There are two main types of claim available to claimants under the Financial Services and Markets Act 2000 (“FSMA”) – section 90 (s.90) and section 90A (s.90A). The same underlying events often give rise to both types of claim. However, there are significant differences between the two types of claim in terms of what they require in order to succeed, and related to that, the respective case management and costs implications.

All those things together determine the commercial prospects and risks of such claims, in other words, the assessment of whether they are worthwhile. Often one type of claim will be much more attractive for an investor than the other, depending on the specific profile of their shareholding in the relevant issuer.

This article by Joe Mitchell, senior associate in our Securities Litigation team, concludes this two part series and considers s.90A (part one reviewed s.90 claims).

Introduction of s.90A

Section 90A was added into FSMA in 2006 (five years after s.90) at the same time as the EU Transparency Directive was transposed into domestic law. At that time s.90A imposed liability in certain limited respects for statements made in reports or other documents published in accordance with the requirements of the Transparency Directive.

It provided that an issuer may be liable to a person who “acquired” securities and suffered loss due to an untrue/misleading statement or omission, but only if:

• A “person discharging managerial responsibilities” (a PDMR) within the issuer knew of the untrue/misleading statement or knew the omission to be a dishonest concealment of material fact; and
• A person acquired securities “in reliance on the information in the publication” in circumstances where it was reasonable for them to rely on that information.

In 2010, s.90A was expanded such that issuer may be liable:

• To a person who “acquires, continues to hold or disposes” securities;
• In circumstances where a person suffers loss “as a result of delay by the issuer in publishing information” if a PDMR “acted dishonestly in delaying the publication”.

The amended form of s.90A was largely moved to Schedule 10A of FSMA, and s.90A claims are often referred to as Sch10A claims.

Distinguishing features compared to s.90

The scope of potential claimants for s.90A is much wider, in particular as the potential class is not limited to claimants who have acquired shares in an Equity Offering or even the aftermarket, but rather the class can also include a person who has:

1. not “acquired” any shares at all when being misled, e.g. they may have already held shares, but decided to continue to hold them on the basis of being misled; and
2. not been misled by the content of a prospectus, rather this can be various other documents, which are not ostensibly “selling documents” like a prospectus.

In temporal terms this can significantly expand the period over which shareholders may be misled, e.g. if the misleading or omission continues overall several years, potentially repeated in multiple documents, over the course of which an investor may buy, sell or hold shares, or do all those things, relying on the misleading information or unaware of information that has been improperly omitted from published documents.

However, with the expanded scope comes requirements that restrict the circumstances in which s.90A applies, in particular:

• A claimant must have relied on the published information in question when the claimant decided to buy or hold shares. In practical terms, this places a considerably higher evidential burden on a claimant.
• A PDMR must have known the statement was untrue or misleading or been reckless as to that. Comparing this to the “reasonable belief” defence to a s.90 claim, s.90A is much more similar to tortious claims such as claims in deceit where a claimant must show knowledge or recklessness on the part of a defendant as to falsity or the misleading nature of a statement, or dishonest concealment.

Specific concepts

In contrast to s.90, there is a clear burden on claimant to show they relied on specific information, which is likely to require documentary and/or witness evidence that shows: who within the claimant (assuming a company) was aware of the misleading information or information from which there was omission; what they did with that information in terms of the decision-making process in respect of the shareholding in question; and how the specific matter on where the claimant was misled etc impacted on the decision to buy or hold such that the claimant can show reliance.

Matters relevant to reliance can range from direct discussions with senior management of the issuer, through to having regard to third party recommendations that in turn are based on the published information – it is very fact dependant.

“Published information” is a very wide term, Annual Reports and other mandatory reports are some of the most common examples.

A PDMR will typically be a director, whether in name or in practice occupying that position (eg a de facto or shadow director).

When FSMA claims become time barred

The primary limitation period for s.90 and s.90A claims is six years from when the cause of action accrued, which is typically regarded as when the loss is suffered by the claimant. For s.90 claims, this is likely to be on acquisition. There is more scope for variation and argument in respect of s.90A cases, e.g. as a claimant may already hold shares when the misleading information is published. However for both types of claims, the limitation period can be extended based on when an investor discovered or could have reasonably discovered relevant facts (which the courts have acknowledged may differ depending on the specific characteristics of the investor).

Such considerations mean the decision as to when an investor can and should commence a claim is difficult. There remains very limited case law surrounding s.90 and s.90A claims. Stewarts has acted in several of the main s.90 and s.90A cases to date, but the overall number of new cases remains low.

Our Securities Litigation team monitors the progress of all significant s.90 and s.90A claims and will continue to assess developments in this space in future.