EU Advocate General considers interpretation of Prospectus Directive in relation to an issuer’s liability for a prospectus marketed to both retail and qualified investors

The Advocate General (AG) of the Court of Justice of the European Union (CJEU) has handed down an unsurprising opinion on the interpretation of Directive 2003/71/EC (the Prospectus Directive), considering the liability of issuers to qualified investors in respect of inaccuracies in a prospectus: Bankia SA v UMAS (Case C-910/19) EU:C:2021:119 (11 February 2021), (Advocate General Richard de la Tour).

The referral was made by the Spanish Supreme Court on the interpretation of Article 3(2)(a) and Article 6 of the Prospective Directive, which (before its repeal – as discussed further below) provided the framework for a “single passport” for prospectuses throughout the EU. As an EU Directive, it required further implementation measures by EU Member States to be effective. In the UK, the relevant provisions considered by the AG are found at s.90 of the Financial Services and Markets Act 2000 (FSMA).

The context for the referral was the relatively commonplace scenario in a securities issuance, where an issuer publishes a prospectus to the public at large, and as a consequence it is received by qualified investors as well as retail investors (e.g. where there is a combined offer). The question for the AG was whether the issuer could be liable (under Article 6 of the Prospectus Directive) to qualified investors (as well as retail investors) for any inaccuracies in the prospectus in circumstances where, if the offer had been directed solely at qualified investors, the issuer would have been exempt from publishing the prospectus under Article 3(2)(a) of the Prospectus Directive. If the qualified investor is entitled to bring a claim in these circumstances, the AG was asked if the qualified investor’s awareness of the true situation of the issuer could be taken into consideration.

In response to these questions, the AG’s opinion (which is non-binding but influential on the CJEU) concluded as follows:

  1. Article 6 of the Prospectus Directive, in light of Article 3(2)(a), must be interpreted as meaning that where an offer of shares to the public for subscription is directed at both retail and qualified investors, and a prospectus is issued, an action for damages arising from the prospectus may be brought by qualified investors; although it is not necessary to publish such a document where the offer concerns exclusively such investors.
  2. Article 6(2) of the Prospectus Directive must be interpreted as not precluding, in the event of an action in damages being brought by a qualified investor on grounds of an inaccurate prospectus, that investor’s awareness of the true situation of the issuer being taken into consideration besides the inaccurate or incomplete terms of the prospectus, since such awareness may also be taken into account in similar actions for damages and taking it into account does not in practice have the effect of making it impossible or excessively difficult to bring that action, which is a matter for the referring court to determine.

From a UK perspective (and as prefaced above), this is an unsurprising outcome in the context of s.90 FSMA. In particular, because the second point (awareness of the true position of the issuer) is expressly included in the Schedule 10 defences to a s.90 claim.

Securities lawyers will immediately question the impact of the AG’s opinion in the light of the Prospectus Regulation (EU) 2017/1129 and Brexit.  Although the Prospectus Regulation repealed and replaced the Prospectus Directive (see our banking litigation blog post), the substance of the Articles considered by the AG have been carried forward into the equivalent Prospectus Regulation provisions.

As to Brexit, although the UK is no longer a member of the EU (following the end of the Brexit transition period on 31 December 2020), the AG’s opinion may still be of relevance to the interpretation of s.90 FSMA claims. S.90 FSMA represents “retained EU law” post-Brexit because it is derived from an EU Directive. In interpreting retained EU law, CJEU decisions post-dating the end of the transition period are not binding on UK courts, although the courts may have regard to them so far as relevant (see our litigation blog post on the practical implications of Brexit for disputes). As noted above, AG opinions are not binding in any event, but this will be the status of the CJEU decision when finally handed down.

The AG’s opinion is considered in more detail below.


In 2011, the appellant Spanish bank (Bank) issued an offer of shares to the public, for the purpose of becoming listed on the Spanish stock exchange. The offer consisted of two tranches: one for retail investors and the other for qualified investors. A book-building period, in which potential qualified investors could submit subscription bids, took place between June and July 2011. As part of the subscription offer, the Bank contacted the respondent (UMAS), a mutual insurance entity and therefore a qualified investor. UMAS agreed to purchase 160,000 shares at a cost of EUR 600,000. The Bank’s annual financial statements were subsequently revised. This led to the shares losing almost all their value on the secondary market and being suspended from trading.

UMAS issued proceedings in the Spanish court against the Bank seeking to annul the share purchase order, on the grounds that the consent was vitiated by error; or alternatively for a declaration that the Bank was liable on the grounds that the prospectus was misleading. Having lost at first instance, the Bank appealed to the Spanish Provincial Court, which dismissed the action for annulment but upheld the alternative action for damages brought against the Bank on the grounds that the prospectus was inaccurate.

On the Bank’s appeal to the Spanish Supreme Court, the court held that neither the Prospectus Directive nor Spanish law expressly provided that it is possible for qualified investors to hold the issuer liable for an inaccurate prospectus where the offer made to the public to subscribe for securities is addressed to both retail and qualified investors.

The Spanish Supreme Court decided to stay the proceedings and referred two key questions to the ECJ for a preliminary ruling:

  • When an offer of shares to the public for subscription is directed at both retail and qualified investors, and a prospectus is issued for the retail investors, is an action for damages arising from the prospectus available to both kinds of investor or only to retail investors?
  • In the event that an action for damages arising from the prospectus is also available to qualified investors, is it possible to assess the extent to which they were aware of the economic situation of the issuer of the offer of shares to the public for subscription otherwise than through the prospectus, on the basis of their legal and commercial relations with that issuer (e.g. being shareholders of the issuer or members of its management bodies etc)?


We consider below each of the issues addressed by the AG in his opinion.

Issue 1: Inaccurate prospectus as the basis for a qualified investor’s action for damages

The AG concluded that Article 6 of the Prospectus Directive, in the light of Article 3(2)(a), must be interpreted as meaning that, where an offer of shares to the public for subscription is directed at both retail and qualified investors, and a prospectus is issued, an action for damages arising from the prospectus may be brought by qualified investors, although it is not necessary to publish such a document where the offer concerns exclusively such investors.

In the AG’s view, this interpretation was supported by both a literal/systematic interpretation of the Prospectus Directive, and a teleological interpretation (paying attention to the aim and purpose of EU law).

Before considering each approach to interpretation below, and by way of reminder, Article 3(2)(a) of the Prospectus Directive contains an exemption from the obligation to publish a prospectus where the offer is limited to qualified investors. However, the publication of a prospectus is mandatory where there is a combined offer to the public (i.e. both non-qualified and qualified investors) (Article 3(1)); or in the event of an issue of shares for trading on a regulated market (Article 3(3)).

Literal/systematic interpretation

Considering first the linguistic interpretation of the words used, the AG noted that Article 6 establishes a principle of liability in respect of inaccurate/incomplete prospectuses, but does not provide for an exception to that principle based on the nature of the combined offer, whether it is offered solely to the public or is intended for trading on a regulated market.

The AG contrasted the approach in other provisions of the Prospectus Directive, which do provide for exemptions from the obligation to publish a prospectus, based either on the person to whom the offer is addressed (Article 3(2)(a)), the number of shares or total offer issues (Article 3(2)), or on the nature of the shares issued (Article 4). However, those exemptions from the publication obligation do not prohibit voluntary publication of a prospectus by an issuer who will then benefit from the “single passport” if the shares are issued on a regulated market.

From a systematic perspective, the AG pointed out that the effect of the exemptions was to create circumstances in which qualified investors will receive a prospectus, even if they would not have received one if the offer had been directed solely at qualified investors. For example, where there is a combined offer (as in the present case) or where the prospectus is published voluntarily to benefit from the “single passport”.

The AG commented that the referring court appeared to start from the premise that, since the prospectus was intended solely to protect and inform retail investors, qualified investors could not rely on the inaccuracy of the prospectus in order to bring an action for damages. In the AG’s view, a literal and systematic interpretation of the Prospectus Directive cast doubt on the idea that a prospectus is produced merely in order to protect non-qualified investors.

Teleological interpretation (looking at the aim and purpose of EU law)

The AG said the interpretation of Article 6 of the Prospectus Directive must have regard to and balance two objectives: (i) the completion of a single securities market through the development of access to financial markets; and (ii) the protection of investors whilst taking account of the different requirements for the protection of the various categories of investors and their level of expertise.

Again, in the AG’s view, the presence of exemptions in Articles 3 and 4 versus the lack of any exemptions in Article 6, must lead to an interpretation that where a prospectus exists it must be possible to bring an action for damages on the basis of the inaccuracy of that prospectus irrespective of the type of investor.

The AG also commented that if it were accepted that each Member State could determine itself whether or not qualified investors may bring an action for damages in the event of an inaccurate prospectus, that would lead to possible distortions occurring among Member States that would undermine, disproportionately, the objective of completing the single securities market. A uniform interpretation of Article 6 is required, therefore, concerning persons who may bring proceedings against the issuer in connection with an offer.

Issue 2: Qualified investor’s awareness of the true situation of the issuer

The AG concluded that a Member State has the discretion to provide in its legislation or regulations that awareness by a qualified investor of the true situation of the issuer should be taken into account, in the event of an action for damages being brought by a qualified investor on the grounds of an inaccurate prospectus (i.e. that Article 6(2) does not preclude this principle). However, this is subject to the condition that the principles of effectiveness and equivalence are observed.

The AG said that the extent of liability for inaccuracies in a prospectus is a matter for Member States (in terms of whether to take account of the contributory fault of the investor and questions of causation). Accepting that Member States may factor in the awareness of a qualified investor in their legislation, the AG drew an analogy with the reasoning of the CJEU’s decision in Hirmann C‑174/12, EU:C:2013:856. In Hirmann, the court accepted that a Member State may limit the civil liability of the issuer by limiting the amount of compensation by reference to the date on which the share price is determined for the compensation (although again, the Member State must observe the principles of equivalence and effectiveness).

In terms of observing those principles of equivalence and effectiveness, the AG emphasised the need to take the investor’s awareness into consideration specifically in a given situation, which will require the courts of Member States to assess the evidence of such awareness and of the extent to which that awareness has been taken into consideration.

Harry Edwards
Harry Edwards
+61 3 9288 1821
Sarah Hawes
Sarah Hawes
Head of Corporate Knowledge, UK
+44 20 7466 2953
Ceri Morgan
Ceri Morgan
Professional Support Consultant
+44 20 7466 2948
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000

Climate-related disclosures for issuers: further steps towards mandatory requirements?

In November 2020, the UK Joint Government Regulator TCFD Taskforce published its “roadmap towards mandatory climate-related disclosures”, which set out a vision for the next five years. As an initial step towards fulfilling that vision, in January 2021, the new Listing Rule 9.8.6(8) (LR) came into force. The LR requires premium-listed issuers, in their periodic reporting, to publish disclosures in line with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations on a ‘comply or explain’ basis. However, the Financial Conduct Authority (FCA) has recognised that some issuers may need more time to deal with modelling, analytical, metric or data-based challenges.

This flexibility in the new LR’s compliance basis reflects the challenges and evolving experiences with working on data and metrics in the context of climate risk. Key stakeholders should now be redoubling their efforts to meet the challenges and with the promise of further TCFD guidance on data and metrics later this year and the recent launch of a Department for Business, Energy and Industrial Strategy (BEIS) consultation seeking views on proposals to mandate climate-related financial disclosures in line with the TCFD recommendations from 6 April 2022, the step to a mandatory climate-related disclosure regime may be closer than initially envisaged.

In light of the ever-evolving regulatory landscape, it is important issuers continue to monitor the impact of any changes to their disclosure requirements and to consider what, if any, litigation risks may arise (particularly, under s90 FSMA, s90A FSMA, or in common law or equity) in connection with their climate-related disclosures.

The key developments on data and metrics, as well as the key proposals from the BEIS consultation, are examined below. We also consider what these developments and proposals mean for issuers in terms of regulatory reporting requirements.

Climate Financial Risk Forum

Following its fifth quarterly meeting in November 2020, the Climate Financial Risk Forum (CFRF) noted the importance of progress in the development and understanding of climate data and metrics. In light of this, the CFRF announced that all of its working groups will focus on climate data and metrics in the next phase of work. This is a shift from the CFRF’s previous approach of allocating different focus areas to its working groups.

TCFD Financial Metrics Consultation

The TCFD has this month published a summary of the responses to its ‘Forward-looking Financial Metrics’ Consultation, which was conducted between October 2020 and January 2021. The consultation aimed to collect feedback on decision-useful, forward-looking metrics to be disclosed by financial institutions. The TCFD solicited feedback on specific metrics and views on the shift to, and usefulness of, forward-looking metrics more broadly.

46% of the 209 respondents were financial services firms from around the world, and over half of the respondents were EMEA based, with just over a quarter from North America.

These findings will inform the work on metrics and targets which the TCFD plans to tackle in 2021. The TCFD announced that it will publish broader, additional draft guidance for market review and consideration later this year.

BEIS Consultation

BEIS launched a consultation this month on mandating climate-related disclosures by publicly quoted companies, large private companies and LLPs. The consultation proposes that, for financial periods starting on or after 6 April 2022, certain UK companies with more than 500 employees (including premium-listed companies) be required to report climate-related financial disclosures in the non-financial information statement which forms part of the Strategic Report. Such disclosures are required to be in line with the four overarching pillars of the TCFD recommendations (Governance, Strategy, Risk Management, Metrics & Targets).

BEIS has stated that the proposed rules are intended to be complementary to the FCA’s requirement that premium-listed companies make disclosures in line with the four pillars and 11 recommended disclosures of the TCFD. BEIS proposes to introduce the new rules via secondary legislation which will amend the Companies Act 2006.

The Financial Reporting Council will be responsible for monitoring and enforcing the proposed rules, while the FCA will supervise and enforce disclosures within the scope of the LR.

The consultation is open until 5 May 2021.

Regulatory reporting requirements

The new TCFD guidance, once published, is likely to feed into the LR requirements. The new LR expressly refers to the TCFD Guidance on Risk Management Integration and Disclosure and the TCFD Guidance on Scenario Analysis for Non-Financial Companies published in October 2020. Additionally, the FCA’s Policy Statement dated December 2020, which accompanied the new LR, stated that the FCA would be considering how best to include references to any further TCFD guidance in the FCA Handbook Guidance. This is likely to be achieved through the use of the FCA Quarterly Consultation Papers.

The new LR is not a mandatory disclosure requirement and the new rules proposed by the BEIS consultation are yet to have legislative force. However, we are getting a clearer picture of the likely disclosure regime in the UK and in particular: the regulatory guidance around the compliance basis; the clear anticipated milestones this year relating to data and metrics guidance and best practice; and the forthcoming Consultation Paper by the FCA on the scope expansion (including compliance basis) of the new LR. That picture suggests the transition to mandatory climate-related disclosure requirements may well be a small step, rather than a giant leap.

Simon Clarke
Simon Clarke
+44 20 7466 2508
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000
Sousan Gorji
Sousan Gorji
Senior Associate
+44 20 7466 2750

High Court strikes out s.90A FSMA claims for failure to comply with pre-service joinder rules following expiration of arguable limitation period

The High Court has struck out certain of the claims brought against G4S under section 90A Financial Services and Markets Act 2000 (FSMA), in a judgment which emphasises the risks inherent in issuing complex group litigation shortly before the expiry of an arguable limitation period: Various Claimants v G4S plc [2021] EWHC 524 (Ch). The decision brings into sharp relief the need for claimants to balance the tension between the crucial practice of book-building and awaiting regulatory investigations on the one hand and limitation periods on the other. Ultimately, in this case, the court had little sympathy for claimants who had failed to get theirducks in a pen, let alone in a row” prior to the expiry of the limitation period.

The successful application will have a significant impact on the proceedings, with approximately 90% of the quantum of the claims being struck out.

The claims were primarily struck out on the basis that new claimants cannot be added to an existing claim form using CPR 17.1, which allows a party to amend its statement of case before it has been served. The Court also held that, in order for new claimants to be properly added to an existing claim form, a separate document recording their written consent must be filed with the court pursuant to CPR 19.4(4). The filing of an amended claim form, signed by the claimants’ solicitor, does not constitute such consent.

The Court further considered whether to grant the claimants permission to amend the claimants’ names where certain claimants were incorrectly identified on the claim form. The judgment provides a helpful reiteration of the legal principles which apply when the Court is considering whether to exercise its discretion to amend party names following the expiry of a limitation period.

Herbert Smith Freehills acts for the defendant, G4S, in this matter.


The applications arose in the claims brought by shareholders in G4S under section 90A and schedule 10A FSMA in relation to allegedly false and misleading statements or omissions made by G4S regarding its billing practices between 2011 and 2013.

The claim form was issued on 10 July 2019 and was subsequently amended 6 times to add or remove claimants before it was served on 30 April 2020. The claimants added on or after 11 July 2019 (the Additional Claimants) were purportedly added pursuant to CPR 17.1, which provides that “A party may amend his statement of case at any time before it has been served on any other party”.

93 claimants were listed on the claim form which was served on 30 April 2020, of which 64 were Additional Claimants. In addition, a number of the claimants (including some original claimants) listed on the claim form did not appear to be legal persons capable of bringing a claim (the Unidentified Claimants).

G4S applied for the claims of the Additional Claimants to be struck out on the basis that:

  1. CPR 17.1 does not permit the addition of claimants before service either generally or where there is said to be an arguable limitation defence; and/or
  2. Under CPR 19.4(4) a party cannot be added as a claimant unless it consents in writing and the consent is filed with the court. The requirements of CPR 19.4(4) had not been met and therefore the claimants had not been validly added.

G4S also applied for the claims of the Unidentified Claimants to be struck out on the basis that they were not properly identified on the claim form and / or were not legal entities with appropriate capacity to sue.

The claimants applied for permission to amend the names of the Unidentified Claimants. The amendments sought ranged from the correction of typos to the substitution of claimants for other entities.

G4S also sought to have claims relating to publications by G4S from 2006 to 2011 struck out of the Particulars of Claim on the basis that the claim form limited the relevant time period to publications made from 2011 onwards.

The decision

The High Court (Mann J) struck out the claims of the Additional Claimants, which accounted for approximately 90% of the quantum of the claims, and refused the Claimants’ amendment application (save for a correction to the name of one claimant).

Addition of claimants pursuant to CPR 17.1

Mann J considered whether the Additional Claimants could be joined to the claim form prior to service without the Court’s permission under CPR 17.1, and whether G4S was right to bring a challenge to the addition of those claimants under CPR 3.4.

G4S argued that CPR 17.1, on its true construction, applies only to an existing party amending their own statement of case, and therefore an amendment which seeks to introduce a new claimant does not fall within this rule.

Mann J agreed, noting that the natural meaning of “his statement of case” does not include an amendment to plead another claimant’s entirely separate case. Instead, this is bringing in a new party with a distinct claim. In such circumstances, rather than seeking to amend the original claim form, the Additional Claimants should commence their own separate proceedings and later apply for the claims to be consolidated. The claims of the Additional Claimants therefore fell outside the scope of CPR 17.1 and had not been validly added to the claim form.

Given the above, Mann J considered G4S’s decision to challenge the amendments via a strike out application under CPR 3.4 to be the correct approach. However, he also dealt with the case in the alternative, assuming he was wrong in respect of the use of CPR 17.1. In doing so he held that, if the amendments to the claim form in order to add the Additional Claimants had been validly made under CPR 17.1, any challenge to the addition of the Additional Claimants would need to be made under CPR 17.2 within 14 days of service of the claim form. In this case, G4S’s strike out application could stand as an application under CPR 17.2, but the fact that it was issued outside the 14 day period meant relief from sanctions would be required.

In applying the three stage test from Denton v White and other appeals [2014] EWCA Civ 906 in respect of the relief from sanctions application, Mann J found the 8 week delay between service of the claim form and issuing G4S’s application to be significant. However, Mann J did not consider that G4S’s failure to invoke CPR 17.2 was deliberate.

The most significant factor in this case was proportionality; if relief were refused, and the amendments allowed, the Additional Claimants would be deemed to have brought their claims on the date of issue of the original claim form. G4S argued this was the last day of the limitation period, and it would therefore be deprived of the benefits of the Limitation Act 1980. This was considered to outweigh any prejudice that may be caused to the claimants if relief were granted. Mann J noted that the matters in issue had come about due to “an apparent failure to get all the claimant’s ducks in a pen, let alone in a row”. Accordingly, relief from sanctions was granted.

Mann J then went on to find that, in reliance upon Chandra v Brooke North [2013] EWCA Civ 1559, in circumstances where there is an arguable limitation point in relation to the Additional Claimants, the challenge under CPR 17.2 would succeed. This is because of the finding in Chandra that, if on an amendment application it appeared that there was an arguable limitation point, then the appropriate course was not to decide it but to refuse permission and leave it to the claimant to issue fresh proceedings in which the limitation point could be tried.

Additional Claimants – consent under CPR 19.4(4)

CPR 19.4(4) provides that:

“Nobody may be added or substituted as a claimant unless –

(a)        he has given his consent in writing; and

(b)        that consent has been filed with the court.”

The Claimants’ submitted that (i) CPR 19.4(4) did not apply to the joinder of the Additional Claimants pre-service, and (ii) in any event, filing an amended claim form signed by a solicitor as agent for the claimants constituted such consent. Mann J considered it impossible to think of a reason why this rule should apply post-service and not pre-service, and found therefore that it plainly did apply to addition of the Additional Claimants. Further, applying Court of Appeal authority Kay v Dowzall [1993] WL 13726011, Mann J held that consent impliedly expressed by a solicitor signing a claim form on behalf of the claimants cannot count as a consent under CPR 19.4(4). The rule requires a separate document from the sort of pleading the claimant (or someone on their behalf) would have to sign anyway, and this separate document would need to be filed before the addition of a party which takes effect via an amended claim form. The claims of the Additional Claimants were therefore not properly added to the claim form.

“Unidentified” Claimants

Parties can apply to amend a claim form to correct the name of a claimant or defendant under 17.4(3) if there has been a genuine mistake as to the name of that party which would not cause reasonable doubt as to the identity of the proper party. Alternatively, if a limitation period has expired, a party can be added or substituted under CPR 19.5 if the limitation period was current when the proceedings started and the amendment is necessary. An amendment will be “necessary” under CPR 19.5 if (a) the original party was named in the claim form by mistake, or (b) the claim cannot be carried on without the new party.

In considering these provisions, Mann J applied the following principles:

  1. Under both CPR 17.4 and CPR 19.5, the mistake must be as to name and not identity.
  2. CPR 19.5 refers in terms to a substitution. However, in reality CPR 17.4(3) has also been interpreted so as to allow what is, in fact (and law) a substitution.
  3. That is because the concept of a “mistake as to name” is interpreted generously.
  4. Generosity is achieved by looking to the description of the claimant or defendant (as the case may be) in the claim form (and perhaps Particulars of Claim if served with it). If the correct claimant or defendant matches the description in the claim form, the mistake may constitute a mistake as to name, rather than identity.
  5. If a description is to be relied on as saving a misdescribed party it must be sufficiently specific to allow identification in the circumstances. A successful amendment will very often be a case where there is an intention to sue in a certain capacity (for example, landlord, tenant, shipowner).
  6. The true identity must be apparent to the litigation counterparty under 17.4(3), where it is a requirement that the mistake would not have caused reasonable doubt as to the identity of the party intending to sue. While there is no “reasonable doubt” requirement under CPR 19.5, it may be a significant factor to the Court when exercising its discretion.

The “reasonable doubt” test is an objective one, and such doubt could not be removed by the possibility that the identity of the proper claimant might be apparent from G4S’s share register or other transactional information shared by the claimants’ solicitors after the date of the mistake – the “resolving of any doubt…should not depend on the defendant having to put together a jigsaw out of material provided for a different purpose”.

Even if the above requirements were met, the claimants still needed to satisfy the court that it should exercise its discretion in their favour to allow the amendments. Mann J noted that the claim was hastily put together in the knowledge that a limitation period was approaching. Had the litigation been put in train earlier, there would have been fewer mistakes or more time to correct them. The court’s discretion is not intended to encourage or assist “such disorderly litigation”, and Mann J refused to exercise it in the claimants’ favour (save for in respect of one claimant which had been identified by its former name in the original claim form).

Claim for losses prior to 2011

The claim form was limited to claims from 2011 onwards, but the claimants’ Particulars of Claim included claims going back to 2006. It was accepted that an amendment to the claim form was needed and, in circumstances where a limitation defence arguably applies, any amendment application would have to satisfy the requirements of CPR 17.4(2) (which states that the court may allow an amendment whose effect will be to add a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings).

Mann J considered it impossible to maintain that claims from 2006 onwards arose out of the same or substantially same facts as the claims limited to 2011 onwards. While the facts giving rise to the original claim may have to be investigated in the earlier period, any claim in relation to that earlier period would require additional investigations into any statements made by G4S in that period, the alleged falsity of those statements, the effect on the market of those statements, and the way in which the claimants reacted to such statements. These may be the same type of facts as the original claim, but were in reality different facts. As such, G4S’s application to strike out claims based on publications prior to 2011 succeeded.

Chris Bushell
Chris Bushell
+44 20 7466 2187
Sarah Penfold
Sarah Penfold
Senior Associate
+44 20 7466 2619
Holly McCann
Holly McCann
+44 20 7466 7595

The evolution of Class Actions in South Africa

In an article published on our global class actions hub, Jonathan Ripley-Evans and Fiorella Noriega del Valle of our Johannesburg office consider the process for certification of class actions in South Africa and the significant hurdles involved, as illustrated by the South African High Court’s refusal to certify a shareholder class action against a company’s directors in the case of De Bruyn v Steinhoff International Holdings N.V. and Others.

Click here to read the full article.

Supreme Court allows appeal in jurisdictional challenge relating to parent company duty of care

On 12 February, the Supreme Court handed down its judgment in a high profile jurisdictional challenge relating to group claims brought against Royal Dutch Shell plc and its Nigerian subsidiary in connection with alleged pollution in the Niger Delta: Okpabi and others v Royal Dutch Shell plc and Shell Petroleum Development Company of Nigeria Ltd [2021] UKSC 3.

While set in a non-financial context, this decision will be of great interest – and potential concern – to all UK-domiciled financial institutions who might be considered to be at risk of claims being brought which allege a duty of care in relation to the actions of their foreign subsidiaries or branches.

The Supreme Court unanimously allowed the claimants’ appeal, finding that the English court does have jurisdiction over the claims. It held that (1) the Court of Appeal materially erred in law by conducting a mini-trial in relation to the arguability of the claim at the jurisdiction stage, and (2) it was reasonably arguable that the UK domiciled Shell parent company owed a duty of care to the claimants.

The decision provides further consideration of the circumstances in which a parent company may owe a duty of care to those affected by the acts or omissions of its foreign subsidiary, an issue that the Supreme Court considered in its recent judgment in Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents) [2019] UKSC 20 (which was heavily relied upon by the Supreme Court in this case).

The latest Supreme Court judgment on this question will not provide comfort to UK financial institutions exposed to such parent liability claims. In particular, the decision is likely to constrain defendants (as part of a jurisdictional challenge) from seeking to challenge the factual basis on which claims are advanced. As a result, many defendants will be concerned that they are more vulnerable to weak and speculative claims being allowed to proceed in the English courts.

For a more detailed analysis of the decision, see our litigation blog post.

Mass litigation in Spain: between joinder of claims and class actions

We are continuing to monitor global trends in class actions that are likely to be of interest to financial institutions, particularly in light of the growing trend of so-called class action tourism.

Having covered updates in France, Germany, and Italy we now share an article from our Madrid team, considering the landscape of mass litigation in Spain which (as in many other European jurisdictions) is far from being clear and easy to manage.

There could be a good opportunity to improve the current system under EU Directive 2020/1828 of the European Parliament and of the Council of 25 November 2020 on representative actions for the protection of the collective interests of consumers and repealing Directive 2009/22/EC (the “Collective Redress Directive”). However, although we will have to wait and see how the Collective Redress Directive is finally implemented, adapting to the Directive will not require too many changes to the existing Spanish system and so it is unlikely to force significant changes in the Spanish landscape of mass litigation.

Please see our class actions hub for further insights.

Court of Appeal clarifies that cross-undertakings should rarely be required as a condition of security for costs

In a marked shift from previous first instance decisions, the Court of Appeal has provided guidance on the circumstances in which a defendant seeking security for costs may be required to provide a cross-undertaking in damages: Mr Nigel Rowe & Ors v Ingenious Media Holdings & Ors [2021] EWCA Civ 29.

The court held that cross-undertakings should only be required as a condition of security for costs in “rare and exceptional cases” and, where the claimants are funded by a commercial litigation funder, “even rarer and more exceptional cases”. A number of first instance decisions which had indicated an emerging practice of cross-undertakings being generally required (including a decision in the RBS Rights Issue Litigation, considered here) should no longer be followed.

The court commented that it is critical to the business of litigation funders that they are adequately capitalised such that they can meet any potential liabilities arising from the litigation they choose to fund. It follows that there should rarely be any need for security from a “properly run” litigation funder, and disallowing cross-undertakings where security is required from a litigation funder “can be expected to incentivise improvements in the way in which the commercial litigation funding market operates”.

The court also suggested that, if there were to be a new practice in this area, it would be best developed by primary or delegated legislation, particularly in light of the likely effects on the litigation funding market and the potential engagement of considerations of access to justice.

For a more detailed analysis of the decision, see our litigation blog post.

Climate-related disclosures for issuers: FCA publishes final rules

The Financial Conduct Authority (FCA) has published a Policy Statement (PS20/17) and final rules and guidance in relation to climate-related financial disclosures for UK premium listed companies.

Companies will be required to include a statement in their annual financial report which sets out whether their disclosures are consistent with the Task Force on Climate-related Financial Disclosures (TCFD) June 2017 recommendations, and to explain if they have not done so. The rule will apply for accounting periods beginning on or after 1 January 2021.

As well as some additional guidance, the FCA has made only one material change to the rules consulted upon in March 2020 (CP20/03) with the final LR 9.8.6(8)(b)(ii)(C) R requiring non-compliant companies to set out details of how and when they plan to be able to make TCFD-aligned disclosures in the future.

With regard to monitoring compliance with the new listing rule, the FCA confirmed in its Policy Statement that it will provide further information on its supervisory approach to the new rule in a Primary Market Bulletin later in 2021.

In light of this latest regulatory development, issuers may also want to consider what, if any, litigation risks may arise in connection with climate-related disclosures (and indeed other sustainability-related disclosures which are made in response to these regulatory developments). There may be an increased risk of litigation under s90 FSMA, s90A FSMA, or in common law or equity. This was considered in greater detail in our recent Journal of International Banking & Financial Law article (published in October 2020) in which we also examined the existing climate-related disclosure requirements, the impact of the FCA’s proposals on issuers and how issuers can mitigate against such litigation risks.

Our article can be found here: Climate-related disclosures: the new frontier?

For a more detailed analysis of the FCA’s Policy Statement, please see our Corporate Notes blog post.

Simon Clarke
Simon Clarke
+44 20 7466 2508
Nihar Lovell
Nihar Lovell
Professional Support Lawyer
+44 20 7374 8000
Sousan Gorji
Sousan Gorji
Senior Associate
+44 20 7466 2750

High Court strikes out “paradigm” claim for reflective loss in the context of allegedly negligent advice on an IPO

The High Court has struck out the most recent claim to engage the so-called “reflective loss” principle, in proceedings brought by a parent company and its subsidiary against advisers that prepared the parent company for its IPO on the Alternative Investment Market (AIM): Naibu Global International Company plc & Anor v Daniel Stewart & Company plc & Anor [2020] EWHC 2719 (Ch).

To put the decision in context, a significant number of judgments involving consideration of the reflective loss principle were adjourned pending the Supreme Court’s judgment in Sevilleja v Marex Financial Ltd [2020] UKSC 31, with the parties making submissions on the implications of the Marex judgment after it was handed down (in July 2020). This is precisely what happened in the present case, which represents the most recent application by the court of the newly defined rule.

As a reminder, the Supreme Court in Marex confirmed (by a 4-3 majority) that the reflective loss principle is a bright line legal rule, which prevents only shareholders from bringing a claim based on any fall in the value of their shares or distributions, which is the consequence of loss sustained by the company, where the company has a cause of action against the same wrongdoer (see our blog post: Untangling, but not killing off, the Japanese knotweed: Supreme Court confirms existence and scope of “reflective loss” rule).

In Naibu, the court held that the relevant claim was a “paradigm” example of a claim for reflective loss, where the loss and damage pleaded by the parent turned almost entirely upon the loss suffered by the subsidiary, since the alleged loss consisted of a fall in the value of the shares in the subsidiary (to nil). The most interesting aspect of the judgment, is the court’s rejection of the suggestion that it should look at the losses of the parent and subsidiary as they evolved over time, and that the parent should be entitled to recover any loss suffered at a particular stage if it was different in nature or quantum to the loss to the subsidiary. The court found that it would be wholly artificial to carve up the losses by time in an attempt to circumvent the application of the reflective loss rule.

While Marex emphasised the narrow scope of the reflective loss rule, Naibu demonstrates that the court is prepared to take a robust approach and strike out claims falling within its parameters. This result is likely to be welcomed by financial institutions, as the reflective loss rule is an important defence to shareholder claims, as illustrated by the context of the present case.


Naibu (China) Co Ltd (Naibu China) is a Chinese sportswear company and the wholly owned subsidiary of the second claimant, Naibu (HK) International Investment Limited (Naibu HK), which is in turn the wholly owned subsidiary of the first claimant, Naibu Global International Company plc (Naibu Jersey).

In 2011, Naibu China and Naibu HK instructed the defendants in relation to a proposed floatation on the AIM. The first defendant was instructed to act as their Nominated Adviser (NOMAD) and the second defendant (Pinsent Masons) was retained as their legal adviser. Naibu Jersey was incorporated for the purposes of the AIM floatation, which took place on 30 March 2012 and went on to raise around £6m.

Subsequently, the assets of Naibu China were dissipated (allegedly by its founder) and its factory was closed. The shares in Naibu China held by Naibu HK, and in turn by Naibu Jersey were rendered valueless. Naibu Jersey was de-listed from the AIM on 9 January 2015.

Naibu Jersey and Naibu HK brought proceedings against the defendants alleging breaches of duty and/or negligence in conducting due diligence and preparing Naibu Jersey for its IPO on the AIM.

The present judgment arose in the context of Naibu Jersey’s claim against Pinsent Masons. Amongst other interlocutory activity, Pinsent Masons applied to strike out Naibu Jersey’s claim and sought reverse summary judgment on the following grounds:

  1. No implied retainer or duty of care. There was no contractual retainer between Pinsent Masons and Naibu Jersey, no need to imply any retainer, and no tortious duty of care owed to Naibu Jersey, since Pinsent Masons was engaged to act for Naibu HK and Naibu China only, and the terms and conditions incorporated in the letters of engagement with Pinsent Masons expressly excluded any liability to third parties other than their clients.
  2. Claim barred by the reflective loss rule. The loss claimed by Naibu Jersey was almost entirely reflective of the losses claimed by Naibu HK and therefore irrecoverable under the rule against recovery of reflective losses.
  3. Stay for arbitration. If the strike out / summary judgment applications failed, Pinsent Masons said that Naibu Jersey’s claim should be stayed pursuant to s.9 of the Arbitration Act 1996.


The court struck out Naibu Jersey’s claim on the basis of the reflective loss principle, save to the extent the claims related to the costs of steps taken by Naibu Jersey to assert control over and investigate the losses suffered by Naibu HK and Naibu China (in relation to which permission was given to amend the particulars of claim). The application for a stay under s.9 of the Arbitration Act was dismissed.

Implied retainer and duty of care

The legal principles governing the implication of a retainer were not disputed. It was common ground that where there is no express retainer, a retainer may nevertheless be implied from the conduct of the parties (as per Dean v Allin & Watts [2001] EWCA Civ 758).

The court was not persuaded that the facts alleged were sufficiently decisive to show that Naibu Jersey had no realistic prospect of establishing an implied retainer. In particular, Pinsent Masons had repeatedly described itself or permitted itself to be described, in formal documents, as being the solicitors for, or instructed by Naibu Jersey.

Given the court’s finding on the implied retainer, Pinsent Masons accepted that it must follow that the case on the duty of care must likewise have a real prospect of success.

Reflective loss

The main issue on the application was therefore the application of the reflective loss principle, i.e. whether Naibu Jersey’s claim against Pinsent Masons was barred because the loss claimed was reflective of the losses claimed by Naibu HK against Pinsent Masons, and therefore irrecoverable under the rule.

The court noted that the starting point in such cases is now the Supreme Court’s decision in Marex, which accepted the rule against reflective loss in Prudential Assurance v Newman Industries (No. 2) [1982] Ch 204, confirming it as a rule of law, but limiting it to claims by shareholders based on the diminution in the value of their shares or distributions that they receive as shareholders.

The court agreed with Pinsent Masons that the loss and damage pleaded by Naibu Jersey turned almost entirely upon the loss suffered by Naibu HK, since the alleged loss consisted of a fall in the value of the shares in Naibu HK (to nil) and a consequent diminution (to nil) of the value of Naibu Jersey’s investment in Naibu HK.

In the court’s view, the claim was a paradigm claim of reflective loss, which was barred by the principle as confirmed and restated in Marex. In reaching this conclusion, the court rejected Naibu Jersey’s submission that it was necessary to look at the losses of Naibu Jersey and Naibu HK as they evolved over time, making the following findings/observations:

  • The court rejected Naibu Jersey’s arguments that: (a) an investigation (through expert evidence) was required to assess the loss suffered by each of the companies at different stages; and (b) Naibu Jersey should be entitled to recover any loss suffered at a particular stage if it was different in nature or quantum to the loss to Naibu HK (Naibu Jersey suggested the losses of the two companies might diverge at different points in time because the shares were being traded in different markets).
  • Where the reflective loss rule is engaged, the decisive question is the nature of the loss claimed by the shareholder, and there is no further requirement that the amount of the loss to the company should be identical to the loss to the shareholder. In this context, the court referred to Lord Reed’s acknowledgement in Marex that a company’s loss and any fall in its share value may not be closely correlated, particularly in cases where the company’s shares are traded on a stock market. That is one of the reasons why Lord Reed rejected the avoidance of double recovery as a justification, in itself, of the reflective loss principle.
  • Given that the total losses of Naibu Jersey were ultimately the same as those of Naibu HK, it would have entirely undermined the purpose of the rule to allow Naibu Jersey to use the simple device of identifying different losses occurring at different times, with the submission that the losses of the two companies might not have been precisely contiguous.
  • The court considered that it was wholly artificial to carve up the losses by time in an attempt to circumvent the application of the reflective loss rule.

The claim by Naibu Jersey was, therefore, struck out, save in so far as it related to alleged losses relating to steps taken by Naibu Jersey to assert control over and investigate losses suffered by Naibu HK and Naibu China. The application for a stay under s. 9 of the Arbitration Act of those remaining claims was dismissed.

Ceri Morgan
Ceri Morgan
Professional Support Consultant
+44 20 7466 2948

Supreme Court ruling in Merricks: some important clarifications but a number of unresolved issues

On 11 December 2020 the Supreme Court handed down a very significant judgment relating to the certification of a £14bn opt-out competition collective action brought by Walter Merricks against Mastercard, in respect of losses alleged to have resulted from the use of anti-competitive multilateral interchange fees: Mastercard Incorporated & Ors v Merricks [2020] UKSC 51.

Although set in a competition context, the decision will be of interest to financial institutions following developments in class actions generally.

The Supreme Court largely confirmed the less restrictive approach to certification set out by the Court of Appeal when it overturned the CAT’s original refusal to grant the Collective Proceedings Order (CPO) sought by Mr. Merricks (see our previous briefing). As a result, the CAT will now need to reconsider Mr. Merricks’ application for certification of the claim against the principles set out by the Supreme Court. Thus, the Supreme Court’s ruling does not amount to any determination of the CPO application nor of the merits of the claim. Instead it provides clear principles against which the CPO application is to be reconsidered by the CAT.

For an explanation on the key takeaways and practical implications of the judgment, see this post on our Competition Notes blog.

Our Competition team will be discussing the implications of the Merricks judgment for the UK competition collective actions regime in a webinar taking place at 12pm tomorrow (16 December). You can register for the webinar here.