Superior Court Certifies $1.0 Billion Foreign Exchange Price Fixing Class Action

In his decision released earlier this Spring, Ontario Superior Court Justice Paul Perell certified a class action in Mancinelli v. Royal Bank of Canada claiming $1.0 Billion in damages against several large banks, including Credit Suisse Group AG; Deutsche Bank AG; the Royal Bank of Canada; and the Toronto Dominion Bank, relating to an alleged conspiracy to fix prices in the foreign exchange market. The claim alleged that, between 2003 and 2013, the Defendant banks, who controlled approximately 65% of the FX market trading in Canadian currency, conspired to fix the price of FX instruments as well as other collusive conduct such as manipulating FX Spot Prices which may have had an impact on over $1.0 Quadrillion worth of trades.

FX Market

The FX Market, which operates 24 hours a day around the world, generally involved “over-the-counter” transactions between purchasers and one of the Defendants acting as a dealer. The dealer would quote a price at which it would buy a particular currency and the price it would sell a particular currency in exchange for a second currency. If accepted, the dealer earns revenue equal to the difference between the purchase price and the selling price, but also accepts the risk that a change in currency price may occur before the order may be filled. In effect, the dealer receives a commission for the service of providing liquidity and assuming risk for purchasers.

The class action alleges that the Defendants and their agents, through electronic communication platforms and online chatrooms, communicated directly with each other to coordinate the prices offered to customers trading in the FX Market and to manipulate FX rates. Among other allegations, the Defendants are alleged to have also coordinated trading in particular currencies to benefit co-conspirators. This allegedly had a direct impact on the prices of FX instruments traded on capital markets.

Each of the Defendants has been subject to regulatory investigation and proceedings for their role in these chatrooms. Credit Suisse entered into a consent order with the New York State Department of Financial Services. The US Federal Reserve issued a Cease and Desist Order against Deutsche Bank. Both RBC and TD entered into settlement agreements with the Ontario Securities Commission.

Certification Criteria

Justice Perell relied on the five-part test necessary to certify a class proceeding under s. 5 of the Class Proceedings Act, 1992. Justice Perell noted that “For an action to be certified as a class proceeding, there must be a cause of action shared by an identifiable class from which common issues arise that can be resolved in a fair, efficient, and manageable way that will advance the proceeding and achieve access to justice, judicial economy, and the modification of behaviour of wrongdoers.”

Of particular interest was Justice Perell’s discussion of the identifiable class criteria. The plaintiffs had originally sought to include three classes in the Class Definition: (a) Direct Purchasers from Defendant Class Members; (b) Direct Purchasers from non-Defendant Class Members; and (c) Investor Class Members. Justice Perell ultimately limited the class to only Direct Purchasers from Defendant Class Members. The remaining two classes were ultimately excluded from the Class Definition due, in part to the episodic nature of the conspiracy, the remoteness of the class members’ claims, and the difficulty in self-identifying these class members. There was no way to determine whether the purchases from Non-Defendants FX market participants or of mutual funds was affected by unrelated illegal transactions. Having limited the class definition, Justice Perell determined that the proceeding met all the remaining criteria and certified it as a class action.

The further progress of this class action is worth watching, if only based on the extent of the claimed damages. Given the amounts at stake, both parties may well decide to appeal the decision and the same issues may shortly end up before the Ontario Court of Appeal. However, given the tendency for large price-fixing class actions to settle, in the event that there is no successful appeal, there may be a large settlement on the horizon.