Plaintiffs ‘substantially succeed’ in largest civil fraud trial ever recorded in English
The submissions are limited to the issue of liability, with a separate judgment on the amount of damages to be awarded at a later date. However, the judge indicated that he anticipated that “although substantial, it will be considerably less than is claimed”.
The court observed that the litigation had been “an exceptionally onerous case” for everyone involved. The “exceptionally complex” trial lasted 93 days, including the cross-examination of the first defendant,
The procedure relates to the acquisition, for approximately
The key grievance with the acquisition was that
(a) the supposedly dishonest description of Autonomy as being a “pure software company” when in fact it was engaged and accustomed to inflating what appeared to be its software business revenue by making substantial hardware sales; and
(b) the allegedly dishonest presentation of its financial performance, which concealed inappropriate practices, including inflating and artificially accelerating revenues; underestimating costs of goods sold by misrepresenting these costs in order to protect gross margins; misrepresentation of the nature and quality of income; and exaggerated profits.
The plaintiffs argued that this resulted in Autonomy actually being a considerably less valuable company than it appeared based on its published information.
Complaints of fraud regarding the acquisition have been filed (by different entities within the
- FSMA complaint
By far the largest of the claims was an FSMA Schedule 10A claim – essentially alleging liability of the issuer (Autonomy) for statements or omissions in its published information about which the investor relied to make an investment decision. The alleged basis for the issuer’s liability was that at least one of the defendants, as “persons discharging managerial responsibilities within the issuer” (“PDMR”), knew that these statements or omissions were false or misleading, or amounted to dishonest concealment of material facts. The defendants have not disputed that they are PDRMs for the purposes of Schedule 10A.
The FSMA’s claim was presented under what Hildyard J described as a “dog leg” structure. A Schedule 10A action against the issuer (autonomy) would not help
HPin this case given that he now owns Autonomy. So: HP/Bidco notified its request for autonomy;
- Controlled by
HP, Autonomy acknowledged its liability to Bidco; and
- Autonomy (through its successor) then brought this action against the two defendants, as PDMR, to answer for this liability.
- Deception / fraudulent misrepresentation / s2(1) Misrepresentation Act 1967
These claims were based on the personal liability of the defendants (rather than the issuer) for the portion of the loss attributable to the shares that the defendants themselves held and each sold in connection with the transaction (pleaded at
420 million US dollars). The statements relied on included restatements of the relevant statements in the published information. Any sum recovered under this head of debt will be recovered on a subsidiary basis to the claim of the FSMA, in order to avoid double recovery.
In addition, the action included claims regarding the conduct of the defendants’ management. Approximately
In the Acquisition Claims, the factual allegations related to six areas of Autonomy’s business and accounting. On all but one of these six areas, Hildyard J found that the plaintiffs had established (to the extent they were alleged with respect to this area) (i) both parts of the FSMA’s claim and (ii) the common law / misrepresentation Act claims.
With respect to breach of duty claims for transaction losses, the plaintiffs were successful for a portion of the disputed transactions.
Hildyard J noted, as a matter of general interest, that no contributory negligence defense is available as a defense against the FSMA or direct fraud claims. He confirmed that he had not drawn any conclusion that
The lawsuit included a full quantum argument, including “dense and voluminous” evidence. However, Hildyard J felt it was inappropriate to delay judgment on liability while he proceeds with the quantum review, which he will now do.
He did, however, record in the summary of findings that he had tentatively determined that, even adjusted for established fraud,
It therefore seems likely that the quantum will be assessed by reference to what
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