Is RBS getting value for money from its £200m annual legal bill? Doesn’t look like it
September 20th, 2011
Royal Bank of Scotland spends over £200 million a year on legal fees and employs some of the finest legal minds in the UK. But this hasn’t stopped the bailed-out institution from entering something of a losing wicket in court in recent months.
In January 2010, RBS was slated for lacking “candour” in Carlyle vs RBS. This prompted Derek Carlyle’s MP Jim Hood to say:-
“If someone is described in a judge’s language as lacking candour, that might mean to some of us in the House that they were lying through their back teeth.”
A judge ruled that the bank’s staff had lied to clients and provided disingenuous evidence in court during RBS vs Highland Capital, a December 2010 case that revolved around the use of “sham” auctions to disguise its massive CDO losses. In November 2010, in a landmark ruling that could halt all home repossessions in Scotland, the Supreme Court ruled against the bank in RBS v Wilson.
In April 2011, RBS and other banks lost a major case against the FSA and the financial ombudsman over whether revised rules relating the misselling of payment protection insurance (PPI) could be applied retrospectively. The case upheld an earlier ruling, forcing RBS to re-open thousands of claims over the mis-selling of PPI. As a result RBS and other banks are expected to have to pay out some £5bn in compensation, of which RBS’s share will be in the region of £850m
More recently the bank was successfully sued by Perthshire-based restaurateur Nigel Matheson over the way in which its Global Restructuring Group (GRG) led by Derek Sach, “trashed” Matheson’s Callander-based seafood restaurant business.
The bank did this by unilaterally withdrawing a £5,000 overdraft extension within days of agreeing this after his business had been subjected to flooding, and then piling on ludicrous charges. As in other such cases the bank seems to have vindictively turned against Mr Matheson, causing him to lose both his health and business. Writing on his website, Mr Matheson wrote:-
… there has been the systematic destruction of my business … the ruin of my local reputation and eventually the wrecking of my health by a small number of individuals in the RBS Business Banking centre in Edinburgh.
A series of events led the Sheriff at a court hearing to say “From Mr. Matheson’s pleadings, it seems that his bank account manager took a disliking to him and set out to give him a thorough and prolonged scunning”.
It would be hard to imagine with the promise of trust and financial skills advertised by RBS that a small number of staff could behave so dishonestly but also their conduct be concealed at the highest level within RBS … The whole sad story has a theme of dishonesty and distrust running through it with a continued refusal to admit liability …
Last week, Matheson secured a legal victory in the Court of Session in front of Lord Glennie. The state-rescued bank lost, partly as a result of its own earlier sheer incompetence, as RBS and its solicitors McGrigors had failed to respond to Matheson’s “calling” notice in a timeous manner. Lord Glennie has demanded that RBS pay Matheson £200,000 in damages.
For further detail on the Matheson vs RBS case, read the the Scotsman article below.
Judge orders RBS to pay customer £200,000 after overdraft wrangle
Published Date: 16 September 2011
By John Robertson
THE Royal Bank of Scotland has been ordered by a judge to pay £200,000 to an aggrieved customer who won a court case against it “by default”.
Restaurateur Nigel Matheson, 63, had sued the bank in a dispute about an overdraft extension. But, due to “oversights” by the bank and its lawyers, the action was not defended and he was granted a decree.
RBS asked Lord Glennie at the Court of Session to set aside the decree and deny Mr Matheson what it described as a “massive and wholly unjustified windfall”. Mr Matheson argued he had met “mind-boggling inefficiency” in his litigation and should receive the award.
Yesterday, Lord Glennie ruled the errors were inexcusable, and the bank would have to pay up.
Mr Matheson welcomed the judgment, although he expected an appeal by the bank would keep him waiting for his money.
He said: “I am very pleased with Lord Glennie’s decision and his interpretation of the evidence he heard. This is a significant milestone for me in what has been a very long saga.”
Mr Matheson runs The Conservatory restaurant at Ballachallan, Cambusmore, Perthshire. He claims that, in 2005, RBS granted a £5,000 extension to his company’s overdraft but then unilaterally withdrew it. As a result, he alleges, the business suffered and he was caused psychiatric injury.
In 2008, he raised an action at Perth Sheriff Court, seeking £200,000 damages. The bank has lodged defences and the case is continuing.
Last year, he also served a Court of Session summons on RBS, asking for £200,000 damages for the business. At that stage, he had solicitors, but they later withdrew from acting for him.
As a party litigant, Mr Matheson lodged the summons for “calling” – a crucial procedural step in litigation which should trigger action by the other side – and it was published on the Court of Session’s calling list in February this year. However, there was no response from RBS, and next month Mr Matheson was granted a decree in absence, in light of the lack of any indication the case was to be contested. RBS subsequently learned of the decree and immediately raised the current case to have it declared null and void.
Lord Glennie said Katherine Allan, who worked in the bank’s legal department, and David Eynon, a senior solicitor at McGrigors, the law firm acting for RBS, “candidly” owned up to the mistakes they made.
Among a “considerable volume of correspondence”, Mr Matheson had mentioned he intended to lodge the summons to have it called and, later, that it had called. Neither Ms Allan nor Mr Eynon picked up on this. A trainee in McGrigors’ office had also failed to spot the case on the Court of Session’s calling list.
Lord Glennie said: “The appearance of the case on the list was overlooked. It should not have happened.
In addition, the bank was told both that the action was going to be lodged for calling and that it had called. The bank did nothing about it.
“Once the fact that the summons had called was overlooked, it might be said that the die was cast. I do not think that is necessarily so. Mr Eynon told Mr Matheson that he would get back to him in response to his suggestion of transferring the case to Perth. He did not do so, even after he had taken the bank’s instructions on the point.”
In evidence, Mr Eynon had said that the expression “we will get back to you” was “no more than a turn of phrase”. He accepted that he should have got back to Mr Matheson and could not explain why he had not.
Lord Glennie added: “[Mr Eynon's] failure to do so was discourteous. More importantly, if he had gone back to Mr Matheson … it is likely that any correspondence would have flushed out … that the summons had called and action was required.”
Here’s a pithy spoof of the bank’s Customer Charter / “Here for you” ad campaign, featuring the Nigel Matheson case study.
Clearly justice has not been a one-way street for RBS. The bank has also won court cases in recent months and years, including one against the co-owners of Liverpool Football Club, Tom Hicks and George Gillett, while in January 2011 a New York court dismissed an action from investors who claimed the bank had been less than candid about its exposure to subprime mortgages. In 2005, it settled a case being pursued by the trustee in bankruptcy of Enron, paying out $41.8m.
In November the Edinburgh-based bank is back in court, where it will face a massive claim from the RBOS Shareholder Action Group which represents a group of institutional and retail investors who claim the bank duped them into investing into its £12bn rights issue in 2008. The shareholders are being represented by Olswang and barrister Phillip Marshall QC.
Royal Bank has also said it will “vigourously defend” a case from the US government’s Federal Housing Finance Agency, which claims the bank misrepresented the quality of $30.4bn of residential mortgage backed securities sold to Fannie Mae and Freddie Mac.
The FHFA argues that RBS executives’ bonuses were so geared towards writing and passing on high-risk business that they rushed deals through without due diligence. Sometimes “owner occupancy data was materially false”, according to the claim. RBS also “furnished appraisals that they understood were inaccurate and that they knew bore no reasonable relationships to the actual value of the underlying properties”, it is claimed. For further detail on the claims, see Simon English’s round-up in the Evening Standard.
Commenting on the FHFA’s case the New York-based finance blogger Felix Salmon wrote:-
“These banks lied to investors when they put together mortgage securitizations. And one way or another, they’re about to start paying for that. About time too.”
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