Investment management giant Allianz and others have brought proceedings against insurance group RSA over alleged losses arising from a failure to disclose misconduct by an Irish subsidiary of RSA in a timely manner.

At a recent case management conference, Judge Robert Miles changed his earlier decision on the trial structure of the section 90A Financial Services and Markets Act (“FSMA”) claim in Allianz Global Investors GmbH & others v RSA Insurance Group plc. His decision, reviewed here by Elisa Wahnon and Harry McGowan, represents a win for the claimants.

Section 90A FSMA provides a mechanism for shareholders to sue UK-listed companies who publish untrue or misleading statements (eg in annual reports).

In section 90A FSMA claims, claimants must show that:

• “persons discharging managerial responsibility” (“PDMR”) knew that the alleged information was misleading at the time (“PDMR Issue”), and
• they relied on the misleading information (“Reliance Issue”).

The legal burden and costs of preparing for trial on those two issues are significantly different. The issuer of securities has the greater burden and costs on the PDMR Issue as it will be the party predominantly undertaking disclosure and preparing witnesses statements. The burden is the opposite on the Reliance Issue, with the claimants having to undertake significant disclosure and produce witness statements.

The aim of having a split trial is to reduce the time and costs of litigation by splitting off and dealing with some key issues first. It is hoped that the determination of those issues could promote settlement of the remaining issues, or those remaining issues could fall away.

The structure of split trials in FSMA cases is important as claimants will seek to postpone the Reliance Issue to a second trial and have the focus of the first trial almost exclusively on the issuer’s alleged liability. A split trial can give the claimants strategic advantages.

Split trial issues

The first case management conference (“CMC”) in this matter was held in March 2021: Allianz Global Investors GmbH & others v RSA Insurance Group plc [2021] EWHC 570 (Ch). Although it was common ground that there should be a split trial, there was a dispute between the parties during the CMC as to where the split should lie.

The claimants’ position was that the first trial should be limited to the conduct and knowledge of RSA and its directors or officers, ie the extent of RSA Ireland’s wrongdoing. This would cover whether the published information was untrue, misleading or incomplete, the knowledge of the PDMRs, and the allegation of dishonest delay (the “RSA issues”). The claimants argued that splitting off and dealing with the RSA issues first would be easier and reduce the potential for complications; if the Reliance Issue were included at this stage, it would be an issue ripe for appeal.

RSA argued that the claimants’ proposed split would mean the burden of resources and effort leading up to the first trial would largely fall on RSA. Instead, RSA’s position was that the first trial should include the Reliance Issue too. Given that Reliance is one of the key issues in section 90A FSMA claims, RSA argued that its inclusion and earlier determination would be more likely to lead to a settlement of all issues.

At the first CMC, the judge favoured RSA’s position on the basis that:

• it was preferable for more rather than fewer issues to be determined at the first trial,
• including the reliance issue would be more likely to bring about a settlement of the remaining issues, and
• this proposal would likely lead to a faster determination of the factual issues concerning reliance.

In February 2022, the claimants revisited the issue and successfully applied to limit the issues in the first trial to the RSA issues. The judge changed his position and agreed to reduce the issues as it was clear the Reliance Issues had become more complex and would involve significant costs. These would be wasted costs if RSA won on the PDMR issues, as there then would be no requirement for a second trial.

Comment

This is an important win for this group of claimants. With the issues for the first trial now limited to those generally within RSA’s knowledge, the costs to the claimants of disclosure and witness evidence in relation to the first trial will now be greatly reduced. This will therefore be a good opportunity for the claimants to resolve this dispute more efficiently and cost-effectively than if they were required to front-load their costs by having to grapple with the Reliance Issues before the first trial.

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