Court of Appeal strikes out defences that funds' losses resulting from FX manipulation have been passed on to investors following redemption

06 May 2022. Published by Simon Hart, Partner, Head of Banking & Financial Markets Disputes and Christopher Wheatley , Senior Associate and Olivia Dhein, Knowledge Lawyer

In Allianz Global Investors GmbH & Ors v Barclays Bank PLC & Ors(1), the Court of Appeal allowed an appeal by the claimant funds (the Funds) and struck out defences by the Defendant banks (the Banks) that losses incurred by the Funds had been avoided or passed on upon redemption by their investors.

The Court of Appeal held that the proper claimants at all times were the Funds, both before and after any redemptions, regardless of whether these were structured as a company, trust or partnership. Redemptions by investors also did not avoid the Funds' loss, as these constituted a collateral benefit and so are not treated as making good the Funds' loss. 


The appeal arose from claims by over 170 claimant Funds for damages arising from alleged 'illegal and anti-competitive manipulation of foreign exchange (FX) markets' by the Banks. The claims were for breach of statutory duty of article 101 of the TFEU2, and section 2 of the Competition Act 1998. The Funds consisted of companies, trusts and partnerships.

The Banks denied liability and argued, in the alternative, that liability would be avoided or passed-on to the extent that an investor had redeemed its investment in a Fund at a lower Net-Asset-Value than would otherwise had been the case. 

The Funds applied to strike out this argument as disclosing no reasonable grounds for defending the claim. The Funds argued that the proper claimant at all times was the investment fund – regardless of whether it was structured as a company, trust or partnership and regardless of redemptions. 

The Court of Appeal decision

The Court of Appeal overturned the first instance Judge's decision that:

  • the general principles preventing current shareholders / beneficiaries / limited partners from bringing claims for damage to company / trust / partnership assets, did not prevent former shareholders, beneficiaries, or limited partners from bringing a claim upon redemption of their investment, where they had a separate cause of action;
  • article 101 of the TFEU and section 2 of the Competition Act 1998 gave rise to a statutory duty owed to all individuals – including current/former shareholders, beneficiaries and partners; and

redemption of an investment at a lower NAV crystallised the investor's loss, giving rise to a separate right to claim against the Banks –  such that it was arguable that that the Funds had passed-on those losses to the redeemed investor and so the Funds could no longer claim these losses from the Banks.


A shareholder cannot claim for losses to the value of its shares, or distributions from its shares, arising from damage to the assets of a company. Such losses are not separate and distinct from the loss suffered by the company, and only the company is entitled to claim for its loss. This is known as the rule against claiming 'reflective loss'3

At first instance, the Defendants successfully argued that this rule did not apply to former shareholders upon redemption of their shares at a lower NAV.

However, in between the first instance and Court of Appeal hearings, the Privy Council in Primeo Fund  (in  Official  Liquidation)  v  Bank  of Bermuda (Cayman) Ltd4 rejected the argument that the rule against claiming for reflective loss did not apply to former shareholders who had sold their shares.

The Banks sought to argue that the situation was different for investors who redeemed their shares, as this involved a payment by the Fund company to the investor, rather than shares being sold to a third party. The Court of Appeal rejected this distinction and held that the rule against reflective loss extended to investors who redeem their shares.

The Court of Appeal also took into account the practical impact the Banks' position could have in quantifying claims by companies, and the "chilling effect" it could have on settlement of claims in circumstances where a shareholder could acquire a new, freestanding right of claim against the same third party upon redemption of its shares.


The Court of Appeal affirmed the principle that the trustee, not the beneficiary, of a trust has the right to sue for damage to trust assets5.

Accordingly, the Court of Appeal held that the statutory duty under article 101 of the TFEU and section 2 of the Competition Act 1998 was owed to the trustee of the Funds, not to the beneficiaries. The beneficiaries did not suffer any distinct loss from the Fund at the time of the breach of duty. The redemption of the beneficiary's interest in the trust did not give rise to a separate loss. 

Accordingly, the Court of Appeal held that any cause of action for damage caused to the trust vests in the trustee of the Fund and remains with the Fund upon redemption.


The Court of Appeal adopted a similar approach in relation to partnerships:

  • affirming the principle in Certain Limited Partners in Henderson PFI Secondary Fund II LLP v Henderson6 that only the general partner can bring proceedings in relation to damage of a partnership asset; 

  • holding that the statutory duty under article 101 of the TFEU and section 2 of the Competition Act 1998 is owed to the partnership, not each limited partner; and

  • rejecting the Banks' argument that a former limited partner suffered a separate loss and acquired its own free-standing cause of action upon redemption.

Collateral Benefit

The arguments before the first instance Judge focused on the question of reflective loss, and title to sue upon redemption. However, the Court of Appeal emphasised that this is not determinative of whether the Funds' losses have been avoided or mitigated by redemption.

The practical implications of this question were significant. If the Funds' losses were avoided upon redemption:

  • every claim for damages brought by a company, trust or partnership would potentially require an investigation and assessment of each and every change in share capital, or beneficial or partnership interest, from the date the damage was suffered until judgment;

  • in circumstances where the investors do not acquire a right to claim upon redemption, the Banks would then potentially avoid liability for those losses; and

  • many claimant companies, trustees or partnerships would likely have been over-compensated in the past.

The Court of Appeal held that the redemptions did not avoid or mitigate the Funds' losses, as this constituted a collateral benefit (or res inter alios acta). Applying the principles in Swynson Ltd v Lowick Rose LLP7 the Court of Appeal held that any benefit the Funds derived from the redemptions at a lower NAV arose independently from the Funds' loss caused by manipulation of the FX rates. Rights to redemption were governed by separate contracts between the Funds and its investors regarding the constitutional and capital arrangements of the Fund, that were entirely separate from the FX transactions between the Funds and the Banks.


The Court of Appeal's approach is to be welcomed in avoiding the practical difficulties, costs and risks that could have arisen as a result of approach argued by the Banks – particularly in relation to the quantification and/or settlement of claims by companies, trusts or partnerships, and the possible proliferation of separate claims by shareholders, beneficiaries and partners. For investors, the Court of Appeal's decision means that potential redemptions will need to be considered carefully, as doing so could leave the investor out of pocket where the fund has a valid claim against a third party.

1 [2021] EWHC 399 (Comm)
2 Treaty on the Functioning of the European Union
3 Prudential  Assurance  Co  Ltd  v Newman Industries Ltd (No 2) [1982] Ch 2004
4 [2021] UKPC 22
5 See, Webster v Sandersons Solicitors [2009] EWCA Civ 830
6 [2012] WEHC 3259
7 [2017] UKSC 32

Stay connected and subscribe to our latest insights and views 

Subscribe Here