The Royal Bank of Scotland (RBS) and Herbert Smith Freehills (HSF) have been criticised in the High Court for their “unfocused”, “unsettling” and “less than compelling” approach to disclosure in the bank’s £4bn battle with shareholders.
Following a ruling on Thursday (26 November) the mammoth legal battle has been adjourned until 2017 as the bank struggles to cope with reviewing approximately 25 million documents and preparing witness statements on time.
Mr Justice Hildyard ruled RBS’s disclosure process “appears not to have been informed by any sufficient early attempt to grasp what would truly be involved”, adding its approach had been “diffuse”.
He has delayed the trial until 6 March 2017 “despite my very great reluctance to do so”, according to the judgment.
“That [disclosure] process has been determined and confused by the vast armies without any sufficient focus,” Hildyard J said. “Indicative of this…was the delay and difficulty which seems to have been experienced by the defendant’s legal team in producing a satisfactory organogram” to show who had responsibility for reviewing the documents.
The judgment granted the bank’s application for a delay to the scheduled trial, previously listed for next December, despite objections from the claimants.
Costs have been a major issue in this case, with Hildyard J conceding in his ruling that “there is prejudice to the claimants in the very fact of further delay, including that costs rise inexorably with every day that passes before trial”.
The petition by the bank to adjourn the trial claimed the disclosure exercise it has been required to carry out has “vastly exceeded all expectations in terms of scale and the amount of time and resource required”. This has “had the effect of preventing the defendants from making significant progress with the preparation of witness evidence”.
However the claimants, now made up of five separate groups, said RBS’s approach to the disclosure process had been “ill-conceived, that there is no necessary link between the volume of disclosure and the size of the witness proofing exercise or the preparation of it”.
The claimants said: “The defendants have adopted a process of disclosure which, though it has already taken many months, is now said, without any sufficient explanation, to require a re-review of every single one of the disclosure documents by the ’subject specialists’.”
The claimants added the bank had “failed to explain” what the re-review analysis involved or why it was necessary given that the documents “have been in RBS’s possession since the events which they concern” and, according to the defendant’s evidence, “have all necessarily already been reviewed for the purpose of ’disclosure decisions’”.
Hildyard J ruled the bank “bears the brunt” of the vast disclosure process and the “enormous disclosure” revealing around 25 million documents, including 10 million “unique documents”, has “swamped the defendants”.
“However, and although the claimants may have to share part of the blame in requiring what may have been an excessive number of custodians and search terms…by far the larger part is, in my view, to be attributed to the defendants. Something has gone wrong,” he added.
Hildyard J said the defendants’ evidence explaining the necessity for the disclosure process had been “less than wholly satisfactory”.
He added: “Whilst I do not intend by any means to peer behind the curtain of legal privilege in this regard, the lack of clear evidence is all the more worrying given the apparently small percentage of their allotted budget for witness statements the defendants’ legal team have so far spent on this process.”
The ruling concluded: “Despite my great reluctance to do so, there is a sufficient risk of unfairness to the defendants that I should grant a relatively short (and in all ordinary circumstances final) adjournment.”
Five claimant groups represented by Signature Litigation, Stewarts Law, Leon Kaye, Quinn Emanuel Urquhart & Sullivan and Mishcon de Reya, allege RBS’s £12bn rights issue in 2008 was defective and contained “material misstatements and omissions”.
Mishcon came on the record for the Lloyds institutional investors and Investec earlier this month after the claimants split off from the RBS Shareholders Action Group, represented by Signature.
The legal line-up
For claimants, the Royal Bank of Scotland Shareholders Action group
3 Verulam Buildings’ Jonathan Nash QC, Peter de Vernueil Smith and Ian Higgins, instructed by Signature Litigation partner Graham Huntley
For claimants, the Stewarts Law group
For the claimants, the Leon Kaye group
3 Verulam Buildings’ Michael Lazarus, instructed by Leon Kaye partner Leon Kaye
For the claimants, the Quinn Emanuel Urquhart & Sullivan group
For the claimants, the Mishcon de Reya group
Mishcon partner Richard Leedham. Counsel is not yet known.
For the defendants, RBS
Fountain Court’s David Railton QC and James McClelland, Serle Court’s David Blayney QC and Simon Hattan, 3 Verulam Buildings’ Sonia Tolaney QC, instructed by Herbert Smith Freehills partners Simon Clarke, Adam Johnson and Kirsten Massey. 7KBW’s Jonathan Gaisman QC, previously lead counsel, has come off the case