Section 90A FSMA claims: recent decisions

2021 has seen three important judgments relevant to the conduct of claims under Section 90A of the Financial Services and Markets Act and its 2010 replacement, Schedule 10A.  All three highlight the challenges claimant groups face in bringing these claims, and in particular the fact that individual claimants must be ready to take part in them fully. 

This article is the latest in our series looking at s90A FSMA claims. See the earlier articles here.

G4S plc

This case illustrates the practical challenges of building and organising a s90A group action. In July 2019, on the eve of the limitation period's expiry, a group of institutional investors issued a s90A claim against G4S. Relying on CPR 17.1, the claimants unilaterally amended the list of claimants in the claim form six times before it was served in April 2020.

G4S was successful in its application to strike out all claimants added to the claim form after it was issued on the basis that CPR 17.1 only enabled existing claimants to change their claims and not to introduce entirely new claims. It is likely that those struck-out claimants will be precluded from the action as they cannot satisfy the test in CPR 19.5 for adding time-barred claimants of it being "necessary for the determination of the original action".

The judge also prevented the claimant group from correcting certain 'mistakenly' named claimants included in the claim form because those 'mistakes' were errors as to identity not name and would have left G4S in reasonable doubt as to who was meant to be the suing party.

Overall, about 90% of the claim value has been wiped out from the group action as a result of these strike-outs. Absent a successful appeal, it is unlikely to be commercially viable to proceed with the action.

The G4S claimant group's problems manifested because they waited until the eve of the limitation period to issue. There may be good reasons for a claimant group to delay issuing, such as to maximise the time available to build and refine the group or to wait for a regulatory action to conclude. Indeed, the crystallisation of those sorts of issues may even be pre-conditions for third party funding. However, the Court is unlikely to sympathise with those kinds of practicalities, however real, as excuses for mistakes. In these circumstances, efforts may be better spent ensuring that there is certainty as to the corporate identities of a smaller group, rather than chasing a higher number.  The G4S judgment is here.

RSA Insurance Group plc

In this s90A group action, the parties agreed that there should be a split trial but disagreed as to how the split should work. The claimant group (made up of c.60 institutional investors) argued that all issues concerning RSA's conduct and knowledge and that of its directors/officers (its 'PDMRs') should be resolved first, with claimant-specific issues of standing, reliance, causation and quantum to be decided later. RSA argued that the court should also determine reliance, i.e. whether the claimants reasonably relied on RSA's published information, in the first trial.

The judge agreed with RSA. While he recognised that splitting the trial into defendant- and claimant-issues would be tidy, he preferred more rather than fewer issues to be tried at the first trial, as it allows for:-

• a more efficient appeal process, should that be necessary;
• a faster hearing and determination of factual evidence/issues, which the judge thought included reliance (and which was particularly necessary as the claimants had chosen to bring the case late in the limitation period); and
• a fairer allocation of the litigation burden as between the parties. While this issue is not determinative itself, the judge thought it did not seem fair for the claimants - having brought the action - to be able to postpone their burden until a later stage.

This is a helpful decision for s90A defendants. One can easily foresee the kind of litigation tactics that may arise if claimants could defer reliance - the key challenge they face in bringing s90A claims - until after defendants have undertaken their (generally considerable) work on conduct and knowledge. A fair balance of work and expense must be conducive to the bringing of meritorious claims and their speedy resolution. The RSA judgment is here.

Leeds City Council v Barclays

Although Leeds City Council is not a s90A case, it may have a bearing on what s90A claimants need to show to prove reliance. The judge held that, in order to prove reliance, claimants have to demonstrate that, at the time of the transaction, they were aware of the representations in the sense of their being actively present in their minds in the manner now pleaded. As the claimants had not demonstrated this, their claims were struck out.

If Leeds City Council is read across to s90A claims, each s90A claimant would have to show that they read a defendant's published information and understood a statement, or the absence of one, as representing the state of affairs they now say they relied upon. That may be difficult to prove for many investors, particularly tracker funds.

Some have suggested that, as this awareness requirement would defeat the statutory purpose of s90A (facilitating market transparency and greater investor protection), a departure from this decision is justified. However, arguably, Leeds City Council is not so different to what the (albeit limited) s90A authorities suggest is required to prove reliance. In an interim judgment in Tesco ([2017] EWHC 3296 (Ch)), Hildyard J said:

"what is required [for reliance] is for there to be some description... [that] sufficiently identifies the particular statements or omission on which each claimant relied...why they took the statements to extend to [the matter] they have suggested, and how that impacted on their process of investment."

As with many other aspects of s90A, we will have to wait for a s90A case to get to trial before there is a clear answer to the requisite degree of reliance.  

Still, this case highlights the RSA judgment's good sense: there is little point in the court determining defendant-specific issues if, due to weaknesses in the claimants' reliance case, the claim won't succeed in any event. The Leeds City Council judgment is here.