Court of Appeal clarifies approach to ‘same interest’ representative action in securities case

The decision (41 pages/447 KB) highlights that the ‘same interest’ procedure is “very limited as an option for claimants seeking to pursue class actions”, said Emilie Jones, commercial litigation expert at Pinsent Masons.

The case involved securities claims brought by Wirral Council, acting as the administering authority of the Merseyside Pension Fund, against Indivior Plc and Reckitt Benckiser Group Plc. The claims centred on certain alleged practices related to the marketing and sale of Suboxone, a treatment for opioid addiction, which led to enforcement action and settlements. Wirral Council sought to represent other local authorities and pension funds that, it said, had similarly been affected.

In appropriate circumstances, the representative action procedure in the Civil Procedure Rules (CPR) r.19.8 allows a single claimant to bring proceedings as representative of others who have the “same interest” in the claim, without those others being party to the proceedings. Some claimants have sought to use this as a way of bringing class actions, because they perceive it to offer them efficiencies in terms of steps which would otherwise be features of such litigation in England and Wales. These include the need to build a full book of claimants, pay multiple court fees for issuing those claimants’ individual claims, plead each claim individually, or gather evidence from and give disclosure on behalf of all of the individual claimants.

However, the Court of Appeal’s decision highlights the limited circumstances in which the procedure can be used, with the court upholding an earlier High Court judgment granting the defendants’  application to “strike out” the representative proceedings on the basis that this was not an appropriate procedure for the claims. This left the investors to pursue their claims by way of multi-party proceedings which they had also issued.

This judgment is particularly important in its exploration of the idea of “bifurcation”. Previous case law suggests that it may be possible for a claimant to bring a representative action to obtain findings on certain issues in respect of which all the class members have the “same interest”, and then to use more traditional multi-party proceedings to resolve further issues, such as causation and damages, which require individualised assessment.

“However, as this latest judgment from the Court of Appeal shows, such a bifurcated approach will not necessarily be appropriate, and the courts will not allow claimants to deploy such an approach where this would not further the overriding objective of dealing with cases justly and at proportionate cost,” said Jones.

The judgment highlights a specific hurdle for claimants who might attempt to use the representative action procedure to pursue securities litigation. In investor claims under section 90A of the Financial Services and Markets Act 2000 (FSMA) in respect of allegedly misleading published corporate information, a key element of the cause of action is reliance: a claim is only available to those investors who can show that they relied on the information in question. This requirement of reliance has been confirmed in other recent securities case law and is an important controlling mechanism in the UK’s statutory securities litigation regime. 

The courts have shown in other litigation that they may strike out, at an early stage, the claims under s90A FSMA of any investors who do not meet the requirement of reliance. In this case, the Court of Appeal noted that the reliance issue “may well mean that a substantial proportion of the represented claimants do not have a claim at all”. The court objected to the claimants’ attempt to relegate the issue of reliance – including the giving of disclosure on this issue - to a later stage, through the use of the representative action procedure. The effect of this would, the court said, be to “deprive the court of its case management powers to strike out speculative unmeritorious claims”, which was “inimical” to the overriding objective.

Securities litigation expert at Pinsent Masons, Andrew Herring, said: “The judgment also demonstrates that the courts will be alive to any ‘gaming of the system’ by those representing or funding claimants in mass actions.  Here, a particular issue of which the court clearly disapproved was the way in which the funders of the litigation had declined to provide funding for the multi-party proceedings to retail investor claimants, as opposed to institutional investor claimants. This enabled the claimant to put forward an argument that the representative proceedings were necessary in order to provide access to justice for the retail investors. The Court of Appeal held that the first instance judge had been entitled to conclude, in the absence of evidence or cogent explanation on the point, that this approach had been ‘engineered by the funders’ as a ‘tactical position’.”

“Where a representative action is unavailable, UK securities litigation claims will now proceed as multi-party proceedings with each named claimant investor having to identify which category of reliance underpins their claims,” he said.