In brief: liability for securities law violation in United Kingdom

Liability

Who may be primarily liable for securities law violations in your jurisdiction?

Section 90 Financial Services and Markets Act 2000 (FSMA) claims are brought against ‘any person responsible for listing particulars’. Persons responsible for a prospectus will always include the issuer of the relevant securities, but may also include directors and sponsors. 

Section 90A FSMA specifies that claims must be brought against the issuer. As seen in the recent Autonomy judgment, however, section 90A FSMA claims can be brought in the context of an M&A dispute whereby the listed target company admits liability to the buyer and then brings proceedings against the relevant PDMRs (persons discharging managerial responsibility).

Are the principles of secondary, vicarious or ‘controlling person’ liability recognised in your jurisdiction?

Vicarious liability refers to a situation where someone is held responsible for the actions or omissions of another person. In the law of England and Wales this usually arises in an employment context, although it has arisen in the context of securities litigation as well. The claims made by the claimants in the Lloyds/HBOS Litigation were against certain directors with a corresponding claim that Lloyds be held vicariously liable.

The concept of secondary liability exists in the common law. With regard to securities actions and in particular statutory claims, the extent of secondary liability is unclear. The Prospectus Directive and the Prospectus Regulation on which section 90 FSMA is based make ‘any person’ responsible for the prospectus liable to pay compensation. This could result in successful claims being brought against the issuer, its directors and advisers, including auditors and underwriting or sponsoring banks.

What are the special issues in your jurisdiction with respect to securities claims against directors?

Claims against directors are available under section 90 FSMA. Individual directors may have a better chance than the issuer of evidencing a defence that they believed the statements in a prospectus to be true, having made such enquiries as were reasonable. 

Section 90A FSMA claims are limited to claims against the issuer itself.

What are the special issues in your jurisdiction with respect to securities claims against underwriters?

Section 90 FSMA permits claims to be brought against persons stated in the prospectus as having accepted responsibility for the documents and any person who has authorised the contents of the prospectus or listing particulars. However, in practice, underwriters will ensure that they are not named as having accepted responsibility for the content of the statement. Disclaimers to that effect are usually expressly included.

What are the special issues in your jurisdiction with respect to securities claims against auditors?

In Caparo Industries v Dickman [1990] 2 AC 605, the House of Lords held that auditors only owe a duty of care in respect of a specific transaction and a specific shareholder if they have provided information to that shareholder for a particular purpose that the auditors are aware of, and that the shareholder relied on and acted upon that information.This ‘special relationship’ principle significantly limits the potential liability of auditors. 

Similar to underwriters, auditors may be liable for the contents of a prospectus pursuant to section 90 FSMA; however, significant caveats and disclaimers are likely to be used in an attempt to avoid this.