RBS 2011 Annual Report Download - page 404

402 RBS Group 2011
32 Memorandum items continued
Litigation and Investigations
RBSG and certain Group members are party to legal proceedings,
investigations and regulatory matters in the United Kingdom, the United
States and other jurisdictions, arising out of their normal business
operations. All such matters are periodically reassessed with the
assistance of external professional advisers, where appropriate, to
determine the likelihood of the Group incurring a liability. The Group
recognises a provision for a liability in relation to these matters when it is
probable that an outflow of economic benefits will be required to settle an
obligation which has arisen as a result of past events, and for which a
reliable estimate can be made of the amount of the obligation.
In many proceedings, it is not possible to determine whether any loss is
probable or to estimate the amount of any loss. Numerous legal and
factual issues may need to be resolved, including through potentially
lengthy discovery and determination of important factual matters, and by
addressing novel or unsettled legal questions relevant to the proceedings
in question, before a liability can be reasonably estimated for any claim.
The Group cannot predict if, how, or when such claims will be resolved or
what the eventual settlement, fine, penalty or other relief, if any, may be,
particularly for claims that are at an early stage in their development or
where claimants seek substantial or indeterminate damages.
While the outcome of the legal proceedings, investigations and regulatory
matters in which the Group is involved is inherently uncertain,
management believes that, based on the information available to it,
appropriate provisions have been made in respect of legal proceedings,
investigations and regulatory matters as at 31 December 2011.
Other than as set out in these sections entitled ‘Litigation’ and
‘Investigations, reviews and proceedings’, no member of the Group is or
has been involved in any governmental, legal or arbitration proceedings
(including any such proceedings which are pending or threatened of
which RBSG is aware) during the 12 months prior to the date of this
document which may have, or have had in the recent past, significant
effects on the financial position or profitability of RBSG and/or the Group
taken as a whole.
In each of the material legal proceedings and investigations, reviews and
proceedings described below, unless specifically noted otherwise, it is not
possible to reliably estimate with any certainty the liability, if any, or the
effect these proceedings investigations and reviews, and any related
developments, may have on the Group. However, in the event that any
such matters were resolved against the Group, these matters could,
individually or in the aggregate, have a material adverse effect on the
Group’s consolidated net assets, operating results or cash flows in any
particular period.
Litigation
Set out below are descriptions of the material legal proceedings involving
the Group.
Shareholder litigation
RBSG and certain of its subsidiaries, together with certain current and
former individual officers and directors have been named as defendants
in purported class actions filed in the United States District Court for the
Southern District of New York involving holders of RBSG preferred
shares (the “Preferred Shares litigation”) and holders of American
Depositary Receipts (the “ADR claims”).
In the Preferred Shares litigation, the consolidated amended complaint
alleges certain false and misleading statements and omissions in public
filings and other communications during the period 1 March 2007 to 19
January 2009, and variously asserts claims under Sections 11, 12 and 15
of the US Securities Act of 1933, as amended (the ”Securities Act”). The
putative class is composed of all persons who purchased or otherwise
acquired Group Series Q, R, S, T and/or U non-cumulative dollar
preference shares issued pursuant or traceable to the 8 April 2005 US
Securities and Exchange Commission (the SEC) registration statement.
Plaintiffs seek unquantified damages on behalf of the putative class. The
defendants have moved to dismiss the complaint and briefing on the
motions was completed in September 2011.
With respect to the ADR claims, a complaint was filed in January 2011
and a further complaint was filed in February 2011 asserting claims under
Sections 10 and 20 of the US Securities Exchange Act of 1934, as
amended (the “Exchange Act”) on behalf of all persons who purchased or
otherwise acquired the Group’s American Depositary Receipts (ADRs)
between 1 March 2007 and 19 January 2009. On 18 August 2011, these
two ADR cases were consolidated and lead plaintiff and lead counsel
were appointed. On 1 November 2011, the lead plaintiff filed a
consolidated amended complaint asserting ADR-related claims under
Sections 10 and 20 of the Exchange Act and Sections 11, 12 and 15 of
the Securities Act. The defendants moved to dismiss the complaint in
January 2012 and briefing is ongoing.
The Group has also received notification of similar prospective claims in
the United Kingdom and elsewhere but no court proceedings have been
commenced in relation to these claims.
The Group considers that it has substantial and credible legal and factual
defences to the remaining and prospective claims and will defend itself
vigorously.
Other securitisation and securities related litigation in the United States
Recently, the level of litigation activity in the financial services industry
focused on residential mortgage and credit crisis related matters has
increased. As a result, the Group has become and expects that it may
further be the subject of additional claims for damages and other relief
regarding residential mortgages and related securities in the future.
Notes on the consolidated accounts continued