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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Greenwood & Ors v Goodwin & Ors [2014] EWHC 227 (Ch) (12 February 2014) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2014/227.html Cite as: [2014] EWHC 227 (Ch) |
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HC13D01192 HC13C03047 |
CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
MR JOHN  GREENWOOD and others |
Claimants |
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- and - |
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| (1) MR FREDERICK GOODWIN (2) SIR THOMAS MCKILLOP(3) JOHN CAMERON (4) GUY WHITTAKER (5) THE ROYAL BANK OF SCOTLAND GROUP PLC |
Defendants |
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- and - |
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| TRUSTEES OF THE MINEWORKERS' PENSION SCHEME LIMITED and others |
Claimants |
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-and- |
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| THE ROYAL BANK OF SCOTLAND GROUP PLC |
Defendant |
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| THE RBS RIGHTS ISSUE LITIGATION |
____________________
Andrew Onslow QC and Adam Kramer (instructed by Stewarts Law LLP) for the SL Group
Michael Lazarus (instructed by Leon Kaye Solicitors) for the LK Group
Richard Snowden QC and Alex Barden (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the QE Group
Jonathan Gaisman QC and James McClelland (instructed by Herbert Smith Freehills LLP) for the Defendants
Hearing dates: 4, 5 & 19 December 2013
____________________
VERSION OF JUDGMENT
Crown Copyright ©
The Hon. Mr Justice Hildyard :
views on the arguments advanced to me on the important question as to how costs are to be shared in this action, which is the subject of a Group Litigation Order ("GLO") made by me and approved by the Chancellor (as is required by the Rules). I indicated that I would confirm and elaborate these views in a reserved judgment, in which I would also address various other matters raised in the course of that CMC, including measures to ensure (as far as practical) that the issues which are the subject of the GLO are adjudicated as between all persons interested. This is that judgment.
very considerably. Many of those who had subscribed for shares pursuant to the Rights Issue have suffered losses amounting to most of the value of their investment in the Rights Issue shares.
various actions, shareholders seek recovery of their investment losses on the grounds that the prospectus for the Rights Issue was not accurate or complete.
very varied.
value of the Rights Issue (though in many if not most cases, no doubt, their investment represented a considerable proportion of their savings). Around 20,000 such shareholders, so far, have gathered together in Action Groups (see below).
very considerable amounts in the Rights Issue. Their losses are enormous. Some of them have already formed an Action Group (again, see below); and others may follow suit, either joining an existing suitable Action Group or forming another one.
value of the potential claims runs into billions.
(1) John Greenwood and the RBoS Shareholders Action Group Limited, with around 12,000 retail and around 100 corporate, institutional and charitable members, represented by Bird & Bird LLP (the "BB Action Group"/"BB Claimants"); and
(2) The Trustees of the Mineworkers' Pension Scheme Limited, together with a further 77 or more institutional investors, represented by Stewarts Law LLP (the "SL Group"/"SL Claimants").
value of claims issued. Thus, in the fifth witness statement of Mr Steven Baker of Bird & Bird LLP (dated 22 November 2013) I was told that "the losses suffered by the members of the BB Action Group who have actually issued proceedings so far would equate to approximately £900 million ([on] BB Action Group's pleaded measure), and the total acquisition value of those claimants' shares is £1.25 billion." These were the figures Mr Marshall QC invited me to rely on at the Third CMC.
value of aggregate claims. This mistake is regrettable in itself, especially in the wake of earlier inaccuracies in statements made by the BB Action Group or on its behalf as to the availability of ATE cover. I shall expect a greater degree of care and accuracy in the future. For present purposes, however, what the explanation given does illustrate is that, at least in the case of the BB Action Group, there is a considerable difference between the total number of members and the number of members who have become parties to the proceedings.
(1) A shareholder group of some 8,200 members, represented by Leon Kaye Solicitors (the "LK Group"); and
(2) A small group of large investors, represented by Quinn, Emanuel, Urquhart & Sullivan LLP (the "QE Group").
v Nugent Care Society [2004] 1 WLR 1129), at the second CMC on 17 September 2013 I confirmed my view, subject again to the Chancellor's approval. That approval was given in December 2013. The GLO was finally sealed on 18 December 2013.
(1) Whether RBS made misleading disclosures in its prospectus and/or omitted material information and whether a supplemental prospectus should have been issued;
(2) Whether the Claimants suffered loss and issues of causation; and
(3) Whether the Defendants (or at least RBS) have a defence under FSMA Schedule 10.
very summarily, the principal intentions and effect of the GLO are as follows:
(1) all claims in respect of loss in consequence of investment in the RBS Rights Issue must be entered in a Group Register which I have directed to be maintained by Bird & Bird;
(2) Claimants and potential claimants may proceed in whichever group they choose, or in a new group or on their own; but they must be registered in the first instance (though they may apply to be removed) and they will be subject to the management of the GLO court and more specifically by me as the designated Judge for these purposes, acting together (where appropriate) with Master Marsh;
(3) the Court may invite co-operation between various groups, and it may restrict (using its case management powers) the submissions to be made by each on issues common to them; but a GLO has not the effect of a consolidation and (though a single solicitor will be appointed to manage the GLO Register) does not preclude claimants having separate representation;
(4) so far as possible, all claims will be managed to achieve a single resolution of all common issues: and the GLO Court can (and I would be minded to) require all claimants, whether adjudicated within the GLO or outside it, to agree to be bound by those resolutions of common issues as a condition of pursuing any claim outside the GLO;
(5) a particular consequence and perceived advantage of a GLO is that it opens the way to orders for cost sharing, without which many smaller investors would in all probability be prevented from pursuing a claim (since the exposure would so enormously outweigh any potential recovery).
(1) one sub-issue is how the potential liability of all claimants for the Defendants' common costs is to be borne/shared: this is the question of "adverse costs allocation";
(2) a second sub-issue is how costs of the Claimants should be borne/shared: this is the question as to "Claimants' costs sharing";
(3) a third sub-issue is how costs incurred are actually to be paid: this is the question of "actual payment";
(4) a fourth sub-issue, given the need for certainty of exposure for people deciding whether or not to litigate, is whether, and if so in what circumstances, any directions or orders in respect of the above matters should be capable of being reviewed and altered or revoked: that may be referred to as the question of "reviewability".
Adverse costs allocation
(1) "any order for common costs against group litigants imposes on each group litigant several liability for an equal proportion of those common costs": CPR 46.6(3);
(2) where a 'group litigant' is the paying party, "he will, in addition to any costs he is liable to pay to the receiving party, be liable for –
a) the individual costs of his claim; and
b) an equal proportion, together with all the other group litigants, of the common costs": CPR 46.6(4).
a) 'individual costs' means costs incurred in relation to an individual claim on the group register
b) 'common costs' means –
i) costs incurred in relation to the GLO issues;
ii) individual costs incurred in a claim while it is proceeding as a test claim; and
iii) costs incurred by the lead solicitor in administering the group litigation; and
c) 'group litigant' means a claimant or defendant, as the case may be, whose claim is entered on the group register.
v Ford Motor Company Ltd, The Times February 15, 1990, and White Book (2013) at 48.6A.2 (page 1542).
v Guinness Mahon Plc [1996] 1 WLR 894 at 900G-H, the court has considerable latitude and the broad question is: what, in the particular situation, does fairness demand, having regard to the objectives of the procedure for a GLO, the nature of the claim, and the positions of the claimants?
very considerable disparity between the values of the claims of different parties, if they are all unsuccessful the default rule is unlikely to meet the requirement of fairness. It is not fair or equitable that an institutional investor with millions, in some cases hundreds of millions, at stake should pay an equal contribution as an individual claimant with claims in the hundreds, or even hundreds of thousands. Adoption of the default rule would tend to negate a primary purpose of GLOs.
(1) several liability for each Claimant in proportion to acquisition cost (as proposed by the LK Group and supported by the SL Group, with some sideline support also from the Defendants); or
(2) several liability for an equal share for each lead Claimant Group, so that (in other words) the adverse costs would be split equally per Claimant Group, with all members of that group then being divided equally or as stipulated by agreement within that group (as proposed by the BB Action Group).
(1) that where there are different claimant groups, the unit by reference to which equal sharing should be addressed is the group, and not each individual within that group: it is said that the individual members are no longer individual litigants in substance – their will and action is expressed in a single (group) unit;
(2) in a case where (as here, it maintains) litigation is being conducted by what it terms 'Lead Litigating Groups', who are each conducting an equal share of the litigation, then each Group is causing an equal share of the common costs to be incurred by the Defendants, and should assume a corresponding share of the risk of adverse costs;
(3) each group has what it terms a "sufficient interest in litigation" independently of any other Claimants, and each such group should be treated as a unit;
(4) there are "strong practical reasons in favour of an equal allocation per group. It would mean, in particular, that the SL Group's adverse costs cover of £12.25m was fully utilized, thereby enabling effective utilisation of the resources of the three potential Lead Litigating Groups";
(5) equal apportionment per group has the benefit of simplicity and certainty.
(1) that the BB Action Group proposal is unfair and unjustified, having no legal or other precedent nor anything else to recommend them;
(2) that the proposal is born of self-interest, and also (and more particularly) a panic response to a difficulty which has arisen for the BB Action Group in obtaining the adverse cost cover that it represented to prospective members it had or had arranged, and its desire to lay off part of the risk onto (in effect) the SL Group's adverse cost cover (which is already in place);
(3) that the proposal produces an unfair mismatch between risk and potential reward: under it, the BB Action Group and the SL Group would take (say) £30 million adverse cost risk but in return for prospective recoveries of around 92.3% and 8.7% respectively of the compensation claimed;
(4) that the proposal subverts the underlying theme of equality, and would also expose other potential claimant groups with a retail investor only membership (such as the LK Group) to risk hugely disproportionate to recovery;
(5) that the proposal is based on a unit (the group) which is an irrelevant unit for adverse costs purposes, and is not in any case a separate legal person against whom costs could be enforced;
(6) that the proposal creates perverse incentives for all non-BB group members to join the BB Action Group (to obtain lower adverse costs risk in proportion to the size of the claim than anyone who joins or issues in a smaller group);
(7) that the central premise advanced by the BB Action Group, to the effect that adverse costs risk should reflect each Group's responsibility for the active conduct and control of the litigation, (as I put it, "he who wishes to call the tune must pay the piper") breaks down in its application to what it terms 'Follower Groups' which it so describes because they will be late arrivals with lesser or minimal input into litigation decisions: the BB Action Group's logic would suggest those Follower Groups should bear no adverse costs exposure but that is not at all what BB Action Group has in mind.
(1) there is neither logic nor fairness in taking as the relevant unit each Claimant Group: the Court should not easily or usually depart from the starting point (and legal fact) that proceedings are brought by individuals and legal entities (such as bodies corporate) and not by groups (which are self-assembled agglomerations without other legal standing), and that each individual or entity should bear a fair share of the risk in seeking its own reward;
(2) the discrepancy to which I have referred in paragraphs 14 and 15 above between the total number of members in the BB Action Group and the number of those members who are parties to issued claims further undermines the logic and fairness of what the BB Action Group proposes;
(3) whilst for the reasons I have already adumbrated, the starting point of equality of risk for every litigant must, where there is such a disparity in the value of claims, yield to some fairer relationship between risk and reward, the objective should be a fair alignment of risk and reward by reference to the position of each claimant, the group they have chosen to join being of little, if any, legal or logical relevance;
(4) further, the Court should seldom allocate liability to a 'unit' against which no enforcement process can lie: risk should be personal, and personally enforceable;
(5) I have taken into account, and indeed when the matter of costs sharing was first ventilated in July 2013 was much swayed by, the dangers of any allocation which in effect enables persons to litigate at minimal risk individually (which is the mathematical result in the case of persons with small claims, however measured): I have concluded that the advantages outweigh the risk, and it is after all to enable claims where the reward hugely outweighs the risk that the rules have provided for several liability in the context of GLOs. Further, and as Mr Lazarus on behalf of the LK Group stressed, the effect of cost sharing is that even those with large claims face a comparatively small costs exposure: the risk is very much diluted for all.
(6) any weighting or other allocation by reference to the extent of control exercised by the paying party or 'unit' is likely to be (and in my judgment in this case is) too difficult a task: personal responsibility is the better and fairer approach.
value of each claim is to be measured: that is also relevant to the next sub-issue as to the allocation of Claimants' own common costs. Two principal candidates were discussed:
a) pro-rating by the acquisition cost of each Claimant's shares (most of which had the same subscription price of 200p, although some were subscribed at 230p); or
b) pro-rating by the amount of compensation claimed or recovered.
variations as to actual loss, according to whether, when and for what price a subscriber sold its shares (taking loss as subscription price less sale proceeds).
(1) potential reward may in some cases not be easy to measure, and indeed in most cases may depend on which amongst many possible measures is eventually preferred and selected: the objective should be to select a measure that can be applied across the board without material unfairness;
(2) the evidence so far available is thin, but does not suggest support for the hypothetical example suggested by the BB Action Group to illustrate unfairness in solution (b) (which was to contrast a claimant who sold at 180p with one who sold at 40p): so far as the evidence goes, the average loss across all BB members, calculated as subscription cost less sale proceeds, is 80% of the amounts subscribed;
(3) further, on the basis of the SL Group's preferred measure of loss, of subscription cost less true value at the date of acquisition, there is no difference between the damages claimed per share as between different claimants, except in the case of subscribers who paid a 15% premium to acquire shares in a post Rights Issue Placement;
(4) no measurement is fixed and appropriate in every case: there is much to be said for a pragmatic approach: in this case, the measure of subscription price is a fair proxy as an 'across the board' measure of potential reward.
variation, as to which see below).
Claimants' own common costs
i) the majority of issues (including the substantive issue of liability) are common to all Claimants (actual and prospective) and are unlikely to be decided by way of test claims (such as to impose particular costs on the test Group Claimants);
ii) both the SL Group and the BB Action Group are already quite far advanced in the litigation and have chosen their own legal teams and made fee arrangements with them; and
iii) it is administratively simpler for each group to bear its own costs, since it reduces or simplifies the process for exchanges of schedules of costs for allocation between the two groups.
"…if we are right about proportionate sharing of defendants' side costs then we say it follows, as night follows day, that the same proportionate approach should apply to claimants' side common costs."
The QE Group's proposals: the question of future claimants
virtual': its membership is uncertain and undisclosed. I have allowed this inchoate body to be represented before me at the three CMCs so far held, on the assurance that it is comprised of at least some major prospective claimants with a real interest in the claims the subject of the GLO.
views in this regard, to provide guidance for potential claimants, and (subject to special circumstances not presently in contemplation) uniformity of treatment for all under the GLO umbrella.
views, which reflect them, as follows:
(1) one of the principal objectives of a GLO being to corral all claims with a view to the economic adjudication of common issues and the avoidance of separate trials (and the likelihood of expensive duplication and the risk of inconsistent decisions), directions should be fashioned to encourage all claimants to co-operate together, pool resources and bring forward all their arguments at once;
(2) although the court cannot order a Claimant to join one or other group, and cannot prevent Claimants seeking to litigate outside the GLO framework after the cut off date imposed by the GLO but before the expiry of any applicable limitation period (see Taylor v Nugent Care Society [2004] 1 WLR 1129 at paras 15 and 16), the court should minimise any comparative advantage of doing so;
(3) it is not consistent with these objectives, nor is it fair, to provide for privileged 'observer status' without risk in respect of adverse costs nor contribution to claimants' common costs: and, furthermore, to provide for such status would tend (a) to subvert the public policy behind limitations periods (since it might encourage claimants to issue to avoid any bar, and then sit on their hands) and (b) to destabilise the orderly assembly of groups (since it could lead to everyone jockeying to let someone else take the costs risk);
(4) costs-sharing is a fundamental feature and advantage of a GLO: subject to special circumstances, or any special arrangements agreed between group members inter se as to sharing within that group: all claimants (whether active or passive, stayed or not) should be subject to the same regime of common costs liability as regards both adverse and own costs, including those incurred prior to issue of their own proceedings;
(5) especially given that in this case there is only a couple of months between (a) the GLO cut off date presently in place and (b) the end of the likely limitation period, prospective claimants who have not yet issued should not suppose that the option of a stay will be available: it is more likely that case management directions will be given to require 'stragglers' to catch up, rather than be permitted to place late bets on earlier races;
(6) 'stragglers' must also accept the consequences of their reduced involvement in the decisions as to the shape and progress of the litigation: this is likely to include being required to adopt particulars of claim already served on behalf of the members of active groups, with only such variations as the Court expressly permits, and with possible repercussions in costs.
"Pay as You Go"
a) by reason of its smaller membership and the aggregate
b) this has been exacerbated by the fact that the BB Action Group refused to admit small claimants before 31 October 2013 leaving the LK Group to keep the small claimant flag flying despite administrative costs disproportionate to
c) the collection of contributions would add disproportionate cost.
a) the cash contributions required will be relatively small in amount, but are significant in point of principle;
b) it would be unfair for the LK Group to obtain free credit from the Lead Groups during the course of the litigation;
c) it should be for the LK Group to take the steps necessary to ensure contributions are paid: it would be impractical to expect the Lead Groups to do so;
d) the fairest approach would be for the LK Group to be sent, and to pay, a bill at regular intervals (for example, every month or quarter): and once established the system should not be unduly onerous or expensive.
various groups and the number of litigants in each is better known and (ii) more detailed adumbration of the process of what I might term 'call and collection' has been worked out.
Variations to the Order
variation to it will be permitted unless
"(a) there has been a material and substantial change of circumstances since the date when the order was made; or
(b) there is some other compelling reason why a
variables in the present context. However, I think it is a reasonable template for present purposes, because it reflects the overriding need for potential claimants to know where they stand unless circumstances materially and substantially change. I propose to adopt it.
GLO cut-off date
Future participation by non-parties
view that, although the contours and boundaries of the case are still not fixed, the time, if not already come is fast approaching, when it would be right to allow case management to be influenced only by persons who are identified as and are parties to the litigation, rather than by interested spectators, however large their potential claims.
Cost budgeting
value of the claims in issue) or in higher value Chancery Division claims (in excess of £2 million, soon to be raised to £10 million). The Defendants thus depicted the BB Action Group's application as requiring a departure from a prima facie position and the making of an exceptional order.
view in the course of the first part of the hearing of the Third CMC over the course of 4 and 5 December 2013, the BB Action Group adjusted their application to seek a more limited order and a more informal process designed to meet what I suggested might be a worthwhile objective of "trying to find a process which gradually enables us to achieve some more focussed assessment of costs."
a) accurate figures of costs expended to date;
b) an updated
and that "otherwise" the costs budget application should be adjourned.
Causation and Quantum
ventilated at the Third CMC was whether the Defendants should be required to plead a response at this stage to the Claimants' cases on causation and quantum. There was insufficient time for full argument at the hearing, and it was agreed that the issue should be addressed more fully in written submissions.
(1) the starting point must be my order of 17 September 2013 ("the September Order" made after the Second CMC) which originally (in its paragraph 28) excused the Defendants from the task, but required them to provide details in writing of certain issues relevant to causation and loss adumbrated in paragraph 29 of that order;
(2) the rationale of those directions (which Mr Gaisman maintains have been complied with so far as they imposed an obligation on the Defendants) still holds good, and in any event only a material change of circumstances would justify departure from them at this stage;
(3) the appropriate next stage is not for the Defendants to be required to plead to causation and loss, but for the parties to address in correspondence, by letter or position paper as appropriate, the merits and potential parameters of a split trial;
(4) that process will provide all that is necessary to determine whether (and if so on what bases) there should be a split trial: requiring a pleading from the Defendants would not assist, and (since the Defendants have not yet instructed experts or fully assessed the position) would "simply engender an uninformative non-admission";
(5) only after a determination whether there should be an order for a split trial, and indeed only if such an order is not made, should the Defendants be required to plead to causation and loss.
(1) the rationale for excusing the Defendants from pleading to causation and loss in the directions made in the September Order was (contrary to the Defendants' submission) that it would not be fair or efficient for the Defendants to have to plead to those issues in two parts, one in reply to the Claimants' general case on quantum and causation and then again secondly to any more specific case advanced in the context of the then proposed test claims: it was a temporary suspension only directed in the expectation of test cases on the issues in question;
(2) that rationale no longer applies: now that it has been agreed (as I should perhaps earlier have recorded it has) that the question whether there is any need for test claims should be deferred pending determination of whether to split the trial, there is no good reason why the usual rule requiring the Defendants to plead to all matters should not be applicable;
(3) the provisions of paragraph 29 of the September Order (see paragraph 90(1) above) was not a quid pro quo for any long term displacement of pleading on causation and quantum, but simply a short term expedient to assist in clarifying subsequent debate on the issue of test cases: further, the Defendants have not, or not sufficiently, addressed the last part of that paragraph 29;
(4) the landscape has thus fundamentally changed, constituting a substantial change of circumstances if that is to be a test in these circumstances;
(5) requiring the Defendants to plead now to causation and loss will assist in (a) focusing the mind of the Defendants on issues of quantum, flushing out any positive case to be asserted and thus alerting the claimants and the court to areas of dispute and difficulty; (b) assessing the question of a split trial and especially in determining the potentially complex questions as to what the boundaries between one part of the trial and another should be;
(6) more generally, the Defendants' contention that their pleading, if required, may be too general to be useful should be discounted: the Defendants should be held to the usual obligations in that regard.
(1) Although I accept that the fact and rationale of the September Order is the starting point, I am persuaded that the landscape has changed and that in any event the rationale is no longer compelling enough to warrant the delay in identifying the factual and legal issues in play that continued adherence to it would involve;
(2) There is a distinction between interlocutory case management directions of this kind, which can be and should be reviewed as the case changes and develops, and orders for such things as costs sharing, which are likely to be relied on by persons in making personal financial assessments;
(3) time will tell what assistance it provides: but I do not think I should assume that the exercise would be futile, and indeed I think it more likely than not that it should, if carefully done, assist, especially in bringing greater definition to, or at least revelation of, the true areas in contention;
(4) that is particularly so in weighing the merits of splitting the trial and in determining what the boundaries of each trial should be, a question likely to be of some complexity.
Miscellaneous matters