In June the Supreme Court refused Wirral Council’s application for permission to appeal the decision by the Court of Appeal upholding the strike-out of aspects of its securities claim against Indivior plc and Reckitt Benckiser Group plc. What consequences will this have, if any, for the future of securities group litigation in England and Wales?
The Supreme Court’s decision marks the conclusion of Wirral Council’s efforts to pursue a representative action under sections 90 and 90A/schedule 10A of the Financial Services and Markets Act 2000 (FSMA). The appeal itself stems from the first instance decision of Mr Justice Michael Green (as upheld by the Court of Appeal) to strike out Wirral Council’s claim in which it sought to adopt the role of a representative claimant on behalf of investors who had held, acquired or disposed of interests in Indivior and Reckitt from 2006 onwards.
Civil Procedure Rule 19.8 provides that where more than one person has the ‘same interest’ in a claim, a claim can be pursued by (or against) one or more of the persons who have the same interest ‘as representatives of any other persons who have that same interest’. The availability of the representative action procedure was famously brought to the fore in Lloyd v Google with Lord Leggatt’s extensive consideration of the history and availability of the representative action procedure. In Lloyd, although the claimant was ultimately unsuccessful, it was found that:
- A representative action for damages was possible where the represented class members have all suffered the same loss.
- In most cases, the compensatory principle will require that the damage suffered be assessed individually.
- Where an individual assessment of damages was required, the representative action could in theory be advanced by way of a bifurcated process involving a declaration on common issues with individual determinations as to damages addressed subsequently.
Relying on Lloyd, Wirral Council, as the administering authority for the Merseyside Pension Fund, commenced proceedings against Indivior and Reckitt under sections 90 and 90A/schedule 10A of the FSMA.
Pursuant to FSMA, issuers of securities are potentially liable to investors who have suffered loss as a result of misleading statements or dishonest omissions in certain ‘published information’ relating to the securities or a dishonest delay in publishing such information. Wirral Council’s case was that the facts and potential consequences of an alleged scheme between the defendants relating to the marketing of a particular drug (which was later the subject of a federal indictment by the US Department of Justice) was information that the defendants were required to disclose in published information. Further, that the defendants knew that disclosure of the information would cause huge damage to their market capitalisation, as happened on the day the US indictment became public.
Wirral Council brought its claim both by way of multi-party proceedings (which were stayed) and in parallel by way of representative proceedings. Per Lloyd, Wirral Council pursued a bifurcated process and sought declarations in respect of common issues, with issues relating to individual claimants (including as to standing, reliance, causation and quantum) to be dealt with at a later stage. The case represented the first time that a representative action was attempted for securities claims under sections 90 and 90A, and schedule 10A.
Upon an application by the defendants, Green J struck out the representative action, principally on the basis that the representative proceedings would oust the jurisdiction of the court to case manage the claims by preventing the court from dealing with or otherwise delaying a number of key aspects of the litigation.
The Court of Appeal upheld the judge’s exercise of his discretion. The Supreme Court has refused Wirral Council’s application for further leave to appeal.
Green J’s decision not to allow Wirral Council’s representative action to proceed was ultimately a subjective exercise of the court’s case management powers in circumstances where the court was particularly concerned at the dilution of the court’s ability to manage the claims, and the perceived unfairness that would be caused to the defendants by delaying the determination of certain issues.
In the end, Wirral Council was overly ambitious as to what the court would be prepared to determine on a declaratory basis and what could be delayed until a later stage.
It follows then that a more narrowly focused representative action, and one in particular that does not inadvertently circumscribe the court’s case management powers or create such a significant risk of unfairness between the parties, could be permitted to continue under CPR 19.8.
Further, the striking out of the representative proceedings in Wirral Council does not prevent Wirral Council’s claims from continuing and we can anticipate the stay on the multi-party proceedings being lifted. Indeed, in its judgment, the Court of Appeal expressly found that ‘the continued pursuit of these securities claims by way of the multi-party proceedings is not only feasible but is in accordance with the overriding objective’. It may well be that the existence of multi-party proceedings in Wirral Council had some bearing on Green J and the Court of Appeal, as a strike-out would not close all avenues for the claimants to achieve redress. To date, there have not been any contemplation by the court of CPR 19.8 proceedings where there have not been parallel multi-party cases running in securities litigation claims.
Ultimately, despite the potential consequences for claimants, the various decisions in Wirral Council are to be welcomed. Both the High Court and the Court of Appeal have provided undoubtedly helpful guidance to practitioners and claimants in how securities litigation claims are to be pursued.
Leigh Callaway is a partner at Fladgate LLP, London
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