Proposals for reform in banking litigation
Ned Beale discusses some important developments for consumers arising out of RBS's PAG judgment and the rights issue litigation settlement
December 2016 saw several important developments in litigation concerning Royal Bank of Scotland’s historic activities, with implications for the sector generally in the coming year.
Mrs Justice Asplin’s judgment in favour of RBS on 21 December 2016 in the case of Property Alliance Group v Royal Bank of Scotland  EWHC 3342 (Ch) followed a two-month trial. The litigation attracted attention because PAG’s claims included two well-publicised allegations: wrongful conduct by RBS’s restructuring division, Global Restructuring Group (GRG), and LIBOR manipulation.
The rejection of the GRG and LIBOR claims broke new ground, being one of the first times that GRG and LIBOR allegations have been considered at trial. Asplin J’s judgment largely rejected the terms which PAG sought to imply in order to bring each set of claims. She then went on to consider, and largely reject, each set of underlying factual allegations. That highlights the difficulties that these types of claims face.
Nevertheless, shortly before the PAG judgment, on 14 December, RBS announced a new process for SME customers in GRG to make complaints and bring refunds. The launch of the process is supported by the Financial Conduct Authority and follows its review into GRG. That review concluded in November 2016 that, while the key complaints such as customers’ transfer into GRG being artificially engineered were not made out, there were some issues in GRG’s treatment of customers.
In parallel, RBS faced another set of complaints, from purchasers of its 2008 rights issue. Those shareholders suffered significant losses when, later that year, RBS was subject to a government rescue package. Over 25,000 individual and institutional investors claimed damages under section 90 of the Financial Services and Markets Act 2000, as a result of alleged misleading statements in the issue prospectus.
The case attracted attention because of the number of parties and the sums involved, and as one of the UK’s first US-style securities claims. RBS announced on 5 December it had settled with three of the five claimant groups, being institutional investors representing 77 per cent by value of the claims. RBS has allocated £800m to a settlement of all claims, subject to a verification process. Meanwhile, the remaining two groups, who are individual investors, have reportedly not settled and a six-month trial is due to start this spring.
Both developments share common features, namely claimants being offered redress via extra-judicial review processes, but facing the risk of going to trial and losing if they decline to follow them. Indeed, this is a structure already seen in relation to interest rate swap mis-selling complaints. Here, banks again offered FCA-approved review processes, but took claims that could not be settled, such as those in Green and Rowley v RBS  EWHC 3661 (QB) and Crestsign v National Westminster Bank and RBS  EWHC 3043 (Ch), to trial, and won.
Consumer groups have complained that structures of this type offer retail customers a Hobson’s choice, because although bank-led review processes lack judicial scrutiny, customers cannot afford the risks of going to trial and losing.
On 15 December 2015, the House of Commons debated a proposal to break this dichotomy. That is for customers to have the option to bring retail banking claims before financial services tribunals, modelled on employment tribunals. The idea is that claimants will benefit from expert and inquisitorial tribunals and will not be liable for costs if they lose. That means they can have a ‘day in court’ without many of the usual litigation risks.
The FCA has reportedly endorsed this suggestion. As 2017 sees banking claimants continue to weigh up the risks and rewards of extra-judicial review processes as opposed to court litigation, it will be interesting to see if this proposal continues to gain momentum.
Ned Beale is a partner at Trowers & Hamlins