Since the banking crisis of 2008, financial litigation has formed a large and growing part of the litigation market. Institutions and individuals who have suffered losses have sought redress through the courts by bringing a raft of mis-selling, mis-rating and fixing claims. The incidents which lead to such claims show no sign of abating, as evidenced by the recent press reports of claims arising from LIBOR fixing or the activities of the re-structuring units of some of Britain’s biggest banks.
The financial crisis and its fallout have also led to an increased desire by investors to protect their capital from the effects of wrongdoing. The last five years have seen growth in shareholder activism, with investors becoming more interested in the affairs of the companies in which they are invested. This vigilance has seen investors launch a number of claims against some of the biggest companies in the United Kingdom.
In particular, investors are now seeking to enforce their rights under sections 90 and 90A of the Financial Services and Markets Act 2000. These causes of action are largely new and untested before the courts. The lack of precedents in such actions require lawyers to grapple with novel and, often, complex issues in order to recover investors’ losses.
Under s90, issuers of securities are liable for untrue and/or misleading statements and omissions of necessary information published in listing particulars or prospectuses. Claimants seek to recover the difference between the price they paid for the securities and the price they would have paid had the true position been known.
A good illustration of an action under this section is the RBS Rights Issue Litigation. The claim arises from the prospectus issued by RBS in April 2008 and alleges that the prospectus was misleading as to RBS’s capital position, liquidity and exposure to toxic sub-prime related instruments, causing investors to overpay for the shares acquired. The claim is estimated to be valued in the region of £1.27 billion and is being pursued by 313 UK and International financial institutions and pension funds.
Section 90A of FSMA stipulates that announcements made by an issuer of securities to the public must be accurate. Companies are liable to shareholders who rely on statements which are untrue or misleading (or the company was reckless as to whether they were untrue or misleading); or, where relevant information was omitted, and this omission is known by the company to be a dishonest concealment of a material fact.
A current example of a claim founded on s90A is the action against Tesco Plc. Shareholders in one of the world’s largest retailers suffered losses following announcements to the market in 2014. Tesco’s expected profits for the half year ending 22 August 2014 were overstated by £263 million. Many of the potential claimants in this action are again institutional investors who are seeking damages for losses caused by alleged wrongdoing.
The corporate nature of both groups highlights the growing trend for some of the largest institutional shareholders in the market to turn to litigation in order to recover their losses. It would appear that there will be no shortage of opportunities for investors to hold the companies they own to account, with the actions of companies and their directors under the spotlight like never before.
Corporate “scandals”, such as BP in the Gulf of Mexico or RBS and its distressed business lending operation, rightly become the focus of media attention. This attention means that investors will increasingly take an interest in the governance of such companies. Where governance falls below the required standard, investors are becoming more willing to turn to lawyers with the expertise to bring a claim.
Stewarts Law is the largest litigation only law firm in the UK and is at the forefront of the burgeoning area of investor protection litigation. Stewarts Law leads both the RBS Rights Issue litigation and the claim against Tesco.