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Trial split in group claims under FSMA ss.90 & 90A: some recent developments

Group claims by shareholders against issuers of listed securities under ss.90 and/or 90A of FSMA have become increasingly common in recent years. When corporate misconduct is brought to light in (for example) public enquiries, investigations or settlements with regulatory or prosecuting authorities, claims under ss.90 and 90A often follow.

Jonathan Nash KC

Jonathan Nash KC

Judy Fu

Judy Fu

09 Oct 2024

Group claims by shareholders against issuers of listed securities under ss.90 and/or 90A of FSMA have become increasingly common in recent years.  When corporate misconduct is brought to light in (for example) public enquiries, investigations or settlements with regulatory or prosecuting authorities, claims under ss.90 and 90A often follow.  The essence of such claims is usually that the issuer’s prospectuses and/or published information allegedly failed to disclose the underlying misconduct adequately or at all and so was inaccurate and incomplete.

Such claims involve resolution of a large number of issues – some Defendant-side (Was there misconduct? Was there material non-disclosure?) and others Claimant-side (Was there reliance? What was the loss?).  A key strategic battleground in such claims is trial split, i.e. when and in what order will the issues in the proceedings be addressed by the court, and who will have to do what at which time?

This post begins with a survey of the relevant cases, before turning to consider what conclusions can be drawn from them.  Depending on the split ordered, the impact on settlement pressures at different stages in the litigation can be profound.

Early FSMA cases: RBS and Tesco

In RBS, the Claimants were shareholders who had participated in the bank’s rights issue in April 2008, shortly before its bailout by the UK government.  They alleged that the rights issue prospectus contained misstatements and omissions about the bank’s capital position, its liquidity position, and the purpose of the rights issue.  The claims were brought under s.90 of FSMA, concerning liability for prospectuses/listing particulars.  In broad terms, s.90 provides a remedy where a claimant: (i) has acquired securities to which the prospectus applies; and (ii) suffered loss as a result of an untrue or misleading statement in the prospectus, or because of the omission of a matter required to be included.  This is subject to various defences, including where those responsible for the prospectus reasonably believed (having made such enquiries as were reasonable) that the relevant statement was true and not misleading, or that any omission was properly omitted.

As to the structure of the proceedings, Hildyard J directed that liability issues be tried first, with quantum issues to be determined at a subsequent trial (if required).  The litigation settled before the trial on liability.

In contrast, Tesco involved claims under s.90A of and Schedule 10A to FSMA, arising from the supermarket chain’s announcement in 2014 that it had overstated profits.  These provisions concern issuers’ liability in relation to information published to the market by way of a “recognised information service” (such as the LSE’s regulatory news service), including e.g. annual and interim reports.  In broad terms, liability arises where: (i) the published information contains an untrue or misleading statement or omits a matter required to be included, or its publication is delayed; (ii) a “person discharging managerial responsibilities” or “PDMR” (essentially a director, including de facto or shadow, of the issuer) acted fraudulently in relation to the misstatement/omission/delay; (iii) the claimant acquired, continued to hold or disposed of the issuer’s securities in reasonable reliance on the published information; and (iv) it suffered loss as a result.

At the first CMC, one Claimant group contended that the first trial should be confined to Defendant-side issues (essentially points (i) and (ii) in the previous paragraph) plus certain points of law, with most or all of the Claimant-side issues (including (iii) and (iv) above) deferred until trial 2.  This was rejected by Hildyard J, who declined to order this proposed split, largely for logistical reasons relating to the listing of the trial: see Various Claimants v Tesco plc [2017] EWHC 3296 (Ch) at [53] – [78].  Hildyard J later ordered that issues of quantum computation would be deferred until trial 2.  Again, the litigation settled before the trial on liability.

Accordingly, in both RBS and Tesco the Court took the relatively traditional path of bifurcating liability and quantum issues, which at least in the case of Tesco meant that trial 1 (had it occurred) would have been not far short of a full trial.  A similar approach was also taken in Sharp v Blank [2019] EWHC 3078 (Ch), which although not a FSMA case was a large shareholder group claim for, inter alia, negligent misstatement arising from Lloyds’ acquisition of HBOS.

RSA, G4S and Serco

In this trio of cases (all group claims under s.90A of FSMA), the court forged a different model, reflecting the trial split which had been unsuccessfully requested by one of the Claimant groups in Tesco: see Various Claimants v RSA Insurance Group Ltd (Miles J, unreported, 28 February 2022), Various Claimants v G4S Ltd [2022] EWHC 1742 (Ch) (Falk J), and Various Claimants v Serco Group plc [2022] EWHC 2052 (Falk J).

While there are differences between the cases (with RSA in particular involving a more complicated procedural history), in broad terms the court directed that:

  1. Trial 1 would deal principally with Defendant-side issues, i.e. whether the published information contained misstatements / omissions and/or was delayed, and whether a PDMR had fraudulent knowledge of these matters.
  2. Although most Claimant-side issues (such as reliance, causation, quantum and limitation) would therefore be deferred to a second trial, the Claimants would be required to progress their case on those issues (or some of them) in advance of trial 1. This would be achieved by selecting sample Claimants, and by requiring disclosure and witness statements in advance of trial 1 from (at least) the sample Claimants.

As articulated by Falk J in G4S, a trial split along the above lines “appear[ed] to be the best pragmatic solution” for those cases [50].  Having accepted that a single trial is neither realistic nor possible (because, at a minimum, questions of quantum would have to be put off in any event given it will be sensitive to precise findings on liability), such a split would ensure that trial 1 would be manageable for the parties and the court, and was likely to help save unnecessary costs and be conducive to settlement: “Obviously if the claimants fail at the trial 1, there will be a substantial saving in costs on any basis. If they succeed, the claimants’ position is that there is then a high prospect of settlement, with the same result” [57].

At the same time, requiring the Claimants to advance their case on the Claimant-side issues before trial 1 would: (i) also facilitate settlement; (ii) ensure proper engagement with the proceedings by the Claimants; (iii) reduce the gap between trial 1 and trial 2 (if needed); (iv) achieve a fairer balance in the litigation burden as between the parties; and (v) address concerns about the evidence of the Claimants’ witnesses being deferred to trial 2, specifically the likelihood of memories fading further, and the possibility of witnesses being influenced by the outcome of trial 1 (i.e., if the court finds at trial 1 that statements were made and were misleading, there is an obvious temptation for a witness to say that he relied on those statements and understood them in the same way as the court).

Although in RSA, G4S and Serco the court tried to strike a fair balance between the parties, the model established by those cases is widely perceived to be Claimant-friendly.  The need for Claimants to progress their case outside of court did not mean they were entitled to sit back and do nothing for the duration of the first trial.  However, the reality was that in court, the first trial would focus almost exclusively on the Defendant’s alleged wrongdoing.  Almost all scrutiny of Claimant-side issues – and therefore many of the likely weaknesses in the Claimants’ case such as reliance, quantum and limitation – was deferred until a possible future trial 2.

Indivior, Standard Chartered and Glencore

In two subsequent cases Claimants (and no doubt their litigation funders) sought unsuccessfully to push the model even further in their favour.

The first case is Wirral Council v Indivior plc and Reckitt Benckiser Group plc [2023] EWHC 3114 (Comm), involving claims under ss.90 and 90A of FSMA.  In that case, Wirral brought representative proceedings under CPR 19.8, seeking declaratory relief on the Defendant-side issues (only), specifically whether the published information contained misstatements / omissions and was delayed, and whether a PDMR had the requisite fraudulent knowledge.  At the same time, Wirral and a large group of other Claimants also issued normal Part 7 proceedings.  The Claimants sought to stay the Part 7 proceedings pending determination of the representative action, at which point the Part 7 claim would potentially be revived as a forum for trying the Claimant-side issues that arise under ss.90 and 90A.  The Part 7 claim was also issued to preserve the Claimants’ limitation position in the event the representative action was not permitted to proceed.

If successful, the effect of the Claimants’ approach would be to: (i) lock in a Defendant-focused trial 1 of the kind that was ordered in RSA/G4S/Serco; but (ii) avoid the burden of having to advance their case on the Claimant-side issues in advance of trial 1.  This was rejected by Michael Green J, who upheld the Defendants’ challenge to Wirral’s use of the representative procedure under CPR 19.8.  In summary, the Judge reasoned that Wirral and the other Claimants were impermissibly seeking to oust the Court’s jurisdiction to case manage the claims in accordance with the overriding objective, in particular by removing from the court the ability to determine whether there should be a split trial (and if so what split), and whether any trial 2 issues should be progressed in advance of trial 1.

An appeal to the Court of Appeal is due to be heard in December 2024.  The outcome of the appeal will likely also determine the fate of attempts to use the same approach in other proceedings, including an attempt by one of the Claimant groups in the proceedings against Glencore plc (see below) to advance its case by way of a representative action.

The second case is Various Claimants v Standard Chartered plc [2024] EWHC 1108 (Ch), also a decision of Michael Green J in proceedings under ss.90 and 90A of FSMA.  For their part, the Claimants in Standard Chartered invited the court to direct a Defendant-focused trial 1 as per RSA/G4S/Serco, but shorn of the obligation for the Claimants to advance their case on any of the Claimant-side issues in advance of trial 1.  Conversely, the Defendant contended that trial 1 should be a full trial of all issues except quantum, with the Claimant-side issues addressed by way of sample claims.

The court ultimately adopted a middle ground between these competing proposals.  It directed that: (i) trial 1 would focus primarily on the Defendant-side issues; but (ii) trial 1 would also determine the Claimants’ standing to sue, and their so-called “common reliance claims” (a legal theory by which a person who did not read and had no actual awareness of the published information can nonetheless be said to have relied on it, if it purchased shares at a price that was inflated by the alleged misstatements in and omissions from the published information); and (iii) the Claimants would be required to advance their case on the trial 2 issues (or some of them) in advance of trial 1.

A not dissimilar approach was reached, by agreement in the light of the prior authorities, in the s.90 and s.90A claim in Aabar Holdings SARL v Glencore plc [2024] EWHC 1556 (Comm), where Bryan J rehearsed the benefits of such a split as recorded in the prior case law.  In advance of trial 1, the Claimants were required to answer a quantum and reliance RFI, and to complete a table concerning standing issues.

Barclays

The most recent case on this point is a decision of Leech J in a group claim in Investors in Barclays v Barclays plc [2024] EWHC 2124 (Ch D).  (By way of disclosure, the authors of this post act for the Claimants.)

By agreement, the parties agreed that limitation would be determined at trial 1.  As to other Claimant-side issues (standing, reliance, and causation), Leech J ordered them to be determined at trial 1 based on a sample of 7 Claimants.

Leech J therefore departed significantly from the model adopted in RSA, G4S, Serco and Standard Chartered.  The decision was driven by pragmatism: (i) in view of the size of the sample, the Claimants did not consider that preparation of the sample claims would be excessively burdensome or jeopardise the trial date; (ii) it was accepted that the sample claims could be accommodated in the trial window (which listing was extended to 10 weeks); and (iii) the parties agreed in principle that the Claimants should progress the sample claims at the same time as preparing for trial 1, and thus the time and cost of addressing Claimant-side issues (e.g., reliance and causation) would be incurred whether or not they were deferred.

In adopting the approach that was unsuccessfully advocated by the Defendant in Standard Chartered, Leech J emphasised that Barclays was a very different case: “I can readily understand why Michael Green J split the trial in the way in which he did in that case.  But the size and burden which he faced are not of the same order in the present case” [8(5)].

Discussion

What conclusions can be drawn from the courts’ efforts to date to balance the competing interests of Claimants and Defendants, and to ensure that ss.90 and 90A claims are case managed in a way that best advances the overriding objective?

We suggest that the following points emerge:

  1. Although in some of the earliest ss.90 and 90A cases (i.e. RBS and Tesco) the court took an inclusive approach to what issues should be included in trial 1, subsequently there was a trend towards trial 1 focusing primarily on the Defendant-side issues, as per RSA/G4S/Serco.
  2. However, there is nothing inevitable about this approach, and it should not be expected that it will necessarily be adopted. Barclays demonstrates that the court can and will adopt a different approach, more akin to that adopted in Tesco, where this is appropriate in the circumstances.  Further, Standard Chartered demonstrates that even where the court adopts a trial split that is broadly in line with RSA/G4S/Serco, there may be scope to include some Claimant-side issues in trial 1, including e.g. standing and reliance issues, particularly if these can be easily accommodated at trial 1 and have a significant bearing on the outcome and/or future conduct of the proceedings. Glencore shows a willingness to progress these same issues, given that they clearly have significant implications for settlement.
  3. Whatever the precise split ordered, the courts have so far resisted deferring all work on the Claimant-side issues until after the Defendant-side issues have been determined at trial 1. This was an important rationale behind Invidior.  Going forward, there is a real prospect that even where the court may be prepared to accept a more Claimant-friendly split along the lines of that in RSA/G4S/Serco, this may come at the price of directions requiring the Claimants to undertake substantial work to progress the Claimant-side issues ahead of trial 1.