Third-party funders line up behind institutional claims over RBS shares “mis-selling”

RBS: pioneering litigation

A number of third-party funders have stepped in to back RBS shareholders in a “David and Goliath” claim against the bank.

A group of 21 claimants issued proceedings last week seeking compensation in a “pioneering” multi-million pound claim over the bank’s 2008 cash call.

Their case, alleging investors in a rights issue of new shares were “misled”, is being run by Stewarts Law head of commercial litigation Clive Zietman.

However, in order to bring the case, the claimants – including several pension funds – have been bankrolled by litigation funders.

The claim is the first to be filed in the UK over RBS’s record £12bn cash call just before the credit crisis in 2008. It alleges the bank published a defective prospectus littered with “mis-statements and omissions”.

Argentum is the majority third-party funder of the case, which is testing section 90 of the Financial Services and Markets Act 2000. Other funders are providing financial support but their details have not been disclosed.

Those bringing the claim allege the bank was portrayed as being in good health, but that the reality was different and the take-up of shares would have been limited or non-existent had the ‘truth’ been known. Among the claimants are the Coal Staff Superannuation Scheme, the Mineworkers’ Pension Scheme, pension schemes for electricity workers in the UK, a number of ING funds and the teachers’ retirement system of the US state of Illinois.

Matthew Reach, solicitor and head of legal review at Argentum, said the funder has had to take “bold steps” to make its mark in the litigation funding sector, but believes the case is not high risk because of the merits.

He said: “This is truly a case of David and Goliath. Without litigation funding from Argentum these shareholders might never have had access to justice.

“It is important that these shareholders, who lost substantial sums, have their day in court and the bank is held accountable for its actions. This is a pioneering piece of litigation, but we feel it is compelling and are proud to be supporting such a cause.”

Mr Reach said that usually, third-party funders only provide capital for claims involving well-established areas of law in order to limit the risk of losses. But he said without the third-party funding, the claim would not have happened.

He explained: “These institutions already had losses many years ago that their boards had probably written off and would not have been happy to take the risk of further costs to take on RBS.

“This is a risk-free litigation option for them. They will give away a share of any reward, but don’t have the financial exposure.”

Mr Reach said the presence of third-party funders often strengthens a case in the eyes of the defendants and, as happens in the US market, can help prompt the banks to settle.

He added: “My view is this case is not high risk, based on its merits. However it is pioneering because it is not professional negligence or breach of contract, it is untested legislation, looking at the avenue for redress against a financial institution that it is claimed didn’t play by the book.

“It is the first high-level piece of shareholder litigation to come out of the Financial Services and Markets Act and there is no authority to say how the courts will interpret and apply the law.”

Significantly, Argentum is also looking to benefit from bankrolling the claim to gain itself “traction” in an increasingly crowded litigation funding market.

Mr Reach said: “Litigation funding is relatively new to the UK, only in the last five years has it gained momentum and funders have always gone for the safe ground.

“More funders are emerging in the market. We are one of few with direct access to capital, but there is now more competition.

“We are not as well known as some others, but want to break the mould and take bold steps to look at alternative ways to get traction and invest our capital.”

In a separate claim, the RBS Shareholders Action Group yesterday launched a case based on the same principles against the bank, reported to be worth a potential £4bn. Led by Steven Baker, co-head of dispute resolution at City firm Bird & Bird, he is believed to have spent the past four years building the case. The action group represents 12,000 ordinary shareholders and 100 institutions also alleging they were misled by RBS.

There is speculation in the sector that the two claims could even be joined by the court.

RBS has instructed Herbert Smith Freehills to defend the claims.


30 March 2021

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