In the latest signal of the increasing significance of collective investor actions outside of the U.S., on December 5, 2016, Royal Bank of Scotland agreed to pay £800 million ($1 billion) in a settlement with three of the five investor claimant groups that had sued the bank in the U.K. for alleged misrepresentations in connection with its £12 billion pound fundraising effort just months before the British government bailed out the bank. The case will go forward as to the remaining claimant groups, with whom the bank will now attempt to reach a settlement. If the bank is unable to settle with the remaining claimant groups, the case could proceed to trial in March 2017. The partial settlement is by far the largest collective investor action recovery in the U.K. RBS’s December 5, 2016 SEC filing to which its press release announcing the partial settlement is attached can be found here. A December 5, 2016 Reuters article describing the settlement can be found here.
As discussed here, investors initiated actions in the U.K. courts after initial efforts to pursue claims in U.S. court under the U.S. securities laws were blocked based upon the U.S. Supreme Court’s decision in Morrison v. National Australia Bank. A total of five investor groups ultimately filed collective actions in the U.K. under U.K. law alleging that in its prospectus for its April 2008 £12 billion rights offering, RBS misrepresented its financial condition. In October 2008, RBS failed and had to be partially nationalized in a £45bn Government bailout. The claimants contend that the misrepresentations and omissions in the prospectus constituted a breach of Section 90 of the Financial Services and Markets Act 2000. The report of the Financial Services Authority (the predecessor to the current U.K. financial regulator) about the bank’s collapse can be found here. The bank remains about 70 percent state-owned.
According to news reports, RBS had already spent as much as £100 million pounds addressing the claims. Three groups of institutional investors represented by Stewarts Law, Quinn Emanuel and Mishcon de Reya have signed the settlement deal with RBS. Two other groups represented by Leon Kaye and Signature Litigation, the latter of which represents 27,000 retail investors as part of the RBS Shareholder Action Group, have not settled with the bank. According to RBS’s press release about the settlement, the settlement would resolve claims representing 77% of the total value of the claims asserted in the shareholder rights litigation. According to press reports, the settling parties will appear in court this week to present the partial settlement and to establish procedures for settlement administration.
RBS’s press release about the settlement also says that:
In total, RBS is willing to make available settlement sums of up to £800 million assuming settlement of all claims, to be split among all five shareholder groups, subject to agreement and claim validation. RBS will now seek to agree finalised terms with members of the remaining two groups whose claims are presently continuing. Any claims for which settlement is not achieved will, however, continue to be vigorously defended. The trial for such claims is due to commence in March 2017.
According to press reports, the amount of the settlement would be covered by set-aside provisions the company made earlier in the year. Neither the company’s press release nor the various media reports mention any amount of the settlement that would be paid by the bank’s insurers.
The RBS cases have been closely watched in the U.K. and elsewhere, and not just because of the high-profile nature of the case and magnitude of the claimed damages. The case has also been watched as something of a bellwether for the future of collective action litigation in the U.K. Although there were a variety of views about the cases, one frequent opinion was that the likelihood of further collective investor action in the U.K. might be diminished if the RBS cases were to have been unsuccessful. With the substantial settlement that (some) of the claimants have reached in the RBS case, it may be that others may now seek to pursue collective investor actions in the U.K. Certainly, the RBS settlement undoubtedly will hearten the investors who in October 2016 initiated a collective investor action under Section 90 in the U.K. against Tesco.
The announcement of the RBS partial settlement in the U.K. comes just months after the massive $1.3 billion settlement of investor claims against Fortis under the Dutch collective settlement procedures, which was announced in March 2016 ( as discussed here). Interestingly, both RBS and Fortis were part of the consortium that purchased the Dutch bank ABN AMRO in October 2007; the subsequent collapse of both banks was due in part to their participation in this ill-fated transaction (as discussed here).
At the time, I described the Fortis settlement as a game-changer. The RBS settlement highlights just how much the game has changed. These collective investor actions are on a scale that until recently only arose in the U.S. securities class action lawsuits. (Indeed, the $1 billion RBS settlement would be, by size, the thirteenth largest settlement ever in the U.S.) The rise in the number of collective investor actions around the world and the scale of the settlements of these actions that have been to emerge underscores a point I made in my recent post about the global rise of collective investor actions, which is that the rise of collective investor actions outside the U.S. is one of the most significant recent developments in the global D&O claims arena.
The RBS settlement reflects a number of features that I have noted as particularly important parts of the rise of collective investor actions. One is the involvement of U.S. plaintiffs’ law firm in this process; most readers will recognize that the Quinn Emmanuel firm is a U.S.-based law firm. Another feature is the importance of litigation funding to this process. As I discussed in an earlier post, an important part of the RBS claimants’ initiative was their ability to procure financial mechanisms, in the form of “adverse cost cover” insurance, which allowed the claimants to manage their exposure under the U.K.’s “loser pays” model (under which an unsuccessful claimant must pay its adversaries fees).
With developments like the massive $1 billion RBS settlement, the global growth of collective investor actions seems more likely than ever to continue. Fueling this growth will be the ongoing changes in local laws. Thailand, for example, recently adopted class action procedures (that became effective in December 2015). India, in its Companies Act of 2013, also adopted class action procedures. Proposals to consider the adoption of class action procedures are now pending in a number of countries, including, for example, Hong Kong (about which refer here).
These developments will be further fueled by the seemingly endless supply of corporate scandals. The recent wave of corporate scandals certainly has accelerated the growth in collective investor actions outside the U.S. Investor outrage over scandals involving, for example, Petrobras, Toshiba, Tesco, Volkswagen, and other companies has led to a number of collective investor actions outside the U.S. Investors, in initiatives organized by third-party litigation funding firms and often led by U.S.-based plaintiffs’ laws firms, have filed claims in a number of jurisdictions.
The likelihood is that we will continue to see growth in the development of collective investor actions outside the U.S., as the combination of corporate scandals, third-party litigation funding and legislative reform continue to drive these procedures.
These developments represent an ominous development for anyone concerned about corporate liability and obviously present D&O insurers with an ominous picture of coming events. The future suggests that significant D&O claims outside the U.S. may become more frequent; the Fortis and RBS settlements also suggest that these new claims could present a substantial severity risk as well. D&O insurers writing public company business outside the U.S. could be facing an entirely new underwriting environment.