Supreme Court endorses class actions for banking products

The Provincial Court of Madrid must rule on a judgment sentencing Bankinter to pay nearly EUR 10 million for mis-selling preference shares and structured products.

For the first time, the Supreme Court has endorsed the use of class action claims to sue for damages suffered by the acquisition of financial products, stating that the approach is suitable “for judicial economy and the avoidance of contradictory rulings.” Furthermore, as the most important ruling on this matter since the Civil Procedure Law was passed in 2000, its scope can be extended to include all types of class actions, like those pertaining to Volkswagen, for example.

The Supreme Court judgment reverses the decision of the Provincial Court of Madrid which, in late 2010, ruled inadmissible the joinder of 89 Bankinter clients aggrieved by the sale of structured products and preference shares (from Lehman Brothers and Icelandic banks), requiring that each file an individual suit. The High Court now demands that the Provincial Court rule again, this time based on the merits of the case.
Initially, the claims of those affected – advised by the firms Zunzunegui and JAUSAS – had been upheld by the Madrid Court of First Instance No. 87 which, for the first time in March 2010, condemned a bank for failure to provide information pertaining to the sale of preference shares and structured products, and sentenced Bankinter to return nearly EUR 10 million.

In its decision, the Supreme Court stated: “There is no justifiable reason why these cases should be processed separately, which would entail for each the repeated examination of the same defendants, the same witnesses, and the same experts on the same facts, with increasing costs for the parties.”
“Joint processing also mitigates the risk that the claims, in which the factual basis with implications in the proceedings are substantially common, give way to rulings that resolve the issue differently,” the judges added. Attorneys Fernando Zunzunegui (from Zunzunegui Abogados) and Jordi Ruiz de Villa (from JAUSAS), who represent the plaintiffs, insist that the use of class action was warranted by the fact that Bankinter followed the same pattern of misinformation and failure to disclose the issuer’s credit risk to all clients, despite the fact that the nature of the products varied (preference shares vs. structured bonds).

“It’s obvious that the accumulation of claims into a single suit yields nothing but benefits: those affected pay for a single defence (lawyers, experts, prosecutors, fees), with the subsequent reduction in the cost of the process and access to small claims court,” says JAUSAS partner, Jordi Ruiz de Villa. The litigation expert also notes that, with the introduction of class actions, “the Justice Administration avoids a multitude of identical cases, which means cost savings and the ability to demonstrate ‘mass’ conduct which would otherwise be impossible to prove.” As Fernando Zunzunegui observes, “[With this decision,] the Supreme Court declares that the strategy of accumulating injured parties adopted at the beginning of the process, in 2009, is valid and beneficial to all parties. It will also affect many other lawsuits regarding financial products that are currently underway. In addition, the High Court recently ruled on the structured bonds and preference shares sold by Bankinter, among others, so we have no doubt that the Court will confirm the First Instance verdict very soon.”