Shareholder Claims And Collective Actions

• Published date: 29 June 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Class Actions, Trials & Appeals & Compensation, Securities, Shareholders
• Law Firm: Gatehouse Chambers
• Author: Sarah Clarke

Although a fixture of the US legal system, collective actions have not traditionally formed a significant part of the English legal landscape. Recent years have seen an increased interest in this kind of litigation in many jurisdictions outside the US, with collective shareholder actions tipped by many to be a significant growth area in UK litigation.

Class Actions in the US

In the US, class actions proceed on an 'opt-out' basis: the claim is made on behalf of all those who fall within the defined class unless they opt out. Individual class members do not need to be identified or authorise the claim brought on their behalf. The main cause of action relied upon in shareholder class actions in the US is section 10(b) and rule 10b-5 of the US Securities Exchange Act 1934, which concerns fraud and misrepresentation in connection with the purchase and sale of securities. Unfortunately for overseas investors, the US Supreme Court decision in Morrison and others v National Australia Bank Ltd and others 130 S Ct 2869 (2010), resolved uncertainty as to the international reach of those provisions by concluding that they do not have extraterritorial application. As a result, investors who purchased securities outside the US cannot participate in US class actions.

Collective action processes in England

In England, the only dedicated procedural mechanism comparable to the...