Class Action Is In Session: Decision issued in first UK shareholder class action

January 10, 2020

2 min read

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What's going on here?

Delivering a judgment in the first shareholder class action in England and Wales, the High Court has dismissed claims that shareholders were misled as to the true financial state of HBOS during its acquisition in 2008.

What does this mean?

A group of 300 institutions and almost 6,000 shareholders brought a case to the High Court under a group litigation order, seeking to claim damages of up to £650m. Lloyds argued that the concealed financial status of HBOS, which it was not made aware of during the acquisition, resulted in many problems for Lloyds. They say it may have contributed to the need for the government bailout of £20.3bn.

Judge Norris claimed that whilst HBOS’s financials should have been provided for shareholders to ensure that they had a ‘fair, candid and rounded view’ of the pending acquisition, he also stated that ‘they would not have reached a conclusion other than that which they did reach’. In addition to this, Norris asserted that he was unconvinced that ‘failures to provide sufficient information were in fact causative of any loss’. 

Resultantly, the shareholders’ case was dismissed by Norris, thus resulting in the loss of the £385m claim for thousands of Lloyds shareholders.

What's the big picture effect?

Although Lloyds’ lawyers claimed that the case brought was ‘entirely devoid of merit’, one should not be surprised if an appeal were to be brought against this ruling. A claimant leader on behalf of the shareholder group indicated that the case outcome demonstrated ‘the elite getting away with’ their actions by neglecting to sufficiently inform shareholders about the financial status and risks associated with the HBOS acquisition.

Nevertheless, the significance of this case resides not only in its outcome, but rather the future clarity it provides for shareholder class actions in England and Wales. Where the court’s approach reinforces the need for high quality execution of deals, this case provides useful guidance for both companies and their directors seeking to conduct such transactions in the future. 

Furthermore, as outlined within Herbert Smith Freehills’ Briefing Paper on the Lloyds/HBOS litigation, one may ultimately observe how this class action provides a warning for future class action litigation rather than guidance. Due to the financial viability of claims and the complexity attached to proving defects, this case highlights how the likelihood of successful shareholder class actions in the future may be impaired by having to overcome the various difficulties outlined within the Lloyds/HBOS litigation, as identified by Judge Norris.

Report written by Karolina Smolicz

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