The RBS Rights Issue Litigation is a highly unusual and interesting case whereby the Claimant shareholders of the Royal Bank of Scotland are seeking to recover losses incurred relating to investments following the collapse of Royal Bank of Scotland shares on the grounds that the prospectus for the 2008 rights issue of shares in Royal Bank of Scotland was not accurate or complete.
To some extents this is a unique case, or indeed the level of cost of the litigation is given the eye watering amounts involved. However, despite the significant sums involved, the costs must be reasonable and proportionate in this type of litigation and warning has been made by the Courts on this precise issue. Mr Justice Hildyard in the Judgment (  EWHC 1217 (Ch).) made it crystal clear that there was to be no doubt over the importance of reasonable and proportionate costs “…the touchstone (of reasonable and proportionate costs) is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances.”
The comments came about as the Defendant had made an Application for security for costs which had come relatively late in the day in the overall picture and whilst considering that Application Mr Justice Hildyard gave consideration to the issue of the Defendant’s costs and made the following comments.
- As I indicated at the hearing, the extraordinary (indeed, in my experience, unparalleled) amount of the costs apparently incurred in this litigation by, in particular, the Defendants has in the past caused me, and continues to cause me, very great concern.
- That concern is exacerbated in the present context by the disparity with the SG Claimants’ costs and because I suspect (although it is speculation) that the sheer size of the Defendants’ costs has made difficult, if not impossible, the obtaining of comprehensive ATE cover by the SG Claimants.
- As to the latter, the magnitude of the costs, the excess over the already huge estimates originally given, the approach of the Defendants as exemplified by the instruction of no less than 13 Counsel in addition to serried ranks of solicitors and paralegals (probably over 20) contributing to a present overall estimate of costs on the Defendants’ side of nearly £129 million, must be a prohibitive context in which to seek adverse costs insurance. It is the lack of ATE cover which to a large extent has justified the application in the first place; and the revelation of it which has coloured my approach. It is important to guard against oppressing the remaining SG Claimants or their funders by making them pay for a problem that in part at least may be the consequence of what may be shown in the end to be disproportionate expenditure by the Defendants.
- At the same time, however, it is obviously right to bear in mind that this remains a very complex and large case, though much reduced in scope and size since its review after the December Settlements. The nearly 1,000 pages of skeleton arguments that I have recently received as pre-reading for Trial illustrates this.
- It is also right to acknowledge that the Defendants seek security only in respect of their costs from December 2016 onwards, and not for the aggregate sums expended over the long course of the proceedings. More specifically, the Defendants now seek ‘only’ £11.6 million, being some 60% of the costs said to be referable to the period in question. Although large by ordinary standards, the truth is that any amount now required to be secured is likely to be dwarfed by the amounts ultimately payable if the Defendants are awarded costs at trial, even if those costs are enormously discounted. There is little or no danger of any order for security in the amount sought resulting in a surplus, even if costs are ultimately awarded to the Defendants.
- Further, and as I have previously noted, it is a matter for the client (and in the case of RBS its board of directors) to determine what it is prepared to pay its own lawyers. But costs must be proportionate to be recoverable and (unless the other side agrees the amount, which in a case such as this is unlikely) it is, of course, for the Court to adjudicate how much of the costs incurred can be recovered from the other party or parties. The following observations of Leggatt J in Kazakhstan Kagazy PLC v Zhunus  EWHC 404 (Comm), which are quoted in the White Book at CPR 44.3.3 express more felicitously my warning during the hearing that litigants are free to pay for a Rolls-Royce service but not to charge it all to the other side:
“…the touchstone (of reasonable and proportionate costs) is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances.”
That note continues:
“expenditure over and above that level would be for a party’s own account and not recoverable from the other party.”
- As to the Defendants’ justification for the quantification offered, Mr Head in particular submitted that the schedule of costs provided gives “almost nothing by way of narrative”, is conspicuously lacking in detail, and is “wholly inadequate”. There is some force in the criticisms, as it seems to me: the detail provided is slim, especially given that the aggregate amount concerned before discount is £29,957,933.40 (over an 11-month period after completion of all the most onerous pre-trial process) and includes a sum of about £9.1 million for costs over a 3 month period immediately prior to trial (equating to approximately £750,000 per week). Such sums, if to be accepted, require particular explanation.
- A letter dated 27 April 2017 from Signature Litigation LLP to Hausfield & Co LLP contains an analysis of the Defendants’ Schedule of Costs (from which the figures given above are taken). Amongst the points made in support of the conclusion in that letter that the costs claimed “are seriously inflated” are the following:
(1) The Defendants instructed a total of 13 Counsel (including three QCs) during the period December 2016 to February 2017, compared to four (including one QC) instructed for the SG Claimants: there were three hearings. The Defendants’ 132- page Amended Defence served on 10 February 2017 was signed by a total of nine Counsel. Counsel’s fees for the 11-month period after December 2016 are stated to exceed £6 million.
(2) The fees for experts in giving evidence in the same period are stated to exceed £350,000.
(3) Profit costs in respect of the attendance of fee earners at trial are stated to be £5,571,500 on top of pre-trial preparation in the period after the December Settlements costed at £2,568,275.
- That same letter also points out (though no detail is given) that Signature Litigation LLP’s own aggregate costs for the three-month period after the December Settlements were in the region of £3 million (excluding VAT): that is, roughly, one-third of the Defendants’ costs in the same period, notwithstanding that in that period the SG Claimants had completely to revise their pleaded case and restructure the team after the other groups (each of which had shared preparation previously) had settled.
- Mr Murray of Counsel’s efforts to justify the Defendants’ figures and overall costs were valiant and resourceful. He sought, for example, with studied insouciance to justify the retention of ‘just nine’ Counsel for trial (compared to 13 pre-trial) on the basis that “there’s obviously been a lot of accumulated knowledge on the team which we have not wanted to lose just because the case has slimmed down.” He also sought to reassure me that at least “the size of the team on our side has in fact reduced.” He rightly emphasised the value and complexity of the litigation, its public importance and the important reputational issues in play also: all are highly relevant (and see CPR 44.3(5)) in assessing proportionality in particular.
- But the burden of persuasion in seeking to justify such costs at a stage before their ultimate disposition and precise quantification, where there is such a disparity between the costs incurred by the two sides, and where the amounts claimed do seem very high, is considerable, even in as large and complex a case as this.
- Whilst I do not accept the submission on behalf of the funders that any security for costs order should be limited to an aggregate sum of £5.5 million (excluding VAT), which is a percentage much lower than, for example, Signature Litigation LLP were disposed to accept as reasonable in a letter just before the hearing (50%), I do not feel able to accept the Defendants’ own figure as a reasonable and proportionate sum for which to require security.
It is abundantly clear from Mr Justice Hildyard’s comments that just because the case is significant in size, importance and quantum does not mean that there is a free for all with regards to the level of costs and that these have to be kept proportionate at all times and that the costs incurred must be the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. A stark warning for all!