Clifford Chance

In a recent landmark judgment, the Court of Appeal has unanimously ruled against Wirral Council in its attempt to use representative proceedings to pursue a claim under sections 90 and 90A FSMA 2000 against Indivior plc and Reckitt Benckiser Group plc.

Background to the appeal

As detailed in our previous blog post, the case arose from allegations of fraudulent statements and omissions by Indivior and Reckitt, relating to their involvement in the opioid crisis in the United States. Wirral Council, as the administering authority of the Merseyside Pension Fund, sought to bring representative proceedings under Civil Procedure Rule ("CPR") 19.8 on behalf of institutional and retail investors. The aim was to address common issues relating to the defendants' alleged misconduct, leaving individual issues (such as standing, reliance, causation and limitation) to be determined at a later stage.

Indivior and Reckitt applied to strike out Wirral Council's representative action on the basis that the claim would prevent the Court from being able to exercise its case management powers and that there were general benefits to the participation of individuals in proceedings from the outset, including sharing the burden of litigation and mitigating the risk of fading memories.

Mr Justice Michael Green, in the High Court, concluded that (i) the proposed representative action in respect of Wirral's shareholder claims would have unfairly and unjustly ousted the Court's jurisdiction to manage the claims as it sees fit (including making decisions on whether and how to bifurcate the proceedings), and (ii) the claimants' bifurcated trial proposal was not a sufficient reason to justify a representative action. Green J decided that the claims should instead proceed by way of multi-party proceedings (which were already on foot).

In June 2024, the Court of Appeal granted Wirral Council permission to appeal. The appeal was heard in December 2024.

Court of Appeal's Decision

The Court of Appeal upheld Green J's decision to strike out the representative proceedings. The judgment was delivered by Sir Julian Flaux, Chancellor of the High Court, with Lord Justice Nugee and Lady Justice Falk concurring. The Court found that Green J had been entitled to exercise his discretion not to allow the representative action to proceed, and held that the continued pursuit of the claims by way of multi-party proceedings was viable and in accordance with the overriding objective of the CPR.

Key Takeaways

1. Discretion under CPR 19.8: The Court emphasised that while a claimant can commence representative proceedings under CPR 19.8 as of right if the "same interest" threshold is met, the Court retains discretion to decide whether such proceedings should continue. This is clear from both Lloyd v Google [2022] AC 1217 and Commission Recovery Ltd v Marks & Clerk LLP [2023] EWHC 398 (Comm). The discretion is "quite unfettered", other than it is to be exercised in line with the overriding objective of the CPR.
2. Alternative Procedures: There is no "hierarchy" of different procedures, whereby a representative action is somehow to be preferred to other available procedures and nothing in Lloyd v Google suggests that. Where another form of procedure is clearly available in the form of multi-party proceedings, the Court must assess the advantages and disadvantages of each, "with no predilection towards one form of procedure rather than another".
3. Case Management Powers: Where the Court has ordered a split trial with defendant-side issues to be determined at the first stage, the Court will expect claimants to progress their claims in parallel (for example, by providing sample disclosure, further particularisation and/or witness evidence on reliance). The Court of Appeal noted its concern that representative proceedings could otherwise be used by claimants (or funders) to "book-build" during the first stage of the proceedings without having to engage in any work in relation to claimant-side issues (such as reliance and causation) until the common issues had been determined in the claimants' favour. Used in that way, a representative action could encourage speculative litigation and put pressure on defendants to settle unmeritorious claims.
4. Litigation funding for retail investors: The Court of Appeal rejected the argument that only a representative action could provide a practicable route to redress for retail investors whose claims would not otherwise be funded in multi-party litigation. The Court of Appeal held that this was an "artificial construct", which had been "engineered by the funders" and was aimed at "gaming the system". If there were any additional burden involved in funding retail investors' claims, the Court could use its case management powers to alleviate that burden (such as by requiring investors to indicate which category of reliance they were alleging or by making an order for sampling).

Future Implications

This judgment is a crucial development in the landscape of both shareholder litigation and representative actions. It is a further example of the Court's reluctance to fetter its wide-ranging case management powers through the adoption of a specific group action procedure (similar to Mr Justice Trower's rejection of the claimants' GLO application in Moon v Link Fund Solutions [2022] EWHC 3344 (Ch)). The Court may be particularly sceptical of the use of such procedures where it perceives either party to be seeking to obtain a tactical advantage and where it can apply a bespoke case management process which would enable the litigation to be managed fairly and efficiently as between the parties.