The cost of bringing a claim against a bank in the London courts has skyrocketed with claimants exposed to costs of up to £10m, say senior litigators.
The debate over costs follows a string of high-profile civil litigation and investor claims against banks filed at the High Court in recent months.
Banks including Barclays, Lloyds Bank and the Royal Bank of Scotland are gearing up to fight legal battles in relation to claims of Libor fixing, interest rate mis-selling and conspiracy to cause loss.
Speaking to The Lawyer, Hausfeld London managing partner Anthony Maton said securing funding “is one of the biggest hurdles to litigation against banks, as they are very expensive claims to bring”.
He added: “The fees built up by banks and their legal teams – case preparation, disclosure, trial costs are significant. If you include the exposure to these adverse costs, together with claimants’ own costs – experts, counsel, disclosure and so forth, the total exposure can easily be in excess of £10m.”
Maton is currently running a raft of claims against UK banks including a £50m claim against Barclays and a multimillion-pound professional negligence claim against Lloyds.
He has accused the necessary hefty paycheck of being a “barrier to entry” for claimants that are often small business owners or the bosses of companies put out of business as a result of mis-selling.
The growth of litigation funding has been hailed by some as a step forward for access to justice and funders have been employed in a raft of claims against banks, including by a number of disgruntled shareholder groups taking RBS to court for £4bn over its 2008 rights issue.
However Maton says claimants entering into “complex funding structures” such as after the event (ATE) insurance, conditional fee arrangements (CFAs) and third-party funding “can be just as complicated as getting to grips with the law”.
Director of commercial litigation funding broker Annecto Legal Mark Beaumont agreed, stating: “When it comes to fraud or Libor claims, the viable ones are claiming damages north of £40m. This pretty much rules out any claims falling out of the FCA Redress Scheme as by design they are generally less than £10m.
“Funders are often rejecting claims where damages are less than 10 times likely their own costs, so innovation is required to reduce spend,” he added.
But reducing claimant spend on expert advice, senior counsel and disclosure by pooling resources or implementing new causes of action has no effect on the costs racked up by the defendant.
“Disclosure is the key area where costs can balloon,” said a source close to the banking litigation market. “In the current Libor litigation brought by Property Alliance Group against RBS the bank raised the spectre of disclosure exceeding 30 million documents.
“It is unlikely any organisation in the UK has the bandwidth to process that. It’s enormously expensive,” the source added.
The Lawyer revealed in September RBS’s costs in the £4bn shareholder group action will top £90m and its lawyers Herbert Smith Freehills have a team of 160 lawyers and legal services staff working on pre-trial discovery.
Some litigators have accused the banks of deliberately ramping up costs to price litigants out of the market.
One source close to the RBS shareholder case said: “We are seeing precious little evidence that the banks are making economies in their costs.”
The litigator added: “We have seen banks rotating their teams of associates from one case to the next. Each time this happens the new team needs time to read in to the cases at significant cost.
“Correspondence from lawyers working for the banks can be out of control, letters coming in every hour and even throughout the night. It’s not just about costs, it’s about testing stamina and resolve, but the bottom line is all this work is very, very expensive.”
Guardian Care Homes chief executive Gary Hartland is one claimant that successfully sued Barclays for Libor rigging in what was seen as a landmark case for civil litigation against the banks. He has since taken Lloyds Bank to court through his property vehicle Wingate Associates in an ongoing case, instructing Hausfeld.
Hartland has privately funded both claims and has in the past done his own discovery to keep costs down.
“Suing a bank is very expensive on both sides,” he said. “However my experience is that the costs built up by the banks far outweighs the costs for the claimants. I’m one of the lucky ones in that I’ve already been through the process so I know how it works and how the costs build up.
“There’s no point getting into this unless you’re prepared to go all the way,” Hartland told The Lawyer.
Another self-funded claimant, the boss of Leeds storage company Rhino Enterprises, Jason Schofield, said he was “in the very fortunate position of having the funds to see this through until the end”.
“I’m fully aware there aren’t many people out there that are as lucky as I am. The costs of these cases are a serious issue,” he added
Schofield is suing Barclays for £50m over the administration of Rhino Enterprises. Allegations include mis-selling of interest rate swaps and Libor manipulation. His counsel Collyer Bristow will take on Clifford Chance in the case.