Allianz Investors v Barclays: Will investors lawsuits now come to a halt?

The High Court handed down a major blow for UK investors after a judge struck out part of a case Barclays faced, potentially closing the door on future investor cases.

This case stems from a release issued by Barclays on 26 June 2014, stating that the Attorney General of the State of New York filed a complaint in the New York State Courts over an investigation of ‘LX Liquidity Cross’, the bank’s alternative trading system.

Two years later, the bank and one of its subsidiaries entered into a settlement agreement and submitted an order made by the Securities and Exchange Commission (SEC).

The SEC then charged Barclays and Credit Suisse with ‘dark pool’ violations, and the bank was fined $70m in total.

This led to a group of British institutional investors from Allianz Global Investors and others enlisting law firm Signature to file a group action lawsuit against Barclays in the High Court.

The claims were for dishonest delay under section 90A of Financial Services and Markets Act 2000 (FSMA). Section 90A of FSMA provides a remedy for investors against public companies that publish misleading information to the market.

However, back in July, the parties were at a short hearing as the bank sought to strike out part of the lawsuit against it. Last Friday, by surprise, Mr Justice Leech granted Barclays applications for strike out and reverse summary judgment.

What did the court rule?

The judge held, among other decisions, that claimants must prove that a person had read the publication containing the misleading statement to satisfy the reliance requirement 90A of FSMA.

Simon Hart, partner at RPC explained that the claimants argued that the price of the share reflects all the information available to the market, and so in making investment decisions based on price, they were still placing reliance on the accuracy of the published information.

However, the court disagreed with that take.

In this particular case, Hart noted that it is said that up to 60 per cent of the claimant investors have lost the opportunity for redress. Due to the cost of litigation funders, this will have a significant effect on the case, if upheld.

Chris Bushell, partner at Herbert Smith Freehills pointed out that now as a result of that judgment, the scope of section 90A is narrower than many claimant firms and funders have suggested.

Bushell noted, the “judgment may well be appealed, so this is not necessarily the last word”.

The claimants are likely to seek to appeal, which if accepted, it will be up to the Court of Appeal to consider Mr Justice Leech’s landmark ruling.

But, if the court doesn’t hear the case or rule in favour of the judge, Harry McGowan, partner at Stewarts , noted, “it is likely to shut the door on index investors having any claim under s.90A / Schedule 10A.”

What will it mean if the ruling is upheld?

McGowan suggested it will be “alarming given index investors make up about a third of the market.”

This decision comes as there has been a steady increase in investor litigation when share prices plummet following a multiple of reasons, including a scandal in the case of Boohoo.

For those now, Bushell detailed that similar claims before the court will likely see the claim values significantly reduced.

He added it “may impact on the viability of future cases given the judgment shuts out a significant number of investors in listed companies”.

Hart stated that while “this decision in itself may not slow down the pace of any proceedings, what it will do is potentially make such claims less economically attractive to those who fund the litigation”.

As he made clear, “with a lower value of claim, the return to funders becomes potentially lower.”

McGowan said the High Court decision “sends a terrible message at a time when the UK government is trying to attract investment.”

He noted that the message is “if you lose money on your investment due to the actions of a dishonest director, you may have no redress to the courts to get back any of your money.”