RBS 2013 Annual Report Download - page 476
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Notes on the consolidated accounts
474
32 Memorandum items continued
Litigation, investigations and reviews
Arising out of their normal business operations, the Group and certain
members of the Group are party to legal proceedings and the subject of
investigation and other regulatory and governmental action in the United
Kingdom, the United States and other jurisdictions.
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 resulting from past events, and a reliable
estimate can be made of the amount of the obligation. While the outcome
of the legal proceedings, investigations and regulatory and governmental
matters in which the Group is involved is inherently uncertain, the
directors believe that, based on the information available to them,
appropriate provisions have been made in respect of legal proceedings,
investigations and regulatory and governmental matters as at 31
December 2013 (see Note 22). The litigation provision reflects in large
part the £1.9 billion provision taken in the last quarter of 2013 primarily
related to mortgage-backed securities and securities related litigation and
investigations. The future outflow of resources in respect of any matter
may ultimately prove to be substantially greater than or less than the
aggregate provision that the Group has recognised.
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.
There are also situations where the Group may enter into a settlement
agreement. This may occur in order to avoid the expense, management
distraction or reputational implications of continuing to contest liability,
even for those matters for which the Group believes it has credible
defences and should prevail on the merits. The uncertainties inherent in
all such matters affect the amount and timing of any potential outflows for
both matters with respect to which provisions have been established and
other contingent liabilities.
Other than those discussed below, no member of the Group is or has
been involved in governmental, legal or regulatory proceedings (including
those which are pending or threatened) that are material individually or in
aggregate.
Litigation
Shareholder litigation
RBS and certain of its subsidiaries, together with certain current and
former officers and directors were named as defendants in purported
class actions filed in the United States District Court for the Southern
District of New York involving holders of RBS preferred shares (the
Preferred Shares litigation) and holders of American Depositary Receipts
(the ADR claims).
In the Preferred Shares litigation, the consolidated amended complaint
alleged 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 asserted claims under Sections 11, 12 and
15 of the US Securities Act of 1933, as amended (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 (SEC) registration statement. In
September 2012, the Court dismissed the Preferred Shares litigation with
prejudice. On 25 September 2013, the United States Court of Appeals for
the Second Circuit (Second Circuit Court of Appeals) affirmed the lower
Court’s dismissal of the litigation. The deadline for plaintiffs to appeal
from the Second Circuit Court of Appeals to the United States Supreme
Court has expired.
With respect to the ADR claims, a consolidated amended complaint
asserting claims under Sections 10 and 20 of the US Securities
Exchange Act of 1934 and Sections 11, 12 and 15 of the Securities Act
was filed in November 2011 on behalf of all persons who purchased or
otherwise acquired the Group's American Depositary Receipts (ADRs)
from issuance through 20 January 2009. In September 2012, the Court
dismissed the ADR claims with prejudice. On 5 August 2013, the Court
denied the plaintiffs’ motions for reconsideration and for leave to re-plead
their case. The plaintiffs have appealed the dismissal of this case to the
Second Circuit Court of Appeals, and that appeal is in the process of
being briefed by the parties.
Additionally, between March and July 2013, claims were issued in the
High Court of Justice of England and Wales by sets of current and former
shareholders, against the Group (and in one of those claims, also against
certain former individual officers and directors) alleging that untrue and
misleading statements and/or improper omissions were made in
connection with the rights issue announced by the Group on 22 April
2008 in breach of the Financial Services and Markets Act 2000. On 30
July 2013 these and other similar threatened claims were consolidated by
the Court via a Group Litigation Order. The Group’s defence to the claims
was filed on 13 December 2013.