Pension funds plan UK High Court ‘class-action’ style test suit against RBS

A group of UK pension funds is talking with US lawyers working with Cherie Blair, Q.C. wife of former UK Prime Minister, Tony Blair, about taking a US class action-style lawsuit to the High Court in London seeking hundreds of millions of pounds of damages from the Royal Bank of Scotland (RBS). A case could test UK law in the controversial area of class actions, where plaintiffs club together for legal battles and can substantially increase the value of damages. The US law firm leading the planned High Court action alleges that the pension funds were misled about RBS’ exposure to US sub-prime mortgages, which lead to huge losses for the scheme members when the bank had to be bailed out by the government in October last year. In a confidential client communication seen by Responsible-Investor.com, Coughlin Stoia Geller Rudman and Robbins, the Californian law firm, said it planned to bring the case to London after a New York court ruled that US investors only could pursue a class action suit against RBS in the US. Coughlin is best known for having secured $7bn in compensation for investors in Enron. Responsible-Investor.com has learnt that the pension funds of North Yorkshire and Merseyside councils, which have a combined value of about £5bn, are waiting for advice from Coughlin – expected to be given shortly – about pursuing the High Court case.A number of other UK pension funds are also understood to be considering joining the suit. Last month’s Queen’s speech announced legislation to allow customers to pursue class action suits against finance companies. Critics in the US say class actions can clog up courts for years, while supporters say they are the only recourse for wronged investors. The planned lawsuit is an unusual case for Blair who is named in this documents as QC Cherie Booth. Blair is better known for her work as a human rights and employment lawyer. It could also prove embarrassing for the UK government, given that it now holds 84% of RBS’ shares. The North Yorkshire and Merseyside funds, in tandem with MN Services, a Dutch pension fund investment company for metalworkers, initiated a class action against RBS in the US in March. That lawsuit named RBS and its entire board of directors, including the former chairman Sir Tom McKillop, as defendants. The case was rebuffed in May this year by a US judge who gave class action status to another suit against RBS involving 3 co-lead counsels: Cohen Milstein is representing the Massachusetts Pension Reserves Investment Management Board, while Labaton Sucharow and Wolf Popper are representing the Mississippi Public Employees’ Retirement System. The judge indicated that for jurisdictional reasons US class action status regarding RBS would only be given to investors that bought the banks’ shares on the New York Stock
Exchange. The two US pension funds claim they lost £85m in RBS, which was bailed out by the British taxpayer in October 2008 after conducting a £12bn rights issue in April, 2008. They argue that the bank “falsely reassured” investors it was well capitalised when it was not. In the case of the UK pension funds, North Yorkshire estimates it lost up to £11m in the value of RBS shares held prior to the bailout. Coughlin, which is working with Blair, UK barrister Christopher Brown and London-based solicitors, Bates Wells and Braithwaite, has said it will represent the UK pension funds on a no-win, no fee basis and insure the funds against any potential costs if the legal action is unsuccessful. Coughlin will take 25% of any compensation paid to the funds if the case is successful.
The law firm says it believes a group of 25-30 institutional investors could “co-ordinate” their legal actions in a US-style action, although it notes that in contrast to the US class action system, each plaintiff in the UK would maintain autonomy and control over their individual legal case.In the client communication, Coughlin says the essence of the case against RBS and key senior executives and board members is that the bank allegedly made repeated statements about having no ‘substantial’ exposure to US sub-prime mortgages, when in fact they had acquired and were exposed to tens of billions of so-called toxic debt.
They claim the acquisition by RBS of Dutch bank, ABN Amro, also saw RBS repeatedly reassure shareholders that an extensive review of ABN’s business had been conducted and that the acquisition price was fair. However, they say the bank was forced to write down nearly half of the value of the deal because of what it says was “grossly overvalued goodwill” and “several billion dollars of additional sub-prime exposure on ABN Amro’s balance sheet.