High Court requires claimant investors to disclose their investment history to show their level of sophistication and appetite for risk

In a recent decision in the group litigation brought in respect of the Ingenious Media film partnerships the High Court has ruled that each claimant should provide disclosure in relation to their investment history, as this may be relevant to: (a) their financial sophistication and risk appetite, which may in turn inform the scope of the defendants’ duty of care in giving advice; and (b) whether or not the investments caused any loss as a result of allegedly misrepresenting the Ingenious schemes: Rowe and Ors v Ingenious Media and Ors [2020] EWHC 1731 (Ch).

The decision follows a recent CMC relating largely to disclosure issues under the Disclosure Pilot, and comes after the court awarded the defendants security for their costs against the claimants’ litigation funder (considered here).

This decision will be of interest to financial institutions and financial advisers as it demonstrates that the courts are willing to encourage disclosure of an investor’s investment history (both before and after the disputed investment(s) in question). The investment history can also include all actual and potential investments, whether or not they were made through the financial institution or financial adviser who is a party to the dispute. Such disclosure may be helpful to financial institutions and financial advisers when resisting mis-selling claims.

Background

The Ingenious Litigation concerns claims by over 500 individual claimant investors in relation to their investments in the Ingenious Media film partnerships. The claims are against various defendant companies and individuals associated with the Ingenious Media group. A large number of the claimants also claim against the financial institution which provided lending to facilitate the investments, and some of the claimants claim against their financial advisers in relation to the advice provided concerning the investments.

The defendants sought disclosure from the claimants of investments made and investment advice received during the period before and immediately after their investment in the Ingenious Media film partnerships. In relation to the claims against financial advisers, this disclosure was sought on the basis that (i) the claimants’ financial experience would inform the scope of the defendants’ duty of care, and (ii) the claimants’ investment history would shed light on their appetite for risk, which the defendants argued was relevant to causation.

The relevance of the claimants’ financial sophistication to the “advisory” claims was not disputed. The claimants volunteered to provide a schedule detailing their investment history (subject to a value threshold and date range). This schedule would be followed by limited disclosure of documents “sufficient to show” the nature of the investments and the degree of risk associated with them. The claimants stated that the schedule would not include potential investments on which advice was given but which were not made.

The defendants in the “non-advisory” claims argued that individuals’ investment history was also relevant to the issue of loss, given the defendants’ plea that the claimants would have sought to invest in similar tax-efficient schemes, had they not invested in the Ingenious Media film partnerships, which would also have failed. Given that the claimants agreed to provide the investment history schedule to the “non-advisory” defendants as well, this issue did not need to be decided. However, the claimants resisted providing the second stage (limited disclosure of “sufficient to show” documents) that had been volunteered in respect of the “advisory” claims.

Decision

The court held that two-stage disclosure should be given by each of the individual claimants on their investment history.

The court noted that the nature of the case that the defendants in the “advisory” claims were facing differed from the “non-advisory” claims. In the “advisory” claims, the central question was whether the Ingenious schemes were suitable for the claimants, and their general financial sophistication and appetite for risk could be relevant to that. However, the central claim against the “non-advisory” defendants was that they misrepresented the Ingenious schemes (whether on the basis of deceit, or negligent misrepresentation, or under the Misrepresentation Act, or as a claim for rescission). In the “non-advisory” claims, the court noted that it is far less apparent how a claimant’s appetite for risk or experience with other investments can affect the question of whether misrepresentations were made and relied on. The court did, however, accept that it should in principle be open to the defendants to show that a claimant would have invested in another scheme which would have failed, if they had not invested in the Ingenious Media film partnerships – and so disclosure of the claimants’ investment history would be relevant to that argument.

In any event, the court considered the claimants’ proposed first stage (disclosure of the schedule of investment history) to be a useful starting point, which would assist with future disclosure requests and the selection of claimants whose claims ultimately proceed to trial as “Test Claims”. The court underlined that it was not ordering the claimants to provide the schedule in any particular form (as it had been volunteered), but that the following was required in order for the schedule to suffice as an alternative to extended disclosure, which was to be provided to both the “advisory” and “non-advisory” defendants:

1. the date range for relevant investments should start 3 years prior to each individual claimant’s investment in the Ingenious Media film partnerships, as this is not significantly more onerous than the 2 year timeframe suggested by the claimants and will give a fuller picture. The end-date should be one year after the date of the investments in the Ingenious Media film partnerships, on the basis that most individuals’ degree of financial sophistication does not rapidly change, and subsequent investments may shed light on the claimants’ sophistication at an earlier date;
2. it would be sensible to have some value thresholds in relation to what investments are included in the schedule or not. Given the disparity between the various claimants’ investments in the Ingenious Media film partnerships, the court left it to the parties to have a sensible debate regarding what that threshold would be and, if no agreement could be reached, the defendants could ask the court for a ruling once the schedule has been provided; and
3. in addition to actual investments made by the claimants, the schedule should include specific potential investments involving tax planning schemes, on which the claimants took or received professional advice. The court referred to Castle Water Ltd v Thames Water Utilities [2020] EWHC 13744 TCC and noted that when understanding someone’s risk appetite and understanding of risks it was as important to know what they have rejected as what they have accepted.

The court also held that this should be followed by a second stage of disclosure of documents “sufficient to show” the nature of the investments and the degree of risk associated with them. He extended this second stage to the “non-advisory” claims on the basis that such disclosure was not unduly onerous.

The court also noted in relation to the “advisory” claims that it would be helpful for the schedule to show all investments in the relevant period whether or not made through the adviser who is a party to the dispute. This would provide a better snapshot of the claimants’ investment history.

Finally, the court noted the guidance provided by the court in McParland and Partners Ltd v Whitehead [2020] EWHC 298 (Ch) (considered here), in particular that the “watchword” of the Disclosure Pilot is that an order for extended disclosure must be “fair, proportionate and reasonable”. The court considered it to be relevant context that the burden of the disclosure that had already been agreed by the parties fell significantly heavier on some of the defendants (whose anticipated disclosure costs were close to £4 million) than it did on the claimants (whose disclosure costs were expected to be approximately £200,000), but stated that this should not be a determining factor when considering whether a particular issue requires extended disclosure. The claims in the Ingenious Litigation are thought to collectively exceed £200 million, and it follows that the similar disclosure exercises may not be considered to be proportionate in lower value cases.

Note: In May 2022, the case settled.