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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Hall v Cable and Wireless Plc [2009] EWHC 1793 (Comm) (21 July 2009)
URL: http://www.bailii.org/ew/cases/EWHC/Comm/2009/1793.html
Cite as: [2010] 1 BCLC 95, [2009] EWHC 1793 (Comm), [2010] Bus LR D40

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Neutral Citation Number: [2009] EWHC 1793 (Comm)
Case No: 2008 Folio 1158, 1159 and 1160

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL
21/07/2009

B e f o r e :

MR. JUSTICE TEARE
____________________

Between:
Derek William Hall
Claimant
- and -

Cable and Wireless PLC
Defendant


William Donald Parry and Elaine Parry


Claimant
- and -

Cable and Wireless PLC
Defendant

____________________

David Guy (instructed by Beynon Nicholls) for the Claimants
Benjamin Strong and Nicholas Sloboda (instructed by Slaughter and May) for the Defendants
Hearing dates: 9 July 2009

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Mr. Justice Teare :

  1. This is an application by the Defendant in these three actions for summary judgment or, alternatively, an order striking out one or more of the causes of actions relied upon on the grounds that there is no real prospect that the actions will succeed. It is accepted that if there is more than a fanciful prospect of success then the application should be refused.
  2. The Claimants were shareholders in the Defendant company. They allege that the Defendant wrongfully failed to disclose information to the market and that as a result they suffered loss.
  3. The background to the claim is that in August 1999 the Defendant sold its interest in the mobile telephone company One2One to Deutsche Telekom. The Defendant gave the buyer an indemnity in respect of One2One's tax liabilities. The Defendant also agreed that if its debt rating fell below a particular level it would either provide Deutsche Telekom with a bank guarantee in the sum of 1.5 billion or pay 1.5 billion into escrow. This obligation has been described as the Ratings Clause.
  4. From about March 2000 to December 2002 the market price of the shares in the Defendant fell steadily. On 6 December 2002 the Defendant's debt rating fell below the relevant level and the Defendant issued a press release to the effect that it was obliged to procure a bank guarantee for 1.5 billion or pay that sum into escrow. The market price of the shares fell further.
  5. Each of the Claimants issued proceedings on 10 November 2008, shortly before the expiry of 6 years from the press release of 6 December 2002. The delay in commencing proceedings, long after the expiry of 6 years from the dates on which the shares were purchased, has created problems for the Claimants with regard to proof of loss and limitation of actions.
  6. The particulars of claim in each action are in identical form save that the number of shares which were purchased and sold differ as do the dates of the transactions. The losses claimed therefore also differ. The pleaded share transactions and resulting losses are as follows:
  7. i) Mr. Hall

    Purchases: 19 June 2001, 64,000 shares @ 407 pence
      14 August 2002 38,000 @ 146.75 pence
      14 August 2002 20,000 @ 145.45 pence
    Sales: 14 November 2002 122,000 shares @ 73 pence
    Loss: 256,546

    ii) Mr and Mrs. Parry

    Purchases: Between August 1999 and 2002 31,784 @ average price of 331 pence
    Sales: 18 November 2002 31,784 @ 76 pence
    Loss: 81,050

    iii) Mr. Martin

    Purchases: Between 1997 and 2001 21,234 as follows
      7,739 @ 738.99 pence
      5,422 @ 553.3 pence
      5,241 @ 884 pence
      2,832 @ 383.25 pence
    Sales: 12 December 2002 21,234 @ 46 pence
    Loss: 134,591.14

  8. In each case the losses have been calculated by reference to the difference between purchase and sale price.
  9. The causes of action relied upon against the Defendant are described as breach of statutory duty, market abuse, misrepresentation and negligence.
  10. The facts on which these causes of action are based have been pleaded as follows:
  11. "3. As a publically listed company the Defendant had obligations, set out more fully below, to disclose any information which was not public knowledge and may affect the market price of the Defendant's shares. The escrow requirement was not disclosed when details of the agreement were first announced in August 1999 and was not subsequently announced until 6th December 2002. In 1999 Moody's rating of the Defendant was A3. Between that date and 6th December 2002 the Defendant's credit rating deteriorated, in August 2002 it was A3, on 6th December 2002 it was reduced from Baa2 to Bal, known as a "junk" rating.
    .
    5. Before 6th December 2002 the Defendant had issued public statements and statutory accounts (including but not limited to the accounts for the years ending 2001 and 2002) stating that it held net cash of approx 2.65 billion and omitting any reference to the escrow requirement (hereinafter the "published information"). On the 5th August 2002 in response to a reduction in the credit rating of Moody's the Defendant confirmed that there was no new material information since the Defendant's annual accounts were issued on the 15th May 2002 and that the Defendant had one of the strongest balance sheets in the industry. On the 13th November 2002 the Defendant announced a company restructuring and expected substantial losses without revealing the escrow requirement. On a date or dates unknown to the Claimants before the 6th December 2002 the Defendant held unsuccessful meetings with Moody's in order to persuade them not to downgrade its credit rating. The effect of the announcement of the escrow requirement on the 6th December was that the market concluded that there had been a material non-disclosure and the share price fell sharply.
  12. The causes of action themselves have been pleaded as follows:
  13. "7. By reason of the above the Defendant was in breach of the Listing rules made under section 73A of the Financial Services and Markets Act 2000 ("FSMA") known as the "part 6 rules" as provide as follows:-
    a. Listing Rule 9.1. "A company must notify the Company Announcement Office without delay of any major new developments in its sphere of activity which is not public knowledge and which may:-
    i. by virtue of the effect of those developments on its assets and liabilities or financial position or on the general course of its business, lead to a substantial movement in the price of its listed securities; or
    ii. In the case of a company with debt securities listed, by virtue of the effect of those developments on its assets and liabilities of financial position or on the general course of its business, lead to substantial movement in the price of its listed securities, or significantly affect its ability to meet its commitments."
    b. Listing Rule 9.3A. "A company must take all reasonable care to ensure that any statement or forecast or any other information it notifies to the Company Announcements Office or makes available through the UK Listing Authority is not deceptive and does not omit anything likely to affect the import of such statement, forecast or other information."
    c. Listing Rule 9.10. "A company must notify the Company Announcements Office without delay (unless otherwise indicated) of the following information relating to its capital; New issues of debt securities (b) where a company has listed debt securities, any new issues of debt securities, and in particular any guarantee or security in respect thereof:"
    d. By listing Rule 10, consent for the escrow requirement should have been obtained from shareholders in advance.
    .
    9. Further, the Defendant was in breach of section 118 of FSMA in that it committed market abuse as therein defined in that it deliberately withheld information which might damage its share price since:-
    a. knowledge of the escrow requirement was not generally available, would have been thought by a regular user of the market to be relevant to the market price of the share, and would be thought by the same regular user to be a failure by the person withholding it to observe the standard of behaviour expected of a person in his position in relation to the market, and
    b. by so doing the Defendant was disseminating information likely to mislead.
    10. Further, the Defendant made misrepresentations in the company accounts for the years ending 2001 and 2002 (the omission of any reference to the escrow requirement and the assertion of a net cash balance of approximately 2.65 billion) and in other formal statements made to the market between those dates upon which the Claimants were entitled and did rely in acquiring the said shares and in holding the shares whilst the share price declined throughout 2001 and 2002. As a result of the said misrepresentation the Claimants suffered damages as set out hereafter.
    11. Further the Defendant owed the Claimants a duty of care to publish information about the escrow requirement because of the Defendant knew or ought to have known that otherwise misleading statements were being put into general circulation and were likely to be relied upon by person considering acquiring the Defendant's shares and once, acquired, in deciding whether to hold them or sell them. The Claimants suffered damage as a result of the Defendant's failure to comply with such duty of care as set out hereinafter.
  14. Counsel for the Defendant submitted that the Claimants had no real prospect of succeeding on causation, that the causes of action were time barred and that in any event there was no real prospect that the causes of action themselves would be established. I prefer to deal with these submissions in the reverse, and more conventional, order, commencing with the alleged causes of action.
  15. Breach of statutory duty

  16. The breach relied on is of the listing rules made under section 73A of the Financial Services and Markets Act 2000 ("FMSA"). Counsel for the Defendant submitted that on the true construction of FMSA Parliament did not intend that breach of such rules would give rise to a civil cause of action for loss caused by such breach of duty.
  17. It is accepted that the listing rules relied upon (save for rule 9.3A) were in force at the material time. However, they had been made under section 74, not section 73A which did not come into force until 1 July 2005.
  18. FMSA provides that breach of certain rules will give rise to a penalty, that breach of others will enable "restitution orders" to be made and that others will give rise to a right of action.
  19. Thus, section 91 gives the Financial Services Authority power to impose a penalty where there has been a contravention of the listing rules. Section 382 gives the court power, on the application of the FSA or the Secretary of State, where a person has contravened "a relevant requirement" (which would include the listing rules) to make a restitution order where one or more persons have suffered loss as a result of that contravention. Section 384 gives similar powers to the FSA. Section 71 specifically provides that a contravention of sections 56(6) or 59(1) or (2) is actionable at the suit of a private person. Section 150 provides that contravention of a rule by an "authorised person" is actionable at the suit of a private person but "part 6 rules", which it is accepted are the listing rules, are excluded from the definition of rule for the purposes of section 150.
  20. These provisions indicate clearly that Parliament expressly considered which of the duties or obligations imposed by FMSA would give rise to a cause of action at the suit of a private person. Parliament did not provide expressly that a breach of the listing rules would give rise to a cause of action at the suit of a private person. Other remedies and penalties were provided by sections 382, 384 and 91. That is a clear indication that Parliament did not intend that a breach of the listing rules would give rise to a cause of action at the suit of a private person. To hold that Parliament did so intend would interfere with the scheme and modes of enforcement provided by FMSA.
  21. It was submitted on behalf of the Claimants that:
  22. i) It is to be inferred from the fact that section 150 excluded listing rules from the cause of action created by section 150 against authorised persons that breach of such rules was intended to give rise to a cause of action for breach of the listing rules.

    ii) Section 90 provides that a person responsible for listing particulars is liable to pay compensation to person who has suffered loss as a result of any untrue or misleading statement in the particulars. Such liability applies to all breaches of the listing rules.

    iii) In any event it would be absurd if a breach of the listing rules were not actionable at the suit of a private person.

  23. I shall deal with each submission in turn. Section 150 provides a cause of action against an authorised person at the suit of a private person where a rule is contravened but expressly excludes breach of the listing rules. I do not understand why it is to be inferred from this section that a breach of the listing rules by persons other than authorised persons (such as the Defendant) will give rise to a cause of action. Section 150 does not provide for such a cause of action and the scheme of the Act, variously providing for penalties, restitution orders and causes of action, prevents the court from inferring that where a cause of action is not expressly created such a cause of action is to be implied.
  24. Section 90 is concerned with untrue or misleading statements in "listing particulars". Section 90 is within Part VI of the Act which is concerned with "official listing". "Listing rules" may be made for the purposes of this part of the Act; section 74(4). "Listing particulars" are referred to in sections 79-83. It was submitted on behalf of the Defendant that "listing particulars" are particulars prepared to enable securities to be listed on the official list. It was submitted that "listing particulars" did not include statements made by a company after the securities had been listed. This submission appears to be supported by a consideration of the terms of sections 79, 80 and 81.
  25. Counsel for the Claimants relied upon section 79(2) which defined "listing particulars" as meaning "a document in such form and containing such information as may be specified in listing rules." Chapter 5 of the listing rules is concerned with Listing Particulars. I was not referred to any part of Chapter 5 which specified the form and content of listing particulars in such a way as to include post-listing announcements. Instead I was referred to Possfund v Diamond [1996] 2 All ER 774. That case concerned the question whether those who issue a prospectus in connection with the flotation of shares on the unlisted securities market owed a duty of care not only to subscribers at the time of the placing of the shares but also to "after-market" purchasers. In the course of his judgment Lightman J. referred to section 150 of the Financial Services Act 1986 and noted that protection was afforded by it to all purchasers of listed securities (whether placees or after-market purchasers) "who had relied on the continuing and updated representations in the listing particulars and the updates." I assume that the cause of action created by section 90 of FMSA is likewise for the benefit of all purchasers of listed securities. However, the relevant question is whether the documents issued by the Defendant after listing but allegedly in breach of the listing rules are "listing particulars" within section 90. Although "listing rules" create obligations on the company in respect of announcements made long after listing, "listing particulars" appear to me to be the particulars issued prior to listing. They expressly include supplementary listing particulars (see section 90(10)) which are issued after preparation of the listing particulars and before the commencement of dealings in the securities following their admission to the official list (see section 81(1)). Since the announcements alleged in this case to have been made in breach of the listing rules were not listing particulars in the sense of particulars issued prior to listing, including supplementary particulars, section 90 cannot give the claimants a cause of action in respect of them. In any event, a cause of action pursuant to section 90 of FMSA is not one of the pleaded causes of action and no application was made to amend the pleadings to include such a cause of action.
  26. I must also reject the third submission, that it would be absurd if a breach of the listing rules were not actionable at the suit of a private person. Remedies for breaches of the listing rules are provided by sections 382 and 384, via the FSA. In those circumstances it is not absurd that a breach of the listing rules is not actionable at the suit of a private person.
  27. For these reasons I have concluded that the Claimants do not have a cause of action for the alleged breaches of statutory duty.
  28. Market abuse

  29. Market abuse is defined by section 118 of FMSA. Section 123 of FMSA provides that the FSA may impose a penalty on a person who has engaged in market abuse. Section 383 provides that the court may, on the application of the FSA, make a restitution order where one or more persons have suffered loss as a result of market abuse. As with the breach of statutory duty the question is whether Parliament intended that those who have suffered loss as result of market abuse should have a cause of action. Counsel on behalf of the Claimants submitted that the object of the legislation can only be achieved if civil liability attaches to market abuse. I must disagree. The sections of the Act to which I have referred indicate that the intent of Parliament was that the object of the Act would be achieved by the imposition of penalties or restitution orders pursuant to sections 123 and 383. In those circumstances the absence of an express cause of action at the suit of a private person is a clear indication that none was intended.
  30. I have therefore concluded that the Claimants have no cause of action for the alleged market abuse.
  31. Misrepresentation

  32. The question raised by counsel for the Defendant is whether there can be a cause of action for damages for misrepresentation pursuant to the Misrepresentation Act 1967 in circumstances where the Claimants entered into a contract to purchase shares but not with the Defendant as is required by section 2(1) of the 1967 Act. The only suggested answer to this point was that a contract also arises between the Defendant and the Claimants when the latter are registered as members of the Defendant. It was suggested that the transfer of shares was a "tripartite arrangement." Whether or not the Claimants enter into a contract with the Defendant when they are registered as members, section 2(1) of the Act requires the person claiming damages to have suffered loss as a result of entering into the contract with the representor. If the Claimants have suffered loss it is as a result of entering into the contract of purchase, not as a result of entering into the contract between the Claimants and the Defendant which (it is assumed) arises when the Claimants are registered as members of the Defendant. I therefore do not consider that a claim for damages under the Misrepresentation Act 1967 has a real prospect of success.
  33. Negligence

  34. The allegation in negligence, as I understand it, is that the Defendant owed the Claimants a duty of care to publish full and accurate information about the Ratings Clause. The Defendant failed to do so in August 1999 (when details of the sale of One2One were first announced), in May 2001 and May 2002 (when statutory accounts were announced), on 5 August 2002 (in response to a reduction in the credit rating of Moody's) and on 13 November 2002 (when a company restructuring was announced).
  35. In so far as reliance is placed on the publication of statutory accounts it was submitted on behalf of the Defendant that such a claim was doomed to failure because of the decision in Caparo v Dickman [1990] 2 AC 605. Particular reliance was placed on the passage in the speech of Lord Jauncey at p.661 G -662 B. However, the basis of the claim as pleaded (and as explained in oral argument to me) relies also upon an allegation that the publication of accurate information was required because of other misleading statements made by the Defendant. This may allow the principle in Caparo v Dickman to be circumvented. For example a duty of care might be said to arise, when issuing the accounts, by reason of the failure to disclose the Rating Clause in 1999. Whether or not it does will depend upon the facts as proved. I do not consider therefore that it can be said at this stage with confidence that the claim in negligence based upon the published accounts has no real prospect of success.
  36. With regard to the balance of the negligence claim it is said that the claim requires some explanation, that no evidence is offered to explain why the Defendant was negligent and that it is not clear that all of the Claimants reasonably relied upon the misleading statements. These are questions of evidence which cannot be investigated at this stage of the trial process. Leaving aside the questions of limitation and causation of loss I do not consider that there grounds for holding at this stage that there is no real prospect of establishing a cause of action in negligence.
  37. It follows that the Claimants have no real prospect of succeeding on any of the pleaded causes of action save as to negligence.
  38. Limitation

  39. The cause of action in negligence is only complete when damage has been caused. The simplest manner in which it can be said that the Claimants suffered damage is that the shares were purchased in reliance upon negligent misstatements by the Defendant and that, because information about the Ratings Clause was withheld, the market price was higher than it would have been had the market known of the Ratings Clause. It was therefore submitted on behalf of the Defendant that the Claimants must have suffered loss when they purchased the shares. But the latest date on which shares were purchased was August 2002 which was more than 6 years before these proceedings were commenced on 10 November 2008. It was therefore said that claims based upon the purchase of the shares must be time-barred (subject to the effect of section 32 of the Limitation Act 1980).
  40. It is submitted on behalf of the Claimants that the loss was sustained when the shares were sold, which was after 10 November 2002, in which case the claims are not time-barred.
  41. In my judgment, upon the assumption that the Claimants purchased shares at a price which was inflated by reason of the alleged non-disclosure of the Ratings Clause, then they must have suffered an immediate loss at the time of purchase because they paid out more than the shares are worth.
  42. I was referred to Nykredit Mortgage Bank plc v Edward Erdman Group Ltd. (No.2) [1997] 1 WLR 1627 at p.1632 C-D where Lord Nicholls said, in the context of a lender who relies on a security which has been over valued by reason of negligence advice:
  43. "Realisation of the security does not create the lender's loss, nor does it convert a potential loss into an actual loss. Rather, it crystallises the amount of a present loss, which hitherto had been open to be aggravated or diminished by movements in the property market."
  44. I consider that that analysis also applies to a purchaser of an asset who pays a price which has been inflated by negligent misstatements.
  45. However, in order to avoid the conclusion that the damage was sustained more than 6 years before the proceedings were commenced the Claimants advanced a further argument. "..[I]t is possible that earlier disclosure (say in 1999) might not have affected the share price but failure to disclose until it became a very significant (and immediate) liability caused the damage (particularly amongst other bad news) because it confirmed to the market that there had been material non-disclosure before" [see para.13.2 of counsel's skeleton argument].
  46. Thus the case which may be run on the facts is that earlier non-disclosure did not affect the share price but later non-disclosure did. It may be possible to show that no loss was caused on purchase but that loss was caused on 6 December 2002 when, it is said, the market reacted adversely to the discovery that there had been a material non-disclosure. Whilst this has not been pleaded in terms it is difficult to say that the present pleading is not wide enough to encompass such a factual case. No expert evidence has yet been produced to support it but I am not able to say that it is doomed to fail. It would appear to derive support from the witness statement of Mr. Cotton of the Defendant's solicitors that "prior to November 2002 the Ratings Clause was unimportant. The Defendant was four or five notches above the Ratings Clause trigger throughout the period prior to 14 November 2002, and any trigger of the Ratings Clause was therefore a remote prospect."
  47. Thus the cause of action in negligence may not have been completed until 6 December 2002 when damage was caused by the share price being affected by the Ratings Clause only at that time.
  48. If that is so then the Claimants have no need of section 32 of the Limitation Act 1980. But I should nevertheless deal with the suggested argument. Section 32 provides that where any fact relevant to the claimant's right of action has been deliberately concealed from him by the defendant the period of limitation shall not begin to run until the claimant has discovered the concealment. The Claimants wish to say that the existence of the Ratings Clause was not discovered until 6 December 2002 and therefore that the 6 year limitation period did not expire until 6 December 2008, before which proceedings had been commenced on 10 November 2008. This raises the question whether the Claimants have a real prospect of establishing that the Defendant was guilty of "deliberate concealment" within the meaning of section 32.
  49. No particulars of the allegation of deliberate concealment have been pleaded but counsel has stated that the Claimants will not allege that the Defendant was aware of a duty to disclose the existence of the Ratings Clause and deliberately chose not to disclose it. What will be said is that the Defendant was aware in general terms that it had a duty to disclose price sensitive matters and that the decision not to disclose the Ratings Clause was deliberate.
  50. The meaning of deliberate concealment in section 32 has been explained by Lord Millett in Cave v Jarvis Robinson & Rolf [2003] 1 AC 384:
  51. "23. As I have explained, in enacting the 1980 Act Parliament substituted "deliberate concealment" for "concealed fraud". This is a different and more appropriate concept. It cannot be assumed that the law remained the same. But reference to the old law explains why Parliament enacted section 32(2) and did not rely on section 32(1)(b) alone to cover the whole ground. With all reference to fraud or conscious impropriety omitted, there was an obvious risk that "deliberate concealment" might be construed in its natural sense as meaning "active concealment" and not as embracing mere non-disclosure. Section 32(2) was therefore enacted to cover cases where active concealment should not be required. But such cases were limited in two respects: first, the defendant must have been guilty of a deliberate commission of a breach of duty; and secondly, the circumstances must make it unlikely that the breach of duty will be discovered for some time."
    24. Given that section 32(2) is (or at least may be) required to cover cases of non-disclosure rather than active concealment, the reason for limiting it to the deliberate commission of a breach of duty becomes clear. It is only where the defendant is aware of his own deliberate wrongdoing that it is appropriate to penalise him for failing to disclose it.
    25. In my opinion, section 32 deprives a defendant of a limitation defence in two situations: (i) where he takes active steps to conceal his own breach of duty after he has become aware of it; and (ii) where he is guilty of deliberate wrongdoing and conceals or fails to disclose it in circumstances where it is unlikely to be discovered for some time. But it does not deprive a defendant of a limitation defence where he is charged with negligence if, being unaware of his error or that he has failed to take proper care, there has been nothing for him to disclose.
  52. Since it is not alleged, and I am told will not be alleged, that the Defendant was aware its own deliberate wrongdoing it follows that there is no real prospect of establishing that the limitation period can be extended by reason of deliberate concealment pursuant to section 32 of the Limitation Act 1980. However, for the reason given earlier in this judgment I am unable to conclude that the claims are clearly time barred.
  53. I have not considered the effect of limitation on the causes of action for breach of statutory duty, market abuse or misrepresentation because I do not consider that such causes of actions have a real prospect of success. If, contrary to my opinion, they do the limitation analysis is the same since they are, or are to be regarded as, causes of action in tort.
  54. Causation

  55. Counsel for the Defendant has observed that Mr. Hall and Mr. and Mrs. Parry sold their shares before 6 December 2002, that is, before the Defendant disclosed the Ratings Clause to the market. It must follow that when the shares were sold Mr. Hall and Mr. and Mrs. Parry were able to achieve a sale price unaffected by market knowledge of the Ratings Clause. It was therefore submitted that Mr. Hall and Mr. and Mrs. Parry are unable to establish that they had suffered any loss caused by the failure of the Defendant to disclose the Ratings Clause to the market until 6 December 2002. The shares had been purchased at a price which was not affected by market knowledge of the Ratings Clause and had been sold at a price which was not affected by market knowledge of the Ratings Clause. The market price had been steadily falling from 2000 2002 but the Claimants are not able to say that that fall was caused by the alleged negligence of the Defendant; see South Australia Asset Management Company v York Montague Limited [1997] AC 191 at 213 C-D.
  56. What is said by counsel on behalf of the Claimants is that "expert evidence will be needed to establish the effect of the Defendant's announcements. Such evidence is expected to show that the market was already affected by suspicion of non-disclosure prior to the 6th December 2002 although it also reacted adversely immediately after that announcement [para.6.1.3]....it was already happening in the run up to the announcement [para.13.1]."
  57. This argument is also developed in the witness statement of Mr. Lally of the Claimants' solicitors at paragraphs 9-10. Whilst there is evidence to support the assertion that the share price was falling in November "because there was great suspicion in the market that the Defendant had more bad news to disclose" there is no evidence that the Ratings Clause was suspected by the market. There is a suggestion at paragraph 10(i) of Mr. Lally's witness statement that directors knew and sold their shares and that ratings agencies were informed about it. But the first part of that suggestion is based upon a misunderstanding. None of the trades was a share sale by an individual director and the majority were sales by the Trustees of the Defendant's Employee Share Ownership Trust over which the directors have no operational control. The second part is based upon the evidence of Mr. Cotton that the Ratings Clause was discussed with Standard & Poor's on 4 December 2002. However, it is no more than speculation to suggest that participants in the market either knew of or suspected the existence of the Ratings Clause before 6 December 2002. In any event, the Particulars of Claim do not allege that the Defendant was responsible for generating suspicion in the market as to the existence of the Ratings Clause.
  58. I must therefore conclude that Mr. Hall and Mr. and Mrs. Parry have no real prospect of being able to establish that the alleged negligence of the Defendant caused them to suffer loss. When the Ratings Clause was disclosed to the market on 6 December 2002 the share price fell but Mr. Hall and Mrs. and Mrs. Parry had avoided that fall by selling their shares on 14 and 18 November 2002.
  59. Mr. Martin sold his shares on 12 December 2002 so he does not face this particular problem. Counsel for the Defendant submitted that Mr. Martin faces another problem. Had the Defendant performed its alleged duty by disclosing the existence of the Ratings Clause, say on 13 November 2002, thereby causing Mr. Martin to decide not to hold the shares but to sell them Mr. Martin would have sustained the very same loss he in fact incurred when he sold after 6 December 2002. That is because the market price would have fallen following an earlier disclosure of the ratings clause. Thus the Defendant says that whether a claimant sold before 6 December 2002 (like Mr. Hall and Mr. and Mrs. Parry) or after (like Mr. Martin) the alleged negligence caused no loss.
  60. However, Mr. Martin may argue that he suffered loss in December 2002 because he had held on to his shares throughout 2000 and 2001 as a result of the failure by the Defendant to disclose the Ratings Clause in 2000 and 2001. That failure did not affect the share price (because the possibility that the Ratings Clause would be invoked was remote) but when the Ratings Clause was disclosed in December 2002 it then caused the market price to fall. There will be (at the very least) a tension in the evidence between saying, on the one hand, that the Ratings Clause was sufficiently material in 2000 and 2001 that it had to be disclosed and saying, on the other hand, that such early disclosure would not have affected the market price. But these evidential difficulties cannot be resolved on an application of this nature. However, if Mr. Martin can establish any loss on this basis it will be far less than that pleaded because the market price had already fallen greatly before December 2002, a fall which he cannot attribute to the alleged failings by the Defendant.
  61. Conclusions

  62. The claims of Mr. Hall and Mr. and Mrs. Parry have no real prospect of success for these reasons:
  63. i) They have no cause of action for breach of statutory duty, market abuse or negligent misrepresentation pursuant to the Misrepresentation Act 1967.

    ii) Whilst they have a cause of action in negligence which may not be time barred there is no real prospect that they will establish that the alleged negligence caused them any loss because they sold their shares on 14 and 18 November 2002 and so did not suffer the losses caused by the disclosure of the Ratings Clause on 6 December 2002.

  64. The claim of Mr. Martin has no real prospect of success in so far as it relies on breach of statutory duty, market abuse and negligent misrepresentation. Mr. Martin has a cause of action in negligence which may not be time barred and may have caused him loss. That loss will however be restricted to the fall in the market value of the shares on and after 6 December 2002 caused by the announcement of the Ratings Clause.
  65. It follows that the Defendant is entitled to summary judgment against Mr.Hall and Mr. and Mrs Parry. As against Mr. Martin the Defendant is not entitled to summary judgment but the claims based on breach of statutory duty, market abuse and negligent misrepresentation pursuant to the Misrepresentation Act 1967 should be struck out.


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