Allianz Global Investors GmbH and Others v G4S Ltd (formerly known as GS4 Plc)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 10 May 2022 |
| Neutral Citation | [2022] EWHC 1081 (Ch) |
| Docket Number | Case No: FL-2019-000007 Case No: FL-2021-000022 |
| Court | Chancery Division |
[2022] EWHC 1081 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Miles
Case No: FL-2019-000007
Case No: FL-2020-000035
Case No: FL-2021-000022
Andrew Onslow QC, Shail Patel and Calum Mulderrig (instructed by Morgan Lewis & Bockius UK LLP) for the Claimants
Laurence Rabinowitz QC, Simon Colton QC and Emma Jones (instructed by Herbert Smith Freehills LLP) for the Defendant
Hearing dates: 30–31 March 2022
Approved Judgment
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Tuesday 10 May 2022 at 10:30am.
Introduction
The defendant has applied to strike out all or parts of the claims and/or for summary judgment in three related actions.
The application raises questions about the meaning of the expression “person discharging managerial responsibility” (PDMR) in section 90A and Schedule 10A of the Financial Services and Markets Act 2000 ( FSMA).
Section 90A and Schedule 10A of FSMA contain a regime for the civil liability of issuers of publicly traded securities for publication of false or misleading or incomplete information and for dishonest delay in publication of information to the capital markets.
Liability only arises where a PDMR within the issuer knew or was reckless about the offending statement or dishonestly concealed material facts or a PDMR acted dishonestly in delaying the publication.
The defendant was the issuer of relevant securities. The claimants, which were all institutional investors in the securities, have alleged breaches of section 90A by the defendant.
The defendant seeks to strike out the claimants' allegations that certain named individuals were PDMRs of the defendant.
The defendant contends that on a proper reading of the statute only directors of an issuer can be PDMRs (including de facto and, arguably, shadow directors) and that the claimants do not allege any facts that would enable the court to conclude that any of the contested PDMRs were its directors. The defendant argues that parts of the case should therefore be struck out or dismissed summarily.
The claimants contend that the term PDMR is not restricted to directors in the usual English company law sense. They say that, properly construed in its European and English law statutory context, the expression PDMR includes senior executives responsible for managerial decisions affecting the future developments and business prospects of the issuer and/or those business units.
They also contend that the issue of construction is not suited to summary determination as it is novel, complex, of wide significance and cannot properly or safely be decided in a factual vacuum.
The claimants argue that even assuming the defendant's construction of the statute is right, the claimants have properly pleaded at least a factually realistic case that the contested PDMRs were de facto directors of the defendant and that the case has real prospects of succeeding at trial.
The claimants also argue that there are compelling reasons for the court to hold a trial of the issues which the defendant applies to have removed from the case. The claimants have alleged in the second and third actions that one of the defendant's de jure directors had the required state of mind for liability under section 90A. There will have to be disclosure of documents from and a factual examination of the involvement and knowledge of the defendant's senior management, including the contested PDMRs.
As there are actual or potential criminal proceedings concerning some of the events and persons referred to below and the court has imposed reporting restrictions, I shall use the labels P1 to P4 for the four contested PDMRs and P5 for the de jure director identified in the second and third claims.
The Claims
There are three sets of proceedings (Cases 1, 2 and 3).
The claimants are all institutional shareholders. The defendant was a listed company carrying out security and related outsourcing services.
The UK government was and is a major customer of the defendant. Among other things, the defendant provided services to the Ministry of Justice for the electronic monitoring (or tagging) of prisoners pursuant to various contracts (the EM Contracts).
The defendant's group was organised as a publicly listed holding company (the defendant) with a board with two or three executive directors (and a majority of non-executives) and the majority of operational functions of the group being run by and through subsidiaries.
The EM Contracts were entered by an indirect, wholly-owned subsidiary, G4S Care & Justice Services (UK) Ltd (G4SCJS).
In all three actions the claimants contend that information published by the defendant to the market (the Published Information) contained untrue and misleading statements, or omitted required information, and that the claimants are entitled to compensation as a consequence. Claims are also brought for compensation for dishonest delay in publishing information.
Case 1 arose as follows. In 2013 the government announced that G4SCJS had been charging under the EM Contracts for prisoners who were never tagged or had died. Further announcements were made and reported in 2013. The particulars of claim in Case 1 calls this conduct the wrongful billing. The alleged wrongdoing was the subject of a settlement in March 2014, by which the defendant agreed to pay the government c. £108.9m plus tax.
The claimants contend in Case 1 that the wrongful billing rendered false a number of statements made in the defendant's Published Information. The claimants' case is that PDMRs within the defendant knew statements in the Published Information (as they related to the wrongful billing) to be untrue or misleading, or were reckless as to whether they were untrue or misleading; knew the omissions in Published Information (relating to the wrongful billing) were a dishonest concealment of material facts; and acted dishonestly in delaying the publication of information relating to the wrongful billing. The claimants allege that the relevant PDMRs of the defendant were P1 to P4.
Cases 2 and 3 arose as follows. On 13 July 2020 a Deferred Prosecution Agreement ( DPA) was announced between G4SCJS and the Serious Fraud Office. The claimants contend in Cases 2 and 3 that the DPA revealed that since 2005 G4SCJS had provided fraudulent financial models to the government for the purposes of the calculation of the costs of providing the EM Contract services. They contend that the intent and effect of that conduct was to overstate the cost of provision of those services by some £70m. The EM Contracts included a mechanism by which the government would share in any unanticipated costs efficiencies. G4SCJS purported to report to the government under this mechanism, but deliberately hid costs efficiencies. As a consequence, the government was overcharged by over £22m. By the DPA, G4SCJS agreed to pay a financial penalty of £38.5m. The claimants call this the financial model fraud. Three employees of G4SCJS (including P3) have subsequently been charged by the SFO with seven offences of fraud.
In Cases 2 and 3, the claimants allege that the underlying fraudulent conduct rendered statements made by the defendant in its Published Information untrue; that the failure to disclose it was an actionable omission and constituted actionable dishonest delay; and that PDMRs within the defendant had the requisite knowledge. In Cases 2 and 3 the claimants allege that the relevant PDMRs of the defendant were P1 to P5.
As already stated, P5 was a de jure director of the defendant. P1 to P4 were de jure directors of G4SCJS, the trading subsidiary in which the alleged financial model fraud and wrongful billing took place. P1 to P5 were also directors of other subsidiaries of the defendant. I shall return below in more detail to the evidence about their roles within the defendant's group's business.
Procedural history
The claim form in Case 1 was issued on 10 July 2019. Amendments were then made to the claim form, to add the claims of certain claimants. Following several agreed extensions of time and service of draft particulars of claim on 15 November 2019, the claim form was served on 30 April 2020.
On 18 May 2020 the defendant acknowledged service. The Case 1 particulars of claim were served on 15 June 2020, and the defence was served on 13 July 2020.
On the same day the defendant served an application to strike out some of the claims on various bases relating to the addition of claimants to the Case 1 claim form before service. The claimants also applied to amend their names to correct a number of errors in the claim forms.
Those applications were heard by Mann J over four days in November 2020. Judgment was handed down on 10 March 2021. Various claimants in the Case 1 claim form had their claims struck out. A number of claimants remained.
The existing claimants along with further claimants issued Case 2 on 20 October 2020.
Case 3 was issued on 17 December 2021.
Pleadings closed and the parties were given a CMC listing for two days in the week commencing 28 March 2022.
The defendant then issued the present application, and it was agreed that the CMC would be heard in June 2022.
The claimants have proposed some further amendments to their pleadings. On 22 March 2022 the defendant agreed some of the claimants' proposed amendments, subject to the outcome of this application.
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