Teaming up to bring litigation can be a struggle, as shown by the latest stage in the fight between RBS and the shareholders bringing a case against it.
In-fighting has broken out between the four groups of litigants that are seeking recovery of the losses incurred after investing in a rights issue in 2008 they claim was missold to them.
Stewarts Law, Quinn Emanuel Urquhart & Sullivan, Leon Kaye and Bird & Bird (2Birds) are representing groups of corporate and individual claimants who invested in the rights issue and were granted permission for a group litigation order (GLO) in July 2013.
But Stewart’s Law and 2Birds are thought to have grown increasingly frustrated with Leon Kaye and Quinn Emanuel, which have still not filed a claim despite attending every case management hearing (CMC) since the process began.
Stewarts Law partner Clive Zietman is representing more than 77 institutional investors, while 2Birds is representing the RBoS Shareholders’ Action Group, with around 12,000 retail and around 100 corporate, institutional and charitable members.
Leon Kaye is leading a shareholder group of 8,200 individuals while a small group of large investors has turned to Quinn Emanuel.
At a December hearing, 2Birds dispute resolution head Steven Baker asked for an order that from 15 January Quinn Emanuel and Leon Kaye should no longer be entitled to be heard in proceedings unless they had filed a claim.
However in the 12 February judgment Mr Justice Hildyard concluded that Leon Kaye’s group of 8,200 members and Quinn Emanuel’s group of large investors would be allowed to remain involved and dismissed the cut-off date for joining the litigation.
He said: “There may yet be matters that touch and concern interested persons even though they have not yet issued and on which I consider it right that they be heard.”
However, Hildyard J added: “I emphasise that this is not to be taken as an invitation or excuse to delay…’stragglers’ will simply have to catch up”, stressing the current limitation period of April, the final deadline for new entrants to the case.
Erskine Chambers’ Richard Snowden QC had put forward the idea that the Quinn Emanuel claimants could “park” their claims and “not actively progress” them but remain registered on the GLO register.
This idea was rejected by the other groups. Hildyard J said the proposal would “enable claimants to avoid any costs liability for litigation being conducted by others by waiting on the sidelines to see whether the case has been won or lost. It has the obvious attractions of a permitted bet on the 2.30 race at 4 o’clock.”
He agreed that the proposal was not realistic and said he expected to hear the Leon Kaye and Quinn Emmanuel groups had issued proceedings at the next hearing.
However he also threw out the current deadline for new entrants to the case, saying, “I do not propose to make an order now expressly excluding non-parties from being heard.”
That was not the only tussle stemming from the GLO. 2Birds came under fire at the hearing for having to radically revise the group’s cost estimate after failing to pinpoint the exact number of claimants in its group. In particular Baker was castigated for “startling differences” in the estimates of the claimants’ losses and acquisition value of their shares.
In a 22 November 2013 witness statement he said the losses suffered by the groups would equate to around £900m in shares and that the total acquisition value of those shares would be £1.25bn.
But one month later Baker corrected that to £392m and £490m, blaming, “a mistake made in differentiating between members of the group and actual claimants, and thus in calculating the value of aggregate claims”.
The revelation emerged soon after the group was also found to have submitted inaccurate information about the availability of its after the event (ATE) insurance cover.
Hildyard J said the “mistake” over loss figures was “regrettable in itself, especially in the wake of earlier inaccuracies in statements made by the BB Action Group or on its behalf as to the availability of ATE cover.”
He added: “I shall expect a greater degree of care and accuracy in the future.”
With such a huge number of claimants and Herbert Smith Freehills having submitted a costs estimate of almost £42m for RBS, ATE cover will be imperative for the 2Birds claimants.
The imbalance in funding between and among the claimants and defendants in the case has made costs sharing a thorny issue. The December hearing was scheduled to determine how costs should be administered and divided between the claimant group.
GLOs raise a question of how groups of often disparate groups with very different financial situations manage the costs of litigation, particularly when going up against defendants with hefty cost estimates.
Hildyard J said, “it is not fair or equitable that an institutional investor with millions, in some cases hundreds of millions, at stake should pay an equal contribution as an individual claimant with claims in the hundreds, or even hundreds of thousands”.
In this case RBS has submitted an estimate of £41.8m in costs, compared to Bird & Bird’s £10m-£12m estimate and Stewart’s Law’s £8.5m prediction.
The hearing saw a struggle between Bird & Bird and Stewarts Law over whether shareholders should pay costs proportionate to the shares they bought in the rights issue or whether they should split the costs equally.
Leon Kaye took umbrage with 2Birds’ idea of splitting the cost equally within the groups – an idea it said was “born out of self interest” and was “a panic response” to the group’s ATE issues.
Summarising Leon Kaye and Stewarts Law’s submissions, Hildyard J said: “the proposal is born of self-interest, and also (and more particularly) a panic response to a difficulty which has arisen for the BB Action Group in obtaining the adverse cost cover that it represented to prospective members it had or had arranged, and its desire to lay off part of the risk onto (in effect) the SL Group’s adverse cost cover (which is already in place)”.
Stewarts Law said it was unfair for the adverse costs to be split among the 2Birds group’s members because it it could recover around 92 per cent of compensation claimed as opposed to Stewarts Law’s 8.7 per cent.
Hildyard J concluded that, “there is neither logic nor fairness in taking as the relevant unit each claimant group: the court should not be easily or usually depart from the starting point (and legal fact) that proceedings are brought by individuals and legal entities”.
The tussle over costs is far from over. All parties are now waiting to find out whether other claimants will join the case.
In a statement Bird & Bird said: “This is the biggest ever such claim in the UK, and we are representing the leading shareholder group. It is a major achievement to have mustered such a group to fight for compensation on behalf of shareholders who suffered huge losses in RBS’ Rights Issue in 2008.
“There was no miscalculation of the issued members of the Action Group’s claims. There was simply a factual error in expressing the value of claims issued when in fact some of those claims had been deferred. In any event, the balance of those claims will be issued shortly, together with further substantial claims.”
The legal line-up
For the 2Birds Action group claimants
Serle Court’s Philip Marshall QC, 20 Essex Street Thomas Raphael, Luke Pearce; Bird & Bird partner Steven Baker
For the Stewarts Law group claimants
3 Verulam Buildings’ Andrew Onslow QC, Adam Kramer, Stewarts Law Clive Zietman, Keith Thomas and Fiona Gillett
For the Leon Kaye group
3 Verulam Buildings’ Michael Lazarus; Leon Kaye partner Leon Kaye
For the Quinn Emanuel Urquhart & Sullivan group
Erskine Chambers’ Richard Snowden QC, Alex Barden; Quinn Emanuel partner Sue Prevezer QC
For the defendants, RBS
7KBW Jonathan Gaisman QC, Serle Court’s David Blayney QC; Simon Hattan and Fountain Court’s James McClelland; Herbert Smith Freehills Simon Clarke, Adam Johnson, Kirsten Massey