Standard Chartered securities litigation: renewed hope for passive investors

The Claimants assert the following claims, in each case connected with historic sanctions non-compliance on the part of Standard Chartered:

1. claims under section 90 FSMA alleging untrue or misleading statements or improper omissions in Standard Chartered's prospectuses;
2. claims under paragraph 3 of Schedule 10A FSMA alleging untrue or misleading statements and improper omissions in Standard Chartered's published information; and
3. claims under paragraph 5 of Schedule 10A FSMA alleging a dishonest delay in the publication of information. 
   
   

Standard Chartered applied to strike out and for reverse summary judgment in respect of:

1. the claims for untrue or misleading statements and improper omissions in published information to the extent the claims relied on a "price or market reliance" argument (said to represent claims by 949 of 1391 funds), on the basis that this type of reliance did not meet the requirements under Schedule 10A FSMA; and
2. the claims for dishonest delay, on the basis the claims were not properly pleaded, notably because paragraph 5 of Schedule 10A FSMA requires that the issuer later published the delayed information.
   
   

The Claimants put the "price or market reliance" argument in the following way:

1. "the price of the shares … reflect[s] the fact that other participants in the market read and considered the Published Information, which meant the price at which the shares were being traded was based on the truthfulness and accuracy of the Published Information";
2. "the price at which the shares were being traded was based on the truthfulness and accuracy of the Published Information"; and
3. therefore, the Claimants "acquired or continued to hold shares in reliance on the price of those shares and … they therefore were induced to do so at a false and artificial price".

Both of the legal points raised in Standard Chartered were previously addressed by Leech J in Allianz Funds Multi-Strategy Trust and Others v Barclays plc [2024] EWHC 2710 (Ch). See our detailed briefing on the case here. In summary:

In Standard Chartered, three particular elements of Leech J's decision in Barclays on reliance were significant:

(i) Direct reliance on representations: Leech J held that the test was whether the Claimant "read or heard the representation, that they understood it in the sense which they allege was false and that it caused them to act in a way which caused them loss." 

In so doing, he followed Hildyard J's conclusion in Autonomy and Others v Lynch and Hussain [2022] EWHC 1178 (Ch) (in which Travers Smith act for the successful Claimants) that the common law test of inducement or reliance in the tort of deceit applies to Schedule 10A. You can read our detailed briefing on Autonomy here.

(ii) Indirect reliance: Leech J stated that indirect reliance – where “third parties who directed or influenced … investment decisions read and considered [the] published information” – was sufficient and that a distinction was to be drawn for the purpose of the legislation between an investor who acted on a "buy recommendation" from a broker who had read the published information (which would meet the reliance requirements) and a claimant who relied solely on the price which was influenced by the published information (which would not).

(iii) Omissions: Leech J held that investors are required to prove that they relied on the incomplete published information and that such reliance was reasonable. However, they are not required to prove that they had relied on the omission itself; this differs from the test applicable to the tort of deceit, which does not impose liability for "pure" omissions.

Green J refused to strike out or grant summary judgment in favour of Standard Chartered in respect of either the Claimants' "price or market reliance" claims or their dishonest delay claims.

Green J evidently had doubts regarding the decision in Barclays on both legal points raised, which he considered to be developing areas of the law. Therefore, he sought to distinguish the cases and determined that, in this instance, both issues were more appropriately dealt with at trial in light of the actual facts.

On "price or market reliance", Green J reasoned as follows:

1. It was doubtful whether Parliament intended the common law test for reliance to apply to paragraph 3 of Schedule 10A FSMA, notably because the common law test could not apply unmodified to omissions. It was therefore arguable that a broader test for reliance applies under Schedule 10A in order to accommodate omissions.
   
   
2. There is difficulty in drawing a precise line in principle between "indirect reliance" and "market or price reliance". This question is fact specific and also depends partly on expert evidence, including as to the extent to which published information would have affected the market price and, accordingly, its influence on investors' decisions.
   
   
3. Reliance in the context of Schedule 10A FSMA is a developing area with a potentially huge impact on a number of different claims currently going through the courts. The extent to which reliance is a limitation on claims under Schedule 10A FSMA is a difficult issue and one that should be explored further at trial rather than determined at a preliminary stage.
   
   
4. Barclays was different to Standard Chartered because in Standard Chartered: (a) the Claimants assert a belief that the prevailing market price reflects the value of those shares based on the information disclosed by the company being true and complete; (b) the Claimants rely extensively on implied representations, in relation to which the test for reliance and inducement at common law is developing; (c) a strike out of the "market or price reliance" claims would not have substantially reduced the burden of the trial or, in light of Green J's conclusion on dishonest delay, have caused any Claimants to drop out.

On dishonest delay, Green J reasoned as follows:

1. It is doubtful whether dishonest delay claims are dependent on the issuer later publishing corrective information.
   
   
2. The requirement for publication of corrective information does not necessarily fit with the objective of imposing liability for dishonest delay and would give rise to a perverse incentive not to publish the corrective information.
   
   
3. Subject to the text of paragraph 5 of Schedule 10A FSMA as a whole, the word "delay" itself is wide enough to cover when something happens late and when something does not happen at all (in agreement with Leech J in Barclays).
   
   
4. It would have been easy for paragraph 5 to spell out a requirement of subsequent corrective publication, and it does not. Paragraph 5 refers to "dishonest delay in the publication of information to which this Schedule applies" and does not refer to dishonestly delayed information being "published information". 
   
   
5. In this case, the Claimants pleaded (albeit rather elliptically) that some of the misconduct relied upon had been disclosed by corrective information. Strike out would be inappropriate in circumstances where the Claimants may be able to establish at trial that at least certain elements of their claims did, in any event, satisfy any publication requirement which might exist.

Passive investors who are bringing, or seeking to bring, claims under Schedule 10A FSMA – for whom the Barclays judgment appeared disastrous – will be extremely relieved by the decision in Standard Chartered. However, this is only a preliminary decision and the passive investors in Standard Chartered are likely still to face an uphill battle in establishing reliance at trial and, in particular, in convincing the trial judge that "price or market reliance" is sufficient for claims under Schedule 10A FSMA. 

Assuming Standard Chartered does not settle and reaches trial and judgment – to date, Autonomy is the only Schedule 10A claim to have proceeded to judgment – the decision on "price or market reliance" will have a huge impact on securities litigation in the UK, specifically the ease with which such claims can be pursued. Showing reliance on specific elements of an issuer's published information is a significant hurdle for claimants, whether they are passive or active investors. This is reflected in how securities claims tend to be case-managed by the English Courts, with claimants being required at an early stage to give particulars of, and/or disclosure in respect of, their alleged reliance. For the same reason, the scope of claims for dishonest delay, which do not require reliance, is also a very important issue.