THOUSANDS of small shareholders risk being shut out of a major legal action against Royal Bank of Scotland unless they get a “sympathetic” ruling by a judge on legal costs if they lose.
Two lawsuits have been launched by shareholder action groups against RBS, alleging the bank misled investors about its financial strength in the £12 billion rights issue in 2008.
But two other investor groups are weighing up launching claims, and have been shadowing recent High Court case management hearings.
International corporate litigation firm Quinn Emanuel has confirmed it is acting for four major institutions considering their legal position – Standard Life Investments, Legal & General Investment Management, Prudential and the Universities Superannuation Scheme.
The other is the RBS Rights Issue Action Group, representing more than 8,000 small shareholders, which has warned that any harsh ruling on costs might scupper their chances of getting redress.
One source close to the hearings said: “The RBS Rights Issue Action Group have over 8,000 members, a great majority of whom are small investors. In many ways in this action, it represents the small man.
“It is the only action group that represents investors who had less than £5,000 of RBS shares. It is manifestly unfair if smaller investors were unable to pursue their claims because of excessive exposure to costs by comparison with very wealthy retail investors, big institutions or pension funds. They hope the judge will be sympathetic to that at the key upcoming meeting on costs.”
The source added: “The worry is if there were to be an adverse court order on costs allocation in any RBS case, thousands of those small investors could be locked out of any lawsuit.”
The Rights Issue Action Group had argued at a case management hearing in July that costs should be shared, but the four other potential parties to the hearing have rejected the idea.
At a second case management hearing on 17 September, Mr Justice Hildyard said a meeting to decide how costs in any trial will be allocated would be held around 12 November this year.
The judge said he accepted it was important for small shareholders to know where they stood on possible exposure to legal costs as soon as possible.
Michael Lazarus, legal counsel for solicitors Leon Kaye, representing the Rights Issue Action Group, told the case management hearing that many of the plaintiffs were “unsophisticated” investors who needed urgent clarity on the issue.
It is understood the Rights Issue Action Group’s preferred outcome is for private investors’ liability on costs if the RBS legal action is lost to be capped at the amount of money they had invested in RBS shares after the rights issue.
The two claims already launched against RBS and former directors include a £4bn legal suit by the RBoS Shareholders Action Group.
It is backed by about 100 past and present institutional investors in the bank and about 12,000 shareholders with holdings in RBS above £5,000 following the rights issue.
The other claim is said to run to possibly hundreds of millions of pounds, headed by UK law firm Stewarts Law, representing 20 major shareholders in RBS.