It is often said that there is nothing new under the sun: sooner or later, everything is recycled, re-packaged and re-presented to a new and enthusiastic audience. This is true even for legal concepts. Class actions, which enable one or more parties to act in a representative capacity to bring an action on behalf of a larger class of litigants, are seen here as a very “American” idea, having long been used to resolve disputes in the United States.
The origin of the class action, however, is English – a holdover of medieval law which clung on long enough to be exported to the colonies before withering on the home vine in the 19th century. Now, however, they have returned, albeit in an updated form, to their ancestral lands, and, in the fallout from the recession, they are once again staking out territory in the Courts of England & Wales.
The current incarnation of the class action in England & Wales is the Group Litigation Order (“GLO”), which permits multiple claims against a defendant to be grouped into a single action, provided the Court is satisfied that the claims give rise to common or related issues of fact or law.
GLOs remain relatively uncommon, with only 80 orders having been granted since 2000. However, they are gaining ground and while many of the GLO actions involve personal injury claims (most commonly in relation to pharmaceutical product liability), there is an increasing trend for GLO actions in the financial services arena. We are currently seeing GLO actions being commenced against single institutions which have allegedly caused loss to a vast group of investors, which may be the product of the recent economic crisis. Such actions provide claimants who on their own would otherwise have been unable to bring a claim, the opportunity to seek redress collectively. Given the initial financial outlay that is required in GLO actions, these large, complex, commercial actions involving financial institutions are becoming an attractive opportunity. The existence of various action groups looking to bring collective actions in this area have been reported on the press in recent years, but in this article we focus on two particularly substantial, and prominent, collective actions which are making their way through the Courts at the moment.
RBS rights issue litigation
This case concerns a rights issue of shares in RBS which took place between May and June 2008. Shortly thereafter, Lehman Brothers collapsed in September 2008 and the recession began in earnest. RBS was effectively nationalised a year later, and many of the rights issue subscribers (mostly retail and institutional investors) saw the value of their investments largely disappear, thereby suffering substantial losses.
Now, some of the claimant shareholders are seeking recovery of their losses on the grounds that the rights issue prospectus was neither accurate nor complete. Some claimants are additionally seeking recovery from the directors responsible for the prospectus pursuant to section 90 of the Financial Service and Markets Act 2000.
There are four claimant action groups consisting of significant numbers of both retail and institutional investors. It is thought that more investors are likely to join the proceedings in the future and that the total value of potential claims could run into billions.
A GLO was granted in September 2013. It has subsequently been ordered that any adverse costs should be shared by all claimants (regardless of the relevant action group to which they belong) on a several basis, pro-rated to the acquisition cost of each claimant’s shares. This departs from the general rule that all claimants bear the costs equally amongst them). A further CMC is listed for October 2014 in order to determine directions for trial.
Lloyds Banking Group litigation
This case, issued on 6 August 2014, is being brought by a group of over 200 investors in relation to Lloyds’ acquisition of HBOS in 2009. It is alleged that Lloyds’ directors breached
tortious and fiduciary duties owed to the shareholders by (a) telling them the merger was in shareholders’ best interests and thereafter (b) persuading shareholders to approve the merger on the basis of misleading information. The claimant group has applied for a GLO; it remains to be seen whether such an order will be granted.
As with the RBS rights issue litigation, the potential claim figure could be very high. The loss in value of the shares caused by the HBOS acquisition has been estimated at as much as GBP 6 billion, although the loss attributed to the investor group who are pursuing this litigation is estimated to be worth considerably less (approximately GBP 2.5 million). It should be noted that this figure will increase if more claimants are joined as parties to the litigation, or, if a GLO is approved, as members of the group.
Both claims raise interesting issues around prospectus liability and directors’ duties, and, should they proceed further, will inevitably draw considerable attention from the financial services market. We will be keeping a close eye on the proceedings, and on any further developments in the GLO field generally, and further updates will be provided as matters progress.