This document summarizes recent developments in UK security class actions and their impact on directors and officers (D&O) insurance markets. It notes that shareholder class actions against corporations and their directors have grown significantly in the last 10 years. Key changes to UK law and court procedures have enabled group litigation orders and representative actions, making it easier for shareholders and investors to collectively pursue compensation claims. Major class actions involving companies like Royal Bank of Scotland, Lloyds Bank, and Tesco are discussed, as well as the growing role of third-party litigation funders. The author argues that this changing landscape means D&O insurers can no longer view UK class actions as a solely US issue and will need to reconsider the types and

1. Security class actions and the impact on D&O market
Harmonie Conference
October 2017, London

2. Security class actions and the
impact on D&O market
Harmonie London Conference
Francis Mackie
Partner
francis.mackie@brownejacobson.com

3. UK Developments in Security/Investor Class
Actions and Impact on D&O Insurers
Background
• over the last 10 years or so in the UK significant developments and
growth of “class” actions against corporates and financial
institutions and specifically identified directors and officers. The
actions are being pursued by shareholders/investors
• ordinary shareholders forming self-help groups
• claims being joined by institutional investors
• the claim is for loss of value to the investment/shareholding
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4. Corporate Governance Issues
• directors owe their duties to the Company
• need to be able to hold directors/officers accountable and
responsible for their conduct and decisions
• AGM’s not sufficient or suitable for holding Directors to account
• these sort of claims are now seen/accepted as part of the overall
evolving concepts of corporate governance
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5. English Law – Changes and Developments as
from 2000
• access to Justice Report (Lord Woolf) in 2000
• Court rules were changed
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6. Group Litigation Orders (GLO)
• several claims of several Claimants who have common cause of
action or related issues of fact and law
• these can be grouped together and managed by the Court (and
the parties) and have special procedural and organisational rules
• the process is at the Court’s discretion and permission. Court can
impose specific requirements
• if the GLO is ordered, then there will be a number of ongoing
requirements e.g.
– group register (Court sets criteria and requirements)
– GLO to be publicised e.g. the Law Society is notified
– there will be rules for a cut-off date for Claimants joining the
GLO
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7. Group Litigation Orders (GLO) contd..
• costs
– GLO Claimants liable for costs on a several basis.
– these are based on an equal proportion of
“common” costs of the issues
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8. Representative actions
• one or more parties become claimants on a representative basis for a
number of other parties with similar claims
• the claim is brought by or against that group of entities
• the Court has three requirements
– common interest
– common grievance
– the remedy is beneficial to all
• the claim is brought in a representative capacity on behalf of the other
parties who are part of the claimant group
• the Court has administrative role
• Court can refuse to permit a representative action if it thinks that a GLO
is more appropriate
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9. • most of the recent high profile High Court class actions are brought
under GLO’s
• probably better and more efficient to administer in terms of
litigation management
• litigation funders seem to prefer GLO’s, probably because of the
efficiency of the procedure
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10. Litigation funders
• most of the recent claims against Banks/financial institutions
involve an element of litigation funding
• ordinary shareholders/claimants can obtain access to litigation
funds to pursue their claim. This makes claims more likely.
• litigation funders seem to be keen to invest in these claims
• litigation funders take a % of the claim/settlement (can be as high
as 45%)
• litigation funders can influence settlement
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11. D&O 0 the landscape is changing
• no longer just a US litigation scenario
• in the UK – no longer predominantly claims concerning regulatory
investigations
• RBS claim seen as a watershed for the future – i.e. investors will be
pursuing group actions against a company and its directors
• D&O policies will need to look at future type/extent of risk
• role of litigation funders
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12. Royal Bank of Scotland
Claim arises out of the 2008 RBoS rights issue and is against the
directors for misrepresentation in the offer document/prospectus, and
general allegations of negligence.
– GLO
– Initially 27,000 investors/claimants
– Various settlements since December 2016
– May – July 2017 the remaining 9,000 investors eventually settled at a
82 pence per share
– Claim/settlement £200m
– Litigation funding
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13. Lloyds Bank/HBOS
Claim arising from breach of directors’ duty to Lloyd’s shareholders in
recommending the acquisition of HBOS, which was finalised in
January 2009. The claim is primarily against five directors.
– GLO
– 5,700 individual shareholders and 300 institutional investors (including
worldwide pension funds).
– Trial is this week!
– Claim is £450m
– Litigation funding
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14. Tesco Plc
Claim is against company and directors for accounting irregularities
and misstated profits that have caused loss in value of the share
price.
– GLO
– claimants are institutional investors
– claim amount
– litigation funder – Bentham Ventures BV
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15. Barclays
Claim arises from the lone arrangements with Qatar investments
during the financial crisis.
Criminal proceedings under way against a number of Barclay’s
directors.
Potential claim by various shareholders, which is in abeyance pending
the criminal proceedings, being based upon the negligence and
criminal activities of the directors.
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16. Volkswagen – Emission Scandal
– Over 35000 claimants so far
Morrisons
– Data security breach.
– 6000 staff pursuing claims
(Trial started last week!)
Post Office
– Claim concerns the Horizon IT system, and its faults
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73. All information correct at time of production.
The information and opinions expressed within this document are no substitute
for full legal advice. It is for guidance only and illustrates the law as at the
published date. If in doubt, please telephone us on 0370 270 6000.
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