Shareholders poised to sue Tesco over losses from profits scandal

One big institution and one wealthy individual had already agreed to join the case

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Shareholders are set to launch a major legal action against Tesco over the billions of pounds in value wiped off the company by its £265m profits black-hole scandal.

A firm specialising in funding legal actions has agreed to pay for the lawsuit, which will allege Tesco made misleading statements to the market about its true financial position.

The case is being fought by Stewarts Law, the same legal team which is fighting RBS on behalf of more than 300 major shareholders over the rights issue which they claim encouraged investors to part with their cash under false pretences.

It will argue that the directors and senior management of Tesco knew or were reckless about whether the company’s statements to the market were untrue or misleading, allegedly in breach of the Financial Services and Markets Act.

The Serious Fraud Office is currently investigating Tesco’s actions.

Unlike in the US, there is no provision under English law for class-action lawsuits, where thousands of people can bring one big claim.

So Stewarts Law is bringing together only major shareholders for its legal action. Only those who bought at least 10,000 shares between 17 April 2013 and 22 October 2014 are eligible to participate. The opening date is based on a best estimate of when, according to Tesco’s public statements, the practice of overstating profits may have started. If that subsequently proves to be overly conservative, those who bought shares earlier will also qualify.

One big institution and one wealthy individual had already agreed to join the case and Stewarts Law said it had been inundated with inquiries yesterday afternoon when it went public with the plan.

Sean Upson, the partner leading the case, said: “We’ve had a lot of interest from everyone from private individuals to big City investors.”

Tesco, which has seen its market value halve after the accounting errors compounded a succession of profit warnings, is already facing a proposed investor lawsuit in the United States.

Investors considering joining group actions must be prepared to pay the percentage fee which the litigation finance firm will take from any winnings achieved through the High Court.

However, they also have the peace of mind of knowing that they do not have to get involved in the complex and time-consuming process of running a legal action.

While such group actions by shareholders against big corporations are still relatively rare in the UK, the numbers are growing.

In a similar case, brought against BP by UK and continental European investors over the Deepwater Horizon disaster, more than 30 big investors took part, including the pension scheme of BP’s arch-rival Shell.

Tesco declined to comment on the lawsuit.