Section 90A Financial Services and Markets Act (“FSMA”) allows an investor in UK-listed securities to bring a claim against an issuer where, amongst other things, the issuer made an untrue or misleading statement in its published information or omitted a material fact and the investor relied upon the statement or omission. This latter requirement for reliance can cause consternation in these claims for passive investors. Recent case law may provide some hope for those potential claimants, but uncertainty prevails as to whether investors need to have read or considered the relevant information.
Passive Investors Rejected: Barclays
On 25 October 2024, the High Court handed down its judgment in Allianz Funds Multi Strategy Trust & Ors. v Barclays Bank plc. [2024] EWHC 2710 (Ch) and struck out the claims of passive investors brought under s.90A FSMA.
The case concerned Barclays’ statements and omissions in relation to the operation of a “dark pool” trading system, and the representations made about it in annual reports, interim results announcements, and a prospectus for a rights issue.
One category of claimants alleged to have suffered losses because of movements in Barclays’ share price. Rather than reviewing Barclays’ published information directly or indirectly through other sources which acted as a conduit for the substantive contents, they relied on the concept of price/market reliance. They claimed that the share price reflected the contents of the relevant (misleading) published information, and so these claimants indirectly relied on the published information by taking account of the share price.
However, the Judge found that the test for reliance as it applies to express representations requires a claimant to “prove that they read or heard the representation, that they understood it in the sense which they allege was false and that it caused them to act in a way which caused them loss.” It was the common law test for inducement or reliance in the tort of deceit which applied. Thus, the passive or index-tracking investors who did not directly or indirectly read an issuer’s published information could not establish reliance under Schedule 10 and s.90A FSMA.
The case was settled before an application for permission to appeal could be made to the Court of Appeal.
Not Clear Cut: Standard Chartered
Some months later, in March 2025, Mr Justice Green handed down his decision on whether to strike out and/or grant reverse summary judgment in respect of a significant part of the claims in Persons Identified in Schedule 1 v Standard Chartered PLC [2025] EWHC 698.
The underlying litigation concerned Standard Chartered’s alleged historic non-compliance with Iran sanctions. Institutional investors claimed the bank’s reports and disclosures were untrue or misleading, or omitted critical information, on the extent of the misconduct which artificially inflated Standard Chartered’s share price.
The case contained a set of claims where the claimants claimed to have relied on information published to the market by Standard Chartered, rather than reading or considering the information themselves (the “Common Reliance Claims”).
Following Barclays, Standard Chartered applied to strike out the Common Reliance Claims (and other claims for different reasons). Mr Justice Green acknowledged that Barclays concluded that a claimant was required to prove that they read, or were aware of at least the gist of, the representation and understood it in the sense in which it was alleged to be false. However, he found that he did not have to consider that Barclays was wrong “before deciding in this case that the right thing to do is not to strike out the Common Reliance Claims.”
The Judge said it “would be to ignore reality to suggest that this is not a live and possibly developing area of the law.” There had been no decision on the meaning of “reliance” in this context and certain elements of the test of reliance at common law “are not fully established.” For instance, it was not clear where Parliament had intended to draw the line on indirect reliance between: (i) a claimant relying on a broker’s report; and (ii) a claimant relying solely on a movement in price as a result of third parties reading published information.
While this decision may have given some hope to passive investors, it was very much based on the specifics of a strike-out application. It was not a final pronouncement on the issue, but rather a decision that the claimants should have had the opportunity of putting the Common Reliance claims forward for a decision at a full trial, although the Judge noted that it might “be an uphill struggle.”
The case settled following this decision.
Further Developments
Since the Standard Chartered decision, the Privy Council has handed down its decision in Credit Suisse Life (Bermuda) Ltd. v Ivanishvili and others [2025] UKPC 53. Although not directly related to securities litigation, it provided some clarity in relation to the law of deceit.
The case concerned a major private banking fraud and a claim in deceit based on implied representations to the effect that neither the claimant’s relationship manager nor Credit Suisse were manging his accounts fraudulently. The Bermuda Court of Appeal held that the claimant had not pleaded and proved conscious awareness or understanding of the representations made to them and that was fatal. However, the Privy Council found that conscious awareness of the representation is not required.
Lord Legatt said there was no doubt that reliance or inducement was an essential element of deceit. There were two aspects to this requirement: (i) the representation must cause the claimant to hold a false belief; and (ii) the claimant must act because of this belief and suffer loss as a result. Both aspects require the representation to operate on the mind of the claimant, but neither requires the claimant to be consciously aware of the representation at the relevant time, nor was there any reason why that should be necessary to bring a successful claim. Rather, it is “an everyday feature of human experience that people form and act on beliefs without any conscious awareness or thought.”
This was not a s.90A case, but s.90A claims are often analysed by reference to common law deceit, as in Barclays with the finding that a claimant had to prove that they read or heard the representation. This Privy Council decision could mean passive investors may no longer need to prove that they applied their mind to the published information; the assumption that the information was correct could be sufficient. However, s.90A claims are not identical to the tort of deceit and an evidential burden remains.
Conclusions
The position on reliance for passive investors remains difficult. While Barclays suggested that they could not bring legally sound claims under s.90A without proving that they had actually engaged with the published information, Standard Chartered suggested the law was developing and not so clear-cut. Ivanishvili also lends some support to the idea that passive investors may not need to show they read or heard a specific representation. Given both Standard Chartered and Barclays have now settled, however, another case on this issue may have to go to a full trial before the position is clarified. Until then, uncertainty remains.
