Since Lloyd v Google, several proceedings have been issued seeking to have claims under s90/s90A of the Financial Services and Markets Act 2000 proceed by way of representative action. Whether these claims can proceed in such a way is expected to be decided for the first time in strike-out applications being heard jointly in the s90 & s90A FSMA claims in the Reckitt Benckiser and Indivior litigations in November 2023.

In this article, partner Keith Thomas and senior associate Tom Otter revisit the representative action landscape ahead of an interesting 12 months for such actions in the securities litigation sphere.

Background: FMSA 2000 and the RBS Rights Issue Litigation

The RBS Rights Issue Litigation, which settled in 2017, was the first securities case brought under the Financial Services and Markets Act 2000 (“FSMA 2000”).

FSMA 2000 creates three broad causes of action that allow investors to bring securities cases against listed companies. In summary, these enable an investor to seek compensation for losses suffered due to:

• misrepresentations or omissions in a prospectus;
• reliance on misleading statements in or dishonest omissions from published information and/or
• a dishonest delay in publishing price sensitive information.

The RBS Rights Issue Litigation (and subsequent securities actions) have highlighted that the English Civil Procedure Rules (“CPR”) do not make it particularly straightforward for claims to be brought on behalf of large numbers of investors, especially retail investors.

This is largely due to the prevailing view commonly held until recently that such actions required each claimant to “opt-in” by being named on a claim form. To do this, they must undertake a number of administrative and procedural steps, including formally joining the claim before the expiry of limitation and entering into an engagement with legal representatives, including completing the general know-your-client formalities that every law firm is required to conduct on each of their clients.

However, many retail investors (and some institutional investors) do not have the financial resources or large enough losses to be either commercially incentivised to “opt-in” or take the risk of joining a litigation. Further, signing up large numbers of retail investors places a costly administrative burden on the law firm acting for those retail investors. This may make litigation on behalf of large numbers of individuals with relatively small losses uneconomic to pursue.

There was not (and remains) no “opt-out” class action procedure in relation to securities actions brought under FSMA 2000.

The purpose of the relevant provisions in FSMA 2000 is to provide “compensation” to investors who suffer losses due to serious deficiencies in the information listed companies have a regulatory obligation to provide.  It is unsatisfactory that the current procedural landscape means that there remain significant practical barriers to investors obtaining the redress envisaged by the legislation.

CPR 19.8

Recent developments in case law suggest that the CPR 19.8 representative action mechanism may, if permitted, enable securities actions to be brought by a single investor on behalf of a class of affected investors rather than each of those investors having to actively join a claim.

The provisions of CPR 19.8 are brief and deceptively simple. It provides that where more than one party has the “same interest” in a claim, then, if permitted by the court (which has discretion as to whether or not a claim can proceed as a representative action), any judgment is binding on the class represented by that claimant.

CPR 19.8 background

For many years, CPR 19.8 (and its predecessor equivalents) have been used for claimants in leasehold or trust cases and a diverse range of other cases where there is an obvious “same interest” between leaseholders or beneficiaries in relation to the claim subject matter. Over time, parties have occasionally sought to apply CPR 19.8 to other types of claims with varying degrees of success.

Establishing what constitutes a “same interest” is not always straightforward. The courts have, until recently, taken a strict approach as to what meets the threshold. This has resulted in defendant parties successfully persuading the court that classes of claimants with similar interests may not have the “same interest” required to bring a representative action.

Lloyd v Google – a turning point?

The 2021 Supreme Court decision in Lloyd v Google, which concerned the misuse of personal data, considered representative actions and provided helpful commentary on what may fall within the scope of CPR 19.8. The Supreme Court found that Lloyd v Google was not a suitable case to be tried as a representative action on the basis that an individualised assessment of damages was required, and the statutory provision relied on by the claimant did not provide for the class members to recover damages for a mere loss of control of personal data.

Lord Justice Leggat commented that while it would be preferable to have a detailed legislative framework, in the absence of that framework, the simplicity of the representative action rule is a strength given it provides the court with a flexible tool to apply at its discretion as the occasion requires.

He commented that what constitutes the “same interest” needs to be interpreted purposively in light of the overriding objective of the English CPR, which is to deal with cases justly and at a proportionate cost. He highlighted that where there is a conflict of interest between any putative class members, in that an argument that would benefit some would prejudice the position of others, then a representative action could not be maintained. However, he noted that “it is better to go as far as possible towards justice than to deny it altogether”.

A key part of his commentary countenanced a combined representative and individual action whereby common issues of law and fact were determined through a representative claim. Issues that required individual determination (such as liability or damages) would be determined at a subsequent stage through a split trial process.

Lord Justice Leggatt’s comments in Lloyd v Google encouraged claimant law firms to reconsider how mass claims could be structured and arguably suggested that a lower threshold for what constitutes the “same interest” should be applied than had been generally applied to date.

Commission Recovery and Prismall – a sign of things to come?

Following Lloyd v Google, the courts ruled twice in early 2023 on whether or not a representative action was a suitable mechanism for resolving the underlying class’s claim.

The first case was Commission Recovery Ltd v Marks & Clerk LLP & Anor (“Commission Recovery”). This case concerned the alleged payment of secret commissions in relation to the renewal of intellectual property rights and was brought as a representative action on behalf of the affected class. The defendants applied to strike out the claim and for a direction that the claimant could not act as a representative for others in the same class.

The court held that although there were differences between the claims, the representative action could proceed in the absence of any conflicts between the claimant class (ie following the comments in Lloyd v Google). The judge, Mr Justice Knowles, highlighted that the defendants had not provided sufficient evidence that some class members may be in a different position to others as regards their knowledge of the secret commissions. He said that although the commission received in respect of different claimants varied, the calculation for such commission can be applied across the class on a common basis. As such, this was a reasonable basis to proceed. The judge was also mindful that if a representative action could not be brought, some claims may not proceed.

This decision represents a departure from the strict approach taken in previous cases and follows the direction of travel indicated by the Supreme Court in Lloyd v Google.

Recently, the court handed down judgement in Prismall v Google UK Ltd and Deepmind Technologies Limited, which concerned a claim for misuse of private information brought by an individual on behalf of 1.6 million people arising from the transfer of patient records held by the Royal Free London NHS Foundation Trust (and its predecessors) to Google.

The court refused permission for a representative action to be brought and struck out the claim. The judge considered the lowest level of harm that may have been suffered across the class (a hypothetical denominator), leaving aside claimants who (if an assessment was conducted on an individual basis) may have suffered a higher level of harm. The judge concluded that on this basis (and leaving aside any individual-specific factors), it could not be said that any member of the claimant class had a reasonable expectation of privacy. As such, the damages (as may apply to the whole class) would be trivial. The only prospect of material damages would come from an individualised assessment, which made the case unsuitable for a representative action.

There is tension between the court’s rulings, with the court in the first case (Commission Recovery) seemingly adopting a much broader, purposive approach than in the second case (Prismall). In Prismall, the court adopted a somewhat stricter approach, although the judge in that case considered the approach taken as “consistent” with Commission Recovery.

Application to securities cases

Following Lloyd v Google, several representative claims have been issued in securities cases seeking a judgment binding on behalf of a class of individuals in respect of liability with reliance, causation and quantum to follow in individualised second trials if the representative action succeeds. It is expected the court will first determine whether such a claim can proceed as a representative action in the strike out applications being jointly heard in November 2023 (in the Reckitt Benckiser and Indivior litigations), with that judgment (and any appeal) likely to influence the other issued claims seeking to proceed by way of a representative action.

There is a clear benefit to claimants, particularly if the court finds that representative actions are a suitable mechanism for trying securities claims.  Claimants could use the representative procedure to obtain initial findings of liability against defendants solely on defendant related issues such as misleading statements and defendant knowledge without the complexity and expense of dealing with individual claimant issues such as loss and (where relevant) reliance.  In these actions declarations have been sought that:

• The Published Information contained untrue or misleading statements; and/or omitted information required to be contained within it.
• One or more persons discharging managerial responsibility within the defendant knew or was reckless as to whether the statements contained within the Published Information were untrue or misleading and/or knew the omissions to be a dishonest concealment of a material fact.
• There was a delay in the publication of information adequately addressing the true state of affairs.
• One or more persons discharging managerial responsibility within the defendant acted dishonestly in delaying the publication of information to which Schedule 10A of FSMA 2000 applies.
• Insofar as the Claimant and any of the persons represented by the Claimant can establish that they suffered loss in respect of the relevant securities as a result of matters addressed by the other declaratory relief sought, they are entitled to compensation and/or damages and interest from the defendant pursuant to paragraph 3 of Schedule 10A to FSMA 2000 (insofar as they acquired, continued to hold or disposed of the securities in reasonable reliance on published information to which Schedule 10A to FSMA 2000 applied) and/or pursuant to paragraph 5 of Schedule 10A which would likely be addressed at a further trial if settlement was not achieved beforehand.

It should be noted that each of the current s90A securities cases that have been filed as a representative action is effectively brought as an “opt-in” claim. That is to say, the representative action is said to be brought on behalf of a named set of claimants, and so, were the action to succeed, the declarations would only benefit those named claimants, with those claimants likely to bring individualised claims for compensation if the representative action succeeds.

If the court were to approve the principle of bringing statutory securities claims as representative actions in this “opt-in” form, this would raise the possibility of whether the representative action procedure could be used on a true “opt-out” basis for bringing securities claims, ie a single representative bringing a claim on behalf of a defined class of investors but without those investors being named individually at the outset of proceedings. However, such claims would face significant hurdles given the lack of any procedural framework in CPR 19.8 to deal with common issues that arise in “opt-out” class actions, namely:

• the suitability of the class representative;
• certification of the class;
• the potential for “carriage fights” (ie which law firm has conduct of the class claim if several claims are filed for the same class), which might result in an unhelpful “race to the courthouse” by claimant law firms to file a claim;
• establishing how claims will be properly funded (given that it is unlikely that the class representative will be paying the law firm) and how the defendant will be protected in terms of recovery of its costs if the action does not succeed;
• how class members are identified, contacted and have proceeds distributed to them in the event of a successful action; and
• how the legal teams and funders are paid.

Conclusions

The FSMA 2000 securities claims which have been brought to date by way of CPR 19.8 representative actions are an interesting development in this area of law, particularly for claimants where the procedure may bring substantial benefits in terms of efficiency and reduction of risk in bringing these claims. Likewise, the procedure presents a threat to defendants if they have to first go to trial on all defendant related issues before the claimants have to prove any claimant-specific parts of the cause of action.

This is especially so when most of these actions are based on defendant wrongdoing which is already the subject of criminal and regulatory findings.  As such the applications for representative claims are expected to be strongly opposed. However, for both claimants and defendants the representative action may bring efficiency and costs savings as to date significant costs and court time has been spent by both claimants and defendants on arguing the merits and issues for a split trial.

The results of the forthcoming strike out applications will hopefully provide clear guidance.

You can find further information regarding our expertise, experience and team on our Securities Litigation page.

If you require assistance from our team, please contact us.

Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.