Securities litigation claims in the UK are rising, due to increased litigation funding, growing shareholder activism, and the strategic use of litigation for corporate governance. UK publicly-listed companies and their directors face significant exposure to personal liability and reputational damage if these risks are not properly managed.
While securities litigation remains less common in the UK compared to the United States, the development of a strong litigation funding market and increasing popularity of group litigation has created the perfect environment for rapid growth in shareholder claims.
UK boards therefore require comprehensive guidance to navigate securities litigation risks effectively. Our new report “Advising the Board on Securities Litigation Risk” provides essential insights for boards seeking to understand and mitigate these complex challenges.
The Current Claims Landscape
Securities litigation encompasses disputes arising from the purchase and sale of shares in publicly listed companies, typically involving shareholder claims seeking to recover alleged investment losses from corporate misrepresentation, mis-selling, fraud, or other wrongdoing.
FSMA 2000 claims form the backbone of UK securities litigation. Section 90 claims target those responsible for prospectuses or listing particulars for untrue or misleading statements, while Section 90A and Schedule 10A claims focus on misleading statements in published information (such as annual reports and accounts), omissions from such information, or dishonest delays in publication. These claims may only be brought against companies with securities admitted to trading on UK regulated markets or multilateral trading facilities.
Common law claims include misrepresentation (requiring contractual relationships, making them more relevant for primary market investors), negligent misstatement (requiring duty of care), and deceit (requiring proof of fraudulent intent but no contractual or duty relationship).
Companies Act 2006 claims under Section 463 create director liability for untrue or misleading statements in specific reports including directors' reports, strategic reports, and remuneration reports, though these claims must be brought by or on behalf of the company itself.
The complexity and viability of these claims varies significantly based on the specific legal requirements.
Recent Legal Developments
The legal framework governing securities litigation continues to evolve through significant court decisions that are shaping how these claims are pursued and defended.
Recent Court of Appeal decisions have established important precedents regarding the use of representative proceedings in securities claims, with courts emphasising the importance of case management powers and rejecting attempts to circumvent normal procedural safeguards through tactical use of representative action mechanisms.
Simultaneously, High Court decisions have taken divergent approaches to critical issues of investor reliance, with some courts refusing to strike out “common reliance” and “dishonest delay” claims while others have adopted stricter interpretations requiring claimants to demonstrate actual reading and consideration of published information.
These conflicting approaches highlight that securities litigation law remains a developing area where the parameters of liability is still evolving. Courts are grappling with fundamental questions about what constitutes adequate investor reliance, the scope of liability for omissions, and the requirements for claims based on dishonest delays in publication.
This uncertainty means that boards must prepare for a range of potential legal outcomes when assessing their securities litigation exposure.
Risk Management for Boards
The Report identifies the major risk factors that boards must address, including the growing influence of shareholder activism, the increasing use of Group Litigation Orders, market volatility impacts, regulatory enforcement consequences, and the complexities of disclosure obligations under UK Market Abuse Regulation.
Further, it outlines comprehensive mitigation strategies and establishes practical risk management principles that boards should follow to minimise exposure and demonstrate appropriate care in their governance responsibilities.
With traditional governance approaches no longer providing adequate protection against these evolving risks, the Report makes for essential reading for every board.
Download the full report: Advising the Board on Securities Litigation Risk
For expert guidance on implementing comprehensive securities litigation risk management strategies, contact our specialist team.
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