High Court clarifies law on UK PLC investor FSMA claims

Under section 90A/Schedule 10A of the Financial Services and Markets Act 2000 (FSMA), publicly listed companies in the UK can be sued by investors if they make untrue or misleading statements, or deliberately omit important information, when they publish information. Investors must be able to show they relied on such information to acquire, continue to hold, or dispose of shares in the company, in order to bring a claim under section 90A of FSMA.

A separate right to sue arises if the company acted dishonestly in delaying the publication of information to the market and the investor can show they suffered a loss as a result.

In its judgment, the High Court found, firstly, that it was the UK parliament’s intention that a claimant must prove it has relied on misleading statements or dishonest omissions in certain published information relating to the securities of a publicly listed company to bring a claim under Section 90A/Schedule 10A of FSMA. The test of reliance is the same as the common law tort of deceit. The judge stated that this test of reliance requires the claimant to prove that they read or heard the representation, that they understood it in the sense which they allege was false, and that it caused them to act in a way which caused them loss.

Secondly, the judge found that claims for dishonest delay in publishing information can only arise where an issuer has published such information. No claims arise during the period of delay.

Andrew Herring, an expert in commercial litigation at Pinsent Masons, said: “This judgment brings very helpful clarity to fundamental questions about claims under the UK’s statutory securities litigation regime in FSMA.”

“The operation of the ‘reliance’ principle for claimants under section 90A is a significant departure from the approach in other jurisdictions, notably the US which recognises the concept of a 'fraud on the market', as well as claims under section 90 of FSMA, which relate specifically to information in listing particulars and prospectuses and which do not require claimants to show reliance.  This is something that all investors, but particularly foreign investors less familiar with the UK rules and so-called ‘passive’ investors, will have to carefully consider going forwards,” he said.

The matters arose in the context of a dispute between Barclays Bank plc and a group of institutional investors who held interests in securities issued by Barclays Bank. The investors alleged that the bank had made false representations to the public, clients and market participants about the operation of one of its trading exchanges. Approximately 60% of the investors, with claims totalling some £330 million, are passive investors, which the judge described as being “index-linked” or “tracking” in nature. The remaining investors, with claims totalling some £210m, are investors who made more active judgments to invest in the securities.

Barclays applied for and was successful in obtaining reverse summary judgment and a strike out of the passive investors’ claims. The remaining active investors’ claims will continue.  

“This decision will be a welcome outcome for defendants to UK securities litigation claims, as it potentially removes the ability of passive investors, which it is believed make up over a quarter of investors in UK securities, to bring claims under section 90A/Schedule 10A of FSMA,” Herring said. “However, due to the significance of this decision and the considerable sums of money in dispute in this case, we can expect this decision to be appealed.”