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RBS v Highland Financial Partners

Posted on 14/02/2014 · Posted in Financial Litigation, Fraud

This judgement is the latest in a long-running dispute between the parties over a £192m financing deal. This case originally started out as a fairly dry commercial dispute between the parties. Royal Bank of Scotland (‘RBS‘), which is majority owned by the UK government, attempted to reclaim monies from Highland, a US hedge fund, after it defaulted on a collateralised debt obligation (‘CDO‘ – a security backed by loans) – after the financial crisis in Autumn 2008. RBS had provided financing for Highland to launch the CDO but called in the loans when the markets seized up. In the initial court action, RBS claimed £36m but was awarded £18m by Mr Justice Burton.

Meanwhile, Highland had launched a counterclaim against the bank in Texas, which RBS sought to stop. They contended that Highland should not be allowed to carry on litigating in Texas on matters which were already the subject of an English judgment, and relied on jurisdiction clauses in the CDO transaction to support them. The High Court rejected this argument at which point the bank took the point to the Court of Appeal. Wisdom is found only in truth.

“Wisdom is found only in truth.”
Goethe

Highland argued before the Court of Appeal that the initial judgment should be set aside because RBS (through evidence given by its employee Sam Griffiths) -had knowingly misled the court. It emerged that Mr Griffiths had conducted a ‘sham’ auction of the loans and lied to potential buyers whilst intending to capitalise on the new IAS39 accounting rules to boost his own bonus and RBS profits by some £1.4bn.

In a unanimous judgment handed down by Lord Justice Aikens, it was held that RBS had procured the previous judgment by fraud, having misled the court, their own lawyers and their client. They were held to have deliberately and dishonestly failed to disclose relevant documents in the previous proceedings and that the judgment should be overturned. The court also held that two previous judgments- in respect of liability and quantum in relation to various CDO transactions- should be overturned on the basis that they were obtained only through the dishonest suppression of the true facts of the case.

The case is understood to have cost RBS (who initiated the action) in excess of £5m in legal fees since litigation began in 2009, and costs look likely to escalate as Highland can now proceed with a fresh attempt to sue RBS for damages in Texas.

Link (First instance): RBS v Highland Financial Partners [2012] EWCA Civ 1278

Link (Appeal): RBS v Highland Financial Partners [2013] EWCA Civ 328

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