English Civil Procedure Rules allow for class actions or ‘group actions’ to be applied under current UK legislation in England and Wales (Scotland does not yet have a group litigation procedure). Securities fraud related claims can be made either under common law principles (such as fraud, deceit, or negligent misrepresentation), or for cases of liability relating to statements made in a prospectus, under Section 90 of the Financial Services Markets Act of 2000.
English Civil Procedure Rules allow for class actions or ‘group actions’ to be applied under current UK legislation in England and Wales (Scotland does not yet have a group litigation procedure). Securities fraud related claims can be made either under common law principles (such as fraud, deceit, or negligent misrepresentation), or for cases of liability relating to statements made in a prospectus, under Section 90 of the Financial Services Markets Act of 2000. Unlike the class action system in the US, the law of England and Wales requires plaintiffs to ‘opt in’ to the action.
Participating in such cases can result in compensation being gained for real financial losses incurred, and can encourage the reform of corporate governance. Despite this, securities class actions in England and Wales have been a relative rarity when compared to the US.
A scarcity of cases could arguably be attributed to the fact that the losing party must pay at least part of the winner’s costs. This rule does not usually apply in the US. However recently, in England and Wales, a relaxation of the previous ban on outside investment in litigation has encouraged insurers to cover the risk that plaintiffs will have to pay defendants’ fees should they lose.
This moderation of the rules has encouraged cases. For example, in March of this year, two shareholder groups initiated securities class actions against RBS (Royal Bank of Scotland). These claims are believed to be the biggest in UK history. The prosecutors allege that the bank’s prospectus for a $23 billion offering in April 2008 contained material misstatements.
Recent US Supreme Court activity has limited the ability of overseas plaintiffs to bring securities class action claims within the US. The ruling came in 2010 when the court stated as a result of the Morrison v National Australia Bank case, that US securities laws only apply to companies listed on US exchanges, wiping out the eligibility of what have become known as f-cubed actions. An f-cubed action involves a non-US shareholder suing a non-US company whose stock was purchased on a non-US exchange, and who is bringing a case in a US court.
Cases, such as those against RBS within the UK, have stimulated class action lawyers to familiarise themselves with overseas legislation and represent institutional investors in international jurisdictions that are establishing themselves as class action centres. Goal Group has calculated that settlements in securities class actions outside the US are estimated to reach $8.3 billion annually by 2020.
As class actions globalise, it is important that class action opportunities are monitored. However for investors, this presents a more complex global network of shareholder litigation to monitor and respond to. Any level of non-participation can present fiduciaries with a major legal headache. As experience in the US has shown, fiduciaries may be sued if they do not ensure investors participate in relevant securities class actions. Moreover, evidence is emerging that funds are now including the responsibility for class action identification and participation in contractual agreements with custodians.
Historically, keeping track of opportunities to make a claim and the processes required to do so successfully, have been considered complex and daunting. Now, however, there is little excuse for failing to ensure identification and participation in relevant securities class actions as there are specialist service providers that can automate the process at a relatively low cost.
The pressure of the process can be dramatically eased by such support as although many only monitor the US, some specialist providers can work on a global basis, covering class actions in all markets, while managing on-going relationships with various legal firms worldwide and a network of claims administrators.
