Claims

General climate

Describe the nature and extent of securities litigation in your jurisdiction.

Securities litigation in Ireland can take the form of common law claims in contract or tort or claims for the enforcement of specific statutory rights of action by investors. The incidence of securities litigation in Ireland has recently increased owing in part to the effects of the global financial crisis.

Available claims

What are the types of securities claim available to investors?

The following types of claims are available in Ireland:

  • Common law: at common law investors can claim for breach of contract, misrepresentation, negligence, negligent misstatement and fraud or deceit.
  • Statutory claim for misstatements or omissions in a prospectus: under section 1349 of the Companies Act 2014 (the 2014 Act), an investor may seek compensation for losses incurred in respect of securities acquired on the faith of prospectuses containing untrue statements or that have omitted information required to be contained in the prospectus under EU law. Persons who may be liable under this provision include: the issuer who has issued the prospectus; the offeror of securities to which the prospectus relates; any person who has sought to have the securities admitted to trading and any guarantor of the issue; a director of the issuer; a promoter of the issuer; and an expert who has given his or her consent (if such consent is required) to the inclusion in the prospectus of a statement purporting to be made by him or her.
  • Statutory claim for breach of Irish market abuse law: under section 1369 of the 2014 Act, an investor may seek compensation for losses incurred as a result of breaches of Irish Market Abuse law, including insider dealing, unlawful disclosure of inside information and market manipulation relating to various categories of financial instruments. These include financial instruments admitted to trading on (or in respect of which a request for admission has been made) a regulated market such as the Irish Stock Exchange’s Main Securities Market (MSM) and a multilateral trading facility such as the Irish Stock Exchange’s Enterprise Securities Market and Global Enterprise Market (GEM).
  • Section 44 of the Central Bank (Supervision and Enforcement) Act 2013 provides that a failure by a regulated financial service provider to comply with any obligation under certain designated financial services legislation is actionable by any customer of the regulated financial service provider who suffers loss or damage as a result of such failure. Section 44 allows a plaintiff to recover losses simply by demonstrating that there has been a breach of an obligation under the legislation causing loss or damage. The financial services legislation covered by this section includes, for instance, the Markets in Financial Instruments (MiFID) Regulations 2007 (as amended) and the Undertakings for Collective Investment in Transferable Securities (UCITS) Regulations 2011 (as amended). The inclusion of this legislation within the scope of section 44 allows for claims by investors against entities that provide investments services such as investment companies and credit institutions (MiFID) and trustees or depositaries (UCITS).
  • Under section 610 of the 2014 Act, civil liability may be imposed for fraudulent or reckless trading on the part of the officers of a company on its winding up or examinership.
  • Under section 1147 of the 2014 Act, directors and experts may be liable to shareholders for losses incurred as a result of the inclusion of untrue statements in specified documents concerning a merger, with an equivalent provision in relation to division of PLCs under section 1169.
Offerings versus secondary-market purchases

How do claims arising out of securities offerings differ from those based on secondary-market purchases of securities?

The principal difference is the absence of a contractual relationship between a secondary market purchaser and the initial issuer of the securities. Consequently, breach of contract and contractual misrepresentation claims against the original issuer of the securities are not available to secondary-market purchasers. Secondary-market purchasers may also face difficulties in the pursuit of claims in common law negligence against the initial issuer of the securities due to the requirement to establish the existence of a duty of care on the part of the issuer, although the success of such claims is likely to depend on the particular facts.

A claim for misstatements in and omissions from a prospectus pursuant to section 1349 of the 2014 Act may be maintained against an offeror of securities by a purchaser on a secondary market.

Public versus private securities

Are there differences in the claims available for publicly traded securities and for privately issued securities?

Privately issued securities do not involve any requirement to publish a prospectus and consequently claims arising from misstatements in or omissions from a prospectus do not arise in respect of such securities.

The common law claims listed in question 2 are available to investors in privately issued securities.

Primary elements of claim

What are the elements of the main types of securities claim?

Breach of contract

A plaintiff must establish that a term of the contract for the purchase of the securities was breached by the defendant and that the plaintiff has suffered loss as a result.

Misrepresentation

A plaintiff must prove: (i) that there was a false representation of fact innocently made; (ii) that the plaintiff was induced to enter into the contract by reason thereof; and (iii) that the plaintiff suffered loss as a result.

Negligence

A plaintiff must prove that: (i) a duty of care was owed to the plaintiff by the defendant; (ii) a breach of that duty of care occurred; and (iii) the plaintiff suffered loss as a result.

Negligent misstatement

A plaintiff must prove that: (i) a false representation of fact was negligently made; (ii) a duty of care was owed by the defendant; (iii) the plaintiff relied on the misstatement; and (iv) the plaintiff suffered loss as a result.

Fraud or deceit

A plaintiff must prove that: (i) a false representation of fact was made knowingly, or without belief in its truth, or recklessly, careless whether it was true or false; (ii) it was relied on by the plaintiff; and (iii) the plaintiff suffered loss as a result.

Statutory claims

Civil liability for misstatements in a prospectus (section 1349 of the 2014 Act)

A plaintiff must establish that he or she purchased securities on the faith of a prospectus and suffered loss by virtue of misstatements or the omission of information required to be contained in the prospectus.

Civil Liability for breaches of Irish market abuse law (section 1369 of the 2014 Act)

Insider dealing

A plaintiff must establish that the defendant has engaged or attempted to engage in insider dealing, recommended or induced another person to engage in insider dealing or unlawfully disclosed inside information.

Market manipulation

In order to establish civil liability for market manipulation under section 1369 of the 2014 Act, a plaintiff must simply establish that the defendant has contravened the provisions of article 15 of the Market Abuse Regulation, which prohibits market manipulation.

Materiality

What is the standard for determining whether the offering documents or other statements by defendants are actionable?

In claims under section 1349 of the 2014 Act the plaintiff must only establish a misstatement in or omission from a prospectus and under 1369 a breach of Irish market abuse law.

In a misrepresentation claim it must be established that the representee in fact relied upon the misrepresentation (McCaughey v IBRC [2013] IESC 17).

Scienter

What is the standard for determining whether a defendant has a culpable state of mind?

Section 1349 of the 2014 Act does not require proof of a culpable state of mind, but a defendant can rely on the defences referred to in question 12.

A claim under section 1369 of the 2014 Act does not require proof of a culpable state of mind.

A claim for deceit or fraudulent misrepresentation requires proof that the defendant knowingly or recklessly made the representation.

A claim for innocent or negligent misrepresentation does not require proof of the representor’s state of mind.

Neither a contractual claim nor a claim in negligence requires a culpable state of mind.

Reliance

Is proof of reliance required, and are there any presumptions of reliance available to assist plaintiffs?

An action under section 1349 of the 2014 Act requires proof of reliance. All misrepresentation claims also require proof of reliance.

Proof of reliance is not required for actions in respect of insider trading or market manipulation under section 1369 of the 2014 Act.

Causation

Is proof of causation required? How is causation established?

Causation is required to be established in relation to each of the statutory and common law claims referred to in question 5.

In claims for fraudulent misrepresentation, where the plaintiff establishes that he or she has suffered loss by making a payment induced by the misrepresentation, the burden shifts to the defendant to establish that the plaintiff has not suffered a loss.

Other elements of claim

What elements present special issues in the securities litigation context?

The rules of civil procedure that operate in Irish courts do not provide for class actions. Also, third-party funding of litigation is not normally permitted in Ireland, though there are exceptions. Where there are many plaintiffs whose claims arise from the same circumstances, a procedure is sometimes adopted whereby one case is heard first as a representative action and is then followed by the other cases on the basis that the remaining plaintiffs either agree to be bound by the result of the representative case or alternatively that the result of the representative case, while not binding on the parties, will be of particular precedential value in determining particular issues common to many of the remaining cases.

Limitation period

What is the relevant limitation period? When does it begin to run? Can it be extended or shortened?

In the case of a claim for misstatements in or omissions from a prospectus under section 1349 of the 2014 Act, no time limit is specified in the Act, but it is likely a six-year limitation period applies.

In a claim for a breach of Irish market abuse law the relevant limitation period is two years from the contravention concerned.

For any common law claim in contract or in tort, the relevant limitation period is six years from the date the cause of action accrues. In contractual claims the cause of action accrues when a breach of the contract occurs and in tort claims when the loss or damage is suffered.

In Gallagher v ACC Bank [2012] IESC 35, the Irish Supreme Court held that where a plaintiff invested in a bond that resulted in an immediate loss, time began to run from the date of investment (even though the loss could not be fully quantified). Where a plaintiff claims that he or she was sold a wholly unsuitable product then the plaintiff is deemed to have suffered loss on the date of the investment by reason of the unsuitability of the product even if the plaintiff has not suffered any specific financial loss.

Where the cause of action is based on fraud, or the right of action is concealed by fraud, the period of limitation does not begin to run until the plaintiff has discovered the fraud or could with reasonable diligence have discovered it.