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Is 2022 the year for UK securities class actions?

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United Kingdom

On 28 January 2022 Mr Justice Hildyard released a summary of his awaited judgment in the Autonomy Corporation Limited and Others v Michael Richard Lynch and Another case. The proceedings relate to the purchase for approx. $11.1 billion of the entire share capital of UK company 'Autonomy' by the Hewlett Packard group.    Why does this case matter? This judgment will be the first judgment on a claim brought under Schedule 10A / section 90A of the Financial Services and Markets Act 2000 (a "FSMA claim"). The released summary indicates that the Claimants have been successful in their FMSA claim. In short, a "hardware reselling programme" had been implemented to enable Autonomy to cover up shortfalls in software revenue - this was concealed from the market. The judge found that the purpose of the hardware reselling strategy/programme was dishonest and that the way it was accounted for depended on its dishonest presentation. Crucially, the "persons discharging managerial responsibilities" of the company were aware of this.
 
Schedule 10 / section 90A FSMA allows for claims to be brought by investors in UK securities who have acquired, continued to hold or disposed of securities that suffer a loss as result of reliance on untrue or misleading statements (or omissions) in published information. A person discharging managerial responsibilities within the issuer must know the statement to be untrue or misleading or needs to have been reckless as to whether it was untrue or misleading (or must have known the omission to be a dishonest concealment of material fact).
 
Unlike in the USA, securities class actions in the UK remain uncommon. There are a small number of other FSMA claims currently in progress (including those involving G4S and RSA Insurance). This decision, however, could pave the way for more investors to obtain the funding needed to mount such a claim. 2022 could be the year that UK securities class actions finally start gaining traction.
 
The final judgment, when it is released, will be an interesting read. We await with particular interest the remarks surrounding the issue of reliance, and the test that must be satisfied for a successful FSMA claim. In his summary the judge has indicated that he accepted that the fact that it was the parent company of group that was influenced by Autonomy's published information and that undertook the due diligence did not mean that the acquiring entity could not satisfy the reliance test required for a successful FSMA claim. For the purposes of the acquisition, the ultimate parent company could be treated as the 'controlling mind' and the reliance of the acquiring entity could be treated as its reliance. How far the concept of 'controlling mind' could be taken remains to be seen. Might an investor who has delegated investment decisions to a third party be able to claim that its reliance was their reliance? We look forward to seeing what Mr Justice Hildyard has said that could impact on the 'reliance test' going forwards.
 
We also await with interest the direction of travel that UK securities litigation will take. Might we see claims in the future based on false or misleading ESG credentials published by listed companies? The obvious immediate challenge to such a claim would be demonstrating loss. If the policing of 'green washing' improves and companies start to see fines being issued or drops in share price resulting from false or misleading ESG related statements, we may start to see claims being brought by investors claiming compensation for their loss under Schedule 10A / section 90A FSMA. Our prediction, however, is that we are unlikely to see much traction in this area in 2022 and that this is likely to take longer to come to fruition.  
 
In the meantime, if you are an investor who has lost money because of what you consider to be misleading or untrue statements made by listed companies in published information, we want to hear from you. Fieldfisher is in some cases prepared to enter into a damages based agreement (DBA) so that clients can bring litigation where third party funding might otherwise be needed. If you think you have a claim we would welcome the opportunity to explore with you whether Fieldfisher would be able to assist.

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