Representative proceedings: bifurcation tested in two claims

Representative proceedings are a potentially powerful class action mechanism in that they can operate on an “opt-out” basis and that they are available for all causes of action.  This can be contrasted with the Collective Proceedings Order procedure, which was introduced in 2015 and which is also an “opt-out” mechanism, but which is only available for claimants for breach of competition law.

Although the representative proceedings mechanism has been available in English procedural law for hundreds of years, it has recently gained significant attention following the Supreme Court case of Lloyd v Google [2021] UKSC 50, which clarified the circumstances in which the mechanism is suitable (please see our LawNow on that decision here).

Since the Supreme Court’s judgment, claimant law firms have sought to use the representative proceedings mechanism (now codified in CPR r 19.8) to bring claims on an opt-out basis, seeking damages for a class of claimants.  Recent attempts have had mixed success.  In Andrew Primsall v Google and another [2023] EWHC 1169 (KB), the High Court rejected an attempt to use the mechanism in a misuse of private information claim (please see our LawNow here).  In Commission Recovery v Marks & Clerk [2023] EWHC 398, the High Court identified potential flaws in an attempt to use the mechanism in a “secret commissions” claim, but permitted the claim to continue (please see our LawNow here).  Both claims are under appeal.

Aside from using this device to seek damages on a class wide basis, claimant law firms are also exploring how representative proceedings may be used to determine parts of claims using the so-called “bifurcated process” described by Lord Leggatt SCJ in Lloyd v Google.  Lord Leggatt SCJ considered that the bifurcated process could be used to decide certain issues common to a class, leaving individual issues to be determined subsequently.  For example, representative proceedings might be used to determine liability not quantum, or to determine certain constituent elements of liability.

In this article, we examine two very recent judgments in which claimants sought a bifurcated process, with different outcomes.

• In Wirral Council v Indivior and another [2023] EWHC 3114 (Comm), Wirral issued proceedings as representative of investors with alleged securities claims.  It sought declarations on certain  issues relating to liability which were alleged to be common to those claims, leaving individual issues to be determined later.  This approach had tactical advantages: the defendants would have the burden of defending the defendant-side issues in the representative proceedings.  Wirral, the other investors, and their funders would take on little cost or risk until after any declarations were made.  Mr Justice Green exercised the court’s discretion under CPR r 19.8(2) to order that Wirral could not act as representative, striking out the proceedings.  He observed that Wirral’s representative proceedings would oust the court’s case management powers, which would be “quite extraordinary”.
• By contrast, in Barclays Bank UK PLC v Shaun Richard Terry and another [2023] EWHC 2726 (Ch), the High Court allowed representative proceedings to be used to determine issues common to Barclays’ claims to restore charges over approximately 5,000 customers’ properties.  HHJ Pelling gave judgment on these common issues, which could be decided on Barclays’ evidence alone, enabling Barclays to pursue claims against the customers to determine individual issues.

As is demonstrated by these cases, where faced with a proposed bifurcated use of the representative procedure, the court will look to its obligation under CPR r 1.4 to actively manage cases to ensure they are dealt with justly and at proportionate cost.  In Wirral v Indivior, Green J struck out the representative proceedings because they interfered with that obligation.  In Barclays v Terry, whilst HHJ Pelling did not explain his reasons for endorsing the representative proceedings, it appears he was swayed by the fact that the mechanism enabled common issues to be dealt with at minimum cost with no disadvantage to the defendants.  Wirral v Indivior will be welcomed by defendants: it suggests the court will be cautious of claimants attempting to use representative proceedings as a tactical tool for procedural advantage that interferes with the court’s inherent case management powers .

We consider the judgments in more detail below.

Wirral v Indivior PLC

Background

In its representative proceedings, Wirral sought declarations to the effect that the defendants had acted contrary to s.90A and Schedule 10A Financial Services and Markets Act 2000 (“FSMA”) in relation to marketing the drug “Suboxone”.  In brief, these provisions of FSMA allow investors to seek compensation from an issuer when they have suffered loss as a result of omissions and/or untrue or misleading statements in the issuer’s published information – provided a person discharging managerial responsibility within the issuer (e.g., a director^[1]) knew about this or, in certain cases, was reckless.  The declarations would also have assisted s.90 FSMA claims against one of the defendants in relation to its prospectus.

Many of the investors who had opted into these representative proceedings had also issued multi-party Part 7 claim forms against the defendants, alleging the same causes of action under FSMA.  Those multi-party proceedings had been stayed pending resolution of the defendants’ application to strike out the representative proceedings.

Wirral acted tactically in bringing the representative proceedings.  If they had continued, these proceedings would have forced the defendants to incur considerable costs defending against the court making the declarations before Wirral or the other investors incurred any significant costs of their own.  If made, the declarations would have assisted Wirral and the other investors in the multi-party proceedings.  Wirral was unable to explain precisely how its and the investors’ claims would continue if the declarations were made: whether in the representative proceedings, in the multi-party proceedings or otherwise.

Judgment

Case management in securities claims

This case is the first time that securities claims under ss.90, 90A and Schedule 10A FSMA had been brought via representative proceedings.  Green J observed that several such claims are progressing through the courts by way of ordinary Part 7 proceedings.^[2]  He commented that it is common in those claims for the court to consider whether there should be a split trial, and – if so – the parameters of such split and whether other issues should progress in parallel.  He observed that whilst the court normally issues case management directions to suit the circumstances of a case, Wirral’s proposed use of representative proceedings would have the practical effect of forcing a split trial.

Green J noted that Wirral had been entitled to bring the representative proceedings under CPR 19.8(1).  However, the court had the discretion to end the proceedings: CPR 19.8(2) allows the court to direct that a person may not act as a representative.  The question for Green J was whether to exercise that discretion.

Green J considered whether Lord Leggatt SCJ’s obiter comments about bifurcation in Lloyd v Google supported Wirral’s use of representative proceedings, noting those comments were deserving of the utmost respect.  He commented on Lord Leggatt SCJ’s observations that representative proceedings can be used flexibly, including potentially on a bifurcated basis, to provide claimants with access to justice.  He did not think Lord Leggatt SCJ had contemplated representative proceedings being used to deprive the court of its case management powers.

Exercise of the court’s jurisdiction

Green J exercised his discretion to end the representative proceedings, striking them out.  He was fundamentally troubled that they would circumscribe the court’s case management powers:

“To allow the Representative Proceedings to continue would mean that a Judge has no power to decide the best way to manage the claims from start to end by reference to all relevant factors, including the respective positions of the parties, the appropriate use of the Court’s resources and the administration of Justice.  They take away from the court one of its primary functions to manage and deal with cases justly and at proportionate cost.”

Green J was careful to explain that, in giving judgment against Wirral, he was not giving judgment on “how securities claims in general should be brought”.  That said, his primary objection to use of the representative proceedings in this case was the interference in the Court’s discretion on case management and – while he stated that each case must be looked at on its merits – this particular concern will arise in any proposed use of the representative action mechanism.

However, additional factors in this case militated against use of the representative action procedure which may not be present in other cases.  One key factor was the existence of the Part 7 multi-party proceedings.  It is not immediately clear whether Green J would have permitted this claim to proceed if the multi-party proceedings had not been on foot, but it seems a possibility. 

Barclays v Terry

Background

Barclays’ claims stem from an exercise to tidy up its mortgage book.  Barclays used a computer program to identify cases in which customers had redeemed their mortgages but, for some reason, Barclays was still recorded as mortgagee over their properties.  Barclays applied to the Land Registry to release the identified charges.  It then discovered that, in over 5,000 cases, the customer actually owed money to Barclays on their mortgage and Barclays should not have discharged its security.

Barclays brought proceedings against two of the customers, seeking to have the discharge of its security over their property rescinded for mistake and the Land Registry title altered accordingly.  Barclays also proceeded against those customers as representatives of the wider class of potential defendants, seeking a declaration that the jurisdiction of the court to rescind the released charge in each of their cases was engaged.  This would leave Barclays to pursue follow-on claims against each of the other potential defendants on individual issues.

This is an interesting use of the representative proceedings mechanism in that it was brought by a single claimant against defendants who are representative of a wider class.  Usually, the mechanism is used by a claimant representing a broader class. 

Judgment

HHJ Matthews considered the law on mistake, as summarised in Kennedy v Kennedy [2014] EWHC 4129 (Ch).  The principles applicable to rescission of a non-contractual voluntary disposition for mistake can be summarised as follows:

• there must be a distinct mistake (not mere ignorance or inadvertence);
• the mistake may be due to carelessness (but not deliberate risk-taking);
• the mistake must be sufficiently grave as to make it unconscionable on the part of the donee to retain the property; and
• the injustice of leaving a mistaken disposition uncorrected must be evaluated objectively, but with an intense focus on the facts of the particular case.

The question for HHJ Matthews was which of these principles could be decided on a representative basis against all the potential defendants, and which could only be determined as against the two named defendants.

HHJ Matthews stated that “the jurisdiction of the court to reverse this mistaken transaction is engaged”.  He said that this left the court to “consider the position of the claimant’s customers”, something he could only decide against the named defendants in his judgment, against whom he awarded Barclays summary judgment.  We understand this means that HHJ Matthews decided the first two principles on a representative basis, leaving the other issues to be dealt with in follow-on proceedings.  He did not explicitly say that the fourth point would need to be dealt with in subsequent individual  proceedings, but we infer this is correct given the requirement to focus on the facts of the particular case.

The judgment of HHJ Matthews does not include detail on the exercise of his discretion, but his approach was logical.  The first two elements of mistake are criterion that are homogenous to the full class of defendants, whereas the third and fourth would turn on specific facts relating to specific defendants.  This was therefore a pragmatic approach and determination of the first two issues on a class wide basis streamlines the subsequent individual claims.
 

^[1] For further information on who is a “person discharging managerial responsibility”, please see our LawNow here.

^[2] For further information on securities actions, please see our LawNow here.