The English Court of Appeal has rejected the use of a bifurcated representative procedure to bring shareholder claims under section 90/90A and Schedule 10/10A Financial Services Act 2000 (FSMA) (full decision available here). As issued, the representative proceedings would have determined only common issues, with claimant specific issues needing to be dealt with by way of some sort of follow-on claims. The Court agreed with the judge at first instance, and 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 that the Court of Appeal has considered this issue in the context of mass shareholder claims brought under FSMA.
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. 10/10A FSMA for misleading statements or omissions in a Prospectus and/or their published information, as well as dishonest delays in publishing that information. The representative claimant purported 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.
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 [2021] UKSC 50, which, it said, expressly contemplated claims being brought in this way. The Defendants however successfully applied to strike out the representative action at first instance, with the judge agreeing that the use of such a procedure would have deprived the Court of its power to case manage the claim with the overriding objective in mind. For more detail on the first instance decision, please see our previous blog post.
The representative claimant was granted permission to appeal by the Court of Appeal, and the appeal was heard in December 2024.
What did the parties argue?
The representative claimant argued that the Judge at first instance had misapplied Lloyd, and other case law relevant to representative actions, in particular by: (i) suggesting that an inability to case manage ‘stage 2’ of the proceedings from the beginning of the claim was a bar to bifurcated representative actions; (ii) suggesting that the Court's case management powers would be “ousted” using a bifurcated representative action; and (iii) taking a hierarchical approach by limiting representative actions to cases where access to justice would not otherwise be available to a class of claimants. They presented the representative action as a form of claim available to the claimants as of right, which could only be stopped if there were some kind of “knock-out blow” that made the continuation of the representative action impossible or unjust. Moreover, the representative claimant asserted that the representative action was the only route to justice for smaller investors, whose claims the funder would allegedly not otherwise fund.
The Defendants argued in return that Lloyd made clear that a bifurcated approach may be beneficial in some cases, but not that it would be beneficial in every case. The Court has discretion to decide whether representative claims can proceed, taking into account the overriding objective, and it was not for the claimant to decide itself. In the case at hand, there were case management factors that made a representative action less appropriate. The Defendants disagreed that the authorities required any sort of knock-out blow to strike out representative actions, and argued that it was perfectly acceptable for the Court to decide which form of action would be most appropriate for this particular case. The High Court judge had clearly considered that, in the exercise of his discretion, the disadvantages of the representative action process outweighed the advantages. Reliance is also an important factor in these types of claims, and the claimant’s proposed approach would mean questions of reliance were not addressed until ‘stage 2’.
What did the Court decide?
The Court of Appeal upheld the lower Court’s decision, confirming the importance of issues of reliance in this type of claim and finding that “the effect of the representative proceedings is… to deprive the Court of its case management powers to strike out speculative unmeritorious claims, which is inimical to the overriding objective.” The Court objected to the one-sided nature of proceedings the representative action could create, noting that “there is no doubt that one of the objects of using the bifurcated representative procedure is to avoid the Court using its case management powers” to order the representative claimant “to advance some of the claimant-sided issues in parallel with the defendant-sided common issues.” Pursuing the alternative multi-party proceedings (which have been issued but not served as an alternative to the representative action) is “not only feasible but is in accordance with the overriding objective”.
The Court agreed with the Defendants’ submission that the alleged issues with access to justice for smaller investors had been “engineered by the funders” who had denied them the funding and opportunity to participate in the alternative multi-party proceedings. The fact that the institutional investors had brought a multi-party claim indicated that those investors (at least) were willing to bring a claim in the usual way and, if the retail investors joined the multi-party claim, the Court could manage the proceedings in a way that only required them to take steps in the litigation that were proportionate to the values of their claims.
About
Freshfields partners Sarah Parkes and Emma Probyn (alongside associates Anoushka Nightingale and Maisie Stewart, and trainee Phoebe Campbell) act for Indivior PLC, one of the respondents in these claims, instructing Conall Patton KC of One Essex Court.
