A challenging outcome for passive Section 90A investors

Significance of judgment

This judgment concerns one of the key evidential hurdles for shareholders - the 'reliance test' - when bringing claims against UK-listed companies for misleading public information under section 90A / Schedule 10A of Financial Services and Markets Act 2000 ("FSMA").  

The Court determined that shareholders who have not directly reviewed the company's Published Information (Annual and Interim Reports, RNS releases) will not be able to meet that test.  This effectively rules out passive investors from the statutory remedy.  All passive investor whose cases in this claim rested exclusively on s90A/Schedule 10A, representing 60% (£332m) of the total value of the claim and 241 funds, have therefore had their cases disposed of summarily. 

The decision is likely to be appealed.  If upheld, it will likely have an adverse effect on the attractiveness and ease of bringing s90A FSMA cases for shareholders and third-party litigation funders alike.

Reliance under section 90A / Schedule 10A FSMA

The judgment concerns a shareholder class action brought by 460 institutional investors against Barclays Bank PLC under Section 90A and its replacement Schedule 10A FSMA. The statute provides investors-at-large with a route to holding UK public companies accountable, provided they can establish that their losses were suffered "in reliance" on misleading statements or omissions in the company's Published Information.

The practical meaning of reliance (direct, indirect or assumed?) is therefore a key question in these kind of cases, particularly given that a significant portion of the market is now represented by passive investors who track share price movements or indices. This category of investors were identified as 'Category C' claimants in this case. Categories A and B claimants consisted of investors who say they have read the Published Information directly, or through other sources like analyst reports, and were not the subject of Barclays' strike-out / summary judgment applications.

Inherently, Category C investors will not be able to establish any direct or active consideration of the Published Information.  Rather, passive investors' s90A / Schedule 10A FSMA cases can rest only on 'Price / Market reliance' type arguments prevalent in US shareholder litigation, where the market is assumed to be efficient at pricing in all available information on a company.  Should they be deprived of this statutory remedy?

The Court's decision and passive investors

The Court held that they should.  Following extensive review of the statutory background, the judge considered that Parliament must have intended to give the term "reliance" some content. The obvious test for Parliament to adopt was the common law test for inducement or reliance in the tort of deceit, where proof of liability requires a claimant to prove both reliance and causation as separate ingredients of the tort. 

The common law test for reliance requires a claimant to prove that: (i) they read or heard the representation; (ii) that they understood it in the sense which they allege was false; and (iii) that it caused them to act in a way which caused them loss.

Applying those same principles to Schedule 10A FSMA means that claimants cannot satisfy the reliance test if they did not read the Published Information containing the statements / omissions which they now claim to be misleading. 

This requirement also means that passive investors cannot rely on the 'presumption of inducement' alone to bring home their claims.  As decided in Autonomy (a case in which Simmons acted for one of the defendants), proof that the claimant had read the Published Information is a gating issue for that presumption (of fact) operating. 

Open question for misleading statements?

As Barclays' application related only to passive 'Category C' claimants, the judge felt it was unnecessary to decide if Hildyard J was right in Autonomy to require claimants to go further in the case of misleading statements.  Namely, not just proving that they relied on the Published Information as a whole, but on the specific statement alleged to be misleading or untrue.  Unless that determination is tested, that requirement remains a difficult issue even for active investors when substantiating investment decisions often taken many years ago.

Dishonest delay

Paragraph 5 Schedule 10A FSMA introduced liability for "dishonest delay" in publishing information, which does not require claimants to prove reliance (as there is no statement / publication on which to rely).  The Court clarified this cannot be used by claimants to get round the reliance test in misstatement or omission claims.  It was designed to address "the mischief" of an issuer taking advantage of information before the market is aware of it, then later publishing it accurately.  It does not apply where the issuer fails to publish the information accurately, or at all.

Conclusion

At present, it would appear that passive investors' claims are limited to the relatively narrow conditions of genuine dishonest delay claims or under the parallel prospectus liability regime under section 90 FSMA (which has a more challenging, negligence liability threshold).  

Post-script

After permission to appeal this decision was refused, this claim was settled in December 2024.

In March 2025 the High Court considered a further case concerning reliance claims under s.90A and Schedule 10A of the Financial Services and Markets Act 2000 ("FSMA"), from shareholders for allegedly misleading statements made in information published by listed companies. The court dismissed an application by the Defendant, SCB, for strike out or summary judgment in respect of common reliance claims similar to those in Allianz Funds Multi-Strategy Trust and ors v Barclays plc, casting doubt on the interpretation of reliance in that ruling that "price/market reliance" was not sufficient.

The judge noted that this is an evolving area of law where certain elements of the common law test are not fully established. Ultimately he concluded that such disputed legal questions should be deferred and resolved on the basis of actual facts established at trial and not on assumed or hypothetical facts, as for a summary judgment. It appears that passive investors' ability to participate in s.90A claims is yet to be conclusively decided.