The latest development in the legal landscape of representative actions saw the High Court strike out two claims brought by Wirral Council (as administering authority of Merseyside Pension Fund) pursuant to the representative procedure under CPR 19.8 against pharmaceutical manufacturer Indivior Plc and its former group company Reckitt Benckiser Group Plc.
As detailed in our previous article, Wirral brought claims against Indivior and Reckitt Benckiser for loss to shareholders caused by significant decreases in the share value of each company following investigations and settlements in the US. Wirral brought the claims as the Representative Claimant for a group of existing or former shareholders in the companies, adopting a bifurcated approach to its claims, seeking declaratory relief as to the defendants' liability at the initial stage of the proceedings, with individual determination of the represented persons' standing, reliance, causation of loss and/or assessment of damages to be heard at a later juncture. The defendants applied to strike out the representative proceedings.
Decision in Wirral
Mr Justice Michael Green heard the strike out applications on 20 and 21 November 2023. His judgment, handed down on 5 December 2023, ruled that Wirral may not act as a representative pursuant to CPR 19.8(2) and therefore that the representative proceedings should be struck out.
Mr Justice Green reached his decision largely on the basis that to allow the representative claims to proceed on the bifurcated structure envisaged by Wirral would be unfair, unjust and contrary to the overriding objective by effectively serving to "oust the jurisdiction of the Court to case manage the claims from the start".
In his view, the bifurcated process could be used "in order to enable a representative action to proceed and particularly where there would be no other way that the proceedings could be brought by or on behalf of such a large number of claimants whose claims are likely to be too small to bring individually", thus providing a means of access to justice for those individuals. In contrast, he found that in this case, use of the representative procedure would remove the Court's ability to impose certain requirements on the represented persons at the initial stages, and this was not a legitimate basis for "depriving the Court of its power to case manage such claims".
Consequences of the decision
Despite Mr Justice Green's assertion that he was not deciding the strike out applications on the basis of how securities claims in general should be brought, it is difficult to ascertain from the judgment in what circumstances bifurcation as envisaged in by the Supreme Court in Lloyd v Google would, in practice, ever work.
Lord Leggatt in Lloyd recognised the potential for a bifurcated process whereby issues common to the claims of a class of persons (i.e., defendant-side issues) may be decided in a representative action which, if successful, could then form a basis for individual claims for redress. Here, it was common ground that those issues, namely whether the defendants misled investors via their statements and/or omissions and whether their relevant company officers did so knowingly, were "common issues" and that the "same interest" threshold requirement under CPR 19.8(1) had been met. Yet, the concerns voiced by Mr Justice Green about the deprivation of the Court's case management powers in relation to individual issues due to bifurcation in representative proceedings is, crucially, a necessary feature of any case structured in the way contemplated by Lord Leggatt. Moreover, to treat the deferral of issues requiring individual assessment as an effective bar (or indeed even the main discretionary factor for consideration by the Court) to allowing a representative action to proceed is directly at odds with the fact that such deferral is an inevitable consequence of the effect of bifurcation.
Further, Lord Leggatt's depiction of the representative procedure in Lloyd does not imply that it is a form of action which is subsidiary to other procedures or only to be used as a workaround. However, the judgment in Wirral suggests that there is somehow a default position, whereby a claimant is compelled to bring a Part 7 multi-party action in order to seek redress and that the representative action is a rare exception to that procedure, contrary to Lloyd.
The Wirral judgment thus presents a barrier to access to justice in the context of English securities actions. It is a startling proposition that not once in the 16 years that s90A FSMA has been in force has a retail investor brought a claim under it. This statistic clearly suggests that the provision does not afford a remedy to retail or smaller investors in the same way that it can for large institutional investors. Transparency with all investors is a fundamental ingredient for a thriving UK economy and maximising and promoting access to justice for investors where listed companies have not been transparent with their investors is intrinsic to its success. Unfortunately, this judgment does the opposite.
The Court appears to consider that the current way English securities actions are brought works well. Yet the evidence of previous securities actions demonstrates that this must be wrong. Leaving aside inherent barriers to access to justice over the economics of each claimant having to fully "opt in" to the claim, the current multi-party process causes cases to progress extremely slowly, racking up significant costs (on both sides). This is in part due to how the Court and the parties in every issued multi-party s90A FSMA claim of which we are aware struggle to deal with case management, in particular how to bifurcate liability and quantum issues in that context, when in our view this would be avoided by the type of bifurcation supported by the Supreme Court’s judgment in Lloyd and sought by Wirral in this case. Such pitfalls play into the hands of defendants who are invariably better resourced than retail claimants or claimants with low value claims, for whom the current system fails to provide a realistic route to redress. There is no evidence that Wirral's proposed route of bifurcation would prevent or hinder settlement, but rather this process is more likely to encourage settlement of the proceedings (as demonstrated by evidence adduced by Wirral as to the success of settlement in the context of similar bifurcation of issues in collective legal actions in other countries).
Wirral's representative actions followed very closely the "roadmap" laid down by the Supreme Court in Lloyd. By exercising its discretion to block these representative proceedings, the Court has already effectively prevented the claims of approximately 300 retail investors from being advanced, along with many others that had hoped to participate as the claims progressed.
At present, Wirral is considering its options in light of the decision, including possible appeals.
The judgment can be found here. Richard Leedham, Ralph Fearnhead, Josh Goodman and Isabel Murphy act for Wirral in these proceedings.