Until 2010, securities fraud class actions pursued in American federal courts dominated the means by which investors sought redress for alleged fraud committed around the world. Securities fraud litigation in non-U.S. legal systems was fraught with risks, such as fee-shifting rules and limited precedent. However, once the U.S. Supreme Court decided Morrison v. National Australia Bank in 2010[1], foreclosing many foreign claims from being brought in U.S. courts, foreign investors–with claims against foreign companies resting on transactions occurring outside the U.S.–needed to avail themselves of foreign laws and procedures.
In the wake of Morrison, many foreign investors developed strategies suited to their locales, such as litigation funding to address fee-shifting risks. With U.S. courts foreclosed to them, procedures to bring and resolve single and group securities fraud actions based on existing law became increasingly well defined in Australia, Japan, and France, as well as in less common venues such as the Netherlands and Denmark. In Germany, the Capital Market Investors’ Model Proceeding Act, or KapMuG[2]–enacted in 2005 in response to a specific corporate accounting scandal involving Deutsche Telekom–became the focus of renewed interest.
In the United Kingdom, securities litigation had long been confined to claims arising from allegedly false statements in offering documents, such as a prospectus. However, as in Germany, new legislation was introduced in the wake of major corporate fraud–in this instance, the catalyst was BP’s Deepwater Horizon oil spill disaster. Sections 90 and 90A of the UK Financial Services and Markets Act now offer British investors causes of action roughly analogous to those available under Sections 11 and 10(b) of the Securities Act and the Securities Exchange Act in the United States. UK securities fraud actions, however, are still limited to the opt-in method, in which each claimant is required to be an actual party rather than having the option to participate in any recovery as a passive class member.
This ability to pursue a U.S.-style opt-out class action was still not available in the UK until the enactment of the Consumer Rights Act 2015, which applies primarily to certain goods and services and unfair business terms, including violations of competition laws[3]. UK class actions face stringent judicial review and are currently available to address only a limited set of product- and service-related claims, a scope that does not include securities fraud. But the first UK opt-out class action against financial company defendants has already been brought, alleging damages related to unlawful manipulation of the foreign exchange market between 2007 and 2013, in violation of competition laws[4].
Thus, the UK has now established all the elements of a U.S.-style securities fraud class action. The next step is simply to make the cause of action and the procedure available together. In light of the trend in developments in the UK away from continental traditions and possibly toward U.S.-style litigation, the future of UK law may hold the seeds of U.S.-style securities class actions.
[1] 561 U.S. 247 (2010).
[2] Kapitalanleger-Musterverfahrensgesetz, BGBl 2005, I, 2437 (Aug. 16, 2005).
[3] Consumer Rights Act 2015, 63 Eliz. 2, 2015 c. 15, sched. 8 (Eng.) (amending section 47B of Competition Act 1998).
[4] Michael O’Higgins FX Class Representative Ltd v. Barclays Bank PLC and Others, case no. 1329/7/7/19.