LML News & Events

Updates and events about our group action cases, plus general news about group litigation in the UK and related subjects.

30

May

RBS Shareholder Litigation – making the business case for specialist group litigation management in the UK

The RBS Shareholder group action has attracted headlines in both legal and mainstream press over recent years. It was one of the first “mass” financial services claims coming off the back of the “credit crunch” era, with litigation funders and ATE insurers involved. The case has finally ended, with the last group of claimants accepting a £200m settlement, but it very nearly fell over at various points. Here are FOUR big lessons that the case teaches us about the management of mass litigation in the UK. For those who weren’t already convinced, it makes the case for a specialist litigation manager:

1 – Claimants are more than a statistic 
The most embarrassing feature of this case was Hildyard J’s regular barracking of the claimants’ legal team. Whether it was Stephen Baker at Bird & Bird or Graham Huntley at Signature litigation on the receiving end, it was apparent that the claimant group underestimated the level of detail that the Court requires to know about claimants. It is easy to think that courts will begin to make generalisations where multiple claimants are concerned, but fundamentally, if the legal team doesn’t know how many claimants there are, how much the value of the individual / aggregate claim is worth, there will be trouble ahead. It is not easy to stay on top of this information, particularly as  the information moves fast with new people registering for the group.

It can be very tempting to big up the size of the claim by publicising the number of people who have expressed interest in joining rather than the number of people whose details have been evaluated, have retainers with the law firm and who are party to Court proceedings. There are often sets of figures running in parallel with a pipeline claim value and an actual claim value. Most solicitors firms are not geared up to deal with this level of data requirement.

2 – Funding and insurance can make or break a case
The fact that the case got off the ground was a headline in itself and was welcomed by many as an example of group litigation being used to level the playing field between individuals and large corporates. Then followed over 5 years of topsy turvy moves leading many observers to believe at various times that the case was going to collapse leaving the shareholders without compensation. At first, RBS (or rather Herbert Smith Freehills, their solicitors) jumped on the new costs management rules to produce an eye watering £42m budget estimate designed to intimidate the claimants and ATE insurance market into believing that the adverse costs risk was too big to insure. A combination of third party litigation funders and insurers teamed up to support the claimants, but it needed to go way outside market norms to find support. Without it, the case would have folded and it requires experts to devise and source the right cover.

3 – The legal battle will be all consuming – the legal team needs to be able to focus 100% effort on this
The uncertainty over funding and insurance inspired pockets of claimants to create competing groups with different legal, funding and insurance support. That ultimately provided RBS with the opportunity to deal a near fatal blow to the main group by settling with the well funded institutional investor groups, leaving all the risk and the burden of proving the case on the group of retail investors. RBS clearly considered that the main retail investor group was disorganised and vulnerable. And why wouldn’t they after the succession of legal representatives were criticised by Hildyard J for not having enough information about their clients?

There were other intra-group battles too. Most notable was the costs sharing position which was subject to a decision in February 2014 when Hildyard J departed from the norm and ruled that each claimant should be responsible for a share of adverse costs pro rata to their shareholding.

Then towards trial, the Signature Litigation group – faced a sustained attack against its ability to honour a potential adverse costs order for what, by then, was over £90m of HSF’s legal costs. These attacks were designed to destabilise the group and force them into accepting a reduced settlement amount and were made possible in part due to the unplanned and contradictory statements that the claimant group had released about its funding. Who was pulling these statements together in a coordinated manner?

4 – Group litigation projects need infrastructure
The job of a litigation manager is about more than just book-building. Marketing doesn’t stop when the claimant is recruited – keeping in touch, on top of change of address details and avoiding the risk of splinter groups is necessary to the smooth running of a case.

Competing groups of claimants is rarely a good feature and this is more likely to happen where a group appears under resourced disorganised.

External publicity needs to be managed properly to ensure that messages are consistent and controlled, as we saw with RBS.

Most important is the ability for the group to make rational decisions. This can be achieved in a variety of ways and, as we wait for the RBoS Shareholder Action Group to return their decision on the 82p share offer, we hope that the requirement to seek 70% membership approval will not defeat the settlement.

Management of group litigation is a niche skill and not one that is widely offered in the UK. It is often given insufficient attention as the lawyers focus on text book law rather than pragmatic solutions. The problems highlighted by the RBS shareholder litigation are eminently avoidable.

 
 
 
 
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