The RBS Rights Issue Litigation
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Hildyard,The Hon. Mr Justice Hildyard |
| Judgment Date | 23 May 2017 |
| Neutral Citation | [2017] EWHC 1217 (Ch) |
| Docket Number | Case No: HC-2013-000484 AND OTHERS |
| Court | Chancery Division |
[2017] EWHC 1217 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Fetter Lane, London, EC4A 1NL
The Honourable Mr Justice Hildyard
Case No: HC-2013-000484 AND OTHERS
David Railton QC, David MurrayandNatasha Bennett (instructed by Herbert Smith Freehills LLP) for the Defendants/Applicants
Jonathan Adkin QC (instructed by Hausfeld & Co LLP) for the First Respondent
David Head QC (instructed by K & L Gates LLP) for the Second Respondent
Hearing date: Wednesday 3rd May 2017
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Subject matter of this judgment
In these long-running proceedings, which are being managed under a Group Litigation Order ("GLO"), the Defendants now seek security for costs pursuant to CPR 25.14(2)(b) against the Respondents. The Respondents have been identified pursuant to my judgment dated 9 March 2017 [2017] EWHC 463 (Ch) ("my March 2017 judgment") as having provided funds to assist the Claimants in their claims against RBS and its then directors.
The persons so identified are Hunnewell Partners (BVI) Limited ("Hunnewell BVI") and a Manx company called London and Northern Capital Partners Limited ("LNCP").
The substantive claims in the proceedings relate to what the Claimants contend were untrue and misleading statements in, and improper omissions from, a prospectus issued in respect of a rights issue of RBS shares in 2008.
The applications now before me for adjudication were made by Application Notices dated 16 March 2017 against Hunnewell BVI and 17 March against LNCP.
Both applications are made on the basis that Hunnewell BVI and LNCP, though not substantive parties, are persons who as funders of the Claimants' litigation costs may be liable pursuant to section 51 of the Senior Courts Act 1981 ("Section 51") in respect of any order against the Claimants for adverse costs which may be made upon conclusion of the proceedings. I addressed some of the principles applicable in my March 2017 judgment.
Both funders are outside the jurisdiction. I gave permission to serve out on 23 March 2017. No jurisdictional challenge is made.
The amount of security sought by the Defendants was originally £15.25 million; but following recent developments (and in particular, settlements reached with certain of the Claimants) it is now sought in the reduced sum of £11.6 million.
Both applications are opposed, not least on the ground that they are too late. Certainly the applications have been made, though earlier notified, close to the eve of trial, now listed to begin on 22 May 2017 (with pre-reading from 8 May). The Respondents have described the timing of the applications as "oppressive", and as necessitating, because of their proximity to the commencement of the Trial, a compressed timetable which the Respondent funders have complained has caused them "significant difficulties". Both have nevertheless opposed the applications against them on their merits.
The Defendants have appeared by Mr David Railton QC, Mr David Murray and Ms Natasha Bennett. Hunnewell BVI has appeared by Mr Jonathan Adkin QC. LNCP has appeared by Mr David Head QC. I am grateful to Counsel and their respective teams for their helpful submissions.
Background
The background to the applications can be summarised as follows:
(1) In December 2016 the Defendants reached a full and final settlement ("the December Settlements") with effectively all of the then claimants in the proceedings save for the claimants in the SG Group (referred to interchangeably as "the SG Claimants" or the "SG Group"). Following a request from the SG Group, the proceedings were stayed until 11 January 2017. Since the stay, the SG Claimants have served Re-Amended Particulars of Claim which significantly reduce the scope of the action, which nevertheless remains a complex and substantial one.
(2) As a result of the December Settlements, and as the only remaining claimants, the SG Claimants became solely liable in respect of an order for payment of the Defendants' costs of the proceedings from the date of the December Settlements until the end of the case. These are considerable: the Defendants' estimate is that they will have incurred approximately £25 million from the date of the December Settlements to the end of Trial 1. In relation to the costs incurred prior to the December Settlements, the SG Claimants remained liable for 100% of the adverse costs of the claims brought against the individual Director Defendants and a pro rata share (approximately 23%) of the costs of the claim against the Defendants.
(3) As I noted in my March 2017 judgment (in para. 65), those developments represented a "watershed" in the proceedings and altered the profile of the risk relating to recovery of any costs order in favour of the Defendants if their defence ultimately succeeds.
(4) Although the SG Claimants contend that there are also tactical considerations at work which in reality have prompted this application, this altered risk, along with confirmation from the SG Group that it required further ATE insurance, prompted the Defendants to focus on whether to make a security for costs application (and if so against whom).
(5) Accordingly, the Defendants applied for an order (i) that the SG Claimants provide the names and addresses of any third parties who, by virtue of having contributed or agreed to contribute to the costs of the proceedings in return for a share of any recovery, fall within CPR 25.14(2)(b), and (ii) that a copy of any ATE insurance policy held by the SG Claimants be supplied, or alternatively the Claimants confirm that neither the SG Claimants nor any persons falling within CPR 25.14(2)(b) would seek to rely upon such policy in opposition to any application for security for costs. The application was the prelude to a threatened application for security for costs.
(6) As indicated above, my judgment on the Defendants' application was formally delivered (after pre-circulation in the usual way) on 9 March 2017. The element of the application seeking disclosure of any ATE policy was dismissed, but the element seeking the identification of funders who would fall within CPR 25.14(2)(b) was granted. In granting that part of the application, I expressly stated that I intended to give no encouragement to any subsequent application for security, and I observed at paragraphs 82(2) and (3) of my March 2017 judgment as follows:
"(2) My present overall assessment is that an application against the funders for security for costs, even if limited to costs post-December 2016, would face difficult hurdles and time constraints; and more transparency and reassurance as to their standing, even if not complete, might well tip any balance firmly against any further order.
(3) I therefore offer no encouragement to an application. I consider the Court would be reluctant to accede if further consideration showed it to imperil the trial or its fair preparation, and which might be entirely unnecessary if the funders are substantial or suitable ATE insurance is in place."
(7) Following the making of the Order, the SG Group disclosed through their solicitors the identity of their funders: Hunnewell BVI, LNCP and Manx Capital Partners Limited ("Manx"). Shortly after this information was obtained by the Defendants, the Defendants issued the present applications for security for costs against Hunnewell BVI and LNCP.
(8) Since the applications were issued and the initial round of evidence was exchanged, there has been a further significant development in the litigation. Around 42% by claim value of the SG Claimants have now settled their claims against the Defendants ("the April Settlements"). As a result of these April Settlements, the remaining SG Claimants became solely liable for the adverse costs of the proceedings from 27 April 2017 to the end of Trial 1 (estimated to be £10.9 million), and remain liable for (i) 58% of the adverse costs incurred between the December Settlements and 27 April 2017 (namely £8.4 million), and (ii) 58% of the SG Group's share of the adverse costs incurred by the Defendants prior to the December Settlements (namely £16.2 million). The total potential adverse costs liability of the remaining SG Claimants is therefore estimated to be around £35.5 million. These figures are all exclusive of VAT.
(9) Thus, a consequence of the April Settlements is that the costs liability of the settling Claimants in the SG Group has been resolved, but that the costs liability of the remaining SG Claimants remains at large. This has resulted in the Defendants seeking security in the reduced sum of £11.6 million, to reflect the fact that pursuant to the April Settlements, any adverse costs attributable to the settling Claimants up to 26 April 2017 are excluded from the SG Group's adverse costs exposure.
(10) A further and important consequence of the April Settlements is that they will result in substantial payments being received on behalf of those settling Claimants by the funders. Hunnewell BVI will be entitled to receive a portion which (it is accepted) exceeds the security sought and which also exceeds the amount in which Hunnewell BVI has funded the litigation. The amount must therefore exceed some £15.5 million. Similarly, LNCP will be entitled to receive something over £5 million, which also exceeds the amounts it has funded. I understand that actual payment of these amounts is likely to be made some time in June or July 2017.
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