Will the high court embrace the fraud on the market theory?

Persons Identified in Schedule 1 v Standard Chartered Plc [2025] EWHC 698 (Ch) - the latest judgment in the developing UK regime for investor claims – is good news for claimants. The High Court reconsidered two issues that were the subject of a previous judgment in Barclays: (1) what is required for claimants to prove that they relied on a misstatement or omission in the materials that an issuer publishes; and (2) whether claims that an issuer had dishonestly delayed publishing information could only be brought when the issuer had made a corrective publication. While the Court did not definitively rule on either issue, it has cast doubt on whether the more restrictive approach adopted in Barclays should be followed.

Reliance

Both Standard Chartered and Barclays concern s90A of the Financial Securities and Markets Act 2000, which allows investors to claim compensation if they suffered loss as a result of a misleading statement or dishonest omission published by the issuer of securities. The investor must show that they acquired, held or disposed of the securities “in reliance on published information”. By comparison, s90 permits investors to claim for misleading statements or omissions in listing particulars or a prospectus without the need to prove any reliance. However, these claims are limited to the information that is published in listing particulars or a prospectus.

In the Barclays decision (which we discussed in more detail here), the High Court held that the test that Parliament intended to apply was the common law test for inducement or reliance in the tort of deceit. In short, claimants must prove that the losses they suffered were caused by their reliance on a false statement, which meant that the claimants would need to prove that they read and considered the published information and it caused the claimants to acquire, hold or dispose of the shares.  The Court left open the question of whether claimants would need to show that they had read the specific misleading or untrue statements and relied on these. The Barclays decision was cited with approval in a Court of Appeal decision, but the substantive arguments about reliance were not considered as the appeal concerned a different issue - representative actions [1].

Decision on reliance in Standard Chartered

The defendant in Standard Chartered applied for strike out/summary judgment of a portion of the claim based on the Barclays decision. These claims advanced a “fraud on the market” theory: the claimants had not actually read or considered the published information, rather they have relied on the market having reflected that published information into the share price and have therefore considered the published information indirectly by taking into account the share price.

The Court ultimately decided that it was not appropriate to strike out the claims because it concerns a developing area of law, and the issue should be considered on its full facts at trial. While the Court did not consider that the Barclays decision was “wrong” such that it could not be followed, the Court expressed some doubt over the correctness of the approach in that judgment, for the following reasons:

• Section 90A is drafted to apply the same reliance requirement for both misleading statements and misleading omissions, but the test in Barclays does not work for omissions because it is not possible for investors to have read and consciously considered information that was not published. The Court in Barclays suggested that it may be sufficient for claimants to have just read and considered the published information, but it is not clear how much or what parts of the published information would need to be read to satisfy the reliance requirement. This approach could also lead to inconsistencies.
• In setting out the test for reliance, the Court in Barclays intended to incorporate the existing test for reliance in the common law tort of deceit. However, the common law test is not as restrictive as the test applied in Barclays. There are cases which permit a claimant to show that they indirectly relied on a misrepresentation, including where the gist of the representation was communicated to the investor via a third party, and where the claimant never read the underlying misrepresentation, but relied instead on the reactions of a third party that the claimant knew had read it. The Court in Barclays accepted that there could be cases of indirect reliance via third parties, so it is difficult to see why reliance via the market price should be excluded (if it could be proven at trial).
• Similarly, the case law on implied representations show that the court is willing to take a more flexible approach to whether the specific misrepresentations were on the claimant’s mind when they acted upon it, and the test for reliance on implied representations is not entirely settled law.
• While the Court agreed with Barclays that s 90A is intended to require some element of reliance to be proven, it was not convinced that Parliament had considered that this should be a restrictive test or one that excluded “fraud on the market” claims.

In this judgment the High court has made it clear that reliance is a factual issue, to be determined on the specific evidence adduced in each case. The Court did observe that the claimants in this case faced an “uphill struggle” but they should be given the opportunity to put their case forward at trial.

Dishonest delay in publishing information

As an alternative to their claims about misstatements and omissions, the claimants in Standard Chartered Plc had pleaded that the defendant had dishonestly delayed publishing true information. This claim under s90A does not require proof or reliance. The defendant argued that these dishonest delay claims should be struck out because they were in reality not properly characterised as claims for delayed publication. Further, in Barclays the Court had held that delay claims could only be brought if the issuer had actually published the information on a recognised information service or by recognised means.

Decision on dishonest delay in Standard Chartered

The Court in Standard Chartered disagreed. If delay claims under s90A required a corrective statement to be published, the Court considered it would have been more clearly set out in the legislation. Further, it is not clear what including the requirement for a corrective disclosure would add. It does not prevent claims for delayed publication from overlapping with misstatement and omission claims because there would still be the potential for overlap in a case where a corrective disclosure had been made. Instead, adding such a requirement for a corrective statement to have been issued in order to bring a claim would create a perverse incentive for issuers to never correct their misstatements or omissions. It was also not clear from the Barclays decision whether the claimant would need to have read the corrective disclosure or whether a partial correction would suffice.

The Court considered that what distinguished these claims from overlapping entirely was the dishonesty requirement. In misstatement and omission cases, the dishonesty relates to the contents of the information that is published, whereas in a delay claim, the dishonesty relates to the timing of the publication.

The Court therefore refused to strike out the alternative claims.

Comment

The judgment in Standard Chartered will be welcome news for investors who might have been precluded from claiming under s90A under a restrictive approach to the question of reliance on published information. The possibility of a more flexible approach prevailing means that the law could accommodate the wide range of ways in which market participants in the real world receive and take into account information from issuers, whether first hand or via other channels and mechanisms. The judgment does not mean, however, that the floodgates have been opened to any and all investor claims because investors’ real-world decision making and the impact of misstatements and omission on that decision making will still need to be evidenced at trial. The judgment is also a salient reminder of the advantages of deferring decisions in response to applications for strike out where the law is developing and would clearly benefit from decisions made on the full facts of the case.

Footnotes

[1] Wirral Council v Indivior plc [2025] EWCA Civ 40