As a result of the U.S. Supreme Court decision in Morrison v. National Australia Bank, investors who purchased their shares in a company’s stock on a non-U.S. exchange are unable to pursue securities claims against the company or its management in U.S. courts. I have long thought these investors’ preclusion from U.S. courts would force them to try to develop remedies in their home jurisdictions – which is what it appears that RBS investors, whose U.S. securities claims were dismissed, now appear to be doing.
The near failure and British government bailout of RBS was one of the highest profile features of the global financial crisis. RBS’s collapse follow a series of massive asset write-downs that occurred at RBS due to the company’s substantial holdings in subprime and other mortgage-backed assets and as a result of the company’s disastrous October 2007 acquisition of 38% of ABN Amro.
As discussed here, in January 2009, the first of a series of securities class action lawsuits were filed in the Southern District of New York against RBS and certain of its directors and officers. As detailed here, in a January 11, 2011 ruling, Southern District of New York Judge Deborah Batts granted the defendants’ motion to dismiss the claims of RBS shareholders who had purchased their company shares on a non-U.S. exchange. As I noted at the time in my post about Judge Batts’s ruling, “The interesting question is whether the disappointed RBS claimants … will now seek to pursue their claims against the RBS defendants in a non-U.S. jurisdiction.” Based on recent developments, the answer to this question now appears to be “Yes.”
As detailed in an April 3, 2013 Law 360 article (here, registration required) and in an April 3, 2013 post on Alison Frankel’s On the Case blog (here), in the last week, two separate shareholder groups have taken step to initiate claims in U.K. courts against RBS and certain of its directors and officers. The shareholder groups claim that in its prospectus for its April 2008 rights offering, the company misrepresented its financial condition.
According to a March 28, 2013 article in The Lawyer (here), a law firm representing UK and international financial institutions and pension funds filed a claim in London’s High Court laws week. And as detailed on their website, on April 3, 2013, a separate group called the RBOS Shareholders Action group has separately initiated a High Court action against RBS and four of its directors and officers. The group’s website does not link to an actual copy of their complaint, but the site does provide a brief description of their allegations. The website also claims that the group represents “over 12,000 private shareholders, many of whom are pensioners, and over 100 institutional investors who lost money in the RBS 2008 rights issue” and estimates that the value of the group’s claim may be valued at as much as £4 billion.
As Frankel notes in her post about the U.K. litigation developments, one of the impediments in the past for prospective claimants considering these types of claims has been the U.K.’s “loser pays” rules, whereby an unsuccessful claimant has to be prepared to pay its adversary’s legal costs. What has changed is that insurers have developed a product called “After the Event” policies that protect against the risk that claimants might have to pay the defendants’ legal fees if there is an unsuccessful outcome. The RBOS Shareholders Action group itself says on its website that it has “adverse cost cover” in place.
The initiation of these actions against RBS is just the latest in a series of developments in which non-U.S investors, precluded from pursuing claims in U.S. courts, have sought to pursue claims in their own country. As the sequence of events here shows, the prospective claimants’ ability to pursue claims depends in many ways on claimants taking an innovative approach. Of course, it remains to be seen whether or not the RBS claimants’ U.K. claims will result in any recovery. But as aggrieved claimants continue to innovate, the opportunity to pursue claims may become more apparent to other prospective claimants. These kinds of claims could become more common, not only the U.K. but elsewhere as well. The development and availability of litigation funding mechanisms will help to spur these developments. This process may already be well under way in Canada, Australia, and arguably even Germany (where disappointed Porsche investors, closed out of U.S. courts, have filed claims against the company in Germany).
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