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With a multitude of open avenues for litigation, here are the key areas that banks should keep tabs on in the coming year. Analysis by Jonathan Clark, Liu Hui and Elissa Foord of law firm Slaughter and May.
Against a backdrop of political and economic uncertainty on the domestic and global stages, last year saw a number of significant developments in UK banking disputes. Looking across the rest of 2023, banks will need to continue to expect – and respond to – the unexpected.
Below are some of the key trends and developments for banks to look out for over the coming year.
Competition class actions
Following the Supreme Court decision in late 2020 permitting a class action to proceed in a competition case against Mastercard, the subsequent surge of such claims shows no sign of abating this year.
A total of 17 applications for class actions under the UK’s competition law regime have been issued since late 2020 (five of which relate to financial services) and courts have generally continued to assess applications favourably. This is likely to further increase the appetite and funding available for actions under this regime.
The progress of these actions will continue to be a key area of focus this year. Of particular interest to banks will be any progress in the appeals in train against a decision in 2022 not to permit proposed class actions against a group of banks relating to a foreign exchange spot trading cartel. We will also see this relatively new regime approach its next milestone as the first cases under its auspices near trial.
Securities litigation
A landmark moment for UK securities litigation came in 2022 with a judgment that arose from the first claim to proceed to trial under the UK’s statutory regime imposing liability for publishing misleading information about securities.
Hewlett-Packard substantially succeeded in its claim that its acquisition of Autonomy in 2012 was induced by fraudulent statements and omissions in Autonomy’s published information and other breaches by Autonomy’s former CEO and CFO.
The success of this claim is expected to encourage further claims. A key case to watch this year will be a claim brought against G4S under this regime, which will test its operation in the context of a claim by institutional investors in a publicly listed company.
Duties to customers
The Quincecare duty requires banks not to execute a payment instruction where they have reasonable grounds to believe that the instruction is an attempt to misappropriate the relevant funds (and possibly take positive steps to investigate in certain circumstances). This duty has been the subject of many high-profile cases in recent years and is expected to remain in the spotlight this year.
In 2022, JPMorgan and HSBC successfully defended Quincecare duty-based claims in the High Court and Supreme Court, respectively. However, a first-instance decision to strike out a claim against Barclays was overturned in the Court of Appeal. In early February, that case will come before the Supreme Court with important questions about the scope of the duty, including whether it applies when the relevant instruction was given by the customer themselves rather than the customer’s agent or similar as in previous cases.
Another notable development from the perspective of firms’ duties to customers is the new consumer duty announced by the Financial Conduct Authority (FCA), which will come into force on July 31, 2023 in respect of new products and services. Through a new FCA Handbook Principle 12, the duty will require firms to “act to deliver good outcomes for retail clients”.
Contrary to the FCA’s initial indications, the final rules associated with the duty do not include a private right of action in respect of breaches. Implementation of the new duty has been a significant undertaking for firms and its operation in practice is likely to be closely watched once it comes into effect this year.
Sanctions relating to Russia
A key legislative development of 2022 was the unprecedented expansion of financial and trade sanctions against Russia following its invasion of Ukraine. With the UK sanctions regime extended further at the end of 2022, sanctions will remain a key focus for financial institutions this year.
In its annual review, the Office of Financial Sanctions Implementation (OFSI) stated that “the OFSI is significantly enhancing its ability to ensure effective enforcement. Over the coming year, OFSI will take on more, and more complex, enforcement cases to match its increased resourcing and capabilities”.
This may signal a shift in focus from development and implementation of the widened regime in 2022, to enforcement in 2023.
Insolvency
In the latter months of 2022, the Insolvency Service reported a rise in the number of registered company insolvencies as compared to numbers for the same months in the previous year. Macroeconomic challenges which have continued into 2023 may lead to a further rise in insolvencies and associated litigation this year.
The influence of the Supreme Court’s landmark decision in BTI 2014 LLC v Sequana S.A. in late 2022 is likely to be a key dynamic in this context. The decision confirmed the existence of a duty for directors to consider the interests of creditors which applies when they know or ought to know that a company is insolvent or bordering on insolvency, or that an insolvent liquidation is probable.
Although uncertainties as to the parameters of this duty remain, this decision is likely to be a key consideration for directors of companies in financial distress as well as parties to insolvency-related litigation.
Financial technology
The use of emerging technologies in financial services, especially distributed ledger technology (including blockchain and NFTs), will likely continue to grow as a source of litigation this year.
In particular, the surge of digital asset fraud cases shows no signs of slowing. In July 2022, an application was issued for the UK’s first class action in the cryptocurrency sector. The claim, against four crypto exchanges alleged to have engaged in anti-competitive conduct in delisting the cryptocurrency ‘Bitcoin Satoshi Vision’, is expected to move forwards.
Such cases will continue to raise novel questions of law and procedure, and will require courts to innovate accordingly. Legislative reform recommendations expected to be published by the Law Commission this year, based on a consultation on digital assets conducted in 2022, will provide further insight into the future direction of this area of the law.
The fall-out from the high-profile collapse of the FTX cryptocurrency exchange will also be closely watched this year, with reports that 8% of FTX users were British.
Climate litigation
Climate-related claims also remain a key anticipated source of litigation for financial institutions this year. There is potential for ‘greenwashing’ claims under the statutory regime for securities fraud or by way of misrepresentation claims, especially in view of widened climate reporting requirements introduced for financial institutions over the past year.
Jonathan Clark is a partner, and Liu Hui and Elissa Foord are associates at international law firm Slaughter and May.
