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RBS rights trial judge highlights ‘unparalleled’ defence costs, as trial stayed on new offer

The judge hearing the Royal Bank of Scotland (RBS) £4bn rights issue damages case – currently stayed pending settlement negotiations – has highlighted the bank’s ‘extraordinary’ £129m costs in the case, in a preliminary judgment published on 23 May.

In deciding RBS’s application for £11.6m security for costs against the claimant litigation funders Hunnewell Partners (BVI) and London and Northern Capital Partners (LNCP), Justice Hildyard noted the ‘sheer size’ of the defence team’s legal costs had resulted in the prospect of securing adequate after-the-event (ATE) insurance cover ‘difficult, if not impossible’.

Hildyard said: ‘the extraordinary (indeed, in my experience, unparalleled) amount of the costs apparently incurred in this litigation by, in particular, the defendants has in the past caused me, and continues to cause me, very great concern.’

The 9,000 claimant shareholders maintain they were misled about the true state of RBS’ finances when it issued its prospectus for a £12bn Rights share Issue in 2008.  

The trial was due to open on 22 May, but is currently stayed until 7 June for negotiations following an 82p per £1 settlement offer from RBS on 21 May – the evening before the trial. The offer is double that of previous settlements in the claim. Herbert Smith Freehills acts (HSF) for RBS.

In noting the ‘magnitude of the costs’, the excess of which was over the ‘already huge’ estimates originally given, Hildyard referred to RBS’s defence having instructed 13 counsel in and ‘serried ranks of solicitors and paralegals (probably over 20)’.

This contributed to ‘a present overall estimate of costs on the defendants’ side of nearly £129 million, must be a prohibitive context in which to seek adverse costs insurance’ he added.

An RBS spokesperson said: ‘This is a substantial and complex case and the manner in which it has been pursued has resulted in the bank incurring substantial legal costs.

‘We have a duty to act in the best interests of all of our shareholders, including the UK taxpayer. We believe we have strong defences to this claim and will defend ourselves vigorously in court,’ she added.

The legal claim was launched in 2012 by around 27,000 retail investors. There are currently 9,000 remaining claimants in the action, after all claimant groups except 60% of the Signature Litigation Group settled with RBS for 41p per share in December 2016. In April 2017, 40% of the Signature Litigation Group also settled with RBS for 43.2p per share.

The original claimants included RBS staff and pensioners, institutional investors such as Wells Fargo, Boeing pension fund, Bank of America Merrill Lynch and Bank of Ireland. A number of UK local authority pension funds, some of which were Bedfordshire County Council, Essex, Nottinghamshire and the London Borough of Merton, also joined the litigation.

The remaining claimants are represented by Signature Litigation partner Graham Huntley.  

RBS is represented by HSF led by partners Simon Clarke, Adam Johnson and Kirsten Massey.

Former RBS CEO Fred Goodwin, who is listed as a witness, is represented by Clifford Chance (CC) litigation partner Dorian Drew.

HSF and Signature Litigation Group declined to comment.