The Royal Bank of Scotland’s (RBS) legal team was warned against trying to assign blame to the bank’s sacked lawyers at Herbert Smith when the taxpayer-backed institution failed to block a hedge fund from being able to sue it in a Texas court.
The warning was given by the High Court’s Mr Justice Burton during the latest leg of a long-running dispute between RBS and US hedge fund Highland Capital Management. The case harks back to a collateralised debt obligation (CDO) funded by RBS and issued to Highland that failed to close following the 2008 financial crash, leaving a shortfall between the value of the loans and RBS’s financing to Highland.
RBS won its first case against Highland in 2010 to claim back the shortfall, but the court gave a reduced award to the bank after criticising its behaviour in valuing the loans. In the latest hearing in the High Court RBS was trying to stop Highland from bringing a $100m action against it in Texas for fraud and unjust enrichment but failed, with Burton J saying that “there has been up to and including this last hearing improper conduct by RBS through [former leveraged loan trader] Mr Griffiths”.
In one hearing leading up to the latest judgment, Burton J told Maitland Chambers’ John Nicholls QC, who was instructed by Linklaters on behalf of RBS, that he was concerned that RBS’s former counsel “Herbert Smith’s conduct is going to be under the spotlight and they’re not represented or don’t have the opportunity of […..] defending their corner”.
Highland’s counsel, One Essex Court’s Stephen Auld QC, who was instructed by Cooke Young & Keidan, then interjected to say that he had tried to get Herbert Smith banking litigation head Damien Byrne Hill to give evidence in the case, but that request had been refused by the other side.
Burton J added that “if the position is that [Herbert Smith] are likely to be in the firing line it is very often the case that the judge would want to give them the opportunity of saying something before they were criticised if they are going to be criticised. That is all that I say at this stage.”
Hill had initially been instructed to act for RBS in its case against Highland Capital, but the firm was later dumped in favour of Linklaters (24 October 2011).
At a pre-trial review in November 2011, Burton J demanded that RBS disclose privileged communications between its in-house lawyers and Herbert Smith (28 November 2011).
Cooke Young & Keidan, Herbert Smith and Linklaters all declined to comment.