instrument to serve the commercial interests of several (US-based) third-party litigation funders. Arguing that these funders determine the Foundation's strategy in these proceedings, Rabobank et al. submitted that the interests of the individual 'class members' are insufficiently safeguarded and that the Foundation therefore lacks standing.
The Amsterdam Court of Appeal rejected that argument. Its assessment is twofold (ground 4.23).
First, the Court of Appeal held that the Foundation had sufficiently demonstrated that the funders do not have too much influence on its strategy. It remains unclear, however, how the Court of Appeal arrived at this assessment, as the Foundation successfully resisted demands to submit its funding agreement. In cases in which claim foundations are ordered to disclose the details of their funding arrangements, Dutch courts are increasingly critical of the influence of third-party funders. In a landmark decision involving a collective action against Airbus et al., the District Court of The Hague declared the foundation’s claim inadmissible partly on the grounds of the (far-reaching) involvement of third-party funders in the case (20 September 2023, ECLI:NL:RBDHA:2023:14036).
In the second part of its assessment, the Court of Appeal found that the defendants had insufficiently substantiated their argument that the funders’ negotiated fees are too high. As a result, the Court of Appeal granted the Foundation standing.
The proceedings will continue with a debate on whether they should proceed before the Court of Appeal or be referred back to the Amsterdam District Court.
