Representative Claims: A Game of Two Halves?

In recent years, the English courts have seemed to embrace collective actions, primarily through three mechanisms: representative claims, group litigation orders (“GLOs”) and competition law collective actions before the Competition Appeal Tribunal (the “CAT”). Of these three mechanisms, judgments have appeared to encourage the use of GLOs and the CAT collective procedure in particular.¹ There has been a notable explosion of collective competition law cases before the CAT recently, following the Supreme Court’s decision in Merricks v Mastercard to lower the threshold required to bring such competition claims.² However, courts have arguably shown less enthusiasm for representative claims as a collective procedure.

Representative claims by their nature often encounter the same, potentially fatal, problem: that it is impractical or impossible for one claim to deal with the individual factual circumstances of hundreds or thousands of potential claimants. In Lloyd v Google, Lord Leggatt offered a possible solution to the problem – a bifurcated claim, where common issues of law or fact are decided through an initial representative claim, and issues requiring individual determination are dealt with subsequently. However, the recent Court of Appeal judgment in the linked cases of Wirral v Indivior and Wirral v Reckitt Benckiser appears to rule out that approach in section 90A Financial Services and Markets Act 2000 (“FSMA”) cases, and potentially other cases too. In this article, we examine whether and when the bifurcation approach might still be used.

Introduction

Civil Procedure Rule (“CPR”) 19.8 provides that representative proceedings may be brought where multiple claimants have the “same interest” in a claim. One (or more) claimant(s) will act as the representative(s) of the other would-be claimants with that same interest. The collective nature of this procedure means that claims can run into potentially fatal problems where represented claimants seek damages. As damages under English law are generally awarded to compensate claimants, the assessment of damages requires a consideration of circumstances personal to each individual claimant. In a representative claim where there are hundreds or even thousands of claimants being represented, carrying out this individual assessment as part of a representative claim can be impractical or even impossible.

In the Supreme Court case of Lloyd v Google,³ Lord Leggatt suggested that a bifurcated claim could act as a potential remedy to this issue. Such a claim would use the representative action procedure to determine common issues of fact or law. Issues requiring individual determination (such as quantum of damages) could then be dealt with subsequently. From a strategic perspective, this bifurcated procedure could enable claimants to shift the “litigation burden” onto defendants in the first half of the claim, putting them at an advantage going into the second stage of the claim. In the linked cases of Wirral Council v Indivior PLC and Wirral Council v Reckitt Benckiser Group PLC (the “Wirral cases”), the Court of Appeal was asked to consider the scope of Lord Leggatt’s bifurcation proposal.

The Wirral cases

In the Wirral cases, Wirral Council (as administering authority of Merseyside Pension Fund) brought representative proceedings based on an alleged fraudulent scheme by the two Defendants (the “Representative Proceedings”). The scheme concerned the alleged fraudulent marketing of the Defendants’ product Suboxone, a treatment for opioid addiction.

In the Representative Proceedings, Wirral Council brought a claim under section 90A and Schedule 10A of the Financial Services and Markets Act 2000 (“FSMA”) based on misleading statements allegedly made to investors about the medication as part of the scheme. In order to succeed, a claim under section 90A must show that the claimant relied (either directly or through an intermediary advisor) on the published information when acquiring or holding their securities. Reliance on the security’s market price only is not sufficient for this element of a section 90A claim.

Wirral Council sought to try, in the Representative Proceedings, initially only the “common issues” concerning omissions and misstatements in the Defendants’ published information. As such it only sought declarations as to those factual matters. Claimant-specific issues (such as standing to sue, reliance, and quantum) would then be left to some future stage, or other proceedings.

The Defendants sought to strike out the Representative Proceedings as styled by Wirral Council, on the basis that it would not further the overriding objective for the initial burden of the litigation to fall entirely on the Defendants, without any examination of the reliance issues which might be fatal to many claimants.

Unusually, Wirral Council and the claimants it represents in the Representative Proceedings had also filed multi-party claim forms against the Defendants, based on the same cause of action as in the Representative Proceedings. However, the multi-party proceedings were brought by institutional investors only, with retail investors excluded, apparently due to constraints imposed by the claims’ funders (who cited the “economic and administrative burden” of including the latter). The multi-party proceedings were subsequently stayed pending resolution of the Representative Proceedings (which did include retail investors as represented parties). The Defendants’ case was that Wirral Council and the parties it represented should continue their claim by way of those multi-party proceedings. It was agreed that the Court had a discretion to allow the Representative Proceedings to continue or not, under CPR 19.8(2) and (3).

In December 2023, Mr Justice Michael Green in the High Court struck out the Representative Proceedings, largely on the basis that their formulation effectively ousted the Court’s powers of case management, which it would have been able to exercise in the multi-party proceedings as usual. Wirral appealed and the appeal was heard in December 2024.

Key issues

On 23 January, the Court of Appeal handed down judgment upholding the High Court’s decision to strike out the Representative Proceedings. The Court rejected Wirral Council’s suggestion of a “presumption in favour of representative proceedings” where the “same interest” threshold is met. Rather, where there are other procedures by which the claim can be brought (such as multi-party proceedings), the Court held that courts must assess the advantages and disadvantages of different procedures with reference to the overriding objective.

The Court highlighted that in the authorities Wirral Council had relied on, “the choice was representative proceedings or nothing”. However, this was not so in the present case. As noted above, the litigation funders had refused to allow retail investors to participate in the multi-party proceedings, but had agreed to fund the same retail investors as part of the Representative Proceedings. The lack of “cogent or coherent explanation” as to the exclusion of retail investors from the multi-party proceedings undermined Wirral Council’s argument that the Representative Proceedings were the only option for retail investors. The Court considered that the funders had engineered the funding arrangements in this way to maximise the number of claimants being represented in the Representative Proceedings.⁵

As there were alternative procedures available in this case, the Representative Proceedings were to be assessed against the alternative, in this case the multi-party proceedings. The Court noted that Wirral Council’s formulation of the Representative Proceedings would put the litigation burden solely on the Defendants at the first stage of proceedings. Specifically, the Representative Proceedings would avoid the Court’s case management powers being used to order that Wirral Council advance claimant-side issues in parallel with the common issues at the first stage of proceedings. Conversely, in previous cases involving bifurcated proceedings with a “common issues” first stage, orders had generally been made for progress on Claimant-side issues “in tandem” to avoid a one-sided outcome.

Furthermore, given the importance of reliance to section 90A claims, the Court noted that the Representative Proceedings could allow claimants to pursue a claim in respect of common issues when they actually had “no claim at all”. The Court considered that case management powers could be used to avoid such an outcome, as in Allianz Funds Multi-Strategy Trust v Barclays.⁶ In that case, Leech J had required that all claimants to the multi-party proceedings identify the nature of their reliance under section 90A, resulting in 60% of claims being struck out due to not meeting the required standard of reliance. In the present case, the Court concluded that the Representative Proceedings would deprive it of its case management powers to “strike out speculative unmeritorious claims”.

As part of its assessment, the Court considered whether the Representative Proceedings or the multi-party proceedings would better facilitate settlement. It found that there was no evidence to support Wirral Council’s assertion that a bifurcated procedure would increase the prospects of settlement after the “common issues” stage. Rather, it considered that the unfettered use of its case management powers, including the powers to make orders to advance certain elements of the claim and to strike out speculative claims, would make settlement more likely. On these bases, the Court upheld the High Court’s decision on the basis that the claim proceeding by way of the multi-party proceedings, rather than the Representative Proceedings, would be “in accordance with the overriding objective”.

Looking forward

It is not yet clear whether Wirral Council will appeal this judgment to the Supreme Court. The scope of the Court’s discretion to strike out representative proceedings was not settled before this case, and Wirral Council may therefore press forward with their argument that the Court is only able to strike out representative claims facing “some structural deficiency”. The strike-out power is based on CPR 19.8(2), which provides that “[t]he court may direct that a person may not act as a representative”. In Commission Recovery, it was noted that the Defendants were trying to use that (on its face, limited) power to prevent the litigation being taken forward at all. In that case, it was held that the overriding objective militated against such a swingeing use of the power.

As for bifurcation, this case has clearly dealt a blow to the prospects for the bifurcation procedure envisioned in Lloyd v Google. The Court of Appeal noted that Lord Leggatt in that case had not been considering a case where there was a potential alternative procedure in the form of multi-party proceedings. Although Lord Leggatt had proposed a bifurcated procedure in that case, the Court emphasised that he had not been saying that it would “always be appropriate”, as this will depend on the circumstances of the case. Based on the case law examined in the Wirral cases, and in light of the need to establish reliance in a section 90A claim, it seems unlikely that section 90A representative proceedings (or even conventional multi-party proceedings) would be allowed to move forward without any initial engagement on claimant-side issues. It is unclear though whether this is an absolute bar or simply a factor weighing in favour of alternatives, where one exists. In a counterfactual where Wirral Council had not filed multi-party proceedings and the applicable limitation period had run out, it is unclear whether the Court would have struck out the Representative Proceedings, closing off (as that would) the claimants’ access to justice in respect of their claim.

Another important factor as to permitting bifurcation appears to be whether the proposed initial stage will be determinative of any or many of the putative claims. A proposed initial stage which only serves to improve the claimant’s position in settlement discussions, without firmly ruling in or out any potential claims, is unlikely to be approved.

It was submitted on behalf of Wirral Council that there had been no section 90A claims by retail investors since the provision was introduced. This would appear to be a significant lacuna in the justice system; it is clearly concerning if there is currently no way in which retail investors can practically assert their section 90A rights. It may be that, in time, innovative funding models emerge to address this shortcoming. However, if the underlying cause is that the costs of evidencing a retail claimant’s loss often significantly exceed their loss, then such claims will remain an unattractive investment proposal for litigation funders. It might therefore be that nothing short of legislative or procedural reform will allow retail investors to bring such claims.