RBS 2008 Annual Report Download - page 255

RBS Group Annual Report and Accounts 2008254
Notes on the accounts continuedNotes on the accounts continued
32 Memorandum items (continued)
A High Court judgment in April 2008 addressed preliminary issues in
respect of the banks’ contractual terms relating to the Charges in force
in early 2008 (the ‘Current Terms’). The judgment held that the Current
Terms used by the Royal Bank and NatWest (i) are not unenforceable as
penalties, but (ii) are not exempt from assessment for fairness under the
Regulations. The Group (in common with the other banks) has accepted
that the ruling in the April judgment that the Current Terms are not
exempt from assessment for fairness applies also to a sample of the
Royal Bank and NatWest contractual terms relating to the Charges in
force between 2001 and 2007 (the ‘Historic Terms’). The High Court
made an order to this effect in October 2008.
The Group and the other banks have appealed against the rulings in
April and October 2008 that the Current Terms and Historic Terms are
not exempt from assessment for fairness under the Regulations. The
hearing of the appeal in relation to Current Terms took place before the
Court of Appeal in October and November 2008. The decision of the
Court of Appeal is expected shortly. The appeal in relation to the
Historic Terms is stayed pending the resolution of the appeal in relation
to the Current Terms.
High Court judgments on further preliminary issues were handed down
in October 2008 and January 2009. These judgments primarily
addressed the question of whether certain Historic Terms were capable
of being unenforceable penalties. The Judge decided that all of the
Royal Bank’s and most of NatWest’s Historic Terms were not penalties,
but that a term contained in a set of NatWest 2001 terms and conditions
was a contractual prohibition against using a card to obtain an
unarranged overdraft. The Judge did not decide whether any charge
payable upon a breach of this prohibition was a penalty. The Group has
not appealed that decision.
The issues relating to the legal status and enforceability of the Charges
are complex. The Group maintains that its Charges are fair and
enforceable and believes that it has a number of substantive and
credible defences. The Group cannot at this stage predict with any
certainty the final outcome of the customer claims and complaints,
the appeals referred to above and any further stages of the test case.
It is unable reliably to estimate the liability, if any, that may arise as
a result of or in connection with these matters or its effect on the
Group’s consolidated net assets, operating results or cash flows in
any particular period.
United States
Proceedings, including consolidated class actions on behalf of former
Enron securities holders, have been brought in the United States against
a large number of defendants, including the Group, following the
collapse of Enron. The claims against the Group could be significant;
the class plaintiff’s position is that each defendant is responsible for an
entire aggregate damage amount less settlements – they have not
quantified claimed damages against the Group in particular. The Group
considers that it has substantial and credible legal and factual defences
to these claims and will continue to defend them vigorously. Recent
decisions by the US Supreme Court and the US Federal Court for the
Fifth Circuit provide further support for the Group’s position. The Group
is unable reliably to estimate the liability, if any, that might arise or its
effect on the Group’s consolidated net assets, operating results or cash
flows in any particular period.
Group companies have been named as defendants in a number of
purported class action and other lawsuits in the United States that relate
to the sub-prime mortgage business. In general, the cases involve the
issuance of sub-prime-related securities or the issuance of shares in
companies with sub-prime-related exposure, where the plaintiffs have
brought actions against the issuers and underwriters (including Group
companies) of such securities claiming that certain disclosures made in
connection with the relevant offerings of such securities were false or
misleading. The Group considers that it has substantial and credible
legal and factual defences to these claims and will continue to defend
them vigorously. The Group does not currently expect that these
lawsuits, individually or in the aggregate, will have a material impact on
its consolidated net assets, operating results or cash flows in any
particular period.
The company and a number of its subsidiaries and certain individual
officers and directors have been named as defendants in a number of
class action complaints filed in the United States District Court for the
Southern District of New York. The complaints allege that public filings
in connection with the issuance of non-cumulative dollar preference
shares, ADS, including Series Q, Series R, Series S and Series T,
contained false and misleading statements, and variously assert claims
under Sections 11, 12 and 15 of the Securities Act 1933, Section 10 of
the Securities Exchange Act of 1934 and SEC Rule 10b-5. Plaintiffs
seek unquantified damages on behalf of purchasers of these shares.
The proceedings are in their initial stages. The Group considers that it
has substantial and credible legal and factual defences to these claims
and will defend them vigorously. The Group is unable reliably to estimate
the liability, if any, that might arise or its effect on the Group’s
consolidated net assets, operating results or cash flows in any particular
period.
Other disputes, legal proceedings and litigation
Members of the Group are engaged in other litigation in the United
Kingdom and a number of overseas jurisdictions, including the United
States, involving claims by and against them arising in the ordinary
course of business. The Group has reviewed these other actual,
threatened and known potential claims and proceedings and, after
consulting with its legal advisers, does not expect that the outcome of
these other claims and proceedings will have a material adverse effect
on its consolidated net assets, operating results or cash flows in any
particular period.