In a recent decision in Edward Moon & Ors v Link Fund Solutions,1 Mr Justice Trower dismissed an application by two groups of claimants, declining to make the Group Litigation Order (GLO) sought. The claims arose out of investments made by certain investors in the LF Equity Income Fund (previously known as LF Woodford Equity Income Fund) (the Fund). Details of the claims are summarised below.
Although the court considered that the number of claims already issued was sufficient (the claim forms name around 3,000 individual claimants) and that the claims gave rise to common or related issues of fact or law as required, Mr Justice Trower ultimately concluded that he would not exercise the court's jurisdiction to order a GLO, on the basis that ordering a GLO in this case would not further the overriding objective. In reaching this decision, the court considered that (i) other procedural means exist (within the standard case management powers of the court) for achieving a similar or essentially similar result as a GLO; and (ii) as to the publicity of a GLO, these proceedings have already been widely reported and Mr Justice Trower held that the likelihood is that those investors who wish to sue have already instructed solicitors, and if they have not done so, the reason is likely to be that they do not wish to participate.
The Fund was a sub-fund of the LF Investment Fund, of which Link Fund Solutions (Link) was the authorised corporate director. Link appointed Woodford Investment Management LLP, and later Woodford Investment Management Limited, as investment manager. The claimants are investors in the Fund and the claims relate to allegations that Link pursued an inappropriate investment strategy for the Fund and made untrue and misleading statements in the Fund's prospectus. A GLO was sought by the groups of claimants on the basis that it was said to be the most convenient way to manage the claims.
GLOs are governed by CPR 19.11 – 19.15 and allow claims giving rise to "common or related issues of fact or law" to be managed collectively by the court. If granted, a GLO will (i) contain directions for the establishment of a group register on which all claims managed under the GLO will be entered; (ii) specify the issues which will identify the claims to be managed under the GLO; and (iii) specify the court which will manage the claims on the group register. A GLO might also give directions for its publicity and for the appointment of a lead solicitor for the claimants or defendants.
A bespoke costs regime also applies to GLOs, with group litigants being severally liable for an equal proportion of the "common costs" relating to the GLO issues.
The two groups of claimants who applied for the GLO (the PLS Claimants) were investors in the Fund. They contended that the Fund's purpose was to provide a reasonable level of income through investing primarily in UK listed companies. They claimed that, from early 2017, there were changes in the Fund's investment style with a move towards more speculative investments, leading to increasingly poor performance of the Fund and a notable increase in the rate of redemptions by investors. Trading in the Fund was suspended in June 2019 when it was unable to meet redemption requests. The Fund's winding up began, with the FCA's approval, in January 2020.
As the authorised corporate director, Link was responsible for the management of the Fund in accordance with the rules set out in the FCA Handbook. The PLS Claimants claimed for damages against Link under s.138D of the Financial Services and Markets Act 2000 (FSMA) on the grounds that Link breached these rules in various respects, including by pursuing an inappropriate investment strategy and making untrue and misleading statements in the Fund's prospectus. Link denies the allegations and contested the application for a GLO, submitting instead that other forms of case management were more appropriate in this case.
Other potential groups of claimants, represented by other firms, had been identified at the time of the application. Those potential claims were broadly similar to the claims by the PLS Claimants, but with some material differences, including the suggestion that those other claimants might also bring claims against an investment management company who it is alleged heavily promoted the Fund to investors.
The court first decided that the number of claimants and the issues in play met the requirements for a GLO. The judgment then focused on whether the court should use its discretion to exercise its jurisdiction to make a GLO, jurisdiction which the court said "undoubtedly" existed.
The court noted the significant resources that would be allocated to a GLO and considered it necessary to determine if there are other means of achieving the case management advantages derived from a GLO. In so doing, the court was directed to examples of disputes when the court's general case management powers have worked effectively in the context of group litigation.
The court accepted that some of the characteristics of a GLO would be of benefit in the claims, such as the cost sharing mechanisms and the binding nature of orders and directions, and the establishment of a group register would theoretically enable potential future claimants to join the litigation in a structured way.
However, the court considered that the substance of the advantages of a GLO could be achieved through more standard case management. For example, it was open to the court to order generic statements of case outside of the GLO regime to allow the determination of common issues, and the determination of issues at trial would be binding on any claimants who joined a claimant group by becoming a party to an issued claim form.
It was common ground that the purpose of a GLO is not to encourage potential claimants to make claims. The court therefore considered that there would be limited utility in the creation of a group register, and the GLO's consequent publicity, because – given that the Fund was suspended several years ago and there had already been significant publicity – it was likely that potential claimants had already decided whether or not they wanted to participate.
Another characteristic of a GLO is the appointment of lead solicitors. Given that the law firms involved had co-operated on the claims to date and indicated their intention to continue to do so, the court considered that the need for lead solicitors was not established.
Another factor suggesting that a GLO was not appropriate at the current stage of proceedings was the uncertainty surrounding the other potential claimants, who might look to bring claims against an additional party and in respect of some slightly different issues.
The court therefore declined to make the GLO on the basis that it was not required, over and above standard case management options, to further the overriding objective.
This decision demonstrates the English courts' continued reluctance to make GLOs, including in the financial services context. 111 GLOs have been made since 2000, with only one made in 2022.2 It highlights that it is not enough for applicants to demonstrate that some of the characteristics of a GLO would be of benefit in the litigation, but rather that they needed to establish that the substance of those advantages could not otherwise be achieved through the court's use of its standard case management powers.
Whilst the courts might continue to make GLOs sparingly, the importance of group litigation and class action lawsuits more widely continues to grow, both within the financial services arena and elsewhere, particularly given the continued availability of litigation funding and an increasingly uncertain economic environment. As this judgment demonstrates, the courts will seek to use their case management powers to direct the conduct of such proceedings most effectively.