Predictions 2025: Disputes and Investigations

Predictions

(1) UK shareholder class actions under Section 90A / Schedule 10A will continue to present risk to UK listed companies, but their size and claimant profile looks set to change

(2) 2025 will see investor claims against asset managers regarding their use of AI, regarding ESG credentials (“greenwashing”), and their related disclosures.

Shareholder class actions

In the recent judgment of Allianz v Barclays, the Court determined that shareholders who have not directly reviewed the company's Published Information (Annual and Interim Reports, RNS releases) will not be able to meet the relevant test to qualify as claimants. Unless the decision is successfully appealed, it appears to effectively rule out passive investors from using the statutory remedy to bring claims exclusively on the basis of misleading statements or omissions in a company’s Published Information.

Passive investors can still bring claims under:

• the statute for any dishonest delay in publishing information, which does not require claimants to prove reliance (as there is no statement / publication on which to rely); or
• the parallel liability regime of Section 90 FSMA for misleading information in prospectuses.

However, the conditions in which liability arises under either of the heads tend to be much narrower. In particular, the Court in Allianz v Barclays clarified ‘dishonest delay’ was designed to address "the mischief" of an issuer taking advantage of information before the market is aware of it, then later publishing it accurately. It does not apply where the issuer fails to publish the information accurately, or at all. It should not be seen by claimants as a way to get round the reliance test in misstatement or omission claims.

The Allianz v Barclays decision is likely to be appealed. If upheld, which would be our prediction, it will likely have an adverse effect on the attractiveness and ease of bringing shareholder class actions in the UK for third-party litigation funders and shareholders alike. However, we predict that the constitution of claimants will change into smaller groups of predominantly active or impact managers with credible reliance cases. While we predict that will make book-building claims more challenging (tending to reduce the number of claims), at the same time, we predict that for those claims that are successfully brought from quantity to quality will increase, rather than dilute, the risk of these claims for UK listed companies. There may be more positive news for UK corporates on the issue of whether they can claim privilege against their shareholders over advice they receive: see our Privilege Claims Allowed Against Shareholders prediction below.

Investor claims beyond s.90A shareholder claims

The threat of greenwashing claims remains very real. By way of example, it has been reported that German asset manager DWS is facing a greenwashing lawsuit from an investor in Germany. The manager was fined by the US Securities and Exchange Commission towards the end of last year for making materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations for ESG integrated products. It is understood that the investor is seeking the return of his entire investment in the fund concerned.

Similarly, statements relating to the use of AI are in our view, likely to lead to regulatory action and litigation. An example from the US concerns fines at the beginning of this year for 2 investment advisers who made false and misleading statements about their purported use of AI. We predict that we will see similar action here in the UK.

Prediction

Some form of regulation of the litigation funding market looks likely with the Civil Justice Council’s consultation ending in January and its final report due by September 2025. However, we anticipate it will take time and further consultation before implementation. As the early opt-out class actions in the Competition Appeal Tribunal (CAT) reach trial and judgment, or settlement, the funding arrangements will come under renewed scrutiny. The funding market in the UK may contract and consolidate, with funders turning their attention to the possibilities of other European jurisdictions.

Why

The judgment of the Supreme Court in PACCAR in 2023 (for more on which, see here) held that all Litigation Funding Agreements (LFAs) where the funder’s return is potentially based on the damages recovered are Damages Based Agreements (DBAs) and subject to the DBA Regulations. No funders had worked on this basis and so many LFAs did not comply, with the effect that they were unenforceable. All those used in collective proceedings in the Competition Appeal Tribunal were also unenforceable, as DBAs are prohibited in such proceedings.

Funders had been reassured that PACCAR would be dealt with by a very short bill, but this was lost in the wash-up following the election being called and the new government has postponed its revival pending the CJC’s final report. In the interim, funders have amended affected LFAs, often inserting alternative bases of calculation for their return if that based on damages is still unenforceable by the time the case concludes.

The CJC review is considering whether the litigation funding market should be subject to compulsory regulation, as in Singapore. Only a minority of funders are members of and adhere to the code of the current voluntary body, the ALF. Funders are, on the whole, opposed to compulsory regulation and concerned that the government may impose caps on their returns if the CJC recommends this. High profile cases have raised concerns about this, particularly the sub-postmasters dispute, where of the £57.75m awarded, only £12m went to the claimants. However, as funders and the lead claimant, Alan Bates, have pointed out, without funding the case could never have been brought at all and the government compensation scheme that followed would probably have never happened.

Another issue raised in the consultation is whether funders might seek to control litigation, a point thrown into stark relief when, in December 2024, it was announced that the Merricks v Mastercard CAT claim had settled, only for a US funder to say it was disputing the settlement as being inadequate. Other funders have distanced themselves from this stance. The CAT will preside over a hearing to approve the settlement early in 2025, at which the funder’s role in the proceedings will be very much in focus.

We predict that the government will impose a regulatory regime on the litigation funding market, but that it will not be overly onerous and will take time to come into effect. There is no compelling evidence of unmeritorious claims being brought as a result of third party funding being available: indeed, the caution of funders in choosing claims to back means that there are stronger arguments that its impact on access to justice is negligible. However, there is a common theme of industry regulation flowing from the EU, Australia and the United States, which gives the feel of inevitability.

There are signs that funders historically active in the UK are shifting their attention to some EU jurisdictions following greater acceptance and demand across various jurisdictions, most notably Germany, Spain, Portugal, France and Italy, with recent changes to rules on mass claims. Whilst The European Parliament has called for EU-wide rules to regulate litigation funding, The European Law Institute has recommended a “light-touch” approach, emphasising that excessive regulation could affect access to justice.

Implications

The results of early CAT opt-out class actions and how smoothly the payment waterfalls work is likely to affect the number of claims that continue to be brought. 27 actions before the CAT are currently funded under LFAs. The CJC’s recommendations and the government’s response, both on regulation and the ability of LFAs to specify a return based on damages, will also impact the willingness of funders to back claims in England and Wales. For businesses operating across the EU, it will be worth watching how the market for mass claims develops and the role of funders will play a part in that.

The CJC interim report on funding and consultation are available here.

Prediction

We anticipate in 2025 we will see the conclusion of many of the competition collective actions, with more cases reaching settlement and going to trial, and with the first judgments being handed down. The outcome in those judgments will shape the landscape going forward.

Outside of competition, consumer mass claims are likely to increase, linked to which we are likely to see increasing numbers of environmental mass claims. A significant judgment is expected next year in the BHP Mariana Dam opt-in litigation which could have a significant impact on the future of mass torts claims in the English courts against overseas entities.

Why

Competition collective proceedings: A number of collective actions are underway in the Competition Appeal Tribunal, with new claims being issued regularly (as recorded in our CAT collective proceedings tracker.) Judgment is pending in the first of those claims to reach trial, Justin Le Patourel v BT; if not received by the end of 2024, we anticipate that this will be received in early 2025. Other claims have also been, or are shortly due to be, partially heard, with judgment in the first in the first of three trials expected in the Boundary Fares cases. As the first of these judgments start to be handed down and other claims move towards trial, there are likely to be more settlements being considered and approved by the CAT. Linked to ever increasing likelihood of mass environmental claims (below), household consumers have issued CAT class actions against six water companies, alleging abuse of dominant positions. We will learn more about the settlement approval process (and the locus of funders to object to settlements) when the settlement in Merricks v Mastercard goes before the CAT next year.

Consumer claims: We have seen a tilt, both in the EU and in the UK, to a more consumer-friendly regime that will likely increase the number of consumer collective redress actions. Consumer-friendly legislative changes on the horizon in the UK include the introduction of the Digital Markets, Competition and Consumers Act 2024 (DMCC), likely to introduce more bases for consumer claims. This will almost certainly lead to even more competition claims. In the EU, the Representative Actions Directive is now in force - our summary is here; this gives consumers a mechanism to protect their collective interests through actions brought by representative bodies. The new claimant-friendly Product Liability Directive in the EU pipeline will extend to digital products, and have extraterritorial effect (see our webinar series here for more on that). Privacy and data based actions remain a fertile area for collective actions, illustrated by the recent granting of “Qualified Entity” status to privacy activist group NOYB, enabling it to bring collective actions under the Representative Actions Directive.

Environmental claims: Globally, environmental issues are producing mass claims (you can see our regular updates in ESG Disputes Radar, or subscribe to our Environmental and Climate Disputes Tracker). There is a growing body of UK and EU legislation requiring companies to report on the environmental and wider ESG impact of their activities and to address issues in their supply chains, which will in turn heighten the claims risk. Per and polyfluoroalkyl substances (PFAs, or “forever chemicals”) are the subject of collective actions in multiple jurisdictions around the world; the use and effects of PFAs have resulted in over 10,000 US judgments, as well as judgments across Europe, and increased regulation in Europe (REACH / POP). In the UK, a number of Group Litigation Orders are in place in relation to vehicle emissions claims, and the English courts remain a key jurisdiction for overseas claimants seeking to challenge tortious acts - negligence and nuisance being, commonly, the basis of claims - by local subsidiaries of multinational companies (see, for example, our summary of key decisions, and a later update on mass claims activity in the English courts). A 12-week trial began in October 2024 in the mass claim by victims of the Mariana dam collapse in Brazil.

Implications

The first collective proceeding judgments coming out of the CAT, and the approach to settlements, will give an indication of the attractiveness of the regime for class representatives and funders going forward. The move towards consumer protection, and the additional protections provided by the DMCC could also drive further, standalone claims being issued as competition collective proceedings.

The outcome of the Mariana Dam trial litigation will likely shape the future of claims in England for tortious acts by overseas subsidiaries and the litigation exposure of English-headquartered companies across a number of sectors.

The Product Liability Directive’s extraterritorial effect means that even UK businesses may fall within the scope of the consumer-friendly EU regime, and so may face greater risk of regulatory scrutiny and claims relating to product defects where there is an EU nexus in the supply chain. This risk may be further increased by the Directive’s increased scope in respect of digital products and Artificial Intelligence, as software is now explicitly included in the definition of “product”. Once the Directive’s requirements are in place, non-EU manufacturers can be held indirectly liable for defective products through authorised representatives and importers. Although to date implementation has been fragmented, Member States will likely need to implement the Directive into national law by 2026.

Prediction

Fraud will be a pervasive topic in the UK throughout 2025. The National Crime Agency has declared fraud the most prevalent criminal offence in the UK, accounting for over 40% of crime in England and Wales. Developments to watch in the coming year include the entry into force of the new Failure to Prevent Fraud offence for large organisations, the bedding in of the new regime for reimbursement of Authorised Push Payment (APP) fraud, some key decisions from the courts and the government investigation of £7.6bn in suspected COVID fraud.

Failure to Prevent Fraud

The Economic Crime and Corporate Transparency Act 2023 introduced the latest “failure to prevent” offence for companies and partnerships, following those relating to bribery and facilitating tax evasion. The new offence makes large organisations criminally liable if an associate (including an employee, agent or subsidiary) commits any fraud offence in order to benefit the organisation, its customers or clients. It will come into force on 01 September 2025.
On 6 November 2024 the government published guidance for organisations on the new offence and the implementation of “reasonable procedures” to prevent fraud. Any organisation that can show it had put in place reasonable procedures will have a defence to the new crime. Many companies and partnerships across all sectors will be urgently reviewing and improving anti-fraud compliance policies, which to date may not have addressed fraud for the benefit of the organisation. Likely areas of risk include sales techniques that run a high risk of misleading consumers in order to meet sales targets or upsell, financial misstatements to investors and “green-washing”.

For more on the guidance, see here. You may also be interested in our ECCTA Fraud Prevention Toolkit.

APP fraud

APP fraud, where a person is tricked into sending money through the banking system to a fraudster, has proliferated in the last few years, resulting in litigation against financial institutions and government action.

On 7 October 2024 the Payment Systems Regulator (PSR)’s mandatory reimbursement scheme came into effect, requiring in-scope Payment Services Providers (PSPs) to reimburse eligible customers up to £85,000 within 5 business days. There are ambiguities in the new scheme, not least the scope of the “gross negligence” exception, where the customer has shown a “significant degree of carelessness”. We expect inconsistent decisions that will trigger a surge in consumers taking their cases to the Financial Ombudsman Service and may prompt enforcement action by the PSR. We also anticipate some disputes between PSPs over the sharing of reimbursement costs. There are also still court decisions to look out for in the coming year, which will determine the possibility of redress for payments pre-dating the reimbursement scheme, and those outside its scope, such as international transactions, those with a value above the cap, or those made by larger organisations.

The decision in Terna v Revolut, refusing a summary judgment application by the PSP, will go to appeal. Terna paid out €700,000 to what it thought was its energy supplier, but transpired to be a fraudster. The judge refused to throw out a claim that Revolut had been unjustly enriched in the payment process, keeping open the door for claims of this type against PSPs. The appeal will provide more certainty as to whether PSPs are vulnerable to claims for unjust enrichment where they process payments to fraudsters, despite having a reciprocal obligation to pay the money that they receive out again.

The COVID backlog

UK government confirmed in the October 2024 budget the appointment of a Covid Counter-Fraud Commissioner who will work with HMRC and the NCA to investigate £7.6bn of suspected Covid fraud, including PPE contracts, furlough payments, and misused loans and grants. Many disputes are already in train and several criminal convictions have already been achieved by prosecutors, but we expect the number of civil and criminal claims to increase throughout 2025.

Implications

All large organisations as defined by ECCTA will need to carry out a risk assessment and consider what measures are needed to avail themselves of the defence to the new crime of failing to prevent fraud. It is unlikely we will see any prosecutions for failure to prevent fraud for some time yet, but prosecutors will be keen to use this powerful new tool at their disposal.

For those in the financial sector the coming year will see developments that shape the application of the reimbursement scheme for APP and the risks of claims from victims outside the scheme. Understanding these risks and how to respond to them will vital.

Prediction

In light of the recent Court of Appeal decision in Johnson, Wrench and Hopcraft, 2025 is a likely to bring a new wave of litigation and complaints in relation to commission disclosures.

Why

The Johnson, Wrench and Hopcraft judgment concerns three appeals addressing the duties of motor dealers acting as credit brokers in arranging hire-purchase agreements for car buyers, and whether lenders are liable in cases of undisclosed or partially disclosed commissions. The Court of Appeal allowed all three appeals, finding that in each case, the dealer owed the claimant a "disinterested duty" and a fiduciary duty, and that the lenders were liable for repayment of the commission. The result is that the level of disclosure required of lenders in relation to commission is now significantly more than that specified by the relevant legislation, regulations and FCA rules/guidance. The judgment implies that lenders are now responsible for disclosing to borrowers: (i) the rate/amount of the commission, (ii) how the commission is calculated, and (iii) any important information about the relationship between the lender and broker, for example whether the lender has a right of first refusal over the broker's business.

Very few (if any) lenders will have provided this level of disclosure historically. This means that there is opportunity for borrowers to bring claims against lenders where there was a third party dealer/broker/intermediary involved in the lending process. This could affect a wide range of industries, including other retail lending (e.g. holidays, kitchens, mobile phones), insurance, mortgages, commercial lending, etc.

Permission to appeal to the Supreme Court is being sought by the lenders. Assuming it is granted, we expect that the appeal will be expedited and the Supreme Court will hear the appeal early in the new year. However, until then, the Court of Appeal decision is good law.

The FCA has recently announced that it intends to consult on extending the time that firms have to respond to complaints about motor finance where a non-discretionary commission was involved, and for consumers to refer them to the FOS, in light of the decision in Johnson, Wrench and Hopcraft.

For now at least, these pauses won’t cover industries other than motor finance, so there is still plenty of scope for claims and complaints in relation to commission disclosures to be made. We expect that claims management companies will start heavily marketing to attract potential claimants.

Implications

In light of the significant litigation risk here, lenders will need to start assessing the potential scope of their liabilities in the event that any appeal to the Supreme Court is not successful. This will likely be a challenging exercise given that Johnson, Wrench, and Hopcraft is new law and there will inevitably be some uncertainty (particularly in the non-retail lending world) around whether a fiduciary relationship exists between the borrower and broker, and if so, what level of disclosure is required in order for the borrower to give informed consent to the payment of commission. Affected clients should also anticipate how the decision may affect their complaints handling processes and volume of complaints (noting the FCA is consulting on pausing the process for secret commission related complaints in the motor finance sector).

Prediction

We anticipate a fresh wave of disputes arising from contracts between Russian-connected entities subject to sanctions and western businesses, plus new areas of trade disputes arising from rising political tensions and the imposition of tariffs. The English courts will continue to be asked to determine parties’ rights where contractual choices of dispute resolution are ignored or overruled by legislation in other jurisdictions, while sanctions enforcement will be stepped up and businesses will look to treaties and trade agreements to uphold their rights.

Why

The last two years have seen a steady escalation in disputes as to where parties should resolve disputes arising from the sanctions imposed on Russian parties following the invasion of Ukraine. This will only intensify in 2025, as the three year limitation period in Russian law means that a new wave of claims is likely.

Russian legislation has given the Russian courts jurisdiction over any case involving a sanctioned person or concerning sanctions. Russian courts have also granted anti-suit injunctions prohibiting foreign parties commencing arbitrations in accordance with a contractual agreement. Breaches of such injunctions are punishable by payment of the whole value of the claim in question, plus costs. Freezing orders are easily obtained and can cover client monies and not just proprietary funds. For more on Russian sanctions litigation, see our webinar.

The English Supreme Court meanwhile has held that the English courts have jurisdiction to grant anti-suit injunctions to protect arbitration agreements, even where the arbitration is to be seated in another jurisdiction, so long as anti-suit injunctions are not available there (for more see here). Arbitral awards against Russian parties have effectively become unenforceable in Russia, but parties can still enforce against Russian assets held elsewhere in the globe, subject to getting a license from sanctions authorities.

Going global

While eyes remain on Russia, 2025 is likely to bring a range of new trade disruptions for businesses that will, in time, lead to contentious situations. The incoming US president is famously unpredictable, but has made it clear that he views China as a strategic threat and intends to address that with import tariffs and export controls on advanced technologies. Global businesses with a footprint in both China and America, including Elon Musk and Tesla, are likely to find themselves navigating some difficult decisions. Tariffs are also likely on imports from other nations (Canada and Mexico are a current focus) and many long-term contracts may no longer make sense for at least one of the parties. Retaliatory tariffs and protective steps are clearly a possibility. We expect to see disputes over post-contractual amendments, contract terminations on grounds giving rise to challenge and claims of force majeure. There is also likely to be a rise in claims under Bilateral Investment Treaties as investors see the value of their investments damaged by new trade barriers. Trading parties may look to structure contractual arrangements through jurisdictions which benefit from such treaty protection.

New US sanctions are likely against Iran and Venezuela, targeting these countries’ oil sectors. At the same time, rising concern over the apparent ineffectiveness of the sanctions against Russian entities is already seeing a stepping up of enforcement action. The new regime in the US may see divergence with Europe on the approach to Russian sanctions, but enforcement agencies will bring prosecutions and civil enforcement actions in 2025 as investigations into breaches reach fruition. The establishment of the UK Office of Trade Sanctions Implementation in September October 2024 with the power to impose civil monetary penalties on a strict liability basis, and expansive reporting obligations on financial institutions and legal services providers, (subject to privilege) if they suspect breaches, will ensure a pipeline of enforcement action in the UK. The head of the UK’s Office of Financial Sanctions Implementation has recently told a parliamentary committee that he expects cases of “both wider range and higher value” to come to fruition soon.

Implications

Businesses should monitor changes in international trade policies and sanctions regimes as 2025 unfolds and be ready to swiftly assess the impact upon existing and planned contractual relationships. Supply chain management is set to become both more complicated and unpredictable. Reacting quickly to events and understanding the implications for rights and obligations will be key and the skillsets that enable such reactions will become more valuable. Choosing appropriate actions and when to resort to methods of redress such as injunctions and treaty claims will present international businesses with new challenges.

Predictions

• The FCA will increasingly use supervisory intervention powers and consumer redress rather than enforcement as its primary regulatory tool.
• The FCA will introduce and make use of new powers to publicise the commencement of enforcement investigations.
• We anticipate a continued focus by both the FCA and the SRA on non-financial misconduct with further enforcement action against regulated firms and solicitors.
• The FCA will make use of its new anti-greenwashing rule by bringing an early enforcement action.

Consumer redress

The Court of Appeal handed down its decision in The Financial Conduct Authority v BlueCrest Capital Management in October 2024. The court concluded that the FCA has a power under s.55L FSMA (read together with s.55N(5) FSMA) to impose a single firm redress requirement in relation to past conduct. In effect, this means that the FCA has a very wide discretion to impose a requirement to pay redress on a firm if it “appears to the FCA” that to do so: (i) “is desirable … in order to advance one or more of the FCA’s operational objectives”, and (ii) “is a rational decision which the FCA considers to advance the objective of securing an appropriate degree of consumer protection.”

The only practical constraints on the FCA’s power to impose redress are: (i) the right to refer the FCA’s decision to the Upper Tribunal which will hear the matter afresh; and (ii) the FCA’s public law obligations. The court confirmed that the FCA can in principle deploy this power in circumstances where the conditions of loss, causation, breach of duty and actionability as set out in s.404 FSMA are not met, though it considered that it would “rarely be the case that the FCA would be able to justify the imposition of a redress requirement as rational” where none of the conditions is met.

The judgment is subject to further appeal, but it is important in the context of the FCA’s notable shift towards early intervention and ensuring redress is paid to consumers as its primary regulatory tool.

The FCA’s most recent statistics show that since financial year 2019/20, the number of FCA interventions cases has doubled, meaning that the FCA is taking action earlier and more decisively where it identifies harm. Following changes to the FCA’s internal procedures in November 2021, the FCA can make supervisory interventions quickly (much more quickly than for Enforcement action) and firms should take care to ensure that their systems and controls, firm and product governance and consumer engagement meet regulatory expectations. The FCA’s current approach therefore marks a significant shift in regulatory risk for firms away from FCA Enforcement and into what was previously the supervisory arena and is particularly relevant to firms interfacing directly with consumers. Our experience is that identifying issues early and managing them proactively is essential and we assist many firms to manage their regulatory risk ahead of time.

It is also worth noting that the FCA and the FOS have recently issued a call for input into modernising the redress system. They believe that the current redress framework works well for individual customer complaints about specific issues but that challenges can occur when there are large numbers of complaints about the same issue – so called ‘mass redress events’. They suggest that these challenges can be compounded if firms do not identify issues early or do not proactively address harm where it occurs. They are seeking views on various issues including how the redress framework could be modernised and the problems that mass redress events and the redress scheme in general cause firms, consumers and their representatives. Views are sought by 30 January 2025 and we can expect further changes to the system going forward.

Name and shame

Back in February 2024 the FCA issued CP24/2 proposing publicly to announce the opening of an investigation into a firm with one day’s notice (the so called “name and shame” proposal) and subsequent publication of updates on an investigation, including closure. The prime justification was transparency but a wide range of fundamental objections to the proposals was raised in subsequent months. The FCA attempted on several occasions to calm concerns but, perhaps unsurprisingly given the fierce response to the original plans, was ultimately persuaded to announce that it would not be progressing the proposals “as constituted” and that the next iteration would be “fundamentally reshaped”.

Those reshaped proposals were published as CP24/2 - Part 2. Four significant changes were made:

• The impact of an announcement on the relevant firm will now form part of the public interest test and be central to the consideration of whether to announce an investigation and name a firm.
• Firms will be given a copy of any draft announcement and 10 business days’ notice to make representations to the FCA, with a further 2 business days’ notice of publication of any announcement if it decides to proceed. The original proposal was for one day’s notice.
• The potential for an announcement to seriously disrupt public confidence in the financial system or the market will be included as a new factor in the public interest test.
• The proposals will apply only to proactive announcements of investigations opened after the proposals come into effect and so won’t include the back-book.

Responses to the consultation are requested by 17 February 2025 and the FCA’s board will make a final decision in Q1 2025.

Many had hoped that the proposals would be dropped in their entirety. The new changes are welcome but, given the history, we predict that the revised proposal will make it into the rule book allowing the FCA greater freedom to use publicity as an enforcement tool. This is likely to be in only a few cases but the threat may prove significant and firms need to be aware of the impact which publicity might have.

Non-financial misconduct

The SRA expects solicitors to act “…in a way that upholds public trust and confidence in the solicitors' profession” (Principle 2); and “…with integrity” (Principle 5). The SRA has issued a number of pieces of guidance on non-financial misconduct (NFM) since September 2022, covering issues like bullying, sexual harassment and conduct in disputes. There have been multiple recent decisions dealing with sexual harassment, both inside and outside the workplace, and one workplace culture/bullying decision, in which a senior partner who displayed 'offensive, intimidating and insulting' behaviour towards junior colleagues was struck off and ordered to pay £41,875.44 in costs.

The SRA has expanded the reach of its jurisdiction, to encompass not just conduct in the workplace itself but also conduct outside work “which touches realistically upon your practice of the profession, in a way that is demonstrably relevant.”. The Acting with Integrity guidance states that:“…we are concerned with the impact of conduct outside legal practice where it jeopardises the delivery of proper and effective legal services or risks damaging public trust and confidence in the solicitor profession.” Similarly, the Sexual Misconduct guidance outlines relevant considerations in assessing proximity of the conduct to the individual’s professional activities. Proposed changes to the financial penalties regime following a consultation that closed in September 2024 could greatly increase the size of fines for breaches.

There can be little doubt that NFM also remains a key focus area for the FCA. The regulator consulted on proposed new rules in September 2023. A policy statement following up on that consultation is imminent. In the meantime, the FCA has not been idle. It issued a notice to provide information on the prevalence of NFM in February and in October published the results of the survey of over 1,000 investment banks, brokers and wholesale insurance firms designed to better understand how firms record and manage allegations of NFM. The FCA expects firms to reflect on the data and consider how their own performance compares with their peers. It also expects firms to discuss NFM at senior management and board level and consider whether they need to take steps to improve their culture, how they identify and manage risks and how they address NFM on an ongoing basis.

The FCA says that it will continue to engage with firms but warns that it will act where the rules are not followed. Given the time and effort it has expended on this work we anticipate that it will be looking to reinforce its message through early enforcement. Firms must treat NFM seriously and ensure that they have effective systems in place to identify and investigate and to provide a prompt and fair remedy when allegations are substantiated.

Anti greenwashing

The FCA’s anti-greenwashing rule came into effect on 31 May 2024. Broadly, the new rule (ESG 4.3.1R) requires any authorised firm that communicates with a client in the UK in relation to a product or service, or communicates a financial promotion to a person in the UK, to ensure that any reference to a sustainability characteristic is consistent with the characteristics of the product or service and is clear fair and not misleading. Accompanying guidance makes clear that the FCA expects firms to ensure that any sustainability claims are, amongst other things, correct, clear and complete.

The FCA already had various rules which it could use to bring enforcement action for greenwashing but the regulator is very clear that it considers the new rule to be an explicit route by which to challenge firms it considers are making misleading sustainability claims. Given the delayed implementation of the new rule and the fact that firms are well used to the “clear, fair and not misleading” requirements of other rules, we anticipate that the FCA will display a strong appetite to bring an early enforcement action using the new rule.

Prediction

We anticipate that a number of AI-related claims will start to make their way through the English courts. Many of these will be IP-focussed, driven by concerns by rights holders that proprietary content or data is being used without consent to train generative AI. These may also come with concerns around confidentiality and data protection when using AI; we anticipate that we will start to see more data protection investigations relating to AI development and use, possibly leading to claims.
In addition, we anticipate at least one professional negligence claim in 2025 testing the extent to which the relevant professional was entitled to rely on an AI product in the performance of their services.

Why

The risks involved in using AI centre on its inherent qualities – the need for large and varied training data, lack of transparency, the potential for algorithmic bias, potentially inaccurate output and an inability to verify the process. For developers, the risks are largely down to tensions as the new and groundbreaking technology meets existing legal principles.

A dispute in relation to the use by AI developers of visual images without licence is due to go to trial in the English courts in summer 2025 (IL-2023-000007: Getty Images (US) Inc. & Ors v Stability Al Ltd). Getty - a major digital content provider - alleges copyright infringement, database right infringement and trade mark infringement/passing off on the basis that the defendant scraped its database of images and related metadata without consent, and used its copyrighted works without permission to train its AI product. We have already seen a failed attempt by Stability AI to strike out the claim after a significant hearing. There is a parallel US case, but it looks currently that the UK claim will be heard first. The judgment may well be instrumental in setting the parameters for what is lawful or not in the use of third party content to train or fine-tune generative AI.

Patent lawyers and those developing digital products will be watching with interest a dispute that is due to be heard by the Supreme Court in 2025, on appeal from a Court of Appeal decision, as to the patentability (or not) of “artificial neural networks”; this will likely start with questions as to the nature of a "program for a computer" (per the Patents Act 1977).

Separately, a recently announced proposed class action to be started by individual users of certain platforms may gain traction, driven by alleged concerns that training the generative AI now used across those tech platforms may have used personal data collected or used in breach of data privacy laws.

We highlighted some of the risks for professionals who use AI in the performance of their obligations in our webinar AI and professional liability risks. The lack of transparency, and the inability of humans who are using and relying on AI-generated data or products to verify its output is a significant risk. There have been widely reported incidences of inaccuracy, and professionals using AI in their work will need to reassure themselves that its use and/or output will not cause them to breach contractual terms, and/or tortious duties to take reasonable care.

Alongside claims, we are likely to see increased regulation of AI, both in the EU and UK. Data protection in the use of digital platforms and AI products is a concern. The Irish Data Protection Commission fined Meta £75m in September 2024 after an investigation revealed that passwords were stored without encryption. The ICO’s 2023 guidance on AI and data protection sets out its expectations to ensure lawfulness, transparency, accuracy and fairness in AI.

The EU AI Act (see our key resources in relation to the AI Act here) sets out requirements for providers, deployers, importers and distributors of AI systems. Alongside this the new Product Liability Directive will extend the EU product liability regime to digital and AI products. Our webinar series outlining the new regime and its implications can be found here. In the UK, AI regulation is sector-specific. The UK financial regulators are looking closely at AI, alongside broader efforts to strengthen operational resilience and the ability of the economy to withstand systemic shocks from a major cyber event. The FCA is consulting until 31 January 2025 on current and future uses of AI in UK financial services, for example, and the PRA’s most recent survey of artificial intelligence and machine learning in UK financial services was published in November 2024.

Cyber risk remains a key focus for businesses and for regulators and government bodies, and this risk is largely increased through AI-enabled technology. Although AI may in some cases be used to identify and manage cyber risk, AI tools have also increased the sophistication and frequency of malicious cyber-attacks. LLMs for example have greatly improved the linguistic capabilities of chatbots or phishing emails, making them harder to spot. Fraudsters have access to sophisticated AI search tools, combined with deepfake technology and new types of malware. At the same time, interdependence between businesses, across borders and within the supply chain, increases the impact. The 2024 CrowdStrike incident, in which widespread IT outages were caused by a faulty but routine software update, caused an estimated 8.5m Microsoft computers to crash.

Implications

There is a clear tension between the opportunities of using and developing new technology and the attendant legal and regulatory risks.
Businesses who are either developing or using AI still need to do so within the framework of existing legal rights and obligations. The Getty case may clarify the position for developers in relation to IP rights in 2025. We explain the complex copyright issues associated with the use of generative AI in more detail in this article.

Those using AI to deliver goods, services or business efficiencies must take care to think through their legal obligations, and the implications of delegating tasks to AI products. Clear processes may be needed to ensure that input data is accurate and any machine learning algorithm unbiased, and to check (so far as possible) the accuracy of any digital or AI output products. In the meantime, we expect to see a number of disputes reach the courts as parties seek to clarify their legal rights in a brave new world of fast-developing AI (and other digital) products.

Prediction

An increase in disputes relating to pensions is likely, with claims against those administering schemes, for example trustees, as well as against other professionals involved in pensions advisory work.

Why

Pension schemes face increased regulatory scrutiny, and pressure from members. Pension trustees owe duties to act in the best interests of scheme members, and to act impartially, prudently, responsibly and honestly. Managing investments and governing schemes can be complex, and fraught with legal and regulatory risk.

The pensions sector is still digesting the implications of the Court of Appeal’s decision in Virgin Media Ltd v NTL Pension Trustees II Ltd & Ors, which found that actuarial confirmation was required in respect of certain amendments to defined benefit schemes between 6 April 1997 and 5 April 2016, and that amendments not supported by the necessary actuarial opinion were invalid and void. Our more detailed note on the decision can be found here.

The wider risks faced by those administering pension schemes, as they seek to comply with their duties in an often volatile investment environment, include a focus on ESG – last year the Court of Appeal rejected requests for declarations that directors were in breach of statutory and fiduciary duties in having failed to have an adequate plan for the Universities Superannuation Scheme to divest of fossil fuels and reach net zero by 2050 (McGaughey & Anor v Universities Superannuation Scheme Limited & Ors). The divergence between the ESG stance in the EU and, now, the US (and potentially within the US between states) is likely to make ESG investment policy decisions more difficult.

The fallout from difficulties with the British Steel Pension Scheme has led to significant payments by the FSCS, a formal FCA redress scheme for former members, and investigations and enforcement action by the FCA which has resulted in bans and fines for a number of pensions advisors who were found to have given unsuitable advice.

Although, absent deliberate wrongdoing, trustee directors are generally protected by the corporate veil, the Pensions Ombudsman recently ordered a sole shareholder and director to pay c. £10m into the relevant schemes ruled following a series of trustee failures (PO-16266) which amounted to multiple breaches of trust and acts of maladministration for which he was found to be personally liable as a dishonest accessory.

Pension scheme complaints relating to occupational pension schemes will usually, first (once internal dispute resolution processes have been exhausted) go to the Pensions Ombudsman. An ongoing dispute in relation to the Boots Pension Scheme following a buy-out of the scheme benefits, in relation to which the PDA urged members to submit complaints via the scheme’s internal disputes procedure by 5 December 2024, will likely then go to the Ombudsman, and may then lead to claims against pensions professionals.

Implications

Managing investments and governing schemes can be complex, and fraught with legal and regulatory risk. Professional advice, proper record keeping, and careful consideration of the different factors when making decisions, are all vital.

The Virgin Media decision has potentially significant implications for contracted-out pension schemes which amended the basis of future service accrual between 1997 and 2013, and as to the interpretation of s.37 of the Pension Schemes Act 1993 - what was required, and who was responsible for compliance? Another dispute on similar issues is making its way through the courts at present - Verity Trustees Ltd v Wood - and due to be heard in February 2025. Parties should be mindful of the limitation periods in play (including the 15-year limitation long stop for s14A “knowledge” based claims). Questions of contribution, and the specific terms of engagement letters (including any liability caps), will doubtless also need to be considered.

The industry has requested DWP guidance; the joint working group of the Association of Consulting Actuaries, Association of Pension Lawyers and the Society of Pension Professionals has proposed that the Secretary of State should use the specific powers under s.37(2) of the Pension Schemes Act 1993 to retrospectively validate any amendment that was void solely because a written actuarial confirmation was not provided or cannot now be located.

Prediction

The senior courts in England and Wales will effectively abolish the so-called “Shareholder Rule” that allows shareholders of a company to see legal advice obtained by that company. Several cases have considered the application of privilege in this situation in recent years and it is highly likely that a senior court, either the Court of Appeal or the Privy Council, will consider it in 2025. We believe that they will reject the idea that a company cannot claim privilege against its shareholders.

Why

On 27 November 2024 Picken J held in Aabar Holdings SARL v Glencore PLC that the “Shareholder Rule” is not good law. He easily rejected the principle that underlay the 19th Century origins of the rule, that a shareholder has a proprietary interest in a company’s assets, including its legal advice. It has long been accepted that a company is a separate legal entity.

More recently, the Shareholder Rule has been accepted on the basis of a joint interest privilege between the company and its shareholders. In a number of cases the courts have accepted that, unless there is a direct dispute between the company and the shareholder wishing to see the advice, the company cannot claim privilege against its shareholder. In Various Claimants v G4S Plc in 2023 the court held that only the legal owners of shares, and not those holding through an intermediary, were entitled to see the company’s legal advice, thereby limiting the scope of the Shareholder Rule, but not questioning its existence. If anything, this only complicated the position by creating separate categories of shareholders. Interestingly, in Aabar Holdings, Picken J made clear that in his view if the Shareholder Rule did exist, it would apply to those who held shares indirectly.

Given the number of previous cases in which the Shareholder Rule seems to have been accepted, the Aabar Holdings decision is a striking one, but it is lengthy in its reasoning and considers a raft of previous authorities. Its conclusion is that previous decisions have accepted the existence of the Shareholder Rule without properly analysing the underlying basis for it. It is almost certain to be appealed, but even if it is not, there are other cases in which this is a live issue. A judgment is currently pending in Allianz v Barclays on the application of the Shareholder Rule. A Bermudian case where it is disputed will come before the Privy Council in 2025 and Allianz v Barclays or others may find their way to the Court of Appeal, possibly in a conjoined hearing to consider the issue in the round.

Implications

With a growing number of high value claims brought by shareholders under s.90A FSMA (see our Shareholder and Investor Claims prediction above) this question is of real relevance to many corporates and financial institutions. In addition, in the ESG context, where campaign groups are active and can buy shares in their target under cover of individual members, a company’s ability to take advice and not share it with its members can be of critical importance. With so much at stake, the door is now open for a more senior court to provide a definitive answer. We expect Picken J’s position to find support and for the courts to enable companies to refuse to disclose legal advice to its shareholders.