Train plotters

Aggrieved Railtrack shareholders will have to stump up yet more money to continue their class action. Jon Robins on how the Government and Jonathan Sumption have escalated the court costs

Tens of thousands of Railtrack shareholders were asked last week to pitch in a minimum of £30 each in efforts to stump up a total of £900,000 to keep the largest-ever class action against the Government on the rails. “Well, that might just be enough to keep Jonathan Sumption [QC] happy for a few weeks, but what about everyone else?” quipped one cynical lawyer.

The silk, who was reckoned to have earned in excess of £2m last year, sought to have the action shunted into the sidelines by arguing before Mr Justice Lindsay that he wanted the Railtrack Private Shareholders Action Group (RPSAG) to make a £2.25m payment into court. But the group, which represents some 55,000 investors, had only £1.35m and tried to agree to cap Government costs accordingly.

“We were pretty disheartened, even if our lawyers had more or less said that this was going to happen, because we couldn’t see a way forward,” reflects Geoff Weir, a committee member of the RPSAG. Weir is also the named litigant in the action, which alleges misfeasance and breach of human rights. “We feel that we’ve raised all this money and there’s so much support behind us, and yet, even with our fighting fund of £2.4m, it looks like there’s a possibility we won’t get our day in court.”

When the committee launched the campaign, it told the shareholders it would ask for money only once. But Judge Lindsay has made it clear that he saw no reason why the shareholders should not dig a little deeper. Weir is determined that the case should come to court. “Especially when you consider that the documents that we’ve seen really don’t support the Government’s version of events,” he adds. “And we think they should be examined before the courts.”

Back in October 2001, Stephen Byers, the then Secretary of State for Transport, announced that Railtrack would be put into administration. He said there was no choice due to the company’s financial position. Weir contends that Railtrack was insolvent “only because the Government said it was”, and that Byers’ line was at odds with the view of the company’s management and its financial advisers. The Government has already paid £500m in compensation for the shares (around £2.50 each). Weir, a chartered mechanical engineer who worked for 31 years on the railways, has 1,100 shares.

While press pundits fear the loss of an opportunity to watch a government minister being grilled on the stand, claimant lawyers will see the collapse of the Railtrack case as further troubling evidence of the problems of bringing group actions in UK courts.

David Greene, head of litigation at Edwin Coe, is acting for the RPSAG. “The most difficult subject that confronts a group is not just how you pay your costs – that might be the easy bit – but how do you meet the potential adverse costs of a large party with a bottomless pit to dig?” the solicitor says. As Greene points out, the prospects of finding an insurer willing to write a policy of after-the-event (ATE) insurance to cover adverse costs in a case like this is nil. In fact, he reports that he has never been able to find an insurer willing to offer ATE cover for any group action. His clients had asked the court to impose a costs cap of £1.35m on the defendants at the trial, which is due to start on 27 June. The court rejected the claimants’ argument and sided with the defendant, which agreed to a £2.25m costs cap. Hence the RPSAG is calling on its members to make up the extra £900,000; or, as an alternative, it is calling for a “white knight” to bail it out.

As Dominic De Bono, a barrister at Edwin Coe, explains: “They raised a reasonable sum which they thought should take them to trial, and that figure was reinforced by the defendants’ own allocation questionnaire, which indicated their costs would be £1.5m-£2m.” While the RPSAG promised its members after the initial fundraising that it would not be coming back, Judge Lindsay was not impressed with (in his words) such “self-denying ordinance”. He even went so far as to suggest that the extra money was “not a large demand”.

So, is the Government simply ratcheting up the costs to play the shareholders (many of whom were Railtrack employees whose bonuses were paid in shares) out of the game? Greene could not possibly comment. But as Weir puts it: “The facts speak for themselves. Our lawyer, Kevin Rowley QC, has been absolutely brilliant; but having said that, if we could have had Sumption that would be jolly nice, wouldn’t it?”

Stephen Alexander, a partner at Class Law who also acted for the Railtrack shareholders, believes the recent turn of events encapsulates the problem of funding class actions in the UK. “We decided not to go on when the shares were relisted [in June 2002] because of these problems,” he says. “We see it all the time. The defendants always seem to churn and raise costs to deter the ordinary person. Where has access to justice gone if people can’t get their claims to court without being outgunned by large institutions or the Government?” So what does he make of ministers calling on the likes of Sumption? “That says it all really, doesn’t it?” Alexander replies. “In my view, they’re trying to scare people off by making costs as high as possible. Does the Government want litigation in the system or are they just trying to drive it out?”

Greene argues that introducing a degree of predictability for costs is essential for there to be any kind of access to justice for clients such as his. “The courts are to some extent willing to place caps on adverse costs so groups can predict what they need cover for, rather than leaving that question open,” he says. “One [Government] argument was whether the cap could be given for a private claim – in other words, a case in which the claimant has a financial interest in the outcome – but the court rejected that.”