Herbert Smith Freehills (HSF) is stepping up to defend the second major bailed-out bank facing a shareholder dispute over losses during the recession.
The firm has been engaged by Lloyds Banking Group and five of its former directors to defend a claim launched by 220 investors. The group argue they were misled into supporting the bank’s 2008 takeover of HBoS, which ultimately led to a £20bn bailout.
HSF is already representing the Royal Bank of Scotland (RBS) in its own £4bn battle with shareholders, alleging they were not given a true picture of the bank’s health before its share issue in 2008.
In documents filed yesterday at the High Court, Lloyds investors argued that their agreement to the acquisition “was procured by the defendants by means of misrepresentations, omissions, concealment of material information and/or negligent advice”.
HSF partner Damien Byrne-Hill has instructed Brick Court’s Helen Davies QC and Tony Singla. Partner Adam Johnson is representing RBS and is expected to take home a chunk of its antipicated £42m legal bill (18 September 2013).
The 220 Lloyds investors have turned to Harcus Sinclair partner Damon Parker to launch the claim against Sir Victor Blank, Eric Daniels, Timothy Tookey, Helen Weird, George Tate and Lloyds Banking Group. Parker has instructed a hefty roster including XXIV Old Buildings’ Alan Steinfeld QC and Stuart Adair, 11 Stone Buildings’ Jeremy Cousins QC, Henderson Chambers’ Oliver Campbell QC and Hailsham Chambers’ Alexander Hutton QC.
The group alleges that the named directors of Lloyds breached fiduciary and other duties owed directly to shareholders when advising them that the acquisition of HBoS and the connected Government recapitalisation of Lloyds were in their best interests.
Lloyds TSB took over HBoS for £12bn in 2008, creating a banking giant holding almost a third of the UK’s savings and mortgage market. But the enlarged bank later had to be bailed out with £20bn of taxpayer money. Lloyds is now 21 per cent state owned.
The investors claim they were not told that the bank was receiving support from the US Federal Reserve totalling $18bn. Neither were they aware that it had taken a £25bn loan from the Bank of England before voting in favour of the acquisition. It is also asserted that Lloyds secretly loaned HBoS £10bn on or about 16 September 2008 to enable it to continue trading.
The value of the claim will not be determined until the size of the claimant group is cemented later this year. However, the total value wiped off all Lloyds’ shares is estimated at £6bn. The value of the 220 claimants’ loss is around £2.5m, but the group is hoping to attract more claimants to join its case.
The investors applied for a group litigation order yesterday which will need to be confirmed by the Chancellor of the High Court before proceeding.
It is the second major banking battle faced by a UK bank following bail-outs in 2008. RBS is currently facing a group litigation order brought by at least two separate claimant groups over a cash call it launched before being bailed out by the taxpayer. There is still no trial date set for the fight, which has seen all sides go to war over the size of the claim and cost-sharing issues among the claimant groups (26 February 2014).
A Lloyds spokesperson said: “The group’s position remains that we do not consider there to be any legal basis to the claims made by Lloyds Action Now, which is an association that is in no way affiliated with Lloyds Banking Group, and we will robustly contest this legal action”.
The legal line-up
For the claimants John Michael Sharp & Anors
XXIV Old Buildings’ Alan Steinfeld QC and Stuart Adair, 11 Stone Buildings’ Jeremy Cousins QC, Henderson Chambers’ Oliver Campbell QC, Hailsham Chambers’ Alexander Hutton QC instructed by Harcus Sinclair partner Damon Parker
For the defendants Sir Victor Blank, Eric Daniels, Timothy Tookey, Helen Weir, George Tate and Lloyds Banking Group plc