By Ian Fraser
Published: Sunday Herald
Date: 29 March 2015
Note: This is an unedited version of the article that was published in the Sunday Herald on 29 March 2015. This draft dates from 20 March 2015. The published version is available here.
The Royal Bank of Scotland has been rapped over the knuckles by a High Court judge over its failure to hand over emails and other correspondence sent by its former chief executive Fred Goodwin and its former head of investment banking, Johnny Cameron, in the build-up to its October 2008 collapse.
In a hearing in the Royal Courts of Justice on the Strand, the Honourable Mr Justice Robert Hildyard chastised the state-rescued bank and its lawyers Herbert Smith Freehills for dragging their heels where disclosure of vital evidence — including executive directors’ correspondence, emails and phone call transcripts — is concerned.
The judge made his demands in the build up to a £4 billion plus investor-led court case, in which the Edinburgh-based bank stands accused of duping investors into pumping a £12.3bn into its shares in a rights issue, the UK’s largest ever capital-raising at the time.
In a prospectus published on 30 April 2008, RBS gave the impression that, if investors handed it £12.3bn, its capital problems would evaporate and it would have sufficient working capital to survive for at least 12 months. However the bank collapsed, and needed a £45.5bn taxpayer-funded bailout, four months after the money was raised, with investors — including thousands of employees of RBS, NatWest and Ulster Bank — losing more than 95% of their cash.
The judge said the bank must hand over the evidence to the claimants and their legal teams — or, in some instances explain why it has been unable to provide the evidence — in a series of stages culminating on 17 April and with a final deadline of 15 June.
In a court hearing on Tuesday 17 March, Hildyard reprimanded RBS and its lawyers Herbert Smith Freehills for failing to divulge the sources of evidence, which Hildyard first ordered it to do in December, in a timely fashion and for failing to dedicate sufficient resources to the disclosure process.
He laid out a tough new timetable to which the bank and Herbert Smith Freehills must adhere, and which he said they must take seriously. The formal trial is not scheduled to start until 2016.
During the hearing Hildyard made clear that he thought the concept of a “model prospectus” — something RBS’s defence team has been arguing needs to be taken into consideration by the court — was a diversion and a red herring. Herbert Smith Freehills has on three occasions challenged the claimants to draft a so-called “model prospectus” that would show what they believe ought to have been in the rights issue prospectus.
Hildyard said: “It would be a great, great distraction if the issue which is the sufficiency of this prospectus were clouded by a debate about another prospectus. We really — I think we have got quite enough on our hands trying to find out what the position is with respect to this [the actual, published] prospectus.”
The list of data the bank is now expected to hand over includes emails sent by RBS’s ex executive chairman of investment banking, Johnny Cameron. Claimants believe these may be critical to their case. These and emails sent and received by Goodwin, who was forced out as RBS chief executive on 13 October 2008, must be handed over by 17 April, said Hildyard.
While Goodwin did not have an RBS email account, the claimants want to see the messages he sent from the RBS email account of his personal assistant Mary McCallum, known by bank insiders as “scary Mary”, as well as those Goodwin is believed to have sent from the accounts of other members of his secretarial team. Private emails sent by former RBS finance director Guy Whittaker are also being sought.
One of the four investor groups that is suing RBS — the RBOS Shareholder Action Group, now represented by law firm Fladgate — has named Goodwin, Cameron, Whittaker and former RBS chairman Sir Tom McKillop, as defendants in its lawsuit alongside the bank itself. The judge obliged these four ex directors to complete “electronic documents questionnaires” (EDQs), providing details of all personal email accounts, mobile phones and computers they were using between March 2007 and February 2009. They were given until Wednesday, 1 April to complete the task.
The bank was also ordered to seek to retrieve emails sent and received by former its former non-executive directors. These include the former Treasury mandarin Sir Steve Robson, former EU commissioner Peter Sutherland, and the ex senior partner of KPMG Scotland, Archie Hunter. Hildyard gave the bank until 17 April to summarise its progress in retrieving their sent and received messages.
The bank was also told to obtain emails from firms that advised and underwrote the rights issue, including Goldman Sachs, UBS, Merrill Lynch, now part of Bank of America, and law firm Linklaters. RBS was given until Thursday 2 April to draft a disclosure application relating to documents held by Merrill Lynch and Goldman and until 17 April to provide an update on talks with Linklaters, former auditors Deloitte and investment bankers UBS in relation to voluntary disclosure.
Hildyard also gave the bank until 2 April to produce a witness statement on steps it has taken to get hold of correspondence from former ABN Amro directors, including the Dutch bank’s former finance director John Hourican.
RBS and two continental European banks acquired ABN for €71bn in October 2007 and McKillop subsequently told investors the integration and revenue synergies from the deal were going better than RBS expected, claims that were subsequently proven to be untrue. The judge said legal proceedings might have to be taken against ABN if it fails to hand over the requested relevant.
RBS was also given until 17 April to provide a full list of “shared drives” that it was operating in the UK on 30 June 2008, together with a statement of RBS’s position as to the chances of searching these shared drive.
A source close to the investors that are suing the bank said one interpretation for the delays is that, as the bank goes through the process of discovery, it has been discovering weaknesses in own case, and “hence their apparent desire to stall.”
The RBS press office declined to comment on the judge’s rulings. But the bank has earlier said: “While RBS and its former directors made some business decisions that have been criticised, this does not mean that they misled investors or acted illegally. We believe we have strong defences to the claims that are being brought against the Group and that is why we intend to defend these vigorously and to protect the interests of our shareholders including UK taxpayers.”