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Insights
22/09/2023
Financial products are generally designed to be mass sold with the result that any defect in the structure of the product or product marketing material will often affect a large population of purchasers or investors. One does not have to look too far to see examples, viz the mis-sale of personal pension plans[1], the distribution of interest rate hedging products to SMEs[2], the mis-sale of income protection products[3], the mass mis-sale of Self-Invested Pension Plans[4].
The arguments thrown up by such claims generally resolve into a number of key-issues, the resolution of which (by and large) is likely to be determinative of liability in each case, viz did the product literature mis-describe or inadequately present the risks of the investment, what minimum level of advice at the point of sale was required to be given to comply with the regulatory duties imposed by the Conduct of Business Source Book Rules, at what date ought investors to have appreciated the investment had turned out to be loss-making where a Limitation Act defence is raised by the defendant?
Where a number of investors come forward with common complaints, the first question to address is whether the scale of any potential mis-selling is such that an application for a formal Group Litigation Order should be made or if not whether it is nonetheless expedient to join the body of claimants in single claim form and invite the court to case manage individual claims together. In both instances, it is common for the parties to agree or for the court to order that liability issues common to the whole population of claimants should be determined by way of a number of lead cases, with the balance of the claimants’ cases being stayed.
Inevitably, consideration needs to be given to the appropriate order for costs. Prosecution of the lead claimants’ cases, distilled into a series of key issues, will of course generate costs specific to those claimants but also costs which arise from the determination of the issues common to the whole population of claimants, so-called “common costs”. Where a GLO is made, CPR r 46.6(3) provides that: “Unless the court orders otherwise, any order for common costs against group litigants imposes on each group litigant several liability for an equal proportion of those common costs.” It is the writer’s experience that financial mis-selling claims by a group of claimants is more common than the invocation of a formal GLO. The register of GLOs shows that between November 2000 and May 2022, only 112 formal GLOs have been made, i.e. on average 5 a year.[5]
In relation to managed group actions which share the characteristics of a GLO, Rowe & Others v Ingenious Media Holdings Plc & Others [2020] EWHC 235 (Ch) provides the most up to date guidance on the courts’ approach to management orders in cases of this kind. The case concerned the sale of film-scheme investment products supposed to achieve tax savings to some 500 claimants No GLO had been applied for but case management directions had bene given for determination of key issues ventilated through a handful of lead cases. The defendant’s position was that any liability for adverse costs incurred by the claimants should be joint and several whereas the claimants were contending for their exposure to any order for costs in the defendant’s favour should be capped so that each claimant was severally liable for an aliquot proportion of common costs calculated by refence to the value of their individual claim.
Nugee J (as he then was) carefully analysed the jurispudence around this issue. The following key points emerge. First, the court should not adopt as a starting point the proposition that liability is joint and several so that the claimants have any burden of persuading the court to depart from a basis of joint and several liability, rather “the Court should simply consider, as an exercise of its wide discretion over the costs of the proceedings, whether it is an appropriate case for a several liability order to be made or not” (para.13). Secondly, without the protection of a several liability costs capping order, it is unlikely that any individual claimant would readily volunteer to stand as a lead claimant (see Sir Thomas Bingham MR at 900H of Ward v Guinness Mahon plc [1996] 1 WLR 894: “the purpose of selecting lead cases would be vitiated if regard had to be paid not to the issues in particular actions but to the means or willingness of the particular plaintiffs to accept a high degree of risk.”) Thirdly, it is relevant that claimants who have nothing in common other than the fact they have experienced losses from a repeated pattern of mis-selling could have issued a series of individual claims but for expediency lend their name to a single claim form. As Nugee J noted (referring again to Ward) “the defendant is no worse off under [a several liability] order than if it had been sued to judgment by 99 plaintiffs” (para. 21). Fourthly, although costs are always discretionary, the court concluded that “on a question like this there is much to be said for uniformity of practice where possible, not only because like cases should as a matter of principle be treated alike but also because it helps the parties if costs are relatively predictable”(para. 23) This observation was fuelled by the fact that, as noted by Nugee J (at para 15): “It is noticeable that not a single case has been put before me, whether under a formal GLO or where cases have been managed without a formal GLO, in which any order has been made for joint and several liability among the claimants for potential adverse costs to defendants. Every single case that I have been shown …[has] been on the basis of several liability.” In particular, where a case “shares very many characteristics with the sort of cases which are suitable for a GLO, and in particular, the characteristic that a very large number of claimants are bringing claims… I do not see why the principles applicable under CPR 46.6 do not apply equally…”.
The decision makes obvious good sense and provides clarity in the approach which may be expected of the court in group mis-selling actions where no formal GLO has been made.
John Virgo
Guildhall Chambers, London and Bristol
[1] Between 1988 and 1994 personal pension plans were mis-sold on an industrial scale leading to some £1.2 million people being awarded compensation by the middle of 2002, with the total bill for clearing up the scandal reaching around £13.5 billion: Britain’s forgotten financial mis-selling scandal | TEBI (evidenceinvestor.com)
[2] Between 2001 and 2012 at least 18,000 IRHPS were sold to SMEs resulting in £2.2 billion in compensation to investors following a Review by the leading banks responsible for widespread mis-selling: https://www.fca.org.uk/consumers/interest-rate-hedging-products
[3] The PPI scandal led to the largest consumer redress scheme in British history, with over £38 billion paid to claimants by August 2020: OPINION: The PPI scandal is far from over – here’s why | Bournemouth University
[4] See for example the GLO made in the Berkeley Burke litigation: https://www.gov.uk/government/publications/group-litigation-orders/list-of-group-litigation-orders#berkeley-burke-SIPP-litigation
[5] https://www.gov.uk/government/publications/group-litigation-orders/list-of-group-litigation-orders#the-bille-and-ogale-group-litigation
Call: 1983
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