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 US opt-out class action is the procedure under the Competition Act 1998 s.47B. Outside competition law, the next closest to the US opt-out model is the representative action under CPR 19.6, which permits claims to be brought on behalf of non-parties without requiring their consent, provided that they have the same interest in the claim. Although the order made will be binding on all represented parties, it will only be enforceable by or against them with the permission of the court. In practice, this regime has not been widely used, due to the difficulty in satisfying the "same interest" requirement. This was recently illustrated by the rejection of the claim in Lloyd v. Google LLC [2021] UKSC 51 as a result of differences between the losses suffered by individuals as a result of the data protection breaches that were subject to the claim. Although the Supreme Court emphasised that the "same interest" requirements could have been satisfied if the representative action had been confined to liability, given the costs implications of a split trial, these observations may do little to salvage the utility...