High Court strikes out novel bid to bring securities class action using CPR 19.8 representative action as “opt-in” procedure

The High Court has refused to allow a securities class action to proceed as a representative action under CPR 19.8, finding that any claims should be pursued as ordinary multi-party proceedings with the investors as claimants: Wirral Council v Indivior PLC [2023] EWHC 3114 (Comm).

CPR 19.8 allows a claim to be brought by (or against) a party as representative of any other persons with the “same interest” in the claim. It is ordinarily seen as an “opt-out” procedure, as there is no requirement to identify the represented parties or join them to the action but any judgment will be binding on them. In this case, unusually, the representative claimant sought to use CPR 19.8 as an “opt-in” procedure on behalf of investors who agreed to funding arrangements and were identified to the defendants. More specifically, it wished to adopt the “bifurcated process” envisaged by Lord Leggatt in the Supreme Court’s landmark decision in Lloyd v Google [2021] UKSC 50 (considered in our blog post here), which allows a representative action to proceed in order to decide issues that are truly common to the represented class, leaving any individual issues to be dealt with later.

Accordingly, the claim sought declarations on “defendant-side” issues only, such as whether the defendants had published untrue or misleading statements to the market, and did not include “claimant-side” issues such as standing to sue, reliance, causation and quantum. In fact, that was the advantage of the procedure, so far as the representative claimant and the investors were concerned: if allowed to proceed, the burden would fall squarely on the defendants to deal with defendant-side issues, and the investors could avoid spending time and money developing their case on the claimant-side issues until the later stage.

The court, however, rejected the claimants’ attempt to tie its hands in that way. The question of how to manage the claims, including which issues should be progressed at which stage, was for the judge managing the claims to consider by reference to the court’s overriding objective of dealing with cases justly and at proportionate cost. It would be unfair and unjust, and contrary to the overriding objective, to allow the representative proceedings to oust the court’s jurisdiction to case manage the claims from the start.

This decision is good news for defendants as it suggests claimants will not be permitted to use the CPR 19.8 representative action procedure to gain tactical advantages as to how a securities class action (or other action) will be managed, and in particular to place the whole burden on the defendant for the initial stage. The proper split of issues, and how the burdens of the litigation should be shared between the parties, will in every case be for the court to consider in exercising its case management powers.

Background

Wirral Council, as administering authority of Merseyside Pension Fund, issued representative proceedings under CPR 19.8, in effect seeking to use that mechanism to bring a securities class actions against the defendants pursuant to ss.90 and 90A and Schedule 10A of the Financial Services and Markets Act 2000 (FSMA). The claims related to an alleged scheme for the fraudulent marketing of its opioid addiction drug “Suboxone”, in order to switch the market from a version that was losing patent protection to an alternative version that would be less susceptible to generic competition, which had led to a federal indictment brought against the defendants by the US Department of Justice.

The claimant alleged that the defendants’ failure to disclose information about the scheme meant that its published information had (for the purposes of s.90A) contained untrue or misleading statements relating to the securities, and/or dishonest omissions of information that should have been disclosed, to the knowledge of persons discharging managerial responsibility (PDMRs) within the defendants. In relation to one of the defendants, there was also a claim for prospectus liability under s.90 based on essentially the same facts.

The claimant sought to try the above issues, the so-called “defendant-side issues”, which were not dependent on any facts particular to any individual investor, using the representative action procedure. Accordingly, the claim sought declarations as to the existence of untrue or misleading statements or dishonest omissions, and as to PDMR knowledge/dishonesty. It did not include as part of the representative proceedings any “claimant-side issues”, such as standing to sue, reliance, causation and quantum.

The proceedings were brought on an “opt-in” basis, because the represented class of investors was defined to include only those who signed up to a costs sharing and governance agreement and whose identities were made known to the defendants’ solicitors by a specified date.

The defendants applied to strike out the representative proceedings, or for an order that Wirral could not act as a representative claimant for the investors as represented persons. They argued that representative proceedings were not the appropriate procedure for the claims, and that they should be brought in the usual way as multi-party proceedings with the investors as claimants.

In fact, multi-party claim forms had been issued against both defendants by most of the institutional investors who were included in the CPR 19.8 action, alleging the same causes of action under FSMA. Those proceedings were stayed pending resolution of the applications. The multi-party proceedings did not, however, include the retail investors who were included in the representative action, as the litigation funders backing both sets of proceedings would not agree to fund them for the multi-party action.

Decision

The High Court (Mr Justice Michael Green) granted the defendants’ applications and struck out the proceedings.

The management of securities claims

The judge started by looking at how securities claims under s.90A and Schedule 10A FSMA have to date been managed by the court, noting that the case management issues that commonly arise include: (i) whether there should be a split trial: (ii) if so, what split; and (iii) whether and to what extent progress should be made on the deferred issues in the meantime, eg by requiring the provision of further information, disclosure or witness evidence.

He referred to a number of cases in which there was to be a split trial but, before the first trial, the claimants had been ordered to take material steps in relation to issues that were to be dealt with at the second trial, such as claimant sampling on the issue of reliance, disclosure from sample claimants and clarification of individual cases. He referred to the decision of Falk J in Various Claimants v G4S Ltd [2022] EWHC 1742 (Ch), in which she emphasised that some progression of the claimants’ case was needed to facilitate settlement discussions, reduce the gap between trials and “try to ensure an appropriate balance and fairness in the burden between the parties”.

Lloyd v Google and the bifurcated process

Michael Green J noted that the “same interest” threshold requirement had been met in the present case and therefore the claimant had been entitled to bring the representative action under CPR 19.8, but the court nonetheless had a discretion whether to allow the proceedings to continue. This was clear from Lord Leggatt’s decision in Lloyd v Google. There was no presumption in favour of the representative action.

Similarly, while Lord Leggatt’s comments in Lloyd v Google suggested that a bifurcated procedure using CPR 19.8 could be appropriate in some cases, the claimant in that case was not seeking bifurcation and so the comments were obiter (though deserving of the highest respect). The represented class in Lloyd v Google was estimated to be more than four million people, and it was clear that the only way the claim could realistically be brought was by an “opt-out” representative action. It was in that context that Lord Leggatt commented, “it is better to go as far as possible towards justice than to deny it altogether”.

Michael Green J noted that, in Lloyd v Google, the Supreme Court was “advocating for greater use of the representative action, principally where it would provide access to justice that would not otherwise be available to that class of claimants”. Lord Leggatt dealt in passing with bifurcation as a potential solution where individual damages claims could not be tried in the representative action, but did not explain how bifurcation would work in practice and made it clear each case would need to be decided by reference to the overriding objective.

The court’s exercise of discretion

Michael Green J said he was not deciding, in these applications, how securities claims in general should be brought. He was deciding how the court’s discretion should be exercised in the particular claims in question.

While Lloyd v Google might be seen as encouraging the use of representative actions, the judge did not think Lord Leggatt would have contemplated that his judgment would be used to oust the court’s ability to case manage these sorts of claims from the start. Bifurcation was not intended as the reason for using a representative action in the first place. It could be used to enable a representative action to proceed, particularly where it was necessary to provide access to justice for those whose proceedings could not otherwise be brought (though that was not to say claimants would necessarily have to show they could not bring the claims in any other way) – eg where there was a very large number of claimants with claims that were too small to bring individually.

Here, the representative proceedings could not be looked at in isolation. The claims had to be looked at as effectively one set of proceedings all the way through to the potential recovery of compensation for the represented investors, since that was the only point of the action. To say that the court need only consider how the issues raised in the CPR 19.8 claim should be tried would be “shutting one’s eyes to reality”.

The judge commented that the claimant’s position seemed “quite extraordinary”. The case law showed how judges in these cases carefully balanced all the competing interests in deciding how the cases should be managed, including what split was appropriate and to what extent the issues for the later stage should be progressed before the first trial. The claimant’s position, in contrast, was that the investors should be able to decide, unilaterally, to bifurcate the proceedings as they like. Lloyd v Google did not give them that entitlement, and the court could not further the overriding objective by depriving itself of the ability to apply the overriding objective in case managing the claims.

Further, the existence of the multi-party proceedings that had been issued in parallel showed that institutional investors had not been deterred from pursuing their claims by the way that securities cases are managed in this jurisdiction. While they might prefer not to incur cost and effort preparing their cases until after the first trial, that was contrary to how litigation is normally conducted in this jurisdiction and would mean the proceedings would not be concluded expeditiously. As the case law made clear, “claimants must properly plead and particularise their cases from the beginning and it should not be as simple as subscribing to litigation without any risk or cost being incurred”. Although the position of retail investors was different, the court did not accept that they could only seek redress through the representative proceedings, even if the current funders would not support their claims in the multi-party proceedings. There was no evidence that they would not be able to obtain their own funding and issue their own proceedings, which could then be consolidated or at least managed together with the multi-party proceedings.

Accordingly, the court exercised its discretion against the continuation of the representative proceedings. If the claimants wished to proceed with the multi-party proceedings, those proceedings could be managed in the normal way so as to further the overriding objective. The claimants could argue for the same split of issues, with no progress on claimant-side issues in the meantime, and it would be up to the judge managing the case to decide whether that was appropriate. But it would be “unfair and unjust, and contrary to the overriding objective” to allow the representative proceedings to oust the court’s jurisdiction to case manage the claims from the start.

Note: In February 2024, an application for permission to appeal was filed in the Court of Appeal.

In May 2024, the Court of Appeal gave permission to appeal. The appeal hearing has been fixed for 10 December 2024.