A surge in the availability of third-party funding has triggered a wave in speculative FTSE shareholder lawsuits as investors seek to cash in on claims of wrongdoing.
Over the last year, multiple blue-chip names including gambling giant Entain, smoking tycoon British American Tobacco (BAT) and fast fashion retailer Boohoo have been summoned before the High Court after a series of law firms launched group claims for institutional investors.
Following the surge in activity at the Competition Appeal Tribunal (CAT), litigation funding has become increasingly integral to dispute resolution departments, driving a strategic focus on originating large-scale, high-value cases.
Aymen Mahmoud, London managing partner of McDermott, said: “The direction of travel in securities litigation is increasingly clear.
“London has deep capital markets, sophisticated institutional investors, a highly developed disputes system and an increasingly mature funding ecosystem.”
From trickle to torrent
FTSE 100 Entain is the latest to see a new filing after Morgan, Lewis & Bockius issued legal proceedings on Tuesday on behalf of a group of investors. The group also faces similar securities claims from investors represented by City-based law firm Fox Williams.
The shareholders’ action, filed under sections 90 and 90A of the Financial Services and Markets Act 2000 (FSMA), focuses on Entain’s deferred prosecution agreement (DPA) with the Crown Prosecution Service (CPS), where the company agreed to pay a £585m penalty regarding historic bribery and corruption in its former Turkish business between 2011 and 2017.
However, the trial is not expected to begin until 2029, as the civil court is waiting for related criminal trials involving former Entain executives to conclude between 2028 and 2029.
London-listed BAT is facing group lawsuits in the High Court from shareholders alleging breaches of North Korean sanctions, claiming the company failed to disclose breaches of US sanctions related to its historical operations in North Korea.
Hill Dickinson, Stewarts Law, and Fox Williams have all filed claims on behalf of investors, with McDermott Will and Schulte the latest to join, launching its legal proceedings last Friday.
Law firm Fox Williams brought a group action against Boohoo Group on behalf of institutional investors seeking up to £245m in compensation over the 2020 Leicester factory labour scandal. The shareholders alleged that Boohoo made misleading statements or omitted crucial details, failing to properly disclose poor working conditions and underpayment of workers in its UK supply chain. This case is expected to go to trial in October 2027.
Speaking to City AM, Andrew Hill, partner at Fox Williams, pointed out that while the frequency of cases might have seemed like a slow trickle in recent years, these complex claims naturally take a long time to build and move through a relatively slow court system. Despite that, he had observed an uptick in these claims.
Rory Spillman, partner at Signature Litigation, added that the surge in cases “has also been assisted by the recent procedural clarifications that have been generated by the increase in the number of cases that are going through the court and which have addressed various case management and other issues relating to these types of cases.”
This growing capacity for complex litigation was recently tested by the Russian aviation ‘mega-trial,’ an extraordinarily large High Court dispute that had to be consolidated into six actions involving 13 legal teams and up to 70 barristers.
Emma Ruane, partner at Peters and Peters cautioned that one question likely to become increasingly important in these cases is what shareholders actually knew, or cared about, at the point they invested.
“In particular, the courts may need to grapple with how significant issues such as bribery, corruption or other alleged misconduct were to an investor’s original decision-making, rather than simply assessing their significance with hindsight,” she said.