Schedule 10A FSMA: No Reliance without Knowledge and No Dishonest Delay without Subsequent Publication

25/10/24

The High Court (Leech J sitting as a Judge of the Financial List (ChD)) has summarily dismissed claims for damages brought pursuant to section 90A and Schedule 10A of the Financial Services and Markets Act 2000 (“FSMA”) by 241 Claimants against Barclays Bank plc in respect of various alleged misstatements or omissions in certain published information.

Each of the Claimants had alleged that they had relied on the published information because their investment processes proceeded on the basis that (i) Barclays was a listed entity required to produce published information compliant with the relevant legal requirements, (ii) Barclays’ share price (and/or the movement therein) on the London Stock Exchange would reflect the contents of the published information, and that (iii) in their investment processes they took account of Barclays’ share price and/or any movements therein and/or its status as a listed issuer with the relevant obligations to publish information. It was not suggested as part of these allegations that the Claimants (or their advisers) had read or considered any of the published information alleged to contain misstatements or omissions when deciding to acquire, hold or sell Barclays shares.

Leech J concluded that the requirements under paragraphs 3(1) and (4) Schedule 10A FSMA that the claimant had acquired, continue to hold or dispose of securities “in reliance on published information to which this Schedule applies” and “in reliance on the information in question” were intended to limit the recovery of compensation to those investors who are able to prove something more than that they have suffered loss as a consequence of a misleading statement or omission being made to the market. Having carefully reviewed various common law cases relating to Prospectuses and other cases relating to reliance, together with various materials predating the introduction of Schedule 10A, including two papers published by Professor Davies as part of a review of issuer liability and various papers published by HM Treasury as part of the consultation process, he further concluded that Parliament had intended by the use of this language to adopt the common law test for inducement or reliance in the tort of deceit, such that proof of liability requires a claimant to prove both reliance and causation as separate ingredients of the claim. Accordingly, a claimant could only recover damages pursuant to Schedule 10A FSMA it if could prove that it, or a third party or parties on whose advice it relied, had read or heard the published information alleged to contain a misstatement or omission. The Judge expressly left open the question whether it is necessary for a claimant to prove that its decision-makers or advisers applied their mind(s) to the alleged misleading or untrue statements, but was satisfied that this is not a requirement of the test applicable to omissions.

Each of the relevant Claimants had also asserted that Barclays had delayed in publishing the relevant information so as to give rise to a claim under paragraph 5(2) of Schedule 10A. However, Leech J further concluded that a claim can only be made under that paragraph where the issuer of the security in question has in fact published the relevant information, but has done so late. In reaching that view, Leech J relied on the language used in paragraph 5 of Schedule 10A. the interaction of paragraphs 3 and 5, and the purpose of the provision as identified in Professor Davies’ reports. As the Claimants had not alleged that Barclays had published any of the information which they asserted should have been published, it followed that they had not asserted claims under paragraph 5 which had a real prospect of success.

Matters consequential to the judgment have been reserved to the next case management conference in the proceedings in November 2024.

The judgment is here.