Last Friday, 25 October 2024, Leech J handed down an important decision in which he granted reverse summary judgment on a claim for price/market reliance in a s.90A FSMA (Allianz Funds Multi-Strategy Trust & Ors v Barclays Bank Plc [2024] EWCH 2710 (Ch). The core issue in question in this case is whether an investor can satisfy the reliance requirement of paras. 3 & 5 of Schedule 10A to FSMA when they have not read the published information in question. A number of investors claimed that they could satisfy that requirement on the basis that by relying on the market price of a security they rely, indirectly, on the published information which influences the price. This theory is supported, it is argued, by the imposition of liability for omissions in s.90A and the Transparency Directive (2004/109/EC) which has a purpose of increasing consumer protection which is achieved by the price/market reliance concept. In particular, passive investors will have no protection under s.90A if reliance requires investors to have read the published material, and passive investors account for a very significant segment of the investing market. The Claimants also argued this was a novel issue which was unsuitable for summary determination.
Leech J accepted the arguments of the bank and found that the intention of s.90A FSMA and Schedule 10A was not to start afresh but to apply the common law concept of reliance [107]. He accepted the starting point was that s.90A must be different to s.90 (which has no language of reliance) and therefore must require more than merely showing causation of a loss. Further, he found the pre-FSMA prospectus cases had adopted an inducement test that required conscious knowledge of the false statement. This was also shown by the recent decisions of Marme Inversiones v Natwest Markets [2019] EWHC 366 (Comm) and Farol Holdings Ltd v Clydesdale Bank Plc [2204] EWHC 593 (Ch) and the only prior decision which addressed the reliance requirement for s.90A- ACL Netherlands BV v Lynch [2022] EWHC 1178 (Ch). The Davies Review and Treasury Consultation were sources which were found to support the common law test, although the Judge considered them of secondary relevance in the construction exercise. His conclusion was that “Paragraph 3 cannot be satisfied in respect of published information which the Claimants did not read or consider at all” [109]. However, indirect reliance where an investor relies on published information that has been transmitted by a broker or adviser or relies on an adviser who read and understood the published information is sufficient [124].
The Judge was not troubled by the argument that s.90A must mean more than common reliance because it imposes liability for omissions where no such liability can exist at common law. In the Autonomy decision Hildyard J favoured a tight requirement that the investor “applied his mind to the statement in question and…induced the acquirer to transact on the terms he did” [503]. Leech J made clear he was not deciding whether that was correct or not [111(5)] and left it open [130]. He found that to establish liability for an omission an investor must prove that they had read the published information. Thus it would be sufficient for an investor to say ‘I read the annual report in order to decide whether to acquire the security, that was reasonable, and had it disclosed the omitted information that would have materially affected my behaviour and I would not have invested in the security on the terms I did’ [115]. The investor therefore does not need to have directed its mind to the particular information omitted.
The decision also follows Autonomy in finding that the presumption of inducement does not arise unless the statement has been read and understood [120]. In this case the ‘category C’ investors did not allege that the decision-maker or advisers had read and understood the published information and so no presumption of inducement was found to arise.
A separate point which the Judge addressed is whether for a claim under dishonest delay (para. 5 to Schedule 10A) to arise there must have been an eventual (i.e. delayed) publication of the information on a RIS. The answer given was that a publication of the material is essential [138]. What this means is that for the period of time where the ‘delayed information’ is not published there is no claim under para.5. It is only if and when an issuer publishes the material that a claim under para.5 may arise and if the issuer never publishes the material there is no para. 5 claim. That will leave claimants only with a claim for an omission. The contrary argument was considered by the Judge to significantly overlap with and render redundant the omission cause of action. The major practical implication is that claimants must prove reliance for an omission but not for dishonest delay.
This decision is likely to be perceived as a significant narrowing of the scope of s.90A FSMA both in terms of reliance and dishonest delay. It may of course be challenged on appeal, but in the meantime is likely to send ripples across s.90A litigation.