Since 2016, Stewarts has been acting on behalf of a group of institutional investors who have asserted claims against Tesco PLC (Tesco). These claims are in connection with the well-documented financial reporting scandal that came to light on 22 September 2014 when Tesco’s senior management announced that it had identified an overstatement of its expected profit for the half-year of 2014/15 to the tune of around £250m.

The profit overstatement was said to arise principally due to the accelerated recognition of “commercial income” and delayed accrual of costs. Commercial income can be described, in summary, as volume-related allowances, promotional and marketing allowances, and other fees and discounts paid to Tesco by the companies from which it purchased goods for resale (ie its suppliers). In other words, it is income that is not derived directly from the like-for-like sales of Tesco groceries.


The cause of action

The claims against Tesco have been brought in the Financial List of the High Court (Business and Property Courts) pursuant to section 90A (and its accompanying schedule, Schedule 10A) of the Financial Services and Markets Act, 2000 (FSMA). This statute is untested before the UK courts and this is one of the first claims of its kind to be brought in the UK.

The essential components to this statutory cause of action are as follows:

  1. The issuer (Tesco) must have published information to the market which is deemed to include untrue or misleading statements or which omits any matter required to be included in it.
  2. In respect of any untrue or misleading statement, the issuer will only be liable if a “person discharging managerial responsibility” or “PDMR” (within the meaning of Schedule 10A FSMA) knew, or was reckless as to whether, the statement was untrue or misleading. Similarly, the issuer will be liable in respect of any omission, if a PDMR knew such omission to be a dishonest concealment of a material fact.
  3. A person in respect of whom the issuer may be liable (a shareholder claimant) must have acquired, continued to hold or disposed of the relevant securities in reliance on the published information (containing the untrue statements or omissions), and thereby suffered loss as a result.

In relation to 3 above, it is worth pointing out that the requirement to prove reliance is the key distinction between a claim under s.90A FSMA as compared with s.90 FSMA (eg the recent RBS rights issue litigation, in which Stewarts represented one of the principal claimant groups).


Background facts

Tesco has publicly admitted that it was guilty of two general types of wrongful practices prior to 22 September 2014:

  • Wrongful behaviour in respect of its suppliers (resulting in an investigation by the Groceries Code Adjudicator, which produced a report published on 26 January 2016); and
  • Deliberate manipulation of Tesco’s financial reporting and accounting of commercial income in order to fill a growing gap in its profits and profit margins. Tesco has also admitted that individuals within Tesco are likely to have deliberately misled its auditors.

The above provides the basis for the allegations advanced by the claimants that the financial information published by Tesco during the claim period was untrue or misleading within the meaning of s.90A and Schedule 10A FSMA.


The pleaded issues

Bearing in mind the essential components of the statutory cause of action set out above, it is alleged by the claimants that:

  • Six pieces of information published by Tesco between 17 April 2013 and 22 September 2014 contained untrue or misleading statements and/or omitted matters that were required to have been included in connection with the wrongful conduct identified above, namely:

    • Tesco concealed the nature, magnitude and impact of its financial reporting of commercial income;
    • Tesco wrongfully manipulated its financial reporting in relation to commercial income; and
    • Tesco failed to disclose to the market that it was in deliberate breach of the Groceries Supply Code of Practice.
  • The untrue or misleading statements and/or omissions were within the knowledge of PDMRs within Tesco.

    • However, one key legal question to be determined by the court is how widely the definition of PDMR can be construed? For example, paragraph 8(5)(a) of Schedule 10A FSMA refers to a PDMR being “any director of the issuer (or person occupying the position of director, by whatever name called”.
    • Therefore, when concerned with a company such as Tesco, which employs several layers of senior management, it remains to be seen how the PDMR knowledge test in Schedule 10A FSMA will be interpreted and applied.
  • Reliance was placed on the untrue or misleading statements and/or omissions made by Tesco in its published information and the claimants suffered loss on account of such reliance.

    • The claimants’ total pleaded losses amount to approximately £450m.
    • The correct test for reliance is another key element of the cause of action that will need to be determined by the court. For example, paragraph 3(4) of Schedule 10A FSMA states that the claimant must have relied on the information published by the issuer but also in circumstances where it was “reasonable” for it to do so. This aspect of the statute will also require some legal interpretation.
    • In addition, the court will have to consider the correct “counterfactual” for the purpose of assessing reliance and whether the presumption of inducement applies (as it ordinarily would in the case of a fraudulent misrepresentation having been made).
    • However, the question of whether market-based reliance or the “fraud on the market” theory constitutes good reliance for the purpose of Schedule 10A FSMA is not in issue in these proceedings.   

In summary, Tesco’s response to the claimants’ case is that:

  • Five of the six pieces of published information were not untrue or misleading because the admitted overstatements of profit were not “material” and therefore those pieces of published information were free from material misstatement which could have influenced decisions by users of Tesco’s accounts.
  • In relation to knowledge, Tesco has accepted that certain of the untrue or misleading statements contained in the published information relied on by the claimants were matters within the knowledge of some (but not all) individuals who the claimants contend were PDMRs. However, Tesco denies that these individuals were, in fact, PDMRs within the meaning of Schedule 10A FSMA.
  • Regarding reliance, Tesco is yet to plead in detail its response as to whether each of the claimants relied on the published information alleged to be untrue or misleading.

In the event that liability is established under s. 90A and Schedule 10A FSMA, the court will also need to establish the correct legal measure of damages to be calculated.

The criminal proceedings against Tesco

Shortly after Tesco’s wrongful conduct came to light, a criminal investigation was launched by the Serious Fraud Office (SFO) into the accounting practices at Tesco described above.

This investigation culminated in a Deferred Prosecution Agreement (DPA) being entered into on 10 April 2017 by Tesco’s UK subsidiary, Tesco Stores Limited (TSL), and the SFO. The terms of the DPA required TSL to pay a financial penalty of £129m to the SFO in order to avoid criminal prosecution. An agreed Statement of Facts accompanied the DPA, both of which can be found here (

The SFO, during the course of its investigation into Tesco’s accounting practices, decided to charge three former TSL executives, Christopher Bush, Carl Rogberg and John Scouler with counts of fraud (by abuse of position) and false accounting. These charges resulted in two criminal trials taking place at Southwark Crown Court. The first trial was abandoned in February 2018 due to the ill health of Mr Rogberg. The subsequent retrial began in October 2018 against Mr Bush and Mr Scouler (but not Mr Rogberg).

Part way through the criminal retrial, the judge presiding, Sir John Royce, ruled that the SFO had failed to establish a case to answer. Consequently, Messrs Bush and Scouler were acquitted of the charges filed against them. Mr Rogberg was also subsequently acquitted.  

Despite the overlap in general subject matter between the criminal and civil proceedings, there are key distinctions between the two. By way of example:

  • There is a different burden of proof:

    • For the purpose of the s.90A FSMA civil proceedings, the claimants are required to prove, on the balance of probability that: (1) Tesco’s published information was untrue or misleading; (2) Tesco’s PDMRs knew (or were reckless) as to this; and (3) they relied on Tesco’s published information and suffered loss as a result.
    • In the criminal proceedings, the SFO was required to prove the criminal defendants’ guilt beyond all reasonable doubt.
  • The criminal case and civil case are focused on proving different – and in some respects – contradictory things:

    • The SFO in the criminal case had to prove that the criminal defendants were aware that Tesco’s accounts were fraudulent and that they concealed this fact dishonestly and with the intention of making personal gain.
    • This is in contrast with the civil case which is concerned with proving the wide-spread knowledge (but most essentially of PDMRs) that the published information was misleading.
  • The civil proceedings focus on a wider time period and fact-pattern than the criminal proceedings.

For these reasons, amongst others, the outcome of the criminal proceedings has relatively little impact on the civil proceedings brought under s.90A FSMA.  


Current status of the civil proceedings

There have already been three case management conferences and the parties are currently engaged with disclosure issues.

The claimants’ disclosure and witness statements evidencing reliance have been produced and served. Tesco’s witness statements are due to be served later this year, as are the parties’ expert reports.

The trial is listed to take place in June 2020 for 44 days before Mr Justice Hildyard.


For any further information or enquiries in relation to the Tesco case or s.90A and Schedule 10A FSMA, please contact Sean Upson or Zachary Sananes.



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