High Court strikes out innovative attempt to bring securities litigation class action

Lorraine Lanceley and Elaina Bailes of Stewarts look at a recent judgment of the Commercial Court with implications for financial litigators representing claimants and defendants 

Representative actions in securities litigation will remain a hot topic despite High Court ruling Shutterstock

The High Court has handed down the first ever judgment on whether a representative action under the Civil Procedure Rules (CPR) 19.8 can be used in UK securities claims, ruling that the claimant’s representative actions be struck-out. Instead, the court said any claims should be pursued as ordinary proceedings with the investors acting as multi-party claimants.

Historically, claims under sections 90 and 90A and schedule 10A of the Financial Services Market Act 2000 (FSMA) have been brought by shareholders as multi-party claims: each claimant issues its own claim against the defendant PLC (and sometimes its directors).

In the absence of a class action regime in England and Wales, there is no obvious alternative procedure to bring such claims.

Due to the logistical and economic efficiencies of running claims in tandem, these group actions have attracted investment from litigation funders. The courts have therefore applied various case management tools using existing rules in the English CPR to allow claims against the same defendant to be managed together.

Parties often also seek a ‘split trial’, where common issues such as liability and claimant standing are determined at a first trial and damages are parked until a second trial.

Claimants in securities actions had not previously attempted to use the procedure under CPR 19.8, which allows ‘representative actions’ to be brought by one claimant as a representative of other parties with the same interest in the claim. Precedent suggested that CPR 19.8 could not be used if the remedy claimed included damages, which would need to be determined separately for each claimant as personal relief.

However, following the Supreme Court decision in Lloyd v Google in 2021, it has been accepted that the procedure could be used where damages are claimed as the remedy. Claimants have seized on the potential to use the 19.8 representative action procedure in a securities context.

Wirral Council, acting as administering authority of Merseyside Pension Fund, brought proceedings against Indivior and Reckitt Benckiser Group, both PLC’s, pursuant to sections 90 and 90A and schedule 10A of FSMA. Wirral Council acted as representative of classes of claimants who acquired, continued to hold or disposed of securities in the defendants during the relevant period. Parallel multi-party group actions were also initiated in the usual way.  

Wirral Council argued there were material advantages to bringing a representative action for claimants, including to enable claimants to avoid the front-loading of costs on ‘claimant specific’ issues. The representative would seek declaratory relief on ‘common issues’ only (i.e. those issues relating to the defendants) at the first trial – essentially shifting the burden to the defendants – and the ‘claimant specific’ issues would be dealt with at the ‘follow-on’ stage.  

Indivior and Reckitt had asked the court to exercise its discretion to strike-out the representative proceedings, arguing they were not the appropriate procedure and the claims ought properly to be brought by way of ordinary multi-party proceedings.  

The court struck-out Wirral Council’s claims, primarily out of concern that they would allow the claimants to control case management of liability issues with little input from the defendants and the court. The judge stressed the court’s primary function is to use its case management powers to manage cases justly and proportionately, and that the claimants’ proposals could strip the court of this power.

The judgment will receive keen interest from all involved in securities actions including litigation funders. The judge was at pains to emphasise the case decision rested on its facts, not the future of representative actions in the securities sphere more generally, and that he took into account other factors such as the existence of a parallel group claim.

The judge’s indication that the claims should proceed by way of multi-party proceedings, managed in the normal way, is a clear message that this how the English court expects securities claims to be pursued, at least for now. There are a number of live cases proceeding in the English courts and it seems likely that a body of case management custom will evolve to the needs of each set of proceedings.

Wirral Council may appeal the decision and there are other CPR 19.8 claims awaiting the hearing of strike-out applications, so this is unlikely to be the last word on representative actions in securities litigation in England and Wales.

Lorraine Lanceley and Elaina Bailes are partners at Stewarts specialising in commercial and securities litigation.

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