In January 2020 news that L Brands might sell Victoria Secrets, the troubled lingerie brand which it owned, broke out in the press. On 20 February 2020 it was announced that agreement had been reached with Sycamore Partners for it to purchase a 55% stake in Victoria Secrets.

Leslie Wexner, former chairman and CEO of L Brands, said in a press release that the deal "provided the best path to restoring these businesses to their historic levels of profitability and growth".

Before the deal completed, the effects of COVID-19 resulted in store closures and Victoria Secrets missing rent payments. When Sycamore Partners used the virus as an excuse to back out of the purchase, L Brands commenced proceedings against them. On 4 May 2020 the parties reached an agreement terminating the deal. The effect of termination was to cause the share price of L Brands to fall by 11 % in extended trading.

So what about investors who had purchased shares based on their belief that the L Brands' share price would rise as a result of the sale? What about investors in similar situations who have purchased shares in a company in anticipation, or following an announcement, of the sale or purchase by the company of another company or business and which at the time of the transaction appeared to offer promising prospects of the company's share price increasing?

What happens when that agreement is subsequently terminated by either party, whether under the sale or purchase agreement or otherwise, or is discharged by mutual consent between the parties because of problems caused by COVID-19? Do such investors have a cause of action against the company, the directors or any other party?

Potential causes of action for shareholders who have invested in a company may include:

• claims under section 90 of the Financial Services and Markets Act 2000 (where applicable);
• damages at common law and/or under the Misrepresentation Act 1967 for negligent or fraudulent misrepresentation;
• damages at common law for negligent misstatement or deceit;
• damages for breach of contract if it can be shown that any statement relied upon formed part of the investor's share purchase contract.

Each case will depend on its own facts. Where a company invites potential investors to acquire shares in the company and the invitation is made by way of a prospectus or other written material, the purpose of which is to persuade them to invest, statements contained within such material will need to be examined carefully in order to ascertain whether they are false or misleading or, in cases where a prospectus is required to be produced pursuant to the Prospectus Regulation Rules, there are no omissions of particulars which should have been provided.

If there are untrue or misleading representations or, where particulars are required, relevant omissions, subject to proving loss and causation and, where relevant, reliance, the investor may have a cause of action against  the company and also potentially against other parties such as directors.

However, it is likely that where a company is in the process of selling or acquiring another company or business, the language used will be cautious and is likely to be phrased in terms of expectation and intention. Even in these circumstances, however, if a company or its directors have no reasonable grounds for any belief expressed in the document or do not genuinely hold an expressed intention or are actually aware of something, which they do not disclose, which renders a positive statement in the material misleading, then liability might arise.

The above position is to be contrasted with mere press statements from a representative of a company commenting upon a proposed, or finalised deal. In such cases, it is difficult to see how any investor would succeed in a claim, whether based on fraudulent or negligent misrepresentation, deceit or breach of a duty of care.

In cases of misrepresentation or deceit, it is extremely unlikely that a company's comment about a deal in the press will be held to have been made with the intention that it should be relied upon by a potential investor and, in the case of breach of duty of care, that the  necessary relationship of proximity will be established.

Finally, if, as appears to have been the case in L Brands, circumstances change after the conclusion of the deal which cause the parties mutually to agree to discharge it, this will not cause (subject potentially to any prior knowledge) any relevant representation relied upon by the investor to become false. For the cause of action to arise, representations must be false at or before the date of investment.

The very nature of an investment is that it carries risk regarding what will happen in the future. The law is there not to protect an investor against that risk, but protect them against wrongdoing.

Tina Kyriakides is a barrister at Radcliffe Chambers