Court of Appeal rejects attempt to bring securities class action using CPR 19.8 representative action as an "opt-in" procedure

The Court of Appeal has refused to allow a securities class action brought under s.90A of the Financial Services and Markets Act 2000 (FSMA) to proceed as a representative action under CPR 19.8, confirming that any claims should be pursued as ordinary multi-party proceedings with the investors as claimants: Wirral Council (As Administering Authority of Merseyside Pension Fund) v Indivior plc [2025] EWCA Civ 40.

This is a significant decision, as it shows that the courts will not allow the CPR 19.8 procedure to be used to gain tactical advantages as to how a securities class action (or other action) will be managed.

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 in this case the claim was brought on an "opt-in" basis on behalf of named investors who had signed up to funding terms.

By bringing the claim under CPR 19.8 for declarations on "defendant-side" issues (such as whether the defendants had published untrue or misleading statements to the market), the claimant investors were seeking to ensure that they could not be required to particularise their claims, or provide evidence, in relation to any “claimant-side” issues (such as standing to sue, reliance, causation and quantum) until the defendant-side issues were determined. This contrasts with the usual approach in s.90A cases, where the courts will invariably require some progress to be made on claimant-side issues, even if the initial trial in the action is to focus on defendant-side issues.

If the Court of Appeal had allowed the appeal, it would have enabled claimants to use the CPR 19.8 representative action procedure to place the whole burden on a defendant for the initial stage. The court's decision instead reinforces that the question of whether to allow a representative action to proceed will in every case be a matter for the court's discretion. In exercising that discretion, it will consider other available procedures and the case management advantages they may entail, such as enabling the court to determine the proper split of issues and how the burdens of the litigation should be shared between the parties.

The Court of Appeal was particularly concerned that use of the representative action procedure in this case would allow the claimant to avoid identifying, until after defendant-side issues were determined, which investors were alleging only price/market reliance. It referred to the recent decision in Allianz Funds Multi-Strategy Trust v Barclays plc [2024] EWHC 2710 (Ch) (see our blog post), in which the court rejected the suggestion that price/market reliance satisfies the reliance requirement under s.90A FSMA, and struck out 60% of the claims by value. The court in the present case said that an "obvious advantage" of the claims proceeding by way of multi-party proceedings (rather than a representative action) was that the court could use its case management powers to order the claimants to identify into which category of reliance their claims fell. This would enable the defendants to apply to strike out unsustainable claims and, overall, would make settlement more likely.

Background

As is more fully set out in our blog post on the High Court's decision (here), the claimant issued a representative action under CPR 19.8 on behalf of certain institutional and retail investors in the defendants, alleging that the defendants had published false or misleading statements, or dishonestly omitted to disclose information, relating to their opioid addiction drug “Suboxone”.

The claimant wished to adopt a “bifurcated process”, as envisaged in the Supreme Court’s landmark decision in Lloyd v Google [2021] UKSC 50 (see our blog post), which allows the court to decide issues that are truly common to the represented class using the CPR 19.8 procedure, leaving any individual issues to be dealt with later. In the CPR 19.8 action, the claimant sought declarations as to the common issues relating to the defendants. It did not include as part of that action any “claimant-side issues”, such as standing to sue, reliance, causation and quantum.

The defendants applied to strike out the representative proceedings, arguing that CPR 19.8 was not an appropriate procedure for the claims, and that they should be brought in the usual way as multi-party proceedings with each investor as a claimant. Such multi-party proceedings had in fact been issued by most of the institutional investors who were included in the CPR 19.8 action, but not the retail investors as it was said the litigation funders backing the case would agree to fund them only for the representative action and not the multi-party proceedings.

The High Court (Michael Green J) struck out the representative proceedings. The claimant appealed.

Decision

The Court of Appeal dismissed the appeal. Sir Julian Flaux, Chancellor, gave the lead decision, with which Nugee and Falk LJJ agreed.

The Chancellor said the starting point for the appeal was that the court has a discretion under CPR 19.8 as to whether to allow representative proceedings to continue. This discretion is unfettered, apart from that it must be exercised in accordance with the overriding objective. The judge's decision was well within the generous ambit of his discretion and so there was no basis for the Court of Appeal to interfere.

The Chancellor rejected the claimant's argument that representative proceedings should be permitted to continue unless there is some "structural deficiency" relating to the representative claimant's suitability or the class definition. There is no procedural "hierarchy" in which a representative action is to be preferred to other available procedures such as multi-party proceedings. Where another procedure is available, the court must assess the advantages and disadvantages of each in exercising its discretion as to whether to allow the representative action to continue.

In exercising that discretion in this case, the judge was entitled to have regard to case management decisions of other judges in other cases under s.90A of FSMA. In such cases, where the court had ordered a split trial with defendant-side issues to be determined at the first stage, it had invariably also ordered some progress in tandem on claimant-sided issues for a variety of reasons, including the need to preserve documents and evidence and the need to be even-handed. The claimant's reason for seeking to proceed by way of representative action was to prevent the court taking these sorts of case management decisions.

The Chancellor commented that it was "extremely unsatisfactory" that the claimant in this case had declined to identify which category of reliance each investor's claim fell into, ie: (i) direct reliance; (ii) indirect reliance; or (iii) price/market reliance, arguing that it was irrelevant to the representative action. Referring to the recent decision in Allianz Funds v Barclays (see above), he said an "obvious advantage" of the present claims being pursued by multi-party proceedings (rather than a representative action) was that the court could use its case management powers to order the claimants to identify into which category of reliance their claims fell (as in the Barclays litigation). This would enable the defendants to apply to strike out unsustainable claims and, overall, would make settlement more likely.

The Chancellor rejected the claimant's argument that the representative procedure would be appropriate in order to determine common issues, even if a substantial proportion of investors might not ultimately be able to recover damages because they could not establish reliance. In the present case, reliance was an essential ingredient of the cause of action. Allowing investors to pursue a claim in respect of common issues when in reality they had no claim at all because they could not establish reliance would seem, he said, "inimical to the overriding objective rather than furthering it".

He added that allowing the representative action to continue without knowing how many investors relied only on price/market reliance would encourage precisely the sort of speculative litigation which the fraud-based and reliance requirements under s.90A were designed to avoid. It would also enable the claimants to pressurise the defendants into an overall settlement, when some unknown number of claimants may in reality have no claim at all, which would not be in accordance with the overriding objective. In any event, the Chancellor agreed with the judge that there was no reason to think the representative action procedure would increase the prospects of settlement compared to appropriately managed multi-party proceedings.

The claimant argued that the multi-party proceedings did not provide an appropriate alternative procedure because the litigation funders would not provide funding for the retail investors to participate in the multi-party proceedings, as opposed to the representative action. The Chancellor dismissed this argument as there was no evidence from the funders explaining why that was the case and there was no coherent explanation for it. The suggestion that it was due to the “economic and administrative burden” of including the retail investors in the multi-party proceedings was not a coherent explanation, and any such burden could be dealt with by appropriate case management to ensure no undue burden was placed on small individual investors. The Chancellor considered that the judge was entitled to conclude that the situation had been engineered by the funders who were "gaming the system".