In this case note, 4 New Square Chambers’ Anson Cheung explains the recent Court of Appeal judgment in Various Claimants v Standard Chartered plc regarding group securities claims under sections 90 and 90A FSMA.

The Court of Appeal has recently handed down its first judgment in relation to a group securities claim under sections 90 and 90A FSMA, declining to strike out various aspects of the claimants’ case against Standard Chartered plc and upholding Michael Green J’s decision at first instance.

In particular, the Court of Appeal provided important guidance on pleading dishonesty both in securities fraud claims and more generally.

Facts

s.90 and 90A FSMA provide a potentially valuable right for shareholders to sue UK listed companies that publish misleading information to the markets. These sections provide for compensation to be payable in certain circumstances where (among other things) there have been misstatements or omissions in prospectuses or other published information relating to securities.

For background, the Defendant bank was a public listed company. The claimants were individuals who held interests in securities issued by the defendant bank. The s.90 and 90A FSMA claims were founded on two sets of allegations:

1. The Brutus allegations. It is common ground that the Defendant breached US sanctions on Iranian entities by illegally sending payments through the US financial system between 2001 and 2014. Brutus Trading LLC, founded by the former global head of transaction banking at the Defendant bank, brought an action alleging that the defendant had misled US authorities as to the scale and nature of the wrongdoing (the Brutus complaint).
2. The Maxpower allegations. It was reported by global news agencies that a company called Maxpower Group PTE Ltd, in which the defendant held a minor interest, had engaged in a corrupt scheme to bribe Indonesian government officials to win or renew contracts.

The securities fraud claims brought by the claimants  alleged various deficiencies in published information between 2007 and 2019, as well as untrue or misleading statements  or omissions in prospectuses. These claims were in part founded on the Maxpower allegations and the Brutus allegations.

The defendant bank sought to strike out the claim pursuant to CPR 3.4(2) on the following bases:

1. The Brutus allegations: a pleading must disclose on its face a solid evidential foundation for any allegation of fraud or dishonesty alleged. If inferring fraud or dishonesty, the pleading must include all primary facts said to support that inference, which must be such as to tilt the balance in favour of fraud or dishonesty. The defendant bank suggested the Brutus complaint was simply not enough to provide the requisite solid evidential foundation, and the claimants had not pleaded primary facts, as opposed to conclusions drawn from the Brutus complaint.
2. The Maxpower allegations: To establish liability of an issuer under s.90A and schedule 10A to, of FSMA, knowledge and dishonesty on the part of “persons discharging managerial responsibilities” (PDMRs) must be proven. The defendant bank alleged that the claimants’ allegation that the “Group Executive” of de jure or de facto directors was an allegation of fraud en bloc against many individuals who would be within the bank’s Group Executive, and therefore unacceptable.

The Court of Appeal’s decision

In the event, the Court of Appeal dismissed the appeal and upheld the decision at first instance.

As to the Brutus allegations, the Court of Appeal held that there was no rule that a pleading had to disclose a solid evidential foundation for an allegation of fraud or dishonesty; rather it was to plead the facts relied upon (as opposed to detailing the evidence behind it). While there was a need for proper particularisation where allegations of fraud and dishonesty were made, “the Courts also need to beware of imposing such onerous pleading requirements as to make it impractical to bring meritorious fraud claims, particularly given the limited information that might initially be available to a victim.” Ultimately “‘a measure of generosity in favour of a claimant’ is to be allowed.” (at [49]). Further, there was nothing inherently objectionable on a claimant “piggybacking” on allegations by a third party. While there was force in the paucity of information in the claimants’ pleadings, ultimately the Brutus complaint had been made by a former employee of the bank, and were not so inadequately particularised as to justify striking out.

As to the Maxpower allegations, while it was “desirable” that the claimants should spell out what they alleged regarding individual PDMRs “as soon as they can”, it was not appropriate to strike out on the basis of the en bloc point “for the time being” (a reference to the relatively early stage in litigation). This was particularly given that the claimants were faced with a somewhat opaque management structure which made it difficult to assess the roles of particular individuals, and in respect of which the bank had not provided additional information. The Court of Appeal held it would be sufficient to plead that “one or more” of the PDMRs and/or the wider group had the requisite knowledge, or dishonesty (at [65]) .

Comment

This judgment will be particularly useful to practitioners in financial services litigation, particularly as they straddle two broader trends: (i) group claims relating to ESG and (ii) within the ESG group claims, the increase in securities fraud claims under s.90 and 90A FSMA.  

A common theme was the Court of Appeal’s emphasis on the need for a measure of generosity in favour of claimants where there is an asymmetry of information. With the Brutus allegations, it was the asymmetry of information that may be available to the victim of a fraud. With the Maxpower allegations, the Court was clearly alive to the lack of disclosure from the defendant, which hampered the claimants’ ability to plead against specific individuals, as opposed to “one or more” member of a wider group.

A more self-interested point for those who practise at the Bar: the Court was clear it would not interrogate whether counsel had complied with regulatory obligations when pleading allegations of fraud – the Court observed it would not know enough to assess the basis on which pleadings were drafted and verified “even if that were our concern, but it is not.” (at [44])  The issue was simply whether the pleadings ought to be struck out.