“We aren’t under any common law when we pursue a loss, but there is a trust law to do this. We do take account of our general customer duties. There is no certainty with taking an active stance in any class action.” Summerfield says that USS has a fiduciary duty to pursue post-litigation claims – “our responsibility is to claim money in litigation which has been done.”
However this fiduciary duty does not extend to actually fighting all cases on behalf of clients where no settlement has been made. “UK courts have been reluctant to imply any fiduciary duties or extend any duty of care to advisers making negligent and sometimes fraudulent claims,” says McNicholas. “It is rather disappointing because you have situations where sellers are clearly crossing the line with misleading advice and bold marketing materials. The advising institutions have small armies of lawyers to make sure the boiler-plate, which runs into hundreds of pages, is water-tight and in favour of the adviser.”
In pursuing a monetary settlement “you always have to weigh up the pros and cons,” says Summerfield. In particular, investors will look at the following issues: the potential size of the claim; the prospects of success; how much can be recovered; how strong is the evidence against the company; what assets are available; and the potential for corporate governance enhancements.
iiTRA’s Ellison says that he would not criticise UK pension funds and insurers for not suing because of the risks and various considerations involved with launching legal action in this country.
“In the US it’s a no-brainer to sue,” he says. “But over there virtually every pension fund has an in-house lawyer. That’s not the case here.”
iiTRA was set up last year to manage the interests of pension funds, insurance companies and asset managers in relation to their securities class action rights and currently assists 10 pension funds with about £146bn. Ellison says that the idea is to reduce costs and management time for cases outside the US and the group expects to attract a further £150bn of investor money this year.
A further catalyst for UK cases is the contingency basis act passed last April which will allow law firms to act on the basis of claiming a percentage of the damages, similar to what happens in the US. While it has generated interest it has not, however, led to actual cases as yet.
Clarke says: “The way in which contingency fees have been implemented seems to rule out a hybrid arrangement whereby claimant lawyers can receive discounted hourly rates and a share of the damages if the claim is successful. This may reduce some interest from law firms in contingency fees because a hybrid arrangement could have been a way of claimant law firms taking less risk.”
Libor manipulation has led to a slew of lawsuits in the US, but whether this will lead to the same kind of action in the UK is very doubtful.
“For a case of the size and complexity of Libor you may even pay tens of millions in costs,” says McNicholas. “Even if you have an asset manager with several institutional investors it’s not necessarily the case that they will be heard on a consolidated basis or argued together. Each case would have to be understood.”
For now class action remains very much an US beast. If the RBS case is successful however, it may well be the catalyst for government reforms to come in and change the landscape over here. Investors wait in anticipation.
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