Jausas, a Barcelona-based law firm spearheading litigation, has detected 20 regional court cases against banks for charging unfair rates on project finance for wind and solar projects.
They involve the use of a highly complex derivative called interest rate swaps (IRS).
The courts have ruled in favour of 14 claimants so far. Compensation awarded has been the equivalent of 15-20% of the investment in the wind or solar project.
In April, Spain’s anti-trust authority, CNMC, instigated proceedings against Banco Bilbao Vizcaya Argentaria, Sabadell, Santander and Caixabank for possible unfair trading linked to swap derivatives.
The case followed a complaint by Vapat, owner of 500MW of wind capacity. Further momentum was provided by the decision in September of global litigation finance firm Therium to partner with Jausas to deal with a rapidly growing portfolio of wind and solar claimants.
Acting as a capital risk firm, Therium will put up the money to litigate, charging a percentage of the compensation awarded if the case is successful.
Known cases are the tip of the iceberg, according to Alberto Ceña, CEO of renewables consultants BEPTE. IRS derivatives arose in Spanish renewables project finance in around 2007, and rapidly became widespread. Since then, €6.5 billion has been invested in 6.4GW of wind capacity.
How much of that is susceptible to litigation is unclear, says Therium’s European chief, Oliver Novick. But until 2012’s freeze on new wind capacity, swaps were "very prevalent", he adds. Novick hopes to work for up to 15 clients in the next two years, and for two thirds of the claims to be won or settled.
IRS derivatives are a complex combination of fixed and variable interest rates. For the banks it was "an over-hedging not-well understood by the developers", says Ceña. Plummeting interest rates "were not finally transferred to the customer".
A statement from Jausas, after an analysis of 200 loans with derivatives, said: "We believe that in almost all case banks sold the swaps above the market price in blatant disregard to the law".
In order for the swaps to be fully declared void, claimants must convince the courts they do not have the sohisticated professional capacity to properly understand the derivative. Small and medium-sized firms are more likely candidates for legal success.