The full judgment in Autonomy Corporation Limited and others v Lynch and another ([2022] EWHC 1178) has now been handed down. Autonomy is the first claim to go to trial under section 90A and Schedule 10A Financial Services and Markets Act 2000 (section 90A) – a statutory provision that allows holders of listed securities to bring claims against issuers for misstatements and omissions in their published information (among other things). The outcome of the proceedings was announced with the release of a summary of the judgment in late January, but we now have the detail behind the Judge’s conclusions.

For a brief overview of section 90A and the facts of the Autonomy case, see our previous post. In short, in Autonomy, section 90A was used by the purchaser of a listed company in what was effectively a post-closing M&A dispute, rather than the more classic securities class actions we have come to be familiar with in the US and which have been growing in the UK. Nevertheless, the judgment makes several findings which clarify the scope of section 90A and which will be of interest to those involved in more typical securities actions. The Judge described the trial as potentially ranking “amongst the longest and most complex in English legal history”, with judgment running to 1657 pages.

Here are our 10 quick takeaways from the judgment.

  1. Transcripts of earnings calls were not published information because, while the fact of the earnings calls and the necessary dial-in details had been announced by recognised means (i.e. via a RNS), the announcement made no mention of any transcript. Statements made in the transcripts could not, therefore, form the basis of a claim under section 90A. It was common ground that annual and quarterly reports were published information.
  2. Whether published information is false or misleading or omits a matter required to be included is a two-stage test. First, the Court must ascertain the objective meaning of the impugned statement. A statement is not to be regarded as false or misleading where it can be justified by reference to a range of permissible views, e.g. where accounting judgement is required. If a statement is genuinely ambiguous, a claim may fail at the first hurdle unless it can be shown that the ambiguity was artful or contrived by the defendant. Second, the claimant must show that it understood the statement in the sense ascribed to it by the Court.
  3. It is not enough for a PDMR simply to know facts that render a statement untrue. A PDMR will only be liable if those facts were present in their mind at the moment the statement is made, such that they appreciate that the statement is untrue. Similarly, for an omission, the PDMR must have applied their mind to the omission at the time the information was published, and appreciated that a material fact was being concealed. While advice given by professionals may be relevant to a determination of dishonesty on the part of a PDMR, it will depend on the circumstances. In Autonomy, although the auditors had approved, or at least not objected to, the ‘front-end’ reports and presentations of Autonomy’s business, ultimately these narratives reflect the directors’ views of the business and are therefore within the directors’ proper province – the auditors could not be regarded as a “litmus test nor a ‘safe harbour’”.
  4. Liability is only engaged in respect of statements known to be untrue or misleading. If an issuer’s annual report contains ten misstatements, each of them relied on by a person acquiring the issuer, but it can only be shown that a PDMR knew about one of those misstatements, the issuer will only be liable in respect of that one, not the other nine.
  5. The claimant needs to have considered and applied their mind to the statement or omission to establish reliance, the mere existence of untrue statements or the omission of material facts is not sufficient. However, if a number of statements or omissions could together create an impression which amounts to fraud, they could combine to form the basis of a claim. This could cause difficulties, for example, for passive funds seeking to bring an investor claim. On the facts of the case, it was not, however, a bar to the claim that the purchaser of Autonomy was an SPV but it had been HP relying on the statements – HP was the controlling mind of the SPV and so HP’s reliance was to be treated as the SPV’s reliance.
  6. The statement or omission only need have an “impact on the mind” or an “influence on the judgement” of the claimant, therefore, the question of reliance is not a “but for” test. Further, as in other cases of deceit, there is a presumption of inducement under section 90A and the presumption “is difficult to shift”. However, it does remain a question of fact to be determined on the balance of probabilities whether, having regard to all the circumstances, the statement or omission did in fact have “an impact on the mind” or an “influence on the judgement” of the claimant in making that investment decision.
  7. It is not a defence to say the claimant had the means of discovering the truth – no defence of contributory negligence is available nor does the principle of caveat emptor apply. In an M&A context, therefore, it is irrelevant that, had the claimant conducted adequate due diligence, it would have discovered that an impugned statement was untrue.
  8. When assessing loss, on the facts of the case, the correct counterfactual was that the published information was accurate and complete. This was because the issuer had obligations under the Companies Act 2006 and Disclosure and Transparency Rules to produce annual, interim and quarterly reports, having regard to applicable accounting standards, and, therefore, there would not have been a scenario where the issuer simply said nothing on the topics to which the relevant statements / omissions applied.
  9. Whether inflation damages or no transaction damages are available is a question of fact. The Court will decide, on the evidence before it, whether the claimant would not have purchased the shares in question at all had the truth been known (in which case, no transaction damages would be the appropriate measure of loss), or whether it would simply have acquired them at a lower price (in which case, inflation damages would be appropriate). It is not for the defrauded party to make an election.
  10. This isn’t the end of the story. Mr Lynch has indicated his intention to appeal the decision and, irrespective of whether permission to appeal is granted, the judgment did not deal with quantum. That will be addressed in a separate judgment, and the Judge has indicated that he may want to hear further submissions in the interim. We can also expect to see section 90A in action later this year, with Allianz Global Investors GmbH & 76 Ors v RSA Insurance Group plc – a more classic securities action – set to go to trial in October.