High Court grants £1m costs extension in Lloyds/HBoS case

The High Court has granted Lloyds permission to increase its costs budget by more than £1m in its headline dispute with shareholders, owing to “significant developments in the case”.

Lloyds asked to increase its budget by £1.2m to account for the 12-day delay at the start of the trial, which was due to begin on 2 October but instead began on 19 October after  Mr Justice Nugee and other members of counsel sustained significant injuries.

Of the £1.2m, £587,000 was set aside for counsel, £546,000 for solicitors and £77,000 for disbursements. Lloyds costs in depending the action are understood to be in the region of £20m.

The Lawyer reported earlier this year that Lloyds’ solicitors, Herbert Smith Freehills (HSF), expected to run up costs of more than £25m defending the bank as it faces claims by 6,000 investors that Lloyds and its directors failed to fully disclose the troubled state of HBoS’s finances in a message to shareholders in 2008, at the height of the financial crisis.

The “significant developments” that the defendants say warranted an increase in costs were disclosure, including the claimant’s issuing of an application for the Department for Business, Energy and Industrial Strategy in August 2017; questions put to the defendants’ experts and and an expert witness brought in by the claimants.

The judge granted adjustments based on the trial delay, disclosure and analysis, but not the claimants; third-party disclosure application, questions to the bank’s experts or the its reponse to one of the claimants’ expert witnesses.

The claimants objected to the bank’s costs proposals, understood to be on the grounds that it may mean they need to increase their ATE insurance cover.

Hailsham Chambers’ Mark Friston, who has been instructed by the claimants to deal specifically with costs issues, argued that the delayed start to the trial was in reality an ajournment which would not usually be regarded as a significant development.

However, Chief Master Marsh disagreed. “In my judgement, there is an air of unreality about the claimants’ approach to the extended trial timetable,” he said. “The evidence is that the additional time has been fully occupied with handling this very complex case by the lawyers acting for the defendants. I am in no doubt that the extension to the trial timetable is a significant development. ”

He added: “I consider that the evidence supplied on behalf the defendants is both cogent and reliable. I am satisfied that the basis of calculation put forward on behalf the defendants produces a revised budget that falls within the range of reasonable and proportionate costs for the trial of this claim.

For the main dispute dealing with Lloyds’ takeover of HBoS, Harcus Sinclair, acting for the claimants, has instructed 4 Stone Buildings’ Richard Hill QC as lead counsel, while Lloyds is being defended by Herbert Smith Freehills (HSF) and Brick Court’s Tony Singla.

Lloyds’ adviser at the time, Linklaters, has been in the firing line during the trial after it emerged during the cross-examination of three of its lawyers – Michael Cutting, Jeremy Parr and Duncan Barber – that they approved a “covert” £10bn loan to HBoS prior to the merger, as well as the circular that went out to shareholders that lies at the centre of the dispute.

The court heard from Linklaters’ former head of corporate Parr, the client relationship manager for Lloyds at the time of the acquisition, that he was “not aware” that HBoS was receiving  £25bn in emergency liquidity assistance from the Bank of England the firm was instructed by the bank just one day before the merger announcement was made to shareholders.

The claimants range from small investors to large pension funds including the National Farmers’ Union and the Royal Borough of Kensington and Chelsea. The claimants have also named former Lloyds chairman Victor Blank and ex-CEO Eric Daniels in the action, as well as former directors Timothy Tookey and Helen Weir.

Pre-trial action has resulted in several ground-breaking decisions regarding privilege. The High Court ruled in 2015 that advice given to Lloyds by Linklaters at the time of the HBoS acquisition is not subject to privilege.

Lloyds has consistently said it considers the claims to be without merit.

The case, Sharp v Blank, was featured in The Lawyer’s Top 20 Cases of 2017.