FSMA s90A: Limitation Periods

On 5 November 2021, Miles J rejected an application by RSA to strike out or summarily assess claims brought by institutional investors against it under FSMA Schedule 10A (formerly Section 90A) on the basis that the claims are time-barred. Miles J’s decision means that, pending any further arguments as to standing, RSA now faces trial against a 152-strong claimant group, made up of its current and former institutional investors.

Background

RSA faces a Sch 10A claim brought by a wide variety of institutional investors, ranging from actively managed funds to passive tracker funds. The original claim was launched on 08 November 2019 by 60 investors, with the remaining 92 bringing their claims in May and June 2021 (the New Claims).

By the claimant group’s own admission, 89% of the New Claims overlap entirely with 35 of the original claims and were launched to insulate the group from potential standing arguments, which are yet to be resolved. RSA applied to strike out or summarily assess the New Claims on the basis that they were time-barred.

Applicable limitation period

It was common ground that, in Sch 10A claims, the primary limitation period is postponed:

"until the plaintiff has discovered the fraud, concealment… or could with reasonable diligence have discovered it,

under Section 32(1) of the Limitation Act 1980. This applies because Sch 10A claims involve a finding that ‘Persons Discharging Managerial Responsibility’ knew that a company’s published information was misleading or dishonestly concealed or delayed material facts from that information

Naturally, that begs the question of when any given claimant can be said to have discovered the fraud/concealment ‘with reasonable diligence’. Tackling that issue involves a two stage analysis, which Miles J condensed from earlier authorities, including OT Computers Ltd v Infineon Technologies AG to:

“is there anything to put the claimant on notice of a need to investigate, and what would a reasonably diligent investigation then reveal? But the claimant has to act with reasonable diligence at both stages”.

Information about alleged wrongdoing by RSA staff started to emerge in November 2013 and reached a crescendo in June 2015, when a former employee claiming to be a ‘scapegoat’ made allegations against senior RSA executives during employment proceedings. The key issue for the application was whether the New Claimants, with reasonable diligence, could have discovered the alleged fraud by RSA’s senior executives from the early announcements, such that the New Claims (all issued more than 6 years after November 2013) were time-barred.

Defendant’s burden of proof

The judge reiterated that a summary hearing is “not a full (or even mini) trial”: the New Claimants needed only to show the s.32 postponement upon which they relied had a real prospect of succeeding at trial. The burden was on the Defendant, as the party bringing the strike-out/summary judgment application, to show that the New Claimants’ case lacked reality.

The decision

Miles J considered it appropriate to reject RSA’s application based on the following broad points, suggesting that the s.32 issues in this case were not suitable for summary determination:

• The reasonable diligence test must be considered “against the background of the actual knowledge and usual practices and processes of the claimant”. That kind of evidence (and determinations therefrom) is generally not suitable for a summary hearing.

• He stated: “it is to my mind not plain and obvious that all institutional investors, however different their businesses, fall to be lumped together. I think it realistically arguable that there are intrinsic and characteristic differences of position as between the various kinds of institutional fund”. There is a realistic case that the court should bear those differences in mind, including their nature of business, size of holding and the proportion of losses they suffered, when applying the reasonable diligence test.

• Where the issue to be determined – here, which claimant-characteristics the Court should take into account under s.32 – concerned a “developing and difficult legal question”, the judge agreed it is better for that issue to be determined at trial and not at a summary hearing.

In case he was wrong to reject the application on the broad principles above, Miles J also applied the two-stage analysis from OT Computers Ltd and rejected RSA’s application on that basis. He held that, even assuming the Claimants were aware of the 2013 announcements (which he accepted may not be the case, particularly for tracker funds), the Claimants had a realistic case that the 2013 announcements would not have triggered the s.32 discovery date as they:

• set out steps taken by RSA to investigate the allegations (including by an independent consulting firm); and
• stated that those investigations concluded that there had been significant wrongdoing by RSA’s subsidiary but not RSA itself.

Miles J agreed that the New Claimants had a realistic case that nothing in the announcements would have caused them to “suppose that there was a possible claim under s.90A against the Defendant” and/or of the need to investigate further. In response to RSA’s counter that a company’s denial of wrongdoing is not enough to negate adequate notice, Miles J stated:

“There is a factual difference between a mere denial of a possible claim by a private party and a considered market announcement by a regulated issuer of securities. There is also to my mind a potentially material difference between a mere denial and the announcement of the results of a careful investigation by an independent and reputable firm of accountants.”

Conclusion

This decision is a reminder that where limitation questions concern issues of fact, they generally will not be suitable for a summary hearing.

However, it also puts the conundrum that Sch10A defendants face in sharp focus. By the Claimants’ own admission, 89% of the New Claims were duplicative and tactical. Indeed, many appear to be brought by investors who may not have ‘discovered’ they had a potential Sch 10A claim but for a claimant law firm’s approach and who may struggle to satisfy the Sch 10A reliance test.

However, as Sch 10A claims are often fact-heavy and concern complex areas of developing law, the court’s ability to trim-down the claimant group size to something more manageable and realistic is limited, particularly without cooperation between the parties.