Stewarts Law: The green shoots of English securities litigation

Stewarts Law: The green shoots of English securities litigation

Clive Zietman

Head of commercial litigation, Stewarts Law

czietman@stewartslaw.com

Unbeknown to many English lawyers there is an area of the law that has matured and developed in the US over the past 80 years but which, until recently, has hardly been recognised as a separate practice area. There are flickers of light that suggest that the situation may be on the verge of changing.

In the 19th century, when English company law was, in many ways, still in its genesis, a few leading cases established the building blocks for what survived thereafter and still exists today. One of those cases, frequently referred to on day one at most law schools is Foss v Harbottle (1843), a ruling that essentially established that if a wrong is done to a company, the company itself and only the company can sue, as opposed to any individual shareholder or group of shareholders. Over the years, that harsh rule was tempered such that shareholders were not left completely without protection and gained the ability to sue in what is now a raft of different circumstances. Case law developed to create exceptions to the rule in Foss and, with the added assistance of statute, derivative actions and minority shareholder petitions became just two examples of how matters moved on from first principles. What we have never had in this country, however, is anything akin to the well-developed structures that took root in the US in the 1930s and gave rise to wide-ranging statutory shareholder rights that enabled shareholders to sue with a direct cause of action against the company in a raft of circumstances where wrongdoing has been committed by the company itself, its directors or others. In the US there is a long history of securities litigation – cases in which aggrieved shareholders have sued the company when the company’s fortunes deteriorated and the value of its shares dropped as a result. No such regime exists here and there is no clamour for us to adopt an American approach any time soon.

This said, the sands have shifted over the past few years or so and investors who once saw the US as the only jurisdiction to assert claims have turned their attention elsewhere. The reason for this has been twofold. First, as a result of the well-publicised decision in Morrison v National Australia Bank, the US decided that it would no longer play host to cases involving foreign securities that have little or no connection with their home patch. Second, other countries such as Australia, the Netherlands and England have come to the attention of investors, keen to find a credible and palatable alternative.

‘In the US there is a long history of securities litigation. No such regime exists here and there is no clamour for us to adopt an American approach any time soon.’

In England two avenues for investor protection litigation were forged by sections 90 and 90A of the Financial Services and Markets Act 2000, which created statutory causes of action that go well beyond the ambit of the rather constrained common law options that had existed for centuries beforehand. In essence, section 90 makes a company that is responsible for listing particulars and prospectuses liable to compensate a person who has acquired shares to which the listing particulars or prospectus apply; and has suffered loss as a result of either: any untrue or misleading statement or omission. No reliance by the claimant needs to be proven, as it would in, for example, a common law misrepresentation case. Section 90A creates a cause of action for persons who have suffered loss as a result of a dishonest misleading statement or omission in a wide range of published information relating to shares, or a dishonest delay in publishing such information but in this instance the claimant must prove reliance. Statutory defences exist, including a ‘reasonable belief’ defence.

Apart from the well-publicised current case brought against The Royal Bank of Scotland (RBS) by its shareholders under section 90, there have been precious few cases commenced at all (and no reported case law) that can properly be described as English securities litigation. The reasons for this are manifold but they include the following:

  • Prospectuses and other published material are generally accurate and reputable companies go to great lengths employing expensive corporate lawyers to ensure that this is the case.
  • There is nothing in England akin to an opt-out American-style class action system, which makes the framework of a shareholder action very difficult if there are disparate claimant shareholders.
  • Bringing a shareholder claim against a substantial company is not for the faint-hearted – it is time-consuming and very expensive and requires considerable resource and expertise.
  • The risk of adverse costs liability puts off many prospective claimants although there are avenues for insuring against this, nowadays these are often built into a third-party funding package.
  • Whereas the US system actively encourages ‘roll-of-the-dice’ litigation with jury trials, limited adverse costs and mega-damages, ours does the very opposite.

Notwithstanding the above, there are some who believe that we are witnessing a new dawn for investor protection litigation in England and there are strong signs of new cases being developed. There would appear to be a number of reasons for this. First, there seems to be a growing mood among sophisticated institutional investors (such as pension funds and asset managers) that on one level, they have a duty at least to consider possible claims. Second, new funding and after-the-event insurance models and the permissibility of contingent fee arrangements have made feasible claims that perhaps once would not have been. Third, there is a growing awareness of investor protection generally. The Morrison case has forced institutions who historically limited their horizons to the US to look elsewhere. England has the advantage of being a well-respected and stable forum for dispute dissolution coupled with a disclosure regime which, although not as extensive and probative as that administered in the American courts, does make England a more attractive place than continental Europe where reliance discovery tends to be the order of the day. There is much talk in the media about shareholder ‘class actions’ often discussed in the context of a growing compensation culture. In reality there is little reason to believe that in the short term we are likely to see a full-blooded US-style class action system here that would make cases of this kind much easier to run and administer. That said, the mood music suggests that the times they are a changing.

Clive Zietman is a well-known commercial litigator who has been involved in a wide range of complex high-value claims, including a number of very high-profile fraud, professional negligence and banking disputes. His work regularly involves an international dimension. He has acted in several well-publicised cases, including the bankers’ bonus case against Commerzbank and the RBS shareholder litigation.

He leads the commercial litigation team at Stewarts Law and over the past few years he has been involved in several actions against banks, a task which most central London law firms are unable to undertake as a result of conflicts of interest.

 

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Signature Litigation: Contractual interpretation – eyes on the Financial List

Signature Litigation: Contractual interpretation – eyes on the Financial List

Abdulali Jiwaji

Partner, Signature Litigation

abdulali.jiwaji@signaturelitigation.com

Sarah Kelly

Associate, Signature Litigation

sarah.kelly@signaturelitigation.com

Disputes over contractual interpretation find their way to the courts relatively frequently, leaving judges to unpick the wording of complex commercial agreements which will often have been negotiated in detail over many months. The courts will have to weigh up the natural meaning of the words in the contract after hearing arguments driven by the commercial implications of different interpretations for the parties involved, and what one might conclude after applying business common sense. The establishment of the Financial List is itself testament to the complexities encountered by the court in resolving financial markets disputes, and in these types of cases the exercise of contractual interpretation can involve more complexities than most.

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Hardwicke: International commercial arbitration: security for costs and third-party funding

Hardwicke: International commercial arbitration: security for costs and third-party funding

Nigel Jones QC

Hardwicke

nigel.jones@hardwicke.co.uk

Frederico Singarajah

Hardwicke

frederico.singarajah@hardwicke.co.uk

‘As arbitration clauses are widespread in some sectors of economic activity, there has been a serious impediment to the development of the common law by the courts in the UK [though] the UK has not reached the stark example… in the United States, where mandatory arbitration clauses in contracts are removing whole classes of claim from the jurisdiction of the courts and undermining aspects of the law’s development,’ noted Lord Chief Justice Thomas in his 2016 Bailii lecture. As he tries to reverse the arbitration tide so the common law can continue to develop public precedents, others are still promoting arbitration as the best way forward.

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Niederer Kraft & Frey: Does transparency make arbitration more efficient?

Niederer Kraft & Frey: Does transparency make arbitration more efficient?

Daniel Eisele

Partner, Niederer Kraft & Frey

daniel.eisele@nkf.ch

Tamir Livschitz

Partner, Niederer Kraft & Frey

tamir.livschitz@nkf.ch

In recent times, a lot has been said and written in favour of, or against, transparency in international commercial arbitration. The transparency discussion has thus far culminated in the promulgation of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration and the new policy adopted by the International Chamber of Commerce (ICC) International Court of Arbitration to publish certain information on arbitrators also in commercial arbitration. According to the ICC Court website, the new policy is ‘aimed at enhancing the efficiency and transparency of arbitration proceedings’. Parties can opt out of this limited disclosure and can request the ICC Court publish additional information about their case. The new rules and policies promoting transparency in arbitration seem to be an attempt by the ICC Court and others to address the increased criticism launched against arbitration in recent times as being an inefficient means to resolve disputes.

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The Commercial Litigation Summit 2016: The modern Commercial Court

The Commercial Litigation Summit 2016: The modern Commercial Court

In the opening speech for our 2016 litigation summit, Essex Court heavyweight Sir Bernard Eder reflects on the challenges facing the Commercial Court

The Commercial Court was established in 1895. At that stage, it was called the Commercial List, but I am not sure that matters. The reason why it was set up may be found in a brilliant article, which appears at the beginning of volume one of a set of law reports now no longer referred to, generally called Commercial Cases. That article is a must-read for anyone interested in modern commercial litigation. It is as if nothing has changed in 120 years.

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The Commercial Litigation Summit 2016: Marked to market

The Commercial Litigation Summit 2016: Marked to market

In a centrepiece debate, a group of heavyweight disputes veterans came together to discuss London’s much-lauded new finance court. Can it live up to expectations?

Even amid a packed programme at Legal Business‘s second annual Commercial Litigation Summit, the discussion on the newly-launched Financial List, the dedicated court backed by specialist judges and an innovative appeals track, was a highlight of the day.

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The Commercial Litigation Summit 2016: Dangerous territory

The Commercial Litigation Summit 2016: Dangerous territory

In an unusual session, Legal Business united top M&A lawyers and litigators to forecast the next wave of disputes to come when the deal cycle turns

It is a received wisdom of the legal industry that the economic cycle inevitably turns from market excesses and greed of the boom to the recrimination and disputes in the following recession. Yet in detail, the pattern – and corresponding risks – never play out the same way.

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Duelling dragons – the Asia disputes outlook

Duelling dragons – the Asia disputes outlook

Hong Kong remains Asia’s disputes capital but Singapore continues to close the gap with sustained investment attracting more litigation and arbitration work

For so long the epicentre of dispute resolution in Asia, events have conspired in recent history to undermine Hong Kong’s status. Two years ago, hundreds of members of the judiciary led a silent march in response to a diktat from Beijing challenging the judicial independence of Hong Kong from the mainland. It was the start of what became known as the ‘umbrella movement’ protests.

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Everything must go – the London arbitration price war

Everything must go – the London arbitration price war

There is a price war raging in the London arbitration market that has led law firm leaders to question their commitment to the practice. Is the bubble bursting?

Arbitration was a practice area until recently seen by many managing partners as reliably high margin and partner-driven but for how much longer? According to a growing number of industry veterans, a softening arbitration market has resulted in a spate of lowballing, particularly in London. While the average legal cost of arbitration at the International Centre for Settlement of Investment Disputes (ICSID) stands at $4.5m, according to a 2014 report by Allen & Overy, some advisers are winning work by promising to run the entire case for less than a tenth of that sum. While such claims are anecdotal, the Lebanese government recently released pitch information that showed 11 international law firms had pitched between $350,000 and $1m to defend it against an ICSID claim. The lowest bidder, Paris-based Bredin Prat, won the instruction.

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Perspectives: Toby Landau QC

Perspectives: Toby Landau QC

I have been incredibly fortunate in my career. I feel that very strongly.

I come from a long line of doctors. It wasn’t my calling. Around 14, I got interested in law. I’ve always been argumentative and difficult. I grew up in North West London. There’s German on both sides of my family. All refugees. Striving and ambitious.

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