Person Discharging Managerial Responsibilities
Schedule 10A defines a PDMR as including a director of the issuer (or a person occupying that position). Given that Dr Lynch and Mr Hussain were directors of Autonomy, it was common ground that they were PDMRs.
Published Information to which Schedule 10A FSMA applies
Paragraph 2 of Schedule 10A uses the label "published information" to refer to information published by the issuer by "recognised means", which include a "recognised information service" such as the RNS service. It was common ground that Autonomy's annual and quarterly reports were "published information" under Schedule 10A (as well as being "publications" for the purposes of section 90A).
It was also common ground that earnings calls occurring before 1 October 2010 and the transcripts of those earnings calls were not "publications" to which section 90A applied. There was, however, a debate as to whether the information broadcast on earnings calls after 1 October 2010 and the transcripts of those calls constituted "published information" for the purposes of paragraph 2(1)(b) of Schedule 10A. The Claimants argued that they did, because Autonomy's quarterly reports (which were published by recognised means) provided details of the time, date and website for the forthcoming earnings calls. They argued that this meant that the information transmitted on those calls (and the transcripts produced subsequently) were published by recognised means.
The Defendants, in contrast, argued that it did not follow from the fact that Autonomy provided information in respect of how to join the earnings calls, that the information then communicated on those calls was 'published' for the purposes of Schedule 10A. They argued the same in respect of the transcripts recording this information.
The Court favoured the Defendants' argument: it held that all that was announced by recognised means was the details enabling a person to join the earnings call and, importantly, there was no announcement in relation to the production, or existence, of the transcripts of the earnings calls. Therefore, the earnings calls (and the transcripts thereof) were not published information for the purposes of FSMA.
Crucially for the Claimants, whilst not independently actionable under FSMA, allegedly untrue or misleading statements made by the Defendants on the earnings calls were admissible and relevant to certain of the fraud claims [para 459].
Subjective and objective elements
As the Court noted, paragraph 3 of Schedule 10A (summarised above) contains objective and subjective elements:
- the objective element: the relevant statement in the published information must be 'untrue or misleading' (or the omission must be 'required to be included' in the published information); and
- the subjective element (described by Hildyard J as "guilty knowledge"): the PDMR must know or be reckless as to whether the statement in question was untrue or misleading (or know the omission to be the dishonest concealment of a material fact).
As to the objective element, Hildyard J held that the Court must determine the objective meaning of the statement in question; that being the meaning that would be ascribed to that statement by the intended readership, having regard to the circumstances at that time. Furthermore, the claimant must prove that it understood the meaning of the statement in the sense ascribed to it by the Court [paras 460 to 466].
The Court then analysed the subjective element. In particular, the Court held that, in respect of the meaning of 'knowledge' under these provisions, a PDMR must (in respect of statements) have actual knowledge of the untruthful nature of the statement at the time the statement was made, and (in respect of omissions) have applied his mind to the omission at the time the information was published and appreciated that a material fact was being concealed, i.e. that it was required to be included but was deliberately left out [paras 468-469].
Further, the Court noted that "recklessness" in the context of the FSMA claims bears the same meaning as in the context of deceit claims, i.e. not caring about the truth of the statement, such as to lack an honest belief in its truth: if the PDMR were honestly to believe in the truth of a statement then the PDMR would not be "reckless" for these purposes, no matter how unreasonable the belief, "though of course the more unreasonable the belief asserted the less likely the finder of fact is to accept that it was genuinely held" [para 470].
In the case of both allegedly untrue / misleading statements and omissions, the Court held that advice given by professionals (e.g. auditors) to the company or its directors will be relevant to the question of dishonesty. Thus, if an auditor advises that disclosure of a particular fact is not required under the accounting standards/rules, then the requirement for dishonesty is unlikely to be satisfied, even if the Court takes the view that disclosure of the fact in question was in fact required.
That said, the Court cautioned against directors' reliance on advice given by auditors in the context of the narrative "front end" of companies' quarterly and annual reports, which reflect the directors' own views of the business rather than the auditors': "on matters within the directors' proper province, the view of the company's auditors cannot be regarded as a litmus test nor a 'safe harbour': auditors may prompt but they cannot keep the directors' conscience." [paras 475 to 476]
Furthermore, the Court noted that whilst ordinarily the presumption will be that if information is not required to be disclosed by the accounting standards then even if "reasonably useful" it need not be disclosed, there may be circumstances where disclosure is nevertheless required: "In my judgment, information may just as much be "required" to be disclosed for the purposes of s. 90A(3)(b) and (when it came into force in October 2010) Schedule 10A paragraph 3(1) of FSMA to give, overall, a true and fair view of a company's position and performance as when specific accounting principles or statements of practice expressly require it." [paras 1731-2]
Reliance / inducement
In the absence of detailed guidance in FSMA on this point, the Court discussed extensively the meaning of 'reliance' under Schedule 10A and included an informative analysis of cases on misrepresentation and deceit [paras 478 to 573]. The Court considered four questions in particular: (i) "reliance by whom?"; (ii) "reliance on what?"; (iii) "what degree of reliance?"; and (iv) "when is reliance reasonable?". In summary, the Court held as follows: