High Court clarifies meaning of "PDMR" in s.90A FSMA claims

The High Court has clarified what is meant by "person discharging managerial responsibilities" (PDMR) in the context of Section 90A and Schedule 10A of the Financial Services and Markets Act 2000 (FSMA), a key element of the test for statutory liability for statements made by UK listed companies in periodic publications: Various Investors v G4S Limited (formerly known as G4S plc) [2022] EWHC 1081 (Ch).

The statutory regime

Pursuant to Schedule 10A FSMA, paragraph 3(1), an issuer will be liable to pay compensation to a person who acquires, continues to hold or disposes of securities in reliance upon published information and suffers loss as a result of any untrue or misleading statement in (or omission of a "matter required to be included" from) that published information. An issuer will also be liable to pay compensation to a person who acquires, continues to hold or disposes of the securities and suffers loss in respect of the securities as a result of delay by the issuer in publishing information (paragraph 5(1)).

An issuer will only, however, be liable in the following circumstances:

• in respect of an untrue or misleading statement, if a PDMR within the issuer knew the statement to be untrue or misleading or was reckless as to whether it was untrue or misleading (paragraph 3(2));
• in respect of omissions, if a PDMR within the issuer knew the omission to be a dishonest concealment of a material fact (paragraph 3(3)); and
• in respect of delays, if a PDMR within the issuer acted dishonestly in delaying the publication of the information (paragraph 5(2)).

Paragraph 8(5) defines PDMR for the purposes of Schedule 10A as follows:

1. any director of the issuer (or person occupying the position of director, by whatever name called);
2. in the case of an issuer whose affairs are managed by its members, any member of the issuer;
3. in the case of an issuer that has no persons within paragraph (a) or (b), any senior executive of the issuer having responsibilities in relation to the information in question or its publication.

The meaning of "director"

In the case of G4S, which is a company with directors, it was common ground that the relevant paragraph was 8(5)(a), and that only directors of G4S would constitute PDMRs. However, the parties differed in relation to what was meant by "director".

The claimants contended that terms such as "director" take colour from their context and that the term should be interpreted broadly for the purposes of paragraph 8(5)(a). They highlighted the use of the term PDMR in EU market abuse legislation, and the broader definition that applies there:

"…a person within an issuer…who is (a) a member of the administrative, management or supervisory body of that entity; or (b) a senior executive who is not a member of the bodies referred to in point (a), who has regular access to inside information relating directly or indirectly to that entity and power to take managerial decisions affecting the future developments and business prospects of that entity".

The claimants suggested that the term "director" in paragraph 8(5)(a) ought to be interpreted so as to align the Schedule 10A definition with the market abuse definition, extending the concept of "director" beyond the three currently recognised categories in English law (i.e. de jure, de facto and shadow directors), to also include "senior executives with control over substantial business units, or who were responsible for managerial decisions affecting the future developments and business prospects of the issuer and/or those business units".

By way of contrast, the defendant contended that the statutory definition of PDMR in Schedule 10A was clear and unambiguous. The term “director” is well-known and established in UK law. The drafter used recognised concepts of domestic company law and there is no reason to adopt another meaning.

The court rejected the claimants' argument, holding that Schedule 10A clearly stipulates that where an issuer has directors the PDMRs are the directors (including persons occupying the position of director, by whatever name called), and that the term "director" in that context should be given its usual, well-established legal meaning.

De facto directors

For the purposes of this application, the defendant did not contest the claimants' position that a de facto director might constitute a PDMR for the purposes of paragraph 8(5)(a). The defendant did, however, contest that, if de facto directors can be PDMRs for the purposes of paragraph 8(5)(a), this had been properly pleaded by the claimants. Mr Justice Miles held that the claimants had pleaded that the individuals they alleged to be PDMRs were de facto directors of G4S. However, he encouraged the claimants to do so more fully, holding that "it is to my mind undesirable for the pleadings to be left in their somewhat ambiguous and uncertain state."