The High Court has handed down the first ever judgment on whether a representative action under CPR 19.8 can be used in FSMA securities claims, ruling that the claimant’s representative actions be struck-out.
Partner Lorraine Lanceley and associate Francesca Bugg consider the recent High Court decision in Wirral Council v Indivior PLC [2023] EWHC 3114 (Comm).
Background
On 20 and 21 November 2023, the High Court heard strike-out applications brought by the defendants in two securities claims initiated as representative actions under CPR 19.8 (formerly CPR 19.6), which allows a representative to bring or defend a claim on behalf of a class of persons who have “the same interest”. The claims were issued on 21 September 2021 by Wirral Council as administering authority of Merseyside Pension Fund (“Wirral”) against Indivior PLC (“Indivior”) and Reckitt Benckiser Group PLC (“Reckitt”) pursuant to sections 90 and 90A and schedule 10A of the Financial Services Market Act 2000 (“FSMA”) (the “Representative Proceedings”).
Parallel group actions were also initiated in the usual way. These multi-party proceedings are currently stayed (at the pre-service stage) pending this decision.
Wirral adopted the role of “representative claimant” in both representative actions on behalf of classes of claimants who acquired, continued to hold or disposed of securities in the defendants during the relevant period. The Representative Proceedings were described as “opt-in” on the basis that any further claimants would need to sign-up to the actions on or before a cut-off date (likely to be in 2025), including signing up to the group’s costs sharing and governance arrangements.
The Indivior and Reckitt claims represent the first time a group of claimants has sought to use CPR 19.8 in a securities litigation context. Accordingly, the judgment was hotly anticipated given the courts have never before had to consider and rule on whether representative actions can indeed be used in the securities arena.
The judgment
Mr Justice Green ruled in favour of the defendants, allowing the applications to strike-out the Representative Proceedings and ordering that Wirral may not act as a representative claimant.
The decision as to whether it was appropriate for the Representative Proceedings to continue was a matter of judicial discretion by reference to the overriding objective, the applications having been brought primarily under CPR 19.8(2) and (3).
The case for representative actions: Wirral’s arguments
Wirral’s position was that, following the decision in Lloyd v Google (in which Lord Leggatt considered the availability of the representative procedure), it was entitled to bring its representative actions “as of right” pursuant to CPR 19.8(1) absent some fundamental flaw and so long as the “same interest” threshold requirement was met (which was accepted), and that in so doing it was increasing access to justice particularly for retail investors who would otherwise struggle to bring their claims due to lack of available funding particularly in the early stages.
Wirral explained there were material advantages to bringing a representative action for claimants, most notably because it would enable claimants to avoid the usual front-loading of costs on “claimant specific” issues, such as their standing to sue, quantum and investor reliance on the relevant misstatements or omissions forming the basis of a cause of action under section 90A and schedule 10A of FSMA, the impact of which could negatively impact an investor’s appetite to sue.
Wirral instead argued that a bifurcated approach could be adopted whereby the representative seeks declaratory relief on “common issues” only at the first trial and the “claimant specific” issues would be dealt with at the “follow-on” stage. This is particularly attractive to investors who may wish to minimise their involvement and costs risk by holding off on participating publicly unless and until the court has ordered such declaratory relief.
The case for strike-out: Indivior and Reckitt’s arguments
Indivior and Reckitt had asked the court to exercise its discretion to strike-out the Representative Proceedings, arguing that representative actions were not the appropriate procedure and the claims ought properly to be brought by way of ordinary multi-party proceedings.
In particular, they argued that the very nature of these sorts of actions would undermine the court’s power and duty to actively case manage and control such claims from the get-go to ensure the proper administration of justice and compliance with the overriding objective. This includes determining the structure and shape of the proceedings, in particular what issues should be tried at each stage.
The defendants also alleged that the bifurcated approach (and the lack of court-led case management as regards the order in which certain issues were to be dealt with) had a number of key additional downsides. It would arguably make settlement more difficult as the key matters the defendants would need to assess for settlement purposes would not be available until the follow-on claim stage. It could also exacerbate the risk of fading memories by delaying disclosure and witness statements to the follow-on stage, thereby impacting the quality of any reliance evidence. Finally, it would mean the parties and the court would be “starting from a standing start” in terms of preparing for disclosure and witness evidence in the follow-on claim(s).
Indivior and Reckitt also emphasised the litigation burden point, noting that having the burden so heavily lop-sided against the defendants was unfair, not in the interests of justice and inconsistent with the overring objective. It was argued that claimants who initiate such actions should be prepared to carry out substantial work to progress their claims and ensure they are resolved fairly and expeditiously. Conversely, representative actions permit claimants to engage on a more limited basis at the early stages (something accepted and noted by Wirral as a major advantage in terms of time and costs savings). Finally, the defendants rejected Wirral’s arguments regarding access to justice in relation to both institutional and retail investors. As to the latter, they described the position as having been exaggerated and the lack of available funding to such investors (in circumstances where separate, funded multi-party proceedings were already on foot) as inexplicable and due to the “attitude” of the funder.
The court’s case management powers
Ultimately, it was the concern as regards the deprivation of the court’s case management powers and the perceived control investors would have essentially to manage liability issues that appears principally to have driven the court to exercise its discretion in favour of striking-out the Representative Proceedings. The judge remarked that it was “unfair and unjust and contrary to the overriding objective” to “oust the jurisdiction of the Court to case manage the claims from the start”.
Interestingly, when giving his judgment, Mr Justice Green noted that he was exercising his discretion “in favour of the Multi-party Proceedings”, which were already on foot and which would be managed in the “normal way”. This comment highlights the significance (in terms of access to justice arguments) of the existence of separate multi-party proceedings, differentiating this case from Lloyd v Google where there was no alternative right of recourse and a risk therefore that the claims would not be tried without the availability of a representative claim.
The judge also pointed to the multi-party proceedings as evidence that institutional investors have not been deterred from pursuing claims in this jurisdiction, despite the criticisms made of the traditional procedure. He acknowledged the position of retail investors was “a little different”, conceding he was originally concerned about depriving such investors of access to justice. However, he highlighted the fact that it had come to light that retail investors had not been allowed to participate in the multi-party action (something he described as discriminatory), concluding that this situation had therefore been “engineered by the funders”.
Mr Justice Green was firmly of the view that the courts could be trusted to manage “normal” multi-party proceedings in order to deal with the concerns raised by Wirral. He pointed to other securities actions currently working their way through the courts as examples of active, bespoke case management offering solutions such as split trials. He noted that arguments as to the merits of bifurcation and the postponement of claimant-side issues could be made to the relevant judge, who would then determine the appropriate procedure by weighing up all the arguments and taking competing interests into account as well as the appropriate use of the court’s resources.
The judge evidently also had concerns as to how the bifurcated process would operate beyond the initial declaratory stage, particularly how the follow-on claims would be managed and tried. While Wirral proposed four possible options (albeit on a high-level basis), the judge commented that it was surprising that there was apparently no clear strategy for taking the Representative Proceedings through to a full conclusion, ie the point of recovery for investors.
As to litigation burden and the practical consequence of bifurcation, Mr Justice Green echoed the concerns flagged by Indivior and Reckitt including the worry that, if it were predetermined that claimant-side issues were to be dealt with at the follow-on stage, there is the risk that:
- the proceedings would not be brought to a final conclusion expeditiously (due to lack of claimant engagement from an early stage and the court and parties having to start disclosure and witness evidence from scratch at the follow-on stage);
- settlement may be hampered (for the same reasons); and
- best evidence (on reliance) would be compromised (due to fading memories).
The judge was also sympathetic to Indivior and Reckitt’s objections regarding litigation burden, noting that the proposal essentially to structure things so as to enable claimants to avoid the costs and effort of preparing their claim was contrary to how litigation was normally conducted in this jurisdiction. In Mr Justice Green’s view, claimants should not be able to subscribe to litigation without any risk or cost and should be required properly to plead and particularise their cases from the beginning.
Conclusion
The judgment striking-out the Indivior and Reckitt representative actions will be read with keen interest by those involved in securities actions both on the claimant and defendant side, as well as litigation funders. It is worth bearing in mind however that the judge was keen to emphasise he was deciding this case only on its facts, and not the future of representative actions in the securities sphere more generally, and there were certain important facts that he was taking into account, such as the existence of the parallel multi-party claim.
That said, the judge’s indication that these claims should proceed by way of multi-party proceedings managed in the normal way seems to be a clear message that this is, for now, how the English court expects securities claims to be pursued.
What seems clear is that the court’s refusal to allow the Representative Proceedings to proceed was principally driven by the concern that it would strip the court of its power to case manage these sorts of proceedings, instead handing control of the case management of liability issues over to the claimants with little input from the defendants and the court and therefore depriving the courts of their prime function to use such powers to ensure that cases are dealt with justly and proportionately.
As to whether or not these concerns are warranted is clearly up for debate in circumstances where the claimants would not so much be controlling case management as seeking a bifurcated approach whereby the issues that are “common” would be heard first, followed by non-common/individual issues. It would be for the court, not the claimants, to manage which issues fell into which bucket and a judge could still intervene from a case management perspective should any concerns arise as to how the representative action was being conducted. That said, Mr Justice Green clearly had legitimate concerns over how the second stage would proceed to a potential damages award and the fact that this issue had not been dealt with in detail.
It remains to be seen whether the claimants will appeal the decision. It is also worth bearing in mind that other representative actions in securities claims are awaiting the hearing of strike-out applications. As such, this is unlikely to be the last word on representative actions in securities litigation in England and Wales so watch this space.
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