Woodford Campaign Update 17 – ShareSoc Endorses the RGL Woodford Group Litigation

ShareSoc believes that the potential benefits of the RGL Woodford Group Litigation against Hargreaves Lansdown outweigh the identified risks for the vast majority of claimants, and that it is in the interest of affected investors to participate. On this basis, ShareSoc has chosen to endorse the claim.

The RGL Woodford Group’s legal team has commenced proceedings against Hargreaves Lansdown, alleging that HL continued to recommend the Woodford Equity Income Fund (WEIF) despite apparently being aware of its liquidity issues from November 2017. The claim is open to investors who held shares in the fund through the HL platform. The RGL Woodford Group currently comprises over 5,000 claimants.

Following settlement of claims against Link Fund Solutions Limited via a Scheme of Arrangement, the RGL Woodford Group Litigation is now the only remaining WEIF-related group legal claim. ShareSoc considers it unlikely that further claimant groups will emerge.

The alternative of making a claim via the Financial Ombudsman Service is potentially still available to investors at this stage, but complaints need to be made within 6 years of the relevant event, or within 3 years of becoming aware[1].

The claim is structured on a “no-win-no-fee” basis. This means that all litigation costs are covered by a litigation funder, to be reimbursed out of any eventual recovery. Should the case be successful, the claimants will receive 75% of any recovery with the remainder being shared between the various other participants.

Should the case be unsuccessful, an After-The-Event (ATE) insurance policy is in place and is intended to protect claimants in the event of any adverse cost decision against them. We are informed by RGL that the policy includes an anti-avoidance endorsement, which commits the insurer to settle all claims (except fraudulent claims). Although there can be no absolute guarantee that the amount of cover will be sufficient, or that the insurer will pay a claim, RGL has taken steps to minimise this risk.

The process of becoming part of the RGL Woodford Group involves prospective claimants signing a Litigation Management Agreement (LMA), authorising RGL to arrange litigation funding and insurance against adverse costs, to appoint solicitors and counsel, and to manage the proceedings on their behalf. Claimants will also need to fill out a questionnaire regarding their transactions in WEIF. As with any court proceeding of this nature, the process could take two to three years to get to trial.

RGL has informed us that it has raised sufficient finance to cover the expected cost of a court case, and has sourced insurance cover which will be maintained at an appropriate level. As is usual at this stage in the proceedings, the identities of the funder and insurer have not yet been disclosed.

RGL acts as claims manager. Wallace LLP is the solicitor, and Alain Choo Choy KC is leading counsel. Any decisions relating to settlement or discontinuation will be taken by a Committee (to be appointed as required), and changes to the LMA can only be made on the instruction of a Costs KC (to be appointed as required).

There has been no formal public estimate of the size of the RGL claim, but WEIF investors have now recovered a maximum of approximately 80% (assuming full payout by the LFSL scheme) of the Net Asset Value of the fund at the point of suspension in June 2019. The proceedings will include claims for opportunity loss. The value of any individual claim will depend on specific circumstances.

As with any litigation, there are risks to be considered. RGL’s website includes FAQs designed to answer concerns an investor may have regarding the costs of the proceedings, the funding and insurance arrangements and so on. These can be viewed here.

ShareSoc also highlights certain risks that potential claimants may wish to consider:

1. While the claim is structured on a no-win-no-fee basis, it involves the claimant entering into various contracts. The personal liability associated with these contracts is offset by the provision of litigation funding and insurance
2. There is reliance on a contract of insurance to protect the claimant in the event of any adverse cost award. RGL has taken measures to minimise any risk of non-payment by the insurer
3. Should adverse costs arise, these are likely to be allocated pro rata based on the number of claimants, not on the size of individual claims. They are covered by the ATE insurance
4. Changes to the LMA can only be made by a Costs KC, but only where he / she considers such change to be in the claimants’ interest
5. There may be a scheme of arrangement or regulatory intervention (for example a FCA compensation scheme) benefitting all potential claimants (i.e. there may be a benefit in not acting)
6. Should claimants receive any recovery other than through RGL, the full amount of that recovery (not just the 25% fee) is technically payable to RGL to be allocated amongst all claimants
7. Once a WEIF investor has joined the claim, they will be responsible for their costs and potentially their proportion of the HL’s costs if they withdraw
8. Claimants may be required to cooperate with the case, including testifying in court

ShareSoc has reviewed the claim and the associated documents. We have considered:

1. The no-win-no-fee structure
2. The claimant’s 75% share in any recovery, however small
3. The risks identified herein and on the RGL website
4. Counsel’s opinion
5. RGL’s status and reputation

In our view the benefits of joining the RGL claim outweigh the risk and administrative effort involved in doing so for all but the very smallest holdings in WEIF.

Potential claimants should consider their own position carefully, and should read the claim documents, study the RGL FAQs and, if necessary, seek legal advice.

[1] Before making an application to the FOS, claimants must first complete Hargreaves Lansdown’s (HL) formal complaints procedure and ensure their application to the Ombudsman is made within six months of receiving Hargreaves Lansdown’s final response letter. There are procedural time limits set by the FOS that differ from statutory limitation periods applicable in court proceedings. It’s advisable to seek independent legal advice to understand how time limits may apply to your specific case. As a general guideline, you should complain to HL or the FOS within six years of the event you’re complaining about, or if later, within three years of becoming aware (or when you should reasonably have become aware) that you had cause to complain. The FOS may also be able to consider a complaint if there are exceptional circumstances that account for the delay.

Disclaimer: ShareSoc cannot and does not provide advice. Advice requires knowledge of an individual’s precise circumstances. The above should be viewed only as general guidance.