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When too much knowledge is dangerous – limitation under s90A FSMA

Posted on 15 November 2021

In Allianz Global Investors GmbH & Ors. v RSA Insurance Group Limited (formerly RSA Insurance Group PLC) [2021] EWHC 2950 (Ch) the High Court considered a strike out/summary judgment application by the defendant, RSA Insurance Group Limited ("RSA"). RSA argued that a number of the Claimants' claims were time barred and should be struck out, raising issues around the limitation period for claims under s90A of the Financial Services and Markets Act 2000 ("FSMA"). 

The judgment contains interesting points regarding when and how different types of investors could be deemed to be aware of an issuer making misleading statements or dishonest omissions in published information relating to securities. Even though, as strike out was refused, no final determinations were made on these points at this stage, the judgment provides useful guidance on the approach to be taken to such arguments. It will be interesting to see how the court determines them, if and when they reach full trial.


Between 2009 and 2013, RSA Insurance Ireland Limited ("RSA Ireland"), a subsidiary of RSA, engaged in: (i) inappropriate accounting practices (which had an impact of £35 million on RSA Ireland's finances); and (ii) deliberate manipulation of insurance claim reserves through the under-reserving of large loss claims by £37 million.  RSA first publicly disclosed some details in relation to that misconduct in announcements to the market in November and December 2013, following which, its share price dropped significantly. Thereafter further details were revealed in press coverage and employment law proceedings over the subsequent two years.

Allianz Global Investors GmbH ("Allianz") is one of over 70 institutional investors claiming under s90A FSMA that they acquired shares in RSA and/or continued to hold them in reasonable reliance on relevant published information.  The Claimants' substantive claims were that:

The latter point is significant, because in order to establish liability under s90A FSMA, it is necessary to establish that persons discharging managerial responsibility ("PDMRs") knew of or were reckless to the alleged falsity or misleading nature of the statements.

  1. from 2009 to 2013, RSA:
    1. published statements that were rendered untrue or misleading by both the fact that the misconduct with RSA Ireland had occurred, and the allegedly inadequate corporate governance controls within RSA Ireland and RSA;
    2. omitted to disclose those matters; and/or
    3. delayed publishing information in respect of those matters; and
  2. various senior executives within RSA: knew of, or were reckless as to, the falsity of the published statements; and/or knew the omissions to be dishonest concealment of material facts; and/or acted dishonestly in delaying the publication of relevant information. 

The limitation question

The misconduct occurred between 2009 and 2013.  However, the claims, consisting of three overlapping sets of proceedings, were issued on 8 November 2019 (the "Original Claims),11 May 2021, and 18 June 2021(the "New Claims") respectively. 

Section 32 of the Limitation Act 1980 (TLA 80) provides that for claims of this kind "the period of limitation [of six years] shall not begin to run until the plaintiff has discovered the fraud [or] concealment […] or could with reasonable diligence have discovered it”.  Accordingly, the question before the Court was whether the Claimants making the New Claims had a reasonable prospect of establishing that they could not, with reasonable diligence, have discovered sufficient facts to enable them to plead the claim before 11 May 2015 (some two years after the first details of the wrongdoing were made public). 

Relevant factual matters
  • announcements in November 2013 regarding the suspension from RSA Ireland of certain senior individuals "pending the outcome of an investigation into issues in the Irish claims and finance functions”, issues in RSA Ireland's claims and finance functions, and the fact that RSA Ireland was working with the CBI in relation to an investigation;
  • an announcement on 28 November 2013 that Mr Philip Smith, the CEO of RSA Ireland, had resigned;
  • an announcement on 13 December 2013 regarding a review which concluded that reserves needed to be strengthened by £130 and noted that the Group CEO would be departing.  The resignation of the Group CEO prompted press comment in the Times and the Guardian;
  • announcements in January 2014 that: (i) RSA was confident that the financial and claims irregularities identified in November 2013 were isolated to Ireland; (ii) there had been inappropriate collaboration amongst a small number of executives in Ireland; (iii) PwC had conducted a review and described RSA's Group Control Framework as appropriate, noting that "there were no obvious indicators relating to the issues identified in the Irish business that were ignored, at either Regional or Group level”; and (iv) following an internal disciplinary process, certain other senior individuals were dismissed for their roles in relation to large loss and claims accounting irregularities;
  • an article published in the Insurance Post on 6 February 2015 entitled "Ireland performance was 'too good to be true' says RSA CEO Hester";
  • reports from 9 March 2015 onwards in Reuters and several Irish newspapers of constructive dismissal proceedings brought by Mr Smith before the Employment Appeals Tribunal ("EAT").  Those reports contained Mr Smith's allegations that RSA used surpluses generated by RSA Ireland (which had been referred to be senior individuals as 'Irish treasure caves') to support underperforming parts of the wider group which left RSA Ireland with insufficient reserves.  Mr Smith's comments that RSA bosses knew of problems in RSA Ireland and the 'reserving issue' were also widely reported;
  • the EAT's decision in June 2015, pursuant to which Mr Smith was awarded EUR1.25m, which stated among other things that that certain senior individuals, mainly of whom were in Ireland but some of whom were in the UK group, were aware of the practise of setting reserves;
  • the announcement by RSA on 6 July 2015 that it would appeal the EAT's decision, noting that "no one at RSA Group level had any prior knowledge of the inappropriate large loss reserving practises which emerged in RSA Ireland"; and
  • on 20 December 2018, the CBI announced that it had taken enforcement action against RSA Ireland and imposed a fine of EUR3.5 million.  The announcement included a number of findings of serious breaches and failings within RSA Ireland.
The parties arguement

In summary, RSA's case was that the Claimants are all professional, managed institutional investors and the test of reasonable due diligence should hold all of them to that standard; The Court therefore should not consider the individual characteristics and situations of each Claimant. 

RSA argued that, applying that standard, any reasonably attentive investor would have been aware of the various information published by RSA from 2013 onwards, and therefore would have been on notice of the need to investigate a s90A FMSA claim by mid-January 2014 at the latest.  That would, it argued, have prompted a reasonably attentive investor to investigate further. Had they done so they would have had all the necessary information to plead their case shortly thereafter.

Further, RSA argued that once RSA had announced that the impropriety involved senior executives, the Claimants would have been able to plead that PDMRs knew of the misconduct or behaved recklessly. In that regard, RSA argued that press reports in early 2015 contained all the information that the Claimants were relying on in support of their case about the PDMRs.  Accordingly, RSA argued, the claimants could have brought their claims from early 2015 at the latest. Therefore the New Claims (commenced in May and June 2015) had been brought outside of the six year limitation period.

The Claimants submitted that for several reasons it was not appropriate to consider the limitation questions by way of summary determination. First, disclosure would be vital in determining when the Claimants could have been put on notice.  Second, and in any event: i) the different Claimant funds had different approaches to investment decisions and strategy, which would impact upon what would be considered 'reasonable diligence' for each particular investor; ii) the information available to the Claimants from the press coverage in March 2015 would not have enabled the Claimants to plead their claims; and iii) the Claimants were only able to plead their claim after an EAT decision and CBI announcement (which were published in June and July 2015 respectively), both of which enabled Claimants to make specific allegations as to the misconduct which occurred and which PDMRs within RSA knew about it.

Analysis of the parties' arguments

The appropriateness of summary judgment

Mr Justice Miles considered whether, as a general principle, the limitation issues in the case were suitable for summary judgment.

He noted that there was no evidence of usual market practice in monitoring investments. Further, RSA's solicitor's witness statement as to how he found the articles and announcements relied upon by RSA was an "unduly fragile" basis for the application.  In his view, the Court would be assisted by expert evidence on some or all of the following: a) the way institutional investors generally monitor investments; b) market practice among investors to reading announcements; c) the way institutional investors monitor press reporting; and/or d) how shareholders would have reacted to the publications and press reports in 2013 and March 2015.

Turning to the test under s32 TLA 80, he noted that this is an objective test. However, he also held that it is to be applied after ascertaining the nature and business of the claimant, the resources reasonably available to a person or company in the claimant's position, and the scale and impact of the losses it claimed to have suffered.  He therefore concluded that it is a relevant consideration that in this case: a) individual investors fell on a spectrum from actively managed funds to trackers; b) the Claimants each had access to a varied set of research resources; and c) the claimed losses ranged from tens of millions of pounds to a few thousand pounds.  Mr Justice Miles found that the Claimants had a realistic case that some or all of these features would affect the steps each of the Claimants could (and should) reasonably have taken to discover the fraud, which might be relevant to the 'reasonable diligence' test.  Significantly, he stated that "I do not think that it is clear that these features of their varying approaches to monitoring investments should be seen as akin to personal traits (such as naivety or inexperience, indolence or indifference)".

Given these points, Mr Justice Miles held that the s32 TLA 80 issues in the case were therefore not properly amenable to summary determination.

Should the parties have investigated further?

Despite the conclusion that the limitation question should properly be determined at trial, Mr Justice Miles did go on to consider the two analytical stages, namely: i) whether there was anything to put the claimants on notice to investigate; and ii) what a reasonably diligent investigation would have then revealed.

In respect of the first stage, Mr Justice Miles found that the Claimants had a realistic case that announcements at the end of 2013 and 2014, and the subsequent sharp fall in the Defendant's share price, were not sufficient to put them on notice of a possible claim that RSA had mislead them in its earlier published information.  In particular he held that:

  1. he could not conclude to the summary judgment standard that all of the Claimants would have read the Defendant's announcements. This was particularly uncertain for tracker funds that operated in such a way that they knew little or nothing of the underlying issuer.  Absent market evidence to the contrary, it was possible that they would not have reasonably informed themselves of market announcements.  Further, the sharp decrease in the share price could have been caused by many factors other than fraud;
  2. the listed securities market is highly regulated and there is a clear duty not to make untruthful statements.  Accordingly, a shareholder would have assumed that RSA was honestly informing it of its discoveries and investigations in late 2013 and early 2014; and
  3. as a result of the announcements in 2013 and 2014, a reasonable investor would have  assumed that RSA had taken proper steps to investigate the wrongdoing and concluded that RSA did not know about the misconduct in RSA Ireland, and that there was nothing to cause the Claimants to suppose that there was a possible claim against RSA under s90A FSMA.

Ultimately, Mr Justice Miles concluded that the Claimants had a realistic case that reasonably attentive investors would have concluded that there was nothing to investigate further at that stage as a result of the announcements in 2013 and 2014. 

However, for completeness, he also considered whether, had an investor been on notice of the need to investigate, a reasonably diligent investor would have carried out searches or used alerts which would have yielded the press coverage of the EAT proceedings, and whether that would have given them the information they needed to make a claim before 11 May 2015.  In this regard:

  1. Mr Justice Miles found that the Claimants had a realistic case that they would not have come across the 2015 press coverage.  In particular:
    1. The articles did not appear for over a year after the 2013/2014 announcements, and there was a realistic case that the Claimants would not still be looking for articles;
    2. There was no clear evidence as to the approach of investment funds to searching newspaper articles, and it was relevant that there were over 10,000 articles about RSA a year that the Claimants would have to filter in order to identify relevant material.
  2. It was held that the Claimants had a realistic case that, even if they found the relevant articles, they would not have been in a position to plead a case under s90A FSMA.  In particular:
    1. The articles reported various claims by Mr Smith which gave the impression that he was an aggrieved former employee seeking financial compensation but which would not be interpreted more widely for the purpose of giving rise to a claim under s90A FMSA;
    2. The articles did not name any individuals at RSA group level who were said to have known about the misconduct in RSA Ireland.  Any findings in that regard were not reached until the EAT judgment in June 2015;
    3. Similarly, information regarding the relationship between Mr Smith and senior individuals in RSA at group level was not sufficient to establish that those individuals knew of the misconduct in RSA Ireland;
    4. The articles reported that RSA was denying the allegations that senior individuals knew about the reserving misconduct; and
    5. There were no specific allegations about the kind of under-reserving, the quantum of the under-reserving and when it occurred.

As a more general point, Mr Justice Miles considered RSA's argument that the Claimants sought to rely on the articles in their pleaded case, but also suggest that those were insufficient for putting them on notice for the purpose of s32, relied on the use of hindsight.  In particular, reliance placed on an historic piece of evidence made in a later pleading, in light of the totality of the available evidence, would not indicate that a reasonable investor would have considered that there was sufficient information to plead a case of fraud at the time that evidence came into existence.

Key points

  1. The appropriateness of determining limitation as a summary matter.
    Mr Justice Miles did not agree with the Claimants' submission that a Court could never reach a summary conclusion on limitation under s.32 TLA 1980 before disclosure had taken place.  However, the judgment suggests that, other than in exceptional circumstances, it is highly unlikely that defendants will be able to succeed on a limitation argument at summary judgment application in the absence of disclosure and, in particular, market expert evidence.  With regard to the latter, there are references throughout the judgment to not being able to assume how different classes of investors would react to the various announcements. 
  2. Recognising the different types of investors.
    Significantly, Mr Justice Miles was amenable to the notion that certain attributes of the different claimant investors were relevant to determining how a particular investor might react to the different announcements. 

    The judgment maintains the objective test of considering the steps that would be taken by a reasonably diligent investor. However, it is noteworthy that the judgment entertains the notion that there is an arguable case that tracker funds that are not actively managed, or funds with smaller losses, could be held to a lower standard for the purpose of determining when they would be on notice of misconduct.
  3. The need to be on notice of all elements of a claim under s90A FSMA.
    When considering the point at which claimants are on notice of misconduct for the purpose of s90A FSMA, it appears that a reasonably diligent claimant must be capable of discovering all elements of the misconduct.

    In this regard, even at the point where elements of the misconduct were potentially discoverable, it appears to have been determinative that the Claimants could not have known that PDMRs knew of the misconduct until a later stage, and could not plead its case for the purpose of s90A FSMA until that was known.
  4. Documents should not be considered with the benefit of hindsight.
    The judgment emphasises that when determining when a claimant is on notice of misconduct, announcements must be considered in the way they would have been considered when made, and not with the benefit of hindsight and alongside other relevant announcements.  It was for that reason that, although individual announcements might contribute to an overall claim under s90A FMSA, they would not have been sufficient to put a claimant on notice, particularly if they were made alongside numerous other announcements that were not relevant to the claim.
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