The English High Court has rejected the use of a bifurcated representative procedure to bring shareholder claims under section 90/90A and Schedule 10A Financial Services Act 2000 (FSMA) (full decision available here). As issued, the representative proceedings would have determined only common issues (such as whether there had been misleading statements in the defendants’ published information), with claimant specific issues needing to be dealt with by way of some sort of follow on claims. The Judge considered that, in the circumstances of these cases, the use of such a procedure would deprive the Court’s power to case manage the claims, and it was not necessary to ensure access to justice for investors. This is the first time the Court has considered the use of this procedure in the context of shareholder claims.
Background to the claims
In September 2022, representative actions were brought against Indivior plc and Reckitt Benckiser Group plc (the Defendants), in which the representative claimant alleged that the Defendants were liable under s.90/90A and Sch. 10A FSMA for misleading statements or omissions in a Prospectus and/or their published information. The representative claimant sought to issue the claims on behalf of all investors who acquired, held or disposed of shares in the Defendants during a particular period and who had “opted in” to the actions by subscribing to costs sharing and governance arrangements with the representative claimant. The representative actions were in effect bifurcated, in that they only pleaded to “defendant-side issues” (such as the nature of the statements and knowledge), with “claimant-side issues” such as standing, reliance, causation and loss stood over to be dealt with in subsequent proceedings.
What did the parties argue?
The representative claimant argued that it was entitled to bring the proceedings by way of the bifurcated representative action procedure as of right, and therefore did not need to justify its choice of procedure. In doing so, it sought to rely on the Supreme Court’s decision in Lloyd v Google LLC [2022] AC 1217, which, it said, expressly contemplated claims being brought in this way. The Defendants, however, argued that the representative actions procedure had been used in the present proceedings with a view to depriving the Court of its ability to case manage the claims – it was not the case that the proceedings could not otherwise be pursued – and that, in those circumstances, the Court should exercise its discretion to strike out the representative actions.
What did the Court decide?
While the Judge recognised that the Supreme Court in Lloyd v Google had advocated for greater use of representative actions, he did not think that the Supreme Court “was suggesting that claimants should be able to bring representative actions in order to bifurcate and thereby avoid what they would otherwise be required to do if they had brought ordinary multi-party claims”, which he thought was the “sole purpose and stated advantage” put forward by the representative claimant.
In exercising his discretion in these particular cases, the Judge did not consider the investors’ (and their funders’) desires not to incur the risk and costs of pursuing ordinary multi-party proceedings to be “a legitimate basis for depriving the Court of its power to case manage such claims”. Rather, he considered that the existence of a multi-party claim issued by (largely) the same claimants in these cases “show[ed] that institutional investors ha[d] not been deterred from pursuing their claims” in the ordinary way. Although the position of retail investors was potentially different because they had not brought separate multi-party proceedings, the Judge considered that this situation had been “engineered by the funders” who had denied them the funding and opportunity to participate in the multi-party proceedings “without any adequate and coherent explanation”. Further, the RBS Rights Issue Litigation and the Lloyds/HBOS Group Litigation demonstrated that retail investors had been able to bring claims under the ordinary procedural mechanism and had access to justice in similar shareholder claims.
On the basis of the above, the Judge concluded that, in the circumstances of these cases, his discretion should be exercised to strike out the representative actions.
About
Freshfields partners Sarah Parkes and Emma Probyn (alongside associate Anoushka Nightingale and trainee solicitor Juliet Leung) act for Indivior plc, one of the applicants in these claims, instructing Conall Patton KC of One Essex Court.
