RBS shareholders hail ruling on legal action

Plaintiffs claim the RBS prospectus for the rights issue misled investors. Picture: Neil Hanna
Plaintiffs claim the RBS prospectus for the rights issue misled investors. Picture: Neil Hanna
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THOUSANDS of small shareholders in Royal Bank of Scotland yesterday hailed a legal judgment to limit their costs if they lose lawsuits against the bank related to its £12 billion 2008 rights issue.

The preliminary judgment of Mr Justice Hildyard is seen as paving the way for the launch of a third legal action against the bank by the RBS Rights Issue Action Group, representing 8,000 small shareholders.

The judge, at a case management hearing in London ahead of any litigation, ruled that if costs were awarded against the plaintiffs they would be based on how many shares institutional investors and private shareholders took up in the stock market cash call.

He said ahead of a final judgment: “It seems to me that the fairest or least unfair basis is to adopt the solution of costs proportionate to the subscription paid [for shares in the rights issue] across the board.” He said he believed the solution to be workable and “pragmatic”.

Leon Kaye, solicitor for the RBS Rights Issue Action Group, said: “It is an excellent result. It will be an enormous boost to members of our action group.”

Plaintiffs claim the RBS prospectus for the rights issue misled investors as to its financial strength, coming after the disastrous acquisition of ABN Amro and before the bank crashed to a record £24bn loss for 2008. RBS vigorously contests this.

Kaye and the group’s legal counsel, Michael Lazarus, had argued that, if costs were split equally between the plaintiffs, thousands of less wealthy small shareholders risked being shut out of the legal action.

RBS has already given a £41.8 million “ballpark estimate” of its own costs when the case eventually comes to court.

The judge drew attention to the complexities caused by the many claimants, some not having launched actions while issues like costs and the respective merits of group litigation orders and split trials were hammered out.

Saying such parties had “enjoyed spectator status without committing themselves”, the judge added: “I consider that the assessment of what is the right course has been bedevilled by the excessive focus on the groups that have come to be represented before me.”

The two actions that have been launched include a £4bn suit by the RBoS Shareholders Action Group against RBS and former bank directors including chief executive Fred Goodwin and chairman Sir Tom McKillop.

The group represents 100 past and present institutional investors in the bank and about 12,000 small shareholders with holdings in RBS above £5,000 following the cash call.

UK law firm Stewarts Law has also launched a suit on behalf of about 20 institutional investors in RBS.

Separately, corporate litigation specialist Quinn Emanuel has been retained by Edinburgh-based Standard Life Investments, Prudential and Legal & General Investments Management to monitor the case management proceedings at the London High Court before deciding whether to launch legal actions.