Peter Murphy: How system works to allow small investors their day in court against the corporate giants

Published on Monday 16 March 2009 22:20

NEWS of class actions against RBS will prompt a number of councils, and indeed other pension funds and investors generally, to see whether or not actions like these might apply to them.

When someone files a claim asserting they should be part of a class action, there is a brief period of time in which other people may come forward and seek to throw their hat into the ring and become the lead plaintiff. If there are a number of competing people, the court will decide which ones go through. Normally, this involves assessing how much money they have at stake.

Alternatively, you can be a passive participant, which allows you to put forward the details of your shareholding and to claim a proportionate share of any settlement funds that become available.

Being the lead claimant gives you control of the general strategy of the case. And if there is a discussion about the settlement terms (often, shareholders will seek to improve the non-monetary terms if they want to remain shareholders in the long term) then this might include things such as specific checks and balances.

It can include compensation not just for the wrongs of the past but also reassurances over a positive future.

Even if a claimant misses out on a class action, it's still possible for them to initiate separate proceedings, so it wouldn't necessarily preclude them being involved in future litigation.

US class actions of this nature are becoming more common for UK investors because of the procedural advantages – the biggest being that they don't hit the pockets of claimants. US litigators do this on a "no win, non fee" basis. You are not liable to pay the other side's legal costs.

The law these claims are based on is US securities legislation. You need to show that the action is based upon materially false and misleading statements made at a particular time which then induced investors to buy shares.

&#149 Peter Murphy is a partner specialising in litigation at Sackers, the specialist pension law firm.