On 10 May 2022, the English High Court handed down an important judgment clarifying the meaning of “person discharging managerial responsibilities” (“PDMR”) under s. 90A and Schedule 10A of the Financial Services and Markets Act 2000 (“FSMA”).

In Allianz Global Investors GmBH and others v G4S Limited (formerly known as G4S plc) [2022] EWHC 1081 (Ch) Miles J held that under s. 90A and Schedule 10A, the definition of PDMRs is limited to directors as the term is ordinarily understood in English law. The judge rejected the claimants’ wider reading of the term, which sought to include other senior executives responsible for managerial decisions.

The case

The claimants in the underlying action were all institutional shareholders. The defendant was a listed company carrying out security and related outsourcing services. Pursuant to various contracts entered into between one of the defendant’s subsidiary companies and the UK Ministry of Justice it provided electronic monitoring of prisoners’ services to the government (the “EM Contracts”).

The issue of statutory construction arose in the context of a strike out and/or summary judgment application brought by the defendant against three separate claims brought by the claimants. In all three actions, the claimants contended that information provided by the defendant to the market (the “Published Information”) was untrue and misleading, omitted required information and that there was dishonest delay in its publishing.

In its first claim, the claimants alleged that the defendants had charged under the EM Contracts for prisoners who were never tagged or had died. The claimants submitted that the wrongful billing rendered false a number of statements made in the Published Information.

In its second and third claims, the claimants point to a deferred prosecution agreement between the defendant and the Serious Fraud Office which allegedly revealed that, since 2005, the defendant had provided fraudulent financial models to the government in order to calculate the costs of providing the EM Contract services. This allegedly resulted in the wrongful retention of monies owed to the government. In these cases, the claimants alleged that the fraudulent conduct meant that statements made by the defendant in the Published Information was untrue. On the claimants’ case, the defendant’s failure to disclose this was an actionable omission and amounted to actionable dishonest delay.

In connection with these claims, the claimants argued that five individuals, who had the requisite level of knowledge of these activities, were PDMRs. Four of those PDMRs, were de jure directors of subsidiaries of the defendant.

The defendant’s application before Miles J sought to strike out and/or obtain summary judgment on the basis that four of these individuals were not PDMRs.

The relevant statutory regime

In interpreting s. 90A of FSMA, Miles J set out the history of the implementation of this provision. Paragraphs 50-149 make for a particularly interesting read.

S. 90A was enacted in response to the Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers, often referred to as the Transparency Obligations Directive (or “TOD”). Article 7 of the TOD set out the minimum requirements for a civil liability regime to be adopted by member states, though the extent of the liability was for the member states to determine. No definition of PDMR was included in the TOD. S. 90A has since been reviewed and amended to its current form, which states that the operative provisions are found in Schedule 10A to FSMA, paragraph 8 of which holds the definition of a PDMR at sub-paragraph 5:

The decision

Miles J held that because PDMR was defined in Schedule 10A, the legislature had actively avoided adopting an autonomous European definition of the term (contrary to the claimants’ submissions). Accordingly, the legislative intent was for subparagraph 5 to be read naturally, providing for a clear and unambiguous statutory definition. Pursuant to the narrower reading of the definition favoured by the judge, in circumstances where an issuer has directors, only the directors are PDMRs and the term directors is to be given its usual meaning in English company law. Miles J rejected, among others, the claimants’ submission that sub-paragraph 5(c) points to a broader reading of the term ‘PDMR’ in circumstances when the issuer has directors. This is because sub-paragraph 5(c) only applies in the event that the issuer has no persons falling within sub-paragraphs (a) or (b). As an issuer with directors falls within (a), the application of sub-paragraph (c) does not arise. Further, in sub-paragraph (c) a distinction is drawn between directors and senior executives having responsibility for relevant information, which further pointed against the claimant’s position. In any event, it had been accepted by the defendant that the term ‘director’ was not limited only to those de jure but included also de facto and (arguably) shadow directors.

In a separate step, Miles J also held that there was a real prospect that the alleged PDMRs would be held to be de facto directors and therefore that the application had to be dismissed. In particular, the lack of disclosure and witness evidence at this stage in the proceedings was a weighty factor against reaching a conclusion on this issue, especially in light of the evidence the claimants had put forward in support of their allegation, suggesting the outlines of a complex corporate structure of which the claimants did not yet have the full picture. Miles J also considered that the concept of a de facto director was elastic and should be interpreted and applied in light of the facts as established following a trial (as opposed to at an interlocutory stage).

Comment

This judgment provides a welcome clarification of PDMRs in the context of s. 90A of FSMA. Parties engaged in disputes pursuant to this provision should take note that senior executives that are not directors within the English law meaning of the term, will not be PDMRs. Parties should also consider that cases raising issues of de facto directorship involve a highly fact sensitive analysis, which judges prefer to conduct after material facts have been established at trial. This is especially the case in disputes involving highly complex corporate structures as this case did. Miles J’s decision thus serves as a reminder that such issues are thus unlikely to be suitable for strike out / summary dismissal.