Insights

The Supreme Court’s decision in Lloyd v Google LLC [2021] UKSC 50 has led to a much-needed revival of the representative action in England & Wales. The procedure, available for “centuries” [1], had had little usage in modern times, but the emphatically supportive speech of Lord Leggatt, with which the rest of the Supreme Court agreed, has changed that, leading to at least four [2] significant representative claims being funded.

The first of those was an action brought by Andrew Prismall in Prismall v Google UK Limited & DeepMind Technologies Limited [2023] EWHC 1169 (KB) (“Prismall”) on behalf of 1.6 million patients of the Royal Free Hospital in London. The claim seeks damages after patients’ records were transferred by the hospital to DeepMind Technologies for the development of a medical diagnostic app, a transfer which the Information Commissioner subsequently described as a misuse of patient data.

The second case is Commission Recovery Ltd v Marks & Clerk LLP & Long Acre Renewals [2023] EWHC 398. This is an action on behalf of a class of holders of registered intellectual property rights in respect of allegedly undisclosed commission charged to them by the defendants, a firm of patent and trademark attorneys and an associated company.

The third and fourth cases are representative claims brought by Wirral Council as administering authority of Merseyside Pension Fund (“Wirral“), on behalf of a class of investors who suffered loss following falls in the defendants’ share price, caused by corrective disclosures in relation to the defendants’ involvement in an alleged fraud relating to the marketing and sale of an opiate addiction medication, which resulted in fines amounting to approximately US$2 billion.

Whereas the first two of these cases, like Lloyd’s claim against Google, were brought as opt-out representative actions, the pair of securities actions brought by Wirral were brought on an opt-in basis, the class having to agree terms as to cost-sharing and governance of the proceedings. For reasons which are explored below, this distinction may be relevant to the Court’s exercise of its discretion on applications to challenge the appropriateness of the representative claim.

The defendants in all four of these cases sought to challenge the use of the representative claim as a means to seek redress. Although these challenges were brought on different procedural footings, they all engage similar considerations.

Lloyd

In Lloyd, the issues arose out of a jurisdiction challenge. The defendant asserted that there was not a ‘same interest’ across the represented class and also challenged the use of 19.8 (then called 19.6) on discretion (as well as an argument that class members had not suffered ‘damage’ in the context of section 13 of the Data Protection Act 1998 (“DPA”)). The Supreme Court, although making very helpful clarifications to the law of representative actions, held that Mr Lloyd’s claim should fail because:

1. “damage” under the DPA meant material damage, which would vary from one class member to another; and
2. each member of the represented class would need to establish the extent of individualised personal data that had been unlawfully processed by Google.

Whilst there was a same interest in identifying whether or not Google was in breach of the DPA, such that bifurcation would allow a first stage trial on breach to be resolved on a representative basis, the remainder of the case raised issues of causation and loss – which were necessarily individualised issues of fact – and therefore could not be resolved on a representative basis. The claim was therefore unsustainable because it could not be said the same interest existed in respect of those issues and bifurcation could not solve this in light of the challenges of funding 1.6 million claimants through an individualised process. Accordingly, the Supreme Court reinstated the judge of first instance’s decision to refuse permission to serve the proceedings on Google outside the jurisdiction.

Prismall

In Prismall, the representative claimant argued that there was a reasonable expectation of privacy in respect of medical records and that the defendants’ procurement of those records, without patients’ consent, was a misuse of private information, sounding in damages. The defendants’ application for strike out and summary judgment succeeded at first instance, Williams J holding that even approaching damages on the lowest common denominator basis, and leaving individualised factors out of account, it could not be said that any member of the represented class had a reasonable expectation of privacy. The judge held that the supposedly private information was in fact likely to be anodyne and so there was not a viable representative claim for an entitlement to more than trivial damages. Approaching damages by attempting to quantify the harm suffered by each member of the claimant class individually, would be incompatible with a representative action as the class no longer satisfied the same interest test. These flaws meant that the claim should not proceed. Mr Prismall has been granted permission to appeal by the Court of Appeal; an appeal hearing is expected later this year.

Commission Recovery

In Commission Recovery, the defendants’ attempted to strike out the claims on two grounds:

1. that the assignment of the claim to the claimant was an unlawful champertous assignment of a bare right to litigate; and
2. that the claimant could not act as a representative claimant because the “same interest” requirement was not met, or alternatively the Court should refuse to exercise its discretion to permit the claimant to act in that capacity.

On the first ground, Knowles J held that the assignment was not champertous since, as between a client and an agent, a secret commission is property, and therefore the assignment was an assignment of property, rather than an assignment of a bare right to litigate. Accordingly, the law of champerty did not apply and the question of whether the assignee had a “genuine commercial interest” in the enforcement of the claim did not arise.

On the second ground, although accepting that some elements of the claim might differ depending on class members’ individual circumstances, and that some information or decisions (e.g. as to remedy) might be needed from class members in due course, Knowles J did not see these factors as impediments to establishing the “same interest”. Nor did the judge accept the defendants’ objections that there was a conflict of interest amongst the class. Even though the judge envisaged that some aspects of the claims might in due course need to be dealt with individually outside the representative framework, Knowles J recognised that the flexibility of the rule, as clarified by Lord Legatt in Lloyd, allowed this. Knowles J thus concluded that the Court had jurisdiction to allow the claim to proceed as a representative action and considered it appropriate to exercise his discretion in favour of the representative action, noting: “If the choice is this or nothing, then better this.”

On 18 January 2024, the Court of Appeal upheld Knowles J’s decision, dismissing an appeal brought by the defendants. This approval of a practical application of the bifurcated approach, only considered in principle by the Supreme Court in Lloyd, is welcome. Lord Leggatt had only been able to consider bifurcation at a theoretical level, since Mr Lloyd was not funded to bring a bifurcated case. The Commission Recovery case is understood to be the first commercially funded claim that has been allowed to proceed as a representative action under rule 19.8. The Court of Appeal also held that whilst it is within the Court’s discretion to prevent the Court’s resources from being wasted, it should be slow to allow such grounds to prevent a claimant with an arguable claim from taking it forward.

Wirral

A very different outcome eventuated in Wirral’s representative proceedings to obtain declarations under sections 90 and 90A of the Financial Services and Markets Act 2000 (“FSMA”). Upon Indivior and Reckitt Benckiser’s applications to challenge the appropriateness of the 19.8 procedure, although the Defendants accepted the “same interest” test was met, the Court denied Wirral’s 19.8 claim on discretionary grounds. This is partly explained by the context in which Wirral’s claims were brought, which for various reasons were quite different to the context of Commission Recovery (and to that of Prismall and Lloyd). Two of those reasons are worth examining:

1. First, and most significantly, the representative claims were issued at the same time as ordinary CPR Part 7 claims were issued, apparently for limitation reasons, by a subset of the represented class, including Wirral, against the same defendants in relation to the same wrongdoing. This largely meant that it was not possible for the Court to be presented with a choice between “this or nothing” as it was in the earlier representative actions. The fact that all of the represented class had opted-in to the litigation and a significant subset of that class had also issued ordinary Part 7 proceedings on a protective basis, led the Court to hold that access to justice would not be impeded by striking out the representative action. This seems an unfair outcome given the professional duty on solicitors to protect their clients from a limitation defence and the reality that initiating complex securities claims against deep-pocketed defendants is a difficult and time-consuming task. The appropriateness of the judge’s application of the “this or nothing” principle, is caveated by the existence of a group of retail shareholders who now find themselves in the unfortunate part of the Venn diagram that is outside the overlap between the 19.8 claim and the ordinary Part 7 claim, in an area apparently bereft of access to justice. We will return to this access to justice issue further below.
2. Second, leaving aside their procedural footing, Wirral’s substantive claims, being claims under section 90A and 90 of FSMA, are claims which the Court has some prior experience of case managing, including by Mr Justice Michael Green, the judge who heard Indivior’s and Reckitt Benckiser’s applications against Wirral. By 2023, the jurisprudence which had emerged was sufficient for Chris Warren-Smith and Keir Baker of Morgan, Lewis & Bockius LLP, experienced litigators in the securities arena, to author an article entitled “A Blueprint May Be Emerging for the Case Management of Securities Litigations in England and Wales” [3]. As they explain, the body of jurisprudence, though still nascent, shows that a split trial is increasingly favoured, with the defendant-side issues of defective disclosure and PDMR knowledge tried first, and at least reliance, causation and quantum tried later. The Courts nonetheless appear keen to avoid allowing issues of standing, limitation, reliance and quantum to wait in abeyance whilst evidence on those issues risks going stale. Accordingly, the directions made in these cases to date have always required the claimants to take some active steps in relation to individual issues in advance of trial one. In Manning and Napier Fund Inc v Tesco plc [2017] EWHC 3296 (Ch) (the first section 90A claim to be case managed), all issues except quantum, were ordered to be tried in the first trial [4]. And in each of the securities claims brought against RSA [5], G4S [6] and Serco [7], the Court required the claimants to particularise and/or evidence their reliance cases at least to some extent in advance of trial one. In RSA, the claimants were required to give disclosure on reliance and in G4S and Serco, the claimants were ordered to provide additional information on the reliance cases to enable a sampling exercise not to “drift” [8] . Against this “blueprint”, Wirral’s claim for declarations just on the issues of defective disclosure and PDMR knowledge would, the Court held, have deprived the Court of the powers to make such case management orders until the second stage of a bifurcated process, thereby preventing the Court from considering whether one or more directions from the “blueprint” in this space would be appropriate at an earlier stage in the proceedings.

These two reasons appear to have been the key considerations which enabled Green J to dispose of the representative action so confidently:

“… Wirral’s proposition does seem quite extraordinary. It is asking the Court to accept that it should have no control over whether the proceedings should be bifurcated in the way that the Representative Proceedings will dictate that they are. One can see from the judgments in G4S and RSA how the Judges have carefully balanced all the competing interests in deciding how those cases should be managed. But Wirral is saying that the investors should be able, unilaterally, without any input from the Defendants or the Court, to bifurcate the proceedings in the way they want them to be. I do not think that Lloyd v Google gives them that entitlement; nor that the Court is bound to accept that this is in accordance with the overriding objective.”[9]

But what about the caveat? Green J accepted that:

“the Supreme Court was advocating for greater use of the representative action, principally where it would provide access to justice that would not otherwise be available to that class of claimants”. [10]

So how could the Court deny justice to the over 300 retail investors, who accounted for a significant number of the opt-ins across the two claims and who without the 19.8 proceedings would have no recourse against the defendants?
The answer appears to stem from Green J’s acceptance of the (unchallenged) submission made for Reckitt Benckiser, and adopted by Indivior, that

“the RBS Rights Issue litigation pursuant to s.90 FSMA which included thousands of retail investors, and the Lloyds/HBOS Group Litigation that involved claims from around 6,000 investors, both institutional and retail… show that retail investors have been able to bring their claims under the current procedural structure and have had access to justice in similar securities claims, albeit not under s.90A FSMA.” [11]

The problem with this submission is that whilst it notes the absence of retail claims made pursuant to section 90A, it does not explain it.

One possible explanation is that section 90 is not a reliance-based claim. Although a section 90 claim needs to show a causal link between the defective disclosure and the loss, that is principally a matter of expert evidence, not individualised evidence. All the retail shareholders needed to personally evidence in the RBS rights issue litigation was: (a) that they had title to sue (i.e. the requisite interest in the RBS shares at the relevant time); and (b) their trade data. That is a simple task that can be cost-effectively checked as part of the solicitor’s onboarding and the funder’s due diligence at the time of evaluating the merits of the case. A funder that tried to perform the equivalent task in respect of reliance for the purposes of a section 90A case, would find the work involved, and the cost of it, disproportionate to the value of the claim, for in addition to checking (a) and (b) it would also need to interrogate each retail claimant’s position in respect of reliance. As was explained in Wirral’s evidence, this would not be an “economically viable” application of litigation funding [12]. Given the “absolutely central” importance of reliance to the section 90A claim [13], one wonders if this caveat might be a fertile ground on which to mount an appeal [14]. Only time will tell.

Pending any appeal, where does that leave the representative action? It is clear that where the evidence shows that there is a genuine “this or nothing” situation and the same interest test is met so as to result in a likelihood of non-trivial damages, the Court will try to exercise its discretion to allow the representative action to continue, even if it means it needs to proceed on a bifurcated basis, with an individualised process following at a later stage. As for securities litigation, it seems that the Court is happy with the blueprint it has developed for the time being and, pending any successful appeal of Green J’s judgment, ordinary Part 7 claims may remain the preferred procedural vehicle for securities claims. Exceptions might include claims that are brought purely under section 90, where a limitation defence is not arguable such that there is no professional duty for the legal team to also issue a protective Part 7 claim form to protect their clients’ interests in respect of limitation.