What is the role of group actions in English securities litigation?

In recent years, the legal market in England has seen huge growth in section 90 and section 90A FSMA claims coming to court, as investors of all kinds continue to expect greater accountability from public companies.

This sees the English litigation market slowly catching up with the US, which has a well-established, well-used group litigation procedure for bringing claims against listed companies. It landed in the UK with the entry into force of sections 90 of the Financial Services and Markets Act 2000 (FSMA) nearly two decades ago, and the addition of section 90A later (covering wider categories of information). The ensuing RBS rights issue litigation, filed in 2013 and settled pre-trial in 2017, represented a pivotal moment for the perceived viability of group securities litigation. As a result, today, these actions are considered a genuine risk to securities issuers.

Role of group litigation

It is not a requirement of either of the section 90 or 90A provisions that claims be brought as by a group, or class, of claimants, nor that any such claims have to be formally managed under the court's case management powers.

There is a parallel trend for group litigation in England, with a range of options available to claimant groups when considering a collective action. This procedural diversity is no doubt contributing to the surge of interest in the securities sphere.

But of the options available, it is the group litigation order (GLO) that is attracting the most attention on the securities litigation market, much of which is down to the perceived similarity of them to the US "class action" regime.

Group litigation orders

In the securities sphere, GLOs in theory make bringing claims against issuers accessible to investors by opening up avenues for litigation funding, "after-the-event" insurance and generally affording them greater costs protection. However, that is not to say that they are without their challenges. Indeed, the most notable securities cases to hit the court over the last decade do not make use of this mechanism as the method for pursuing securities group actions – according to HM Courts & Tribunals Services' list of GLOs, the RBS rights litigation was the first and last securities claim to have been subject to a GLO. As is often the case with claims of this nature, there can be more than one claimant group concerned. In the RBS rights issue litigation itself, there were indeed three claimant groups: one group of retail investors and two groups of institutional investor.

This create complications when it comes to case management – retail investors and institutional investors are likely to have different risk appetites and priorities. For example, the former are likely to place deeper reliance on the word of their lawyers, whereas the latter are more likely to have parallel independent advisors.

Retail investors are also more likely to be motivated to proceed to trial so that justice can be seen to be done appropriately and to encourage their counterparties to adopt strong corporate governance procedures. However, the suitability of GLOs is not limited to securities actions. Recent case law shows a trend towards the rejection of GLOs in claims of all subject matters (not only in securities claims).

For example, in Edward Moon and Ors v Link Fund Solutions [2022] EWHC 3344 (Ch) an application for a GLO was rejected on the basis that the desired outcome could be achieved by the parties serving a generic statement of case instead. In Hamon & Ors v University College London EWHC 1744 [2024] (KB) Master Cook acknowledged that the relevant conditions for a GLO had been satisfied but to order one would add unnecessary cost. He also noted that there wasn’t enough evidence that further separate claims would be issued in relation to the subject matter.

The GLO's limitation as an 'opt-in' vehicle

The GLO is subject to one relatively major limitation in England – it is an "opt-in" vehicle for group litigation. This means that potential claimants will continue to need to be convinced to join a group of claimants, which will inevitably need to be of a certain size before it is of interest to litigation funders and legal representatives. As a result, start-up costs can be significant.

This is in contrast to the position in the US, where securities class actions are brought on behalf of a defined class requiring individual claimants to "opt-out". An opt-out mechanism does exist for claims brought in the UK's Competition Tribunal, and while there have been calls for that to be extended beyond the competition environment, there are no immediate plans to do so.

Osborne Clarke comment

As interest in securities litigation grows, there will no doubt also be a surge in the number of direct actions brought by large institutional investors that would rather not navigate the complexities associated with group litigation, and who have the resource and funding to go it alone.