Tesco must stand by admission made in parallel proceedings

Following its entry into a Deferred Prosecution Agreement with the SFO and the issuing of a Final Notice by the FCA in 2017 relating to false accounting as a result of inaccurate Trading Statements made in 2014, Tesco is defending a follow-on civil action by shareholders for alleged related losses. Three years into these proceedings, Tesco sought to amend its Defence to withdraw an admission that the announced expected profit figure in its Trading Statement was an untrue or misleading statement within the meaning of the Financial Services and Markets Act.

Tesco had previously admitted in statements made in relation to the DPA and FCA Final Notice that the totality of overstatements made in its accounts was misleading. However, it now saw an opportunity to argue that the particular overstatement on which the claimants’ case was focused was not in itself enough to make the Trading Statement misleading. Tesco was at pains to state that, in seeking the withdrawal of the admission, it did not intend to resile from its agreement to findings made by the SFO and FCA and that the proposed amendment, made in the context of the claimants’ narrower case, was not inconsistent with them. However, it was, as the judge noted, seeking to “thread the eye of a needle”.

Ultimately, the court held that the distinction Tesco was seeking to draw with its earlier position was not as far-fetched as the claimants sought to depict it. However, it found that the terms of Tesco’s proposed amendment went too far towards suggesting that the relevant Trading Statement was not an untrue or misleading statement. In the judge’s view, that cut across the basis of the Final Notice and DPA, was “plainly inconsistent with Tesco’s previous public position” and was therefore impermissible.

One point of general application concerns the nature of what Tesco had admitted via the FCA Final Notice, and what that implied for its room for manoeuvre in the civil case. Tesco had admitted market abuse contrary to s.118(7) of the Financial Services and Markets Act, and that as a result of the market abuse, a false market was created in its shares. These findings are only possible if the market was misled by the specific public statements that were made. Accordingly, Tesco could not argue in its civil defence that the statement in question was not misleading.

The judge also analysed all the factors considered by the court when a party seeks to withdraw an admission made pre-action (see paragraph 7.2 of CPR PD14) and concluded that, while it would not cause the trial date to be lost, the proposed amendment of the Defence at this stage would cause disruption to the proceedings. The claimants would inevitably seek to amend their claim in response and supplemental witness statements, disclosure and even expert evidence might be needed. All of this bolstered his decision not to allow the amendment, even in part.

What the decision shows

The case is a striking example of how the outcome of one set of proceedings can impact upon other, parallel, proceedings arising from the same facts. At its highest, an outcome in one set of proceedings can have a decisive impact on parallel proceedings by preventing a defendant from contesting the same issues or creating a presumption that the issues should be decided in the same way.

A judgment in a criminal court or the conclusion of a DPA that supports allegations of wrongdoing in a civil claim against a company will be admissible and will obviously shift the ground in the case. A Final Notice from the FCA is unlikely to be admissible in evidence, but any public comments by the company in relation to it will be. Also admissible will be any statements made in open correspondence by the defendant company to the authorities which amount to an admission of particular facts or particular wrongdoing. Here the claimants were also able to point to the fact that Tesco had been commended by both the FCA and SFO for its “exemplary standards of co-operation” and had received a 50% discount to the financial penalty it received, due to its prompt admissions. The claimants argued that allowing the company to finesse those admissions in the civil case would be contrary to the interests of justice.

Of course, defences may be available in a civil claim that do not contradict earlier admissions or findings of fact, such as those based on scope of duty, reliance, causation or calculation of loss, for example. What matters is that a defendant facing multiple proceedings considers as part of its overall case strategy the implications of positions taken in one set of proceedings for other related proceedings, both extant and anticipated.

Incidentally, this is not the first judgment in this shareholder action where Tesco has felt the impact of steps taken in the context of the initial SFO investigation – earlier in the proceedings, the claimants sought and were granted access to material provided to Tesco by the SFO as part of the DPA negotiation process. That included witness accounts given to the SFO by third parties which had been shared with Tesco subject to a confidentiality undertaking. The court balanced the obligation of confidentiality arising from the undertaking against Tesco’s obligation to give full and proper disclosure to the claimants and ordered that the documents should be produced.

For more on the unique issues that arise where an event triggers multiple sets of legal proceedings, see our Parallel Proceedings webpage.