In a judgment that will have far-reaching consequences, the Court of Appeal has upheld the English High Court’s decision to strike out the representative proceedings brought by Wirral Council (as the administering authority of the Merseyside Pension Fund) against Indivior PLC and Reckitt Benckiser Group PLC. It confirms that, while a bifurcated approach to a representative action may be appropriate in specific cases, representative proceedings cannot be used as a method of forcing bifurcation upon Defendants and the Court. 

Background

Indivior is the manufacturer of an anti-addiction medication, Suboxone, that was aimed at combatting the opioid crisis in America. Indivior was previously a subsidiary of Reckitt. Between 2006 and 2013, it was allegedly involved in a fraudulent scheme to extend the period of patent protection for Suboxone. 

This came to light in April 2019 when Indivior was indicted by the US Federal authorities in relation to the scheme. It agreed to pay US$600m to settle its civil and criminal liability, and Reckitt agreed to pay US$1.4bn to settle its own potential liability. Indivior’s former CEO and Medical Director also pleaded guilty to criminal charges relating to the scheme. 

These circumstances have given rise to potential claims against the two companies by investors in their shares. One such investor was the Merseyside Pension Fund, which had invested in both Indivior and Reckitt shares during the period of the scheme.

Wirral, as administering authority for Merseyside Pension Fund, is now seeking compensation under s90 and 90A and Schedule 10A of FSMA for any loss that the pension fund has suffered as a result of Indivior and Reckitt omitting to disclose the facts and consequences of the scheme in any of their published information about their shares. There are also hundreds of other institutional and retail investors in Indivior and Reckitt shares with similar potential claims.  

The representative action and strike-out 

Under CPR 19.8(1)(a), where more than one person has the same interest in a claim, the claim may be begun by one claimant as a representative of any other persons who share that same interest (if you are interested in how the Court interprets the “same interest” test, read this  article).

While a claimant can begin a representative action “as of right” and without the Court’s permission, the Court has a discretion whether to allow such an action to continue.  

Any party may apply to the Court to ask that it exercise its discretion under CPR 19.8(2) to direct that the claimant may not act as representative. It was the exercise of this discretion and whether there was any fetter on the Court’s power under CPR 19.8(2) following the Supreme Court’s judgment in Lloyd v Google [2021] UKSC 50 which was the issue at the heart of this judgment. 

Wirral began representative actions in 2022 against both Indivior and Reckitt. Wirral stated it was acting as representative of the institutional and retail investors who had held, acquired or disposed of shares in those companies from 2006 onwards and had claims against them under 90A and Schedule 10A of FSMA.1  

There are five elements that a claimant must prove to succeed on a s90A and Schedule 10A claim, namely:

1. that it has standing (i.e. it has the requisite personality to sue and has dealt in the relevant shares);
2. that there was an untrue or misleading statement or dishonest omission in the issuer’s published information to the knowledge of a person discharging managerial responsibilities within the issuer;
3. that it reasonably relied on the published information when deciding to deal in the shares;
4. that it would have acted differently absent the misleading statement or dishonest omission; and
5. that it has suffered a loss.   

In its representative actions, Wirral sought declarations only as to the common issues concerning whether Indivior and Reckitt had, with the necessary managerial knowledge, made misleading statements or dishonestly omitted matters from its published information. None of the other four elements – standing, reliance, causation and quantum which were all unique to each individual investor and not common issues – formed part of the representative proceedings. Wirral sought to park those until a later stage after the representative actions had been determined.   

This was the first time a claimant had sought to use the representative action procedure for a s.90A FSMA claim. Previously, such claims have been brought as multi-party proceedings where each claimant investor is a participating party in the ordinary way. The Court often orders a split trial in such cases, with the issue as to liability determined first. While the issue as to reliance is often determined later, the Court has typically used its case management powers to require claimants to undertake work on the reliance issues in parallel with the preparation for the first trial. It has done so to prevent speculative claims, ensure a fair burden falls on the claimants, and assist with settlement efforts.  

Wirral’s representative actions, however, would have effectively predetermined those issues of split trial and case management in the claimants’ favour without the Court’s involvement. 

Indivior and Reckitt objected to this. They successfully sought strike out of the representative proceedings on the basis that it was not the appropriate procedure for these claims. Multi-party proceedings had been launched in parallel (which were currently stayed), and the Defendants said that those multi-party proceedings were the more appropriate route. 

Wirral appealed. 

The arguments on appeal

Wirral’s appeal contended that the judge had erred in law, and failed to follow Lloyd v Google correctly. Wirral said that once the “same interest” test is met, the Court’s discretion under CPR 19.8(2) can only be exercised to stop a representative claimant if a fundamental, structural flaw in the claim is shown. The judge’s objection that the bifurcated representative action inhibited the Court from managing the case was unfounded, as this was an inherent feature of any claim bifurcated in the way contemplated by Lloyd v Google. If this were truly a bar to representative actions, few or no such claims could proceed.   

Wirral argued the bifurcated process would save time and expense. The represented claimants would receive the benefit of the findings on the common issues without having to provide detailed pleadings and evidence or risk being selected as a test claimant. If the representative action failed, then no costs or Court time would have been wasted on the individual issues. If it succeeded, Wirral argued there was more likely to be a settlement.             

Wirral also argued that the representative proceedings were the only option for retail investors. It said that the 302 retail investors who had opted in would be denied access to justice if the representative proceedings were struck out. The funders were not willing to fund retail investors in the multi-party proceedings, allegedly because of the “economic and administrative burden”.

Lastly, Wirral argued that a “knock-out blow” (not merely a procedural objection) is required before the Court should order that a claimant who has met the same interest test cannot act as a representative. Indeed, it said once that threshold test is met, the application of the overriding objective favours the representative action continuing.  

Indivior and Reckitt opposed the appeal, arguing that the Court had an unfettered discretion under CPR 19.8(2) to determine whether the claims should be permitted to continue as representative proceedings. 

They highlighted several key issues with Wirral’s approach and why (they said) the multi-party proceedings were more appropriate:

• Wirral’s attempt to place all the up-front burden on the Defendants was unfair and inimical to the overriding objective. Moreover, if all claimant-side issues were parked until a later stage, the Defendants could not assess the merits of the claims and properly value them;
• it was especially problematic that Wirral’s solicitors would not provide any information pertaining to reliance, which as noted above is one of the five key elements of a s.90A FSMA claim. In other securities litigation, information as to how investors had relied on the allegedly untrue published information had been crucial. In Allianz Funds Multi-Strategy Trust v Barclays plc [2024] EWHC 2710 (Ch), 60% of claims were struck out at an early stage because those claimants alleged price/market reliance, where the investor is alleged to have suffered loss because of the level of movements in the share price being influenced by the published information. That type of reliance is not recognised in English law, so such claims are without merit. The Defendants ought to have the same opportunity to request early dismissal of claims that could never work as a matter of law;
• the Defendants also objected that Wirral’s approach allowed it and its funders to engage in “book-building”, to which the Court has previously expressed clear opposition. Representative proceedings are not to be used in order to attract additional claimants without having to properly assess their individual claims; and
• finally, no weight should be placed on the argument that CPR 19.8 was the only option for retail investors. The retail investors being unable to participate in the multi-party proceedings was a position engineered by the funders. There was no adequate or coherent explanation as to why the funders were prepared to fund the institutional investors in the multi-party proceedings but not any retail investors.

Judgment

The Court upheld the decision to strike out the representative proceedings. There was nothing in Lloyd v Google to suggest there were limits on the Court’s discretion under CPR 19.8(2). 

In particular, there is no hierarchy of different procedures. Where another form of procedure is available, as with the multi-party proceedings in this instance, the Court, in exercising its discretion under CPR 19.8(2), must assess the advantages and disadvantages of each option, with no innate preference towards one form of procedure or another. Contrary to Wirral’s interpretation, there is no presumption in favour of permitting a representative action to continue simply because the claimant has met the same interest test.

The Court was deeply critical of the tactical use of the representative procedure and what it saw as an attempt by Wirral and its funders “to game the system”.

The Court agreed with the Defendants that it was not acceptable that Wirral was pursuing representative proceedings precisely to avoid having to do up-front work. This was especially so where it was clear that at least a portion of the Claimants would be arguing only price/market reliance. Any Claimant using this argument in fact had no claim and as a matter of fairness to the Defendants the Court should be able to assess this at an early stage and dismiss such claims. The Claimants should not, by deploying the representative procedure, be able to pressure the Defendants into an overall settlement if some of the Claimants did not have a claim at all.   

The Court was also unpersuaded by Wirral’s arguments that the retail investors would not have access to justice unless the representative proceedings continued. It considered the retail investors’ situation an “artificial” one that had been “engineered by the funders”. There was no cogent explanation for the funders’ position and no evidence that the retail investors who had been allowed into the representative proceedings and had met stringent cost sharing conditions to do so, could not obtain their own funding to join the multi-party proceedings.    

The Court concluded that the judge had exercised his discretion in accordance with the overriding objective in a careful and detailed analysis.  He was right to strike out the representative proceedings.  In this instance, that procedure obstructed the overriding objective whereas the multi-party proceedings were more appropriate and would enable the claims to be dealt with fairly and expeditiously by enabling speculative claims to be removed early, a more balanced burden (between the parties) in the first stage, and a proper understanding of the claims which would assist settlement efforts.

Comment

It is evident that while the Courts wish to encourage the use of representative proceedings, they are not willing to allow claimants to use that procedure for purely tactical advantage when other available routes are more suitable. 

If the use of the representative procedure is challenged in similar circumstances in future, it will ultimately be whichever available route is more likely to resolve the claims fairly and expeditiously which will prevail. 

This means that when starting a representative action, claimants must consider the risk that, even if the same interest test is met, the Court may decide that a different procedural route is more appropriate.  This is even more so with a bifurcated approach. In such cases, attention needs to be given at the outset to how the second stage will work and how the ultimate relief sought will be obtained. In this case, the Court had been concerned as to how little thought appeared to have been given to how the second stage would proceed. 

The judgment also confirms that while a bifurcated representative action may be appropriate in cases where the assessment of damages can be hived off to a second stage, it is not suitable in cases where there are elements of the claim that require individual assessment in order to establish liability (such as with reliance for claims under s90A of FSMA). 

1 The claims also cite s.90 FSMA, however the focus of the judgment was the s.90A claims.