Litigation Trending: High Court strikes out a securities class action brought under CPR 19.8

In Wirral Council v Indivior plc [2023] EWHC 3114 (Comm), the High Court rejected the use of the representative action procedure under CPR 19.8 to bring claims under sections 90 and 90A and Schedule 10A of the Financial Services and Markets Act 2000 (FSMA).

Key takeaways

• The Court held that the use of CPR 19.8 would deprive it of its ability to case manage the claims in accordance with the overriding objective and the interests of justice, and that the claimants should pursue their claims in the ordinary way through multi-party proceedings.
• This case is a clear indication from the Court that it will not allow representative actions under CPR 19.8 to be used as a means for claimants to side-step the normal procedural requirements and burdens of litigation. Where a claim is to proceed in the bifurcated manner referred to by the Supreme Court in Lloyd v Google (see our article here), this will only be after the Court considers all the relevant case management matters, such as the proper split of issues and how the burdens of the litigation should be shared between the parties.

Background

Wirral Council, as the representative claimant, brought claims on behalf of a group of institutional and retail investors who held, acquired or disposed of securities in the two defendant pharmaceutical companies, Reckitt Benckiser Group plc and Indivior plc. The claims were based on allegations that the defendants had engaged in a fraudulent scheme to market a drug for opioid addiction in the US. 

Through the representative action, the claimants sought declarations going to the "defendant-side" liability issues only, including that the defendants had made untrue or misleading statements or omissions in their published information, in breach of sections 90 and 90A and Schedule 10A of FSMA. The claimants sought to defer all the usual "claimant-side" issues, such as standing of individual investors to sue, reliance, causation and quantum, to a later stage. In this way, the claimants sought to characterise their approach as adopting a "bifurcated process" of the kind referred to by the Supreme Court in Lloyd v Google.

The defendants applied to strike out the representative action primarily on the basis that it would prevent the Court from being able to exercise its case management powers in relation to the structure of the proceedings, such as whether and how to bifurcate the issues, and its general control over the shape of the claim prior to trial. The defendants also argued that the representative action would create an unfair imbalance in the burdens of preparing for and conducting litigation; make settlement more difficult, and pose issues for the fair and efficient conduct of the trial by forestalling progress on the claimant-side issues until after determination of the defendant-side issues.

The overriding importance of case management principles

Although the representative action had been commenced "as of right" pursuant to CPR 19.8, the Court had the discretion to order that it be discontinued and there was no presumption in favour (or against) the claim continuing under CPR 19.8. Rather, that discretion was exercised by reference to the overriding objective to deal with cases justly and at proportionate cost.

The Court held that the representative action had been favoured by the investors and their funders because they did not want the risk and costs of pursuing of pursuing ordinary multi-party proceedings, in which the judge managing the case might require them to provide information or disclosure or witness evidence prior to a first trial on defendant-side issues. 

This was not, in the Court's view, a legitimate basis for using the representative action procedure under CPR 19.8 and that it would be unfair and unjust to the defendants, and contrary to the overriding objective, to allow the claimants to unilaterally bifurcate the proceedings in the way they wanted. As the Court put it: "Critically it is down to the Court to decide for itself what the appropriate case management should be for the case before it. […] The Representative Proceedings however predetermine those issues of split trial and other matters of case management in the Claimants' favour without being put before the Court."

The Court rejected any notion that Lloyd v Google provided support for the adoption of a bifurcated process in representative actions divorced from the specific circumstances of each case and the availability of alternative forms of collective action. Rather, the Court held that Lloyd v Google only identified the bifurcation of claims as one solution to a potential problem raised by representative actions: the Supreme Court did not explain how bifurcation would work in any particular case and made it clear that each case had to be decided by reference to the overriding objective. Here, the purpose and stated advantage of the representative action was bifurcation. The Court held that this effectively pre-judged the issue and ousted the proper case management role of the Court.

The Court did not accept that a representative action was the only means by which the investors could seek redress. Indeed, there were already multi-party proceedings involving some of the institutional investors on foot, although those proceedings had been stayed pending a decision on whether the representative action could proceed. The Court concluded on that basis that ordinary multi-party proceedings, where the claims could be case managed from the start – including with respect to bifurcation – taking into account all relevant factors and the positions of both parties, were more appropriate in this case than allowing the representative action to proceed. 

In the result, the Court agreed with the defendants, ordering that Wirral Council could not act as a representative claimant and that the claim forms and particulars of claim in the representative action be struck out. 

The decision will be welcome news for defendants, given that it suggests that claimants will not be permitted to use the CPR 19.8 representative action procedure to gain tactical advantages as to how a securities class action will be managed, and in particular to sidestep the burdensome issues of such proceedings, placing the whole burden on defendants for the initial stage. As the Court found, the proper split of issues, and how the burdens of the litigation should be shared between the parties, will remain in every case a matter for the court to consider in exercising its case management powers.

Authors: Tim West and Justin Browne