The Court of Appeal upholds strike out of representative action in securities claims

In Wirral Council v Indivior PLC [2025] EWCA Civ 40, the Court of Appeal upheld the High Court’s decision to strike out a securities class action which had been brought as a representative action under CPR 19.8 on behalf of other investors. CPR 19.8 provides that where more than one person has the “same interest” in a claim, one person may bring a claim as a representative on behalf of the group. The claimant proposed that the representative action should decide the issues common to the represented class, namely the issues concerning the defendant’s liability only. The effect of this approach was that the claimants would not be required to develop or particularise their case at the initial stage. Both the High Court and Court of Appeal rejected this approach and ordered that the claims should continue as multi-party proceedings (which had been started on a protective basis and stayed); these could be appropriately case managed to take into account the common issues.

We have seen an increasing number of shareholder actions under s90/90A of the Financial Services and Markets Act 2000 (FSMA), although this was the first to attempt to use the CPR 19.8 procedure. This decision will be welcomed by defendants to those claims (and to other types of representative actions) as it emphasises the importance of the courts’ case management powers and prevents claimants and litigation funders using the representative procedure to gain a tactical advantage in the litigation.

Background

The claimant brought a representative action on behalf of various institutional and retail investors pursuant to sections 90 and 90A of FSMA in respect of alleged fraudulent statements and dishonest information published by the defendant company. The claim was backed by a litigation funder.

The claimant submitted that having met the “same interest” threshold under CPR 19.8, it had a right to bring the representative action, and the Court had to allow it. Relying on the obiter comments of the Supreme Court in Lloyd v Google, the claimant structured its claim as a ‘bifurcated’ claim i.e. it proposed to use the representative action to seek a declaration on the issues common to the represented class, with individual claims to follow on. The common issues in the claim related solely to the defendant’s knowledge of or recklessness regarding the publication of the misleading information. The ‘claimant issues’, i.e. the other elements the claimants would need to establish to make out their claim (including their reliance on the information, causation and loss) would be determined in follow on claims. Under this approach, the whole burden would be on the defendants at the initial representative stage and the individual claimants would not be required to develop or particularise their case.

The High Court struck out the representative action on the grounds that it would be unfair, unjust and contrary to the overriding objective. A more detailed explanation of the background and the High Court’s judgment can be found in our previous article here.

The claimant appealed the judgment to the Court of Appeal on several grounds including that the judge erred in law and fact when exercising his discretion under CPR 19.8 and the judge’s approach contradicted the Supreme Court’s finding in Lloyd v Google.

Court of Appeal decision

The Court of Appeal affirmed the decision of the High Court and held that it was within the Court’s discretionary power under CPR 19.8 to strike out the representative proceedings. The Court expressed concerns about the litigation burden being very one-sided at the initial stage and that under the claimant’s proposed approach, the second stage of the claims would have to proceed from a standing start. The Court also identified a number of factors (discussed below) which are relevant to the analysis of whether a claim can be brought under CPR 19.8, with an emphasis on ensuring the case management powers of the courts are maintained. While the decision was made on the facts of the case, these considerations will limit attempts to use bifurcated proceedings in a similar way in other securities litigation and other group claims.

Key takeaways

The judgment outlines various factors the courts should consider when deciding whether to allow a representative claim to be brought under CPR 19.8, particularly as bifurcated proceedings, including:

1. The Court’s discretion: the Court has discretion as to whether it allows a claimant to bring a claim under CPR 19.8 or not. A claimant does not have an automatic right to pursue a claim in this way even if it meets the “same interest” threshold. The Court’s discretion is only limited by the fact that it must be exercised in accordance with the overriding objective. Parties should not overly rely on Lloyd v Google to argue that they have a right to bring representative action. Further, the Supreme Court did not suggest that in a comparative exercise, representative proceedings would always prevail over multi-party proceedings. Where another form of procedure is available, there is no automatic preference as to whether representative action or multi-party proceedings should be employed: the Court must assess the advantages and disadvantages as it sees them on the facts of the case.
2. The importance of the Court maintaining its case management powers: the object of using the bifurcated representative procedure in this case was to avoid the Court using its case management powers to order the claimants to advance some of the claimant-sided issues in parallel with the defendant-sided common issues (as had been ordered in other s.90 FSMA claims). The effect of using the procedure would be to deprive the Court of its powers to strike out speculative unmeritorious claims, which is inimical to the overriding objective. In particular, the claimant wanted to avoid the Court ordering the claimants to identify which head of reliance each claimant relied on. This followed from the recent decision in Allianz Funds Multi-Strategy Trust v Barclays Plc [2024] EWHC 2710 where the High Court clarified the requirement for ‘reliance’ by shareholder claimants in securities litigation. Claimants must show that they read or heard an alleged misrepresentation in order to have relied on it and a wider US-style approach of reliance on the market is not sufficient. This is a significant limitation on the scope of securities litigation, especially for passive investors such as index tracker funds and led to 60% of the claims by value in Allianz being struck out (see further details here). The Court of Appeal considered that to allow the representative proceedings to continue without requiring the claimants to identify how many of them would rely on market reliance would be to encourage speculative litigation. Further, the Court considered that settlement would be discouraged if the representative proceedings continued with the defendants in ignorance of how many claimants had a sustainable claim.
3. Availability of multi-party proceedings: Multi-party proceedings were available as an alternative and had been brought by the institutional investors on a protective basis and stayed. The claimant and funder failed to provide evidence of why the retail investors could not be funded in the multi-party proceedings when they had been in the representative proceedings. The continued pursuit of the claims by way of the multi-party proceedings was feasible and in accordance with the overriding objective. Using multi-party proceedings would not remove the opportunity of adopting a bifurcated approach with a trial of common issues at stage 1. The Court could order that approach at the first case management conference if it considered it appropriate to do so, but importantly it would still have case management powers to order disclosure of evidence in relation to individual issues to be produced in tandem.

While each case will depend on its facts, this judgment of the Court of Appeal emphasises the importance of the courts’ case management powers and that the courts will not allow the CPR 19.8 procedure to be used by claimants and funders to gain a tactical advantage in the litigation.

With thanks to Max Sharp for his assistance in preparing this post