Barclays and Standard Chartered: What English Courts Overlook About U.S. Securities Reliance
Following two recent, diverging High Court decisions in Barclays and Standard Chartered, the question of what a claimant must establish to prove reliance for claims of securities fraud remains unsettled. At the centre of this debate is whether the English courts should recognize a market theory of reliance, sometimes referred to as ‘common reliance’ or ‘fraud-on-the-market’, long accepted in American jurisprudence. While much attention has been paid to the implications of these High Court decisions, surprisingly little has been written about the U.S. legal references, and assumptions, underpinning them. To do so, it is worth examining the High Court’s discussion of American securities law in the context of key U.S. Supreme Court rulings.
Reliance Under Section 90A Claims: A Doctrinal Divide
Fraud-on-the-market theory posits that, in an efficient market, the price of a company’s shares reflects all publicly available, material information. A misleading statement about a material fact will, consequently, affect the price, distorting it from its fair value, and an investor that relied on the price of the stock as a measure of its value will have been defrauded, even if he or she did not directly rely on the misstatement.
In Allianz Funds Multi-Strategy Trust v Barclays PLC [2024] EWHC 2710 (Ch), Mr. Justice Leech struck out claims brought on a market reliance theory, requiring a claimant to have actually read or been aware of the published information alleged to be false or misleading to demonstrate reliance—a substantial roadblock for passive investors.
Underlying the court’s reasoning was a strong hesitation to follow the path taken by American jurisprudence. Referring to commentary submitted to the Government by Professor Paul Davies QC that drew a contrast between Parliament’s intentions in enacting the FSMA and the U.S. experience with securities fraud litigation, Leech J noted:
“[Professor Davies] addressed concerns raised about the US experience of private securities class actions and identified a number of differences between the two jurisdictions. He drew particular attention to the absence of any reliance requirement under US law: . . . . ‘In the United States a typical class is constituted by those who bought shares after the misleading statement was made and still held the shares at the point the truth emerged. Under the 'fraud on the market' theory, adopted in the US for misleading continuing disclosures as well as for misstatements in prospectuses, it is not necessary for the claimant to show knowledge of and reliance on the misstatement in question. Thus, class formation is easier and classes are larger than where reliance has to be shown.’”
In contrast, earlier this year in Persons Identified in Schedule 1 v Standard Chartered PLC [2025] EWHC 698, Mr. Justice Michael Green refused to strike out market reliance-based claims, finding that the issue was “unsuitable” for resolution during preliminary proceedings and should instead be “explored further at trial.” However, even Green J was careful to acknowledge concerns about inviting “speculative US style securities litigation.”
Given the clear hesitation at the High Court to open what it perceives to be the floodgates of U.S.-style claims, it is worth exploring how U.S. courts consider fraud-on-the-market claims and the mechanisms available to challenge them.
A Clarification of the U.S. Position: Basic v. Levinson’s Rebuttable Presumption
A quick history overview. In 1942, the U.S. Securities and Exchange Commission introduced Rule 10b-5 (the American equivalent of Section 90A) with the goal of extending protections against securities fraud to all investors. However, it was not until the early 1970s that a private right of action under this rule was recognized, marking the beginning of modern investor-led securities fraud litigation in the U.S.
By the early 1980s, federal courts were grappling with whether plaintiffs could plead reliance based on a fraud-on-the-market theory. Likely driven by the Law and Economics movement and the prominence of the efficient market hypothesis in academia in the preceding decades, the theory quickly gained traction. Within only a few years, the Second, Ninth, Tenth, and Eleventh circuits had all embraced the concept to varying degrees.
The Supreme Court definitively addressed the question in Basic, Inc. v. Levinson, 485 U.S. 224 (1988). In Basic, shareholders filed a class action against the defendant and certain of its directors alleging that statements made by the defendants concerning a potential merger had been false or misleading in violation Rule 10b-5. In echoes of the Barclays’ decision, petitioners in Basic argued that the fraud-on-the-market theory improperly sidestepped reliance, a key element of common law fraud.
Justice Blackmun, writing for the court, disagreed. Reliance remained a necessary element of the claim, he affirmed. However, the law also needed to adapt to the realities of the modern securities market. With “millions of shares changing hands daily,” the market as a whole, he observed, now performs the valuation process that investors once would have carried out in face-to-face transactions. Thus, the common law principles developed in the context of these direct transactions needed to be considered within the modern market. He concluded:
“An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in market price, an investor’s reliance on any public material misrepresentations, therefore, may be presumed[.]”
However, he also recognized that this may not always be the case. The most equitable approach was, therefore, to shift the burden for reliance. In a ruling that still defines the law today, the court held that plaintiffs should be entitled to a rebuttable presumption of reliance under the fraud-in-the-market theory, only if four conditions are met, as later enumerated in Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 268 (2014):
(1) The alleged misrepresentation was publicly known,
(2) It was material,
(3) The stock traded in an efficient market, and
(4) The plaintiff traded the stock between the time when the misrepresentation was made and when the truth was revealed.
In addition to challenging any of the four requirements above, a defendant may also rebut this presumption by showing that the misrepresentation had no price impact or by otherwise severing the causal link between the misrepresentation and the price paid or received by the plaintiff.
Of course, there are many reasons that English courts may take a different approach. For one, despite their shared origins in common law fraud, Rule 10b-5 and Section 90A/Schedule 10A employ very different language, with the latter expressly referring to “reliance on published information.” There is little to be gained, therefore, from arguing whether the U.S. courts “got it right” or suggesting that English courts should adopt the exact approach in Basic. However, in light of Leech J’s remarks regarding the “absence of any reliance requirement under US law,” it may be instructive for English practitioners to take a second look across the pond. They may find that it does not follow—as Judge Leech was concerned—that a market theory of reliance would inherently apply to “every claimant in every s.90A claim.”
For a further discussion of Barclays and Standard Chartered, along with other updates in the litigation funding market, check out my colleague Sam Tacey’s post here.
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Alexandra Plutshack
Senior Underwriter
Toremis Specialty