RBS Rights Issue Litigation [2015] EWHC 3433 (Ch)

[2015] EWHC 3433 (Ch)In Claims entered in the Group Register(HC-2013-000484 and others)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 26 November 2015
Before
THE HONOURABLE MR JUSTICE HILDYARDAND CHIEF MASTER MARSH
THE RBS RIGHTS ISSUE LITIGATION
Hearing Hearing dates: 5 – 7 October 2015
Jonathan Nash QC, Peter de Verneuil Smith and Ian Higgins (instructed by Signature Litigation LLP) for the SG Group of Claimants
Andrew Onslow QC, Adam Kramer and Scott Ralston (instructed by Stewarts Law LLP) for the SL Group of Claimants
Alex Barden and Max Schlote (instructed by Quinn Emanuel Urquhart & Sullivan LLP) for the QE Group of Claimants
David Railton QC, Sonia Tolaney QC, David Blayney QC, Adam Johnson and David Murray (instructed by Herbert Smith Freehills LLP) for the Defendants
Judgment

Scope of Judgment

[1]Further to the eighth CMC in this matter I reserved for further consideration two procedural issues:(1) whether to permit the parties to adduce expert evidence on “investment information/equity analysis”, and(2) whether to adjourn the trial presently fixed to commence on 7 December 2016. The balance was and remains a fine one.[2]In this judgment I seek to explain my reasons for(1) refusing permission to call an additional expert at least for the present, whilst not precluding the parties adducing evidence going to the issue through the existing slate of experts and(2) agreeing with very considerable reluctance to an adjournment of the trial until 6 March 2017.[3]I address each question in turn. In doing so, I refer to RBS Group and the individual defendants together as “the Defendants”: they were all represented by Mr David Railton QC, Ms Sonia Tolaney QC and Mr David Blayney QC, with Mr Adam Johnson of Herbert Smith Freehills LLP and Mr David Murray of Counsel. I refer to the various lead claimants in this group litigation by the names that have become common usage in the context of the numerous CMCs as follows, or otherwise collectively as “the Claimants”:(1) the SG Group, represented by Mr Jonathan Nash QC leading Mr Peter De Verneuil Smith and Mr Ian Higgins, who it was agreed between the Claimants should present their arguments against the admission of further expert evidence;(2) the SL Group, represented by Mr Andrew Onslow QC, Mr Adam Kramer and Mr Scott Ralston, who it was agreed between the Claimants should present their arguments against an adjournment of the trial; and(3) the QE Group, represented by Mr Alex Barden and Mr Max Schlote, who the Claimants agreed should present their arguments on other matters not addressed in this judgment.

Issue (1): whether to admit further expert evidence of an equity analyst

[4]As Mr Nash QC, Counsel for the SG Group acknowledged, the Claimants have until recently supported permission being given to the parties to adduce evidence on what was described as “investment information/equity analysis”.[5]Indeed, and as Mr Railton QC naturally emphasised, it was common ground by March 2014, and (for example) at the fifth CMC when directions for expert evidence were given, that evidence of this kind would be required, and provision for such evidence was made accordingly.[6]However, that permission was expressly stated to be “Subject to review by the Court as to the necessity therefor when the list of [expert] questions … has been provided”.[7]When re-considering the draft List of Questions for Experts at the seventh CMC, I raised the question whether evidence in the field of what was described as “Investment Information/Equity analysis” was “properly justified as expert evidence”. After some general discussion, it was accepted by the Court that the Claimants would want to consider the point further.[8]Having reconsidered the position the Claimants concluded that such evidence is not only unnecessary but a potentially misleading distraction: the “expert” evidence of an analyst or trader would tend to be inherently personal and subjective, reflecting their own practice and views rather than those of investors as a whole, whereas the statutory test encompasses (and treats as addressees of any prospectus) the whole gamut of investors from sophisticated institutions through to inexperienced individuals.[9]The Defendants, on the other hand, have continued to maintain that “Investment Information/Equity Analysis” is an appropriate subject for expert evidence. They contend that such evidence would be of valuable assistance to the Court in deciding both what was “necessary information” to be included in the Prospectus for the purposes of section 87A(2) FSMA to “enable investors to make an informed assessment of…the assets and liabilities, financial position, profits and losses, and prospects” of RBS and also the issue as to whether matters omitted by the Defendants were reasonably believed by them to have been properly omitted for the purposes of the “reasonable belief” defence provided by Schedule 10 FSMA.

Test to be applied

[10]Even where the parties are agreed, and a fortiori when they are not, it is for the Court to determine whether to give permission for particular expert evidence.[11]The test to be applied is set out in CPR 35.1 which is headed “Duty to restrict expert evidence” and is in mandatory terms. There are two elements:(i) is the evidence admissible, and(ii) is the evidence reasonably required to resolve the proceedings?[12]The Claimants suggest that the answer to both questions is “no”. The Defendants suggest a positive answer to each.[13]The admissibility of expert evidence (as an exception to the general rule that opinion evidence is inadmissible) was summarised by Evans-Lombe J in Barings Plc v Coopers & Lybrand [2001] PNLR 22, §45 as follows:
“In my judgment the authorities which I have cited above establish the following propositions: expert evidence is admissible under section 3 of the Civil Evidence Act 1972 in any case where the Court accepts that there exists a recognised expertise governed by recognised standards and rules of conduct capable of influencing the Court's decision on any of the issues which it has to decide and the witness to be called satisfies the Court that he has a sufficient familiarity with and knowledge of the expertise in question to render his opinion potentially of value in resolving any of those issues.”
[14]Thus, the first issue is whether there is a recognised body of expertise governed by recognised standards and rules of conduct relevant to the question which the Court has to decide. Unless there is, the Court should decline to admit evidence which ex hypothesi is not evidence of any body of expertise but rather the subjective opinion of the intended witness.[15]There are two further restrictions:(1) An expert is not to find facts but to express an expert opinion on the basis of assumed facts (JP Morgan v Springwell [2007] 1 All ER (Comm) 549; [2006] EWHC 2755 (Comm) §21).(2) An expression of the opinion of what the expert would have done in the hypothetical situation is inadmissible (Midland Bank Trust Company Ltd v Hetts Stubbs & Kemp [1979] 1 Ch 384, 402).[16]If the evidence is admissible, CPR 35.1 provides:
“Expert evidence shall be restricted to what is reasonably required to resolve the proceedings.”
[17]In determining whether particular evidence is reasonably required a key question will be:
“…whether the subject matter of the opinion is such that a person without instruction or experience in the area of knowledge or human experience would be able to form a sound judgment on the matter without the assistance of witnesses possessing special knowledge or experience in the area.”
See R v Bonython (1984) 38 SASR 45 at 46, cited in JP Morgan Chase v Springwell at [20] and Barings at [38].[18]The burden of establishing that expert evidence is both(i) admissible and(ii) reasonably required (i.e. not just potentially useful) is on the party which seeks permission to adduce the evidence concerned (see JP Morgan Chase at [19] per Aikens J (as he then was)). He continued (at [23]):
“I should mention one further practical matter, which I think is relevant to large commercial disputes. It is inevitable when there is a dispute between commercial entities that covers a long period of time (as this case does) and concerns a very large sum of money, that a huge amount of documents will have to be considered. There is a natural tendency of parties and their advisors to consider employing experts to assist in digesting this material, particularly if it relates to any area that might be recondite, such as trading in Russian debt in the 1990s. There is a tendency to think that a judge will be assisted by expert evidence in any area of fact that appears to be outside the 'normal' experience of a Commercial Court judge. The result is that, all too often, the judge is submerged in expert reports which are long, complicated and which stray far outside the particular issue that may be relevant to the case. Production of such expert reports is expensive, time-consuming and may ultimately be counter-productive. That is precisely why CPR Pt 35.1 exists. In my view it is the duty of parties, particularly those involved in large scale commercial litigation, to ensure that they adhere to both the letter and spirit of that rule. And it is the duty of the court, even if only for its own protection, to reject firmly all expert evidence that is not reasonably required to resolve the proceedings.”
[19]Further, in British Airways Plc v Spencer [2015] EWHC 2477 (Ch) Warren J (at [68]) has recently proposed a three-stage test for the application of CPR 35.1 which brings out the sliding scale implicit in the assessment of what is “reasonably required”, from the essential to the useful (emphasis as in the original):
“(a) The first question is whether, looking at each issue, it is necessary for there to be expert evidence before that issue can be resolved. If it is necessary, rather than merely helpful, it seems to me that it must be admitted. (b) If the evidence is not necessary, the second question is whether it would be of assistance to the court in resolving that issue. If it would be of assistance, but not necessary, then the court would be able to determine the issue without it (just as in Mitchell the court would have been able to resolve even the central issue without the expert evidence). (c) Since, under the scenario in (b) above, the court will be able to resolve the issue without the evidence, the third question is whether, in the context of the proceedings as a whole, expert evidence on that issue is reasonably required to resolve the proceedings. In that case, the sort of questions I have identified in paragraph 63 above will fall to be taken into account. In addition, in the present case, there is the complication that a particular piece of expert evidence may go to more than one pleaded issue, or evidence necessary for one issue may need only slight expansion to cover another issue where it would be of assistance but not necessary. Further, although CPR 35.1 does not refer to issues, but only to proceedings, if evidence is not reasonably required for resolving any particular issue, it is difficult to see how it could ever be reasonably required for resolving the proceedings. I therefore see a test directed at issues as a filter. That, at least, is an approach which can usefully be adopted.”
[20]As to Warren J’s reference to paragraph 63 in his judgment, he there said this:
“A judgment needs to be made in every case and, in making that judgment, it is relevant to consider whether, on the one hand, the evidence is necessary (in the sense that a decision cannot be made without it) or whether it is of very marginal relevance with the court being well able to decide the issue without it, in which case a balance has to be struck and the proportionality of its admission assessed. In striking that balance, the court should, in my judgment, be prepared to take into account disparate factors including the value of the claim, the effect of a judgment either way on the parties, who is to pay for the commissioning of the evidence on each side and the delay, if any, which the production of such evidence would entail (particularly delay which might result in the vacating of a trial date).”

Competing arguments as to the application of the test and guidelines

[21]In applying these criteria and guidelines to the present case, the starting point is to identify the questions which are ultimately to be resolved by the Court in relation to which it is suggested by the Defendants that(a) there is a recognised body of expertise and(b) in respect of which the relevant evidence is reasonably required.[22]As foreshadowed above, the questions arising on the Claimants’ pleadings in relation to which the Defendants’ application is directed may be summarised as follows:(1) First, what information had to be in the Prospectus in order for investors to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of RBS (within the meaning of s.87A FSMA)? (the “Necessary Information Question”). This is derived from s.87A FSMA.(2) Second, would any “untrue” or “misleading” statement be sufficiently material to prevent an investor from making an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects of RBS? (the “Materiality Question”). This is derived from the Defendants’ latest materiality case, as pleaded in their draft Re-Amended Defence.(3) Third, what did investors generally know at the time about matters which were omitted from the Prospectus? (the “Market Knowledge Question”). And in addition, on the Defendants' pleadings: (4). Fourth, was the belief held by the Defendants as to truth of the statements in, and omissions properly omitted from, the Prospectus a reasonable one? (the “Reasonable Belief Question”). This is derived from the Schedule 10 FSMA defence.[23]The actual questions which the Defendants suggest be asked of the experts in this context are, for convenience, attached in Appendix A.[24]As to whether there is a recognised body of expertise whose members might provide assistance to the Court on these questions, the Defendants contend that the discipline of equity analysis is indeed “a recognised expertise governed by recognised standards and rules of conduct”. They have sought evidentially to support these contentions in a long and detailed witness statement by Mr Simon Clarke of Herbert Smith Freehills LLP sworn on 29 September 2015.[25]In summary, that evidence is directed to showing that(a) equity analysis is a profession in(b) a specialised field where(c) those working in the field specialise in the assessment of the financial performance and prospects of companies, especially in relation to three core areas (namely (i) the strengths, weaknesses and competitive positioning of the company (ii) the valuation of the shares and (iii) the broader stock market and how the relevant shares will trade) and(d) are required to be authorised as “approved persons” under FSMA.[26]The Defendants submit that in making these assessments, equity analysts employ a wide range of techniques which are common to the industry, such as financial modelling of various kinds, and the scrutiny of available sources of information about the company and its industry sector; and that “an equity analyst expert would be able to identify the information that would be regarded as necessary by an equity analyst for an informed assessment of a company’s assets, liabilities, financial position, profits and losses and prospects.”[27]The lead Claimants do not, for present purposes at least, dispute that there is a body of expertise held by equity analysts, and accept that if the question were: “What do equity analysts need to know in order to issue research notes on banks?”, it may be that this would be a proper topic of expert evidence, since the body of expertise would be an essential or, at the least, a valuable, resource for the Court.[28]However, they submit that that is not the question that the Court is to answer under s.87A FSMA; that the Prospectus was not directed only to equity analysts or investors advised by them but also to the broader investing public; and that equity analysts do not constitute a body of experts who have rules and standards as to what information is necessary for “investors” (within the meaning of FSMA) to make an informed assessment of the assets and liabilities, financial position, profits and losses, and prospects, of a company issuing securities.[29]As to the Market Knowledge Question, the Claimants submit that the position is all the more clear: there is no established body of expert opinion as to how to ascertain “market knowledge” (even if that concept is relevant at all, which the Claimants dispute). Investment or equity analysts might be able to give evidence as to what they knew, and what they understood other investment analysts knew at the time: but that is really evidence of fact, not opinion, and is certainly not grounded in any professional methodology or standards. Rather it would be a personal opinion based on personal knowledge.[30]Thirdly, as to the significance or Materiality Question, the Claimants’ point is essentially the same as in relation to the Necessary Information Question. There are no standards governing what is “significant” to investors (within the meaning of s.87A) (as opposed to what would be significant to equity analysts). Rather, it is a legal question. If the Court can decide what information is necessary, it can also decide whether a factual change is significant for an informed assessment. They suggest that this matter can be determined by submission to the Court, in the light of the factual evidence and subject-specific expert evidence.[31]Fourthly, as to the "Reasonable Belief Question" put forward by the Defendants, Mr Nash dismissed this outright by suggesting that the relevant test for the Court under Schedule 10 will be to assess what the directors themselves actually believed and to decide on the facts if this belief was reasonable in the circumstances, and not what an equity analyst would have considered to be a reasonable belief. As he suggested in response to a question from me (as to whether an equity analyst could ever assist the Court in determining whether a judgment made by a director to include or not include a certain piece of information, was a fair one):
“The argument [as to providing assistance in determining whether a judgement made was a fair judgement] would arise in connection with the Schedule 10 defence, where the bank and the directors would be saying “We reasonably believed that this was an appropriate course”
. But they are not assisted – the case in relation to that will depend on what they actually believed and what they did to verify that belief through the processes of putting together the prospectus, and the fact that they were able to say “Well, a banking analyst or indeed a bank analyst generally would have made the same mistake as us”, doesn't have any bearing on the reasonable belief question”.[32]The Claimants submit, therefore, that the Defendants fall at the first hurdle: the body of expertise (if such it is) to which they consider the Court needs, or would be assisted by, recourse is not one which can supply any useful litmus test or “gold standard” against which to assess the Prospectus in this case. Equity analysts may have expertise; but they have not a body of expertise directed to the real issue, which is what information is necessary to include in a prospectus directed to the investor public at large who are intended to be protected (and neither can they provide any illumination as to the matter of the Schedule 10 defence).[33]That would be particularly so in this case, where the criticisms of the Prospectus focus on the omission or inadequacy of information. If the individual giving evidence on behalf of the Defendants concludes that equity analysts would not expect a certain matter to be in a prospectus (either because they are misguided, or because they have sufficient information as a result of their privileged position in the market), that should not affect the Court’s decision of what was necessary to enable investors to make an informed decision without the benefit of professional advice or market information (other than as contained in the Prospectus).[34]Further, Mr Nash submitted, even if equity analysts can call on a body of expertise of relevance and interest to the Court, that call would tend to drown out or muffle the voices of other protected investors who (as must have been anticipated when the Prospectus was issued) never had the benefit of that expertise, and risks presenting a skewed picture as to what the position of “investors” at the time really was. As Mr Nash put it:
“The evidence of a professional banking analyst… will be the evidence of an analyst and not an investor. And his approach, the professional banking analyst, is not the same as that of a non-professional investor.”
[35]Similarly, even if such evidence were admissible (which the lead Claimants submit it is not) it is not reasonably required because it will not help the Court resolve the issues to which it is purportedly directed:(1) Whilst it might be possible to give evidence of the practice of equity/ investment analysts as at the time of the Rights Issue, that is not the investigation required by s.87A FSMA. The Court will be able to reach a conclusion based on submissions, and the evidence of the main experts (e.g. the capital or liquidity experts) who will be able to explain the importance of their respective subject areas to RBS’s overall business.(2) The question as to “necessary information” is a legal question – it does not require analysis of what some or even many investors in 2008 considered necessary. Rather the question is what is necessary for “an investor” as set out in s.87A FSMA, and that is an objective legal question for the Court to determine. It is comparable to the legal question in Barings Plc (No. 5) [1999] 1 BCLC 433 at 489-495 as to whether a director had been incompetent or not. In that case, Jonathan Parker J declined to admit the “expert” evidence of an individual who was highly experienced in the same field (managing an investment banking business) and whose opinion was that the director had not fallen below accepted practices in that field. It was simply not relevant to the statutory question of competence. This decision was upheld on appeal [2000] 1 BCLC 523, where Morritt LJ (as he then was) concluded at paragraph 39:
“The issue is not whether Mr Baker was an incompetent operator in the financial product or derivatives market. It is wrong to equate disqualification proceedings with a professional negligence claim. The standard of competence to be shown by a person as a director is a different question and is one of law. Whether the Respondent failed to achieve that standard is a question for the Court on which only exceptionally could the evidence of an expert be admissible.”
[36]Last but not least, the lead Claimants submit that casting the question in terms of what equity analysts would need to know and expect to find is more likely to obscure what is necessary for the protected investor under the statute (not least because there is no basis for assuming that the protected investor has professional investment advisors supporting him). Such evidence would be objectionable because it would introduce an inappropriate and potentially confusing testing process. Again, to quote Mr Nash:
“We say… to bring in the evidence runs the risk of obscuring the question by replacing “investor” with “investment professional”.”
[37]The suggestion in the Defendants’ evidence that equity analysts are able to access sources of information beyond what is generally available to the public would not only import the danger that the evidence would not in truth be sourced from a body of expertise but from the subjective assessment of a particular equity analyst as to what the “market” knew at the time; it could also, since equity analysts are able to access sources of information beyond what is generally available to the public, introduce private information which that analyst had obtained and which had not been announced to “the market at large”.[38]Against this, Mr Railton QC, in his admirable oral submissions, neatly summarised the Defendants’ case on the utility of the relevant evidence as being able to identify for the Court what information (and what degree of specificity) is necessary to conduct an informed assessment of the various matters set out in s.87A FSMA.[39]Mr Railton depicted the Claimants’ position as illogical, in that within what they described as “the whole gamut of investors” would, it was absolutely clear, be included sophisticated investors who would expect the Prospectus to provide the detail and information that an equity analyst would wish to see. He put it this way:
“And my Lord, just because the gamut will also include the unsophisticated is no reason at all to exclude evidence relating to the sophisticated. Or, my Lord, if I could put it another way, while your Lordship may well be able, unassisted, to conclude that an unsophisticated investor would have no need for certain information, without a detailed understanding of what a sophisticated investor does and how he approaches and performs his informed assessment, it would, we suggest, be extremely difficult, if not impossible, for your Lordship yourself to form a view as to that investor's need for a particular piece of information.”
[40]Further, Mr Railton went on, “My Lord, in order to form such a view your Lordship will need to understand what the relevance and significance of that piece of information would be to the informed assessment, including exactly what the person conducting the informed assessment might do with it in his quantitative or qualitative assessment of the company. My Lord, contrary to what the claimants suggest, this understanding, which we would say the court undoubtedly would need, will not come from the expert evidence that my Lord is going to hear on particular subject matters, such as regulatory capital, liquidity or risk. The evidence you get from those subjects, if I could call them those subject matter experts, will no doubt explain the relevant underlying concepts. They will no doubt tell my Lord what the relevant regimes were that were in place or in play at the relevant times, and possibly insofar as it is in dispute what RBS's actual underlying position was at the relevant times. But none of that would tell my Lord whether an investor would need that information for an informed assessment, still less would it tell you why or for what particular purpose, which, in our submission, would be the key reasoning for any such conclusion.”[41]On that basis, Mr Railton contended that the proposed evidence was not only useful but necessary for the resolution of the central issue as to breach of s.90 FSMA, since the Court would not be able to reach a properly informed decision as to the requisite information and its specificity without it.[42]Furthermore, the same evidence was, even if not necessary, highly material to the reasonable belief defences pursuant to Schedule 10 FSMA, since it would (to quote Mr Railton once more):
“provide objective material against which you can calibrate the different submissions as to reasonableness. And it is in our submission inevitable, it is inevitably the case that if an equity analyst would not regard certain information as necessary, such an opinion would reinforce our case as to the objective reasonableness of the defendants' judgment that that information was properly omitted.”
[43]In all the circumstances, Mr Railton concluded, to refuse permission for the admission of evidence from equity analysts, and to go through this part of the trial without that assistance, would “actually be perilous”.

My assessment of these arguments and adjudication

[44]I turn to adjudicate, so far as presently I think it appropriate to do so, between these competing contentions.[45]I have no doubt that equity analysts are usually trained experts, who to conduct their business lawfully must be “approved persons” for the purposes of FSMA, and that many of them (according to the Defendants’ evidence, which was not disputed) become members of the CFA Institute, a global body of investment professionals which is subject to a detailed Code and Standards. Nor have I any reason to doubt the Defendants’ evidence that an effective equities analyst will develop potentially very valuable “know-how” built up by a combination of his or her own research and the collation and synthesis of information from other information sources; and that such an equity analyst may also develop an appreciation of wider investor opinion and concerns relating to companies covered by him or her which may well be useful and valuable to clients. Their assessments and evaluation may also inform the market or consensus view.[46]I would also be disposed to accept that equity analysts are able to call upon a body of expertise and combined experience in the research, modelling and evaluation of investment opportunities in chosen sectors (whether on the “buy” or the “sell” side, according to the individual’s particular specialisation) when making “Core Assessments” of a Covered Company, as to(a) its strengths, weaknesses and competitive positioning,(b) the valuation of its shares, and(c) the broader stock market and how the relevant shares will trade.[47]However, their expertise is in bringing to bear detailed research and subjective assessments at least in part based on information and analysis not generally available to the public in the evaluation of such opportunities. Their selling point, as it were, is that they may be able to provide those employing or instructing them with an “information edge over their competitors” (to quote from a document especially relied on in the Defendants’ evidence entitled “A Practical Guide on Investor Relations” published by the London Stock Exchange in March 2010). As it was put in the Defendants’ evidence:
“…equity analysts seek to set their advice and recommendations apart from their peers based on (i) the depth and quality of their research; (ii) rigorous risk analysis; (iii) accuracy of their forecasts and recommendations; and (iv) market timing.”
[48]Thus, as it seems to me, what in essence equity analysts bring is their own expertise and subjective judgment whereby to process and supplement the information provided by the company they are covering, with a view to detecting opportunities or risks not perceived, or not measured as accurately, by their peers. Their perception of necessary or unnecessary, adequate or inadequate, information will be coloured by their individual bank of outside information, depth and quality of research, and subjective assessments or perceptions of the market view, the strengths and weaknesses of the company and its management, and its positioning in the sector concerned.[49]As presently advised, it does not seem to me that either this body of expertise or the particular skills of equity analysts are likely to provide a standard or litmus test by reference to which safely to assess whether the statutory requirement has been satisfied.[50]In my judgment, on the evidence and submissions presently available to me, the proposed evidence is not strictly necessary to enable the Court to determine the issue as to what information was, at the relevant time(s), necessary to enable investors to make an informed assessment of the matters adumbrated in s.87A FSMA.[51]Put another way, I do not think that the statutory test carries within it any implicit reference to such body of expertise as may be available to equity analysts as being required in order properly to assess the statutory adumbrated matters.[52]I do not find it easy to determine at this stage whether the proposed evidence would be useful, such as to satisfy the second limb of Warren J’s suggested test of admissibility, or a confusing distraction, such as to make its admission not only inappropriate but unwise.[53]Mr Railton’s warning that denying permission would be a perilous course which could well, at a stage too late to remedy the situation, deprive the Court of useful, even if not strictly necessary, assistance has weighed with me considerably. The more so, because the statutory test is open-textured, and although ultimately a matter of law, it is also one that needs to be interpreted by reference to the statutory objective of investor protection, and part of the protection is the confinement of prospectuses to what is necessary in terms of information.[54]However, I presently also share the concerns of the Claimants, as expressed on their behalf by Mr Nash, that there is a danger that even if evidence from equity analysts might assist in determining what equity analysts would agree to be a minimum standard of the information to be included in a prospectus, that standard would not necessarily be, or even be likely to be, an appropriate one for the ordinary investor, whose protection is the statutory objective. Similarly, I share the related concern that such evidence might obscure the test and skew, rather than correctly guide, the Court’s approach.[55]In attempting to resolve my present ambivalence, I have sought to focus particularly on the questions that the Defendants have proposed (after considerable re-working of them) to be put to the proposed experts in the field. However, to my mind the questions largely demonstrate rather than resolve the difficulties.[56]Thus, for example, a series of proposed questions (in particular, Questions 1, 5, 6, 7, 10, 11 and 14) as to the “necessary information” pertaining to the different areas of the Prospectus under dispute seem to me to call for a subjective assessment of the potential relevance (or not) of omitted information, and a subjective assessment of how such omitted information might have been used. That, in my view, tends to confirm the validity of the concerns I have expressed, even though in general terms the answers might be of interest.[57]Other questions appear to me to be problematic in asking the equity analyst either what “investors” would have done at the time, or what the “equity analyst community” were thinking. As neither of these groups can be said to be(a) cohesive or(b) the same in their approach as the particular analyst giving evidence, the questions become impossible for the expert to answer objectively and in a manner directed to the statutory test: the answers seem likely to be little more than his personal opinion on the matters asked.[58]Question 2 of the draft questions for this expert, for example,asks what the “use made by…investors” of a certain type of information was, whilst Question 4 asks about the type of information that was “generally available to investors”. The problem with these questions is that an equity analyst is not by nature an investor; the way in which an equity analyst uses a certain type of information, or the type of information available to him, may be significantly different from the way in which it is used by investors themselves. It is therefore dangerous to ask the expert to comment on what he would have done if he were an investor, as it is likely the approach to these matters of an average investor versus that of a specialist may be quite different (a point raised by Mr Nash).[59]Similarly, it seems to me that asking then, as Question 9 does, what the “analyst community” as a whole thought about a certain subject is likely to elicit an answer only as to what this analyst in particular thought on the matter. Further, the “expectations of the analyst community”, as specifically addressed in Question 9, are not relevant to the ultimate question of what information was necessary to enable investors to make an informed assessment, or whether the actual statements made in the Prospectus were untrue or misleading, in accordance with section 90.[60]Nevertheless, I have remained unsettled lest, at a stage when my grasp of the case is necessarily incomplete, I exclude evidence from which I might have extrapolated some assistance as well as general interest.[61]In that context especially, it strikes me that the assessment may well become clearer after the other experts have reported. Most obviously, it will then be possible to assess more accurately, and certainly Mr Nash’s argument that in light of the fact that each individual area of dispute is being addressed by a subject-specific expert, the type of questions with which the Court may have been usefully assisted by the equity analyst are likely to be adequately addressed elsewhere, either by the subject-specific experts or by other factual witnesses questioned at trial. I note in that regard that the draft questions for the subject-specific experts highlighted by Mr Nash are very broad and invite not only technical responses but ask specifically about RBS and its position in the market at the time. Question 1 of the draft list of questions for the structured credit expert, for example, asks “please explain each type of relevant exposure… how they made money, how their risks were hedged, how they were and should be valued/marked”; whilst Question 2 in the same list is “please explain the state of the relevant markets in 2007 and 2008…”. These more general questions are to be put to the subject-specific experts alongside more specific questions, which will assist me in understanding the complex financial concepts in dispute and cover similar ground to that which may be put to the equity analyst.[62]I have ultimately concluded that, at least at this stage, and the burden under CPR 35.1 being on them, the Defendants have not justified the admission of the disputed evidence, but that I should permit the Defendants to renew their application, after the other experts have reported, and with a more refined list of questions, and (if they so elect) with a summary statement of what their witness’s evidence would be likely to be. I appreciate that this approach was very much not the Claimants’ preferred course, and the Defendants suggested it only as a “second best”. But I am comforted that it is becoming a not unusual recourse in very complex litigation and before the contours of the case are more clearly defined and the other more undisputedly necessary expert evidence is available: see, for example, the Springwell litigation.[63]Finally in relation to the first issue addressed in this Judgment, I should for comprehensiveness confirm that in reaching this conclusion I have taken into account the more amorphous or general points made on behalf of the Defendants by Mr Railton as to the fact that the Order following the fifth CMC did provide (albeit conditionally) for evidence in the field of investment information/equity analysis. These were to the effect that the Defendants' current approach to preparation was determined to some extent by the earlier decision to include this field of expertise, and that to exclude it now would be detrimental to the way in which they have so far gone about the disclosure process.[64]However, Mr Railton himself was resistant to going as far as to suggest outright “prejudice”, indicating instead that it would simply be disruptive for the Defendants to have to re-evaluate their approach at this stage. Suffice it for me to say that I am not persuaded by these points. In particular, as it seems to me:(1) the form of the previous Order made expressly clear that the disputed category of expert evidence would be subject to review;(2) the fact that something is “inconvenient” for one party is not in itself determinative of, or even in this case (given the dislocation of the timetable already) an especially weighty consideration in, the final decision as to whether it should or should not be allowed;(3) the adjournment I propose, with considerable reluctance (and not by reference to these issues) further attenuates any real “inconvenience”.

Issue (2): the Defendants’ application to postpone the trial date

[65]I turn to the Defendants’ application to amend the pre-trial timetable and to adjourn the beginning of Trial 1 by three months, from 7 December 2016 to 6 March 2017. The latter at least is strongly opposed by all the Claimants, though they are agreeable to some extension in the timetable for the exchange of witness statements and some limited consequential adjustments.[66]The fundamental elements of the Defendants’ application are as follows:(1) the disclosure exercise that the Defendants have been required to carry out has vastly exceeded all expectations in terms of scale and the amount of time and resource required;(2) this has (according to the Defendants’ skeleton argument and evidence) “had the effect…of preventing the Defendants from making significant progress with the preparation of witness evidence”;(3) that task has been further complicated and delayed by my own direction in July that the experts’ reports should not be used as vehicles for proof of factual matters, leaving more to be covered in the witness statements; with the result that (again quoting that skeleton argument):(4) “there is regrettably no realistic possibility of the Defendants being able to serve their witness statements by the present deadline of 20 November” and indeed that:(5) “having given the matter careful consideration, the Defendants and their legal team believe that the earliest practicable date for witness statements is 15 April 2016”;(6) if the (previously agreed) intervals between the various pre-trial steps are maintained, that leads to a start date of 6 March 2017.[67]Thus, and in summary, the Defendants put their application on the basis of practical impossibility, in consequence of having been swamped by the disclosure exercise, of meeting the existing timetable, and substantial unfairness in consequence if the existing trial date is retained. They add that “the burden of producing factual evidence falls overwhelmingly on the Defendants”.[68]The Defendants also assert a need for an extension of time for exchange of witness statements (and consequential adjournment of the trial date) by reference to(i) the future receipt of documents from third parties (BAML, Goldman Sachs, FCA/PRA) and(ii) “the expanded scope of the factual evidence”.[69]The Claimants acknowledge that the disclosure exercise, as in the course of being undertaken by the Defendants, has been very substantial, and that there is some disparity in burden so far as witness statements are concerned. However, they otherwise contend that the Defendants’ evidence is vague, insufficient and unconvincing.[70]They submit that the Defendants’ approach to the continuing disclosure exercise has been ill-conceived, that there is no necessary link between the volume of disclosure and the size of the witness proofing exercise or the preparation for it or the time it takes, and that although aspects of the Defendants’ pleaded case, if they are to be made good, will require witness evidence to support them – most plainly with regard to the Schedule 10 defences – the factual evidence is likely largely to be documentary, and primarily concerned with events and circumstances within a relatively narrow compass: how, and by reference to what information and enquiries, the Prospectus was compiled, reviewed and left un-supplemented by the June 2008 closing date; the actual financial condition of RBS in the respects specified in the statements of case over a relatively short period; and what certain individuals knew or believed and the grounds for their knowledge or belief.[71]The Claimants further submit that an application such as the present requires more than generalities about the breadth and complexity of the issues in the case, the volume of documents disclosed, the size of a “Disclosure Analysis” exercise, and the number of witnesses that it is proposed to call; but despite its length, the Defendants’ evidence does not condescend to detail, and to the extent that it describes the past, reveals a flawed process.[72]In particular, the Claimants submit that:(1) The Defendants have adopted a process of disclosure which, though it has already taken many months, is now said, without any sufficient explanation, to require a re-review of every single one of the disclosed documents by the “Subject Specialists” and up to 119 Consilio and HSF Belfast “analysts”.(2) The Defendants have failed to explain what the analysis involves or why a re-review of their own documents is necessary, given that they have been in RBS’s possession since the events which they concern and according to the Defendants’ own evidence have all necessarily already been reviewed for the purposes of “disclosure decisions”, and they have given no reason for believing that this process will identify significant documents, relevant to a witness’s evidence, which the standard approach does not identify.(3) In any event the “Disclosure Analysis” was an optional luxury. If the Defendants have failed to direct sufficient resources to such an exercise at an early enough stage to meet the date for exchange of witness statements, whether because they underestimated the scope of disclosure or otherwise, and/or have failed to have a sufficient tagging exercise done during the first review, that does not justify the extension sought and the jeopardy to the trial date.(4) The Court is told that the Defendants have started proofing witnesses, but not when that started, how far the Defendants have got or what remains to be done. (For reasons already given, that is essential information to enable the Court to make a decision on the Application.)(5) By her fifth witness statement, Ms Kirsten Massey of Herbert Smith Freehills LLP (putting aside for the present the “Disclosure Analysis” process) describes standard witness statement preparation: potential witnesses and the events and topics which the witness may cover are identified; relevant documents are identified by targeted searches of the database; and the witness is asked to give his/her account of the events (and so on) to which he/she can speak directly, assisted by the documents. In general, each witness needs to be shown only the documents he or she saw (or minutes of the meetings they attended, and so on). These should be very readily identifiable by searching, without some enormous review.(6) This approach must surely enable the Defendants and their lawyers to identify “the most significant documents” (that being the alleged purpose of the “Disclosure Analysis”). It is not explained why it would not.(7) The standard proofing process must be well advanced: in the ordinary course, first draft proofs will have been taken long ago and in order to plead the Defendants’ case, and the Defendants could not simply assume that they would get an extension beyond November 2015. The contrary is not suggested.(8) As to third party documents, the Claimants submit that it is quite unclear how this actually impedes the preparation and finalisation of witness statements for any of the 15-20 witnesses contemplated, still less for all or most of them. It is highly unlikely that RBS’s witnesses saw or can speak to the third party documents anyway. In any event, the Court cannot form any useful view on that subject without being provided with much more specific information; and the renewed attempt to blame the Claimants for delay in receiving third party documents is to be rejected.(9) It is true that there was provisional agreement that the experts would address a number of essentially factual issues, but that was not a substitute for the factual evidence (by way of documents and witness statements) that would underpin the expert evidence. It is implausible to imply that the date for exchange of witness statements was accepted by the Defendants in December 2014 on the basis that they would not have to address such matters as RBS’s financial condition in their witness statements.(10) More generally, and in all the circumstances, the Defendants had not discharged the heavy burden of demonstrating good reason for the adjournment of a trial fixed some time ago, especially given the inevitable prejudice to the Claimants in such delay. The grant of the Application would be unjust, and contrary to the overriding objective.

Applicable principles

[73]The principles to be applied in the exercise of the Court’s discretion were not substantially in dispute.[74]The Court has power to extend the time for compliance with existing Court orders (CPR 3.1(2)(a)) and to postpone the trial date (CPR 3.1(2)(b)). Those powers are to be exercised so as to give effect to the overriding objective (CPR 1.2(a)). Aspects of the overriding objective of particular relevance (aside from the general objective of enabling the Court to deal with cases justly and at proportionate cost) are:(1) saving expense (CPR 1.1(2)(b));(2) dealing with the case in ways which are proportionate to the complexity of the issues (CPR 1.1(2)(c)(iii));(3) ensuring that the case is dealt with expeditiously and fairly (CPR 1.1(2)(d));(4) allotting to the case an appropriate share of the Court’s resources, while taking into account the need to allot resources to other cases (CPR 1.1(2)(e)); and(5) enforcing compliance with Court orders (CPR 1.1(2)(f)).[75]An application which (if granted) will lead to the loss of a fixed trial date requires exceptionally strong justification. See: CPR 29 PD 7.4:
“(1) The court will not allow a failure to comply with directions to lead to the postponement of the trial unless the circumstances are exceptional. (2) If it is practical to do so the court will exercise its powers in a manner that enables the case to come on for trial on the date or within the period previously set. …. (6) Litigants and lawyers must be in no doubt that the court will regard the postponement of a trial as an order of last resort. Where it appears inevitable the court may exercise its power to require a party as well as his legal representative to attend court at the hearing where such an order is to be sought. …”
Chancery Guide 6.11:
“A trial date once fixed will, like a Trial Window, only rarely be altered or vacated.”
Chancery Guide 7.39:
“As a timetable for the case will have been fixed at an early stage, applications for adjournment of a trial should only be necessary where there has been a change of circumstances not known when the timetable was fixed. Once a trial has been fixed it will rarely be adjourned.”

Application of these principles and decision

[76]As is obvious, I must weigh these principles in what is accepted to be the exercise of a discretionary power. However, in a case of this size and complexity, where so much is involved, including for the individual Defendants as well as the Bank, and the Claimants, and where the costs have already been extreme, the Court’s perception of procedural and substantive fairness is the most powerful of them all.[77]Further, the Court must keep its eye on the fact that, though the inevitability that costs rise the longer a case continues is also to be considered, in the end it is not the start but the end date which is of prime importance. A more compressed timetable may lead to a longer or disorganised trial (see, for example, the observations of Millett J, as he then was, in Macmillan Inc v Bishopsgate Trust (No. 3) [1995] 1 WLR 978 at 1015). Further, it is not to my mind inappropriate to weigh in the balance what (if any) real delay is likely to result in terms of the delivery of judgment if the timetable is permitted to slip.[78]I can summarise my approach as follows:(1) This is obviously a complex and large case in which the Defendants, as the repository of the vast majority of the relevant documents, bear the brunt of the difficult task of full and frank disclosure. I appreciate also that the Bank was and is a huge institution, comprised of numerous elements which may well be difficult to co-ordinate. I must take all that fully into account.(2) I would accept that at the root of the problem that has developed and apparently swamped the Defendants and their advisers has been the enormous disclosure process (revealing, I am told, some 25 million documents, of which some 10 million are classed “unique”). I have no reason to think that the efforts made to collate this documentation have not been assiduous.(3) However, and although the Claimants may have to share part of the blame in requiring what may have been an excessive number of custodians and search terms, and in not being more pro-active in securing third party disclosure, by far the larger part is, in my view, to be attributed to the Defendants. Something has gone wrong.(4) I regret having to record my view that the Defendants’ response to disclosure and in particular the identification of search terms and custodians appears not to have been informed by any sufficient early attempt to grasp what would truly be involved, and their approach to the process of disclosure has, as it seems to me, been diffuse.(5) As it seems to me from the (itself somewhat diffuse) evidence available, that process has been determined and confused by the use of vast armies without any sufficient focus first, foremost and at all times by the principals in the Defendants, and the “senior members” having the conduct of the matter within the Defendants and within their solicitors on the sources and documents likely to be of real importance, and to constitute the real stuff of the case, both in assembling witness statements and through the trial process.(6) Indicative of this, to my mind, was the delay and difficulty which seems to have been experienced by the Defendants’ legal team in producing a satisfactory organogram to illustrate the committees and departments with primary responsibility for the production and verification of the Prospectus, and thereby also the most likely repositories of the most relevant documentation. This gave me the impression that as recently as August 2015, when this document was originally presented, the Defendants had not yet clarified the process by which the Prospectus was produced. It seems to me likely that had this been ascertained earlier, the Defendants could have undertaken a targeted approach to finding the core documents which will be needed for drafting witness statements, allowing them to start preparing such whilst simultaneously managing the ongoing disclosure exercise.(7) There are also clear signs that the Bank has left the process of identification and collation of its documentation to its solicitors without itself being sufficiently involved in assisting that process, and in particular in explaining exactly how and by whom (and by what departments or committees) the Prospectus was built up and verified, and thus as to what the essential documentation comprises and its whereabouts.(8) The results have been (a) what appears to be an unfocused disclosure process, which has fanned out exponentially and extravagantly without sufficient control and direction; (b) the commitment of increasing resource to the identification of documents, leaving a diminished resource for their assimilation, without properly taking stock as to whether the process had overtaken the purpose and/or whether a more confined process should be adopted, perhaps with the agreement of the Claimants or the blessing of the Court; and (c) the perceived need now for a process of disclosure analysis at this late stage by these “senior members” (and/or the so called “Subject Specialists” within the Defendants’ legal team) far more extensive than should be necessary by this stage, and apparently disastrously disruptive of the process of compiling witness statements, which should have been started long ago and advanced simultaneously by reference to the really important documents which must already have been identified (not least for the purpose of the pleadings).(9) In short, too much emphasis, it seems, has been placed by the Defendants on a “bottom up” approach to disclosure, without clear evidence that efforts have been made to apply a “top down” approach also, identifying key documents to be put to witnesses at the outset, which would have sped up the process overall.(10) As previously indicated, I consider that the Defendants’ evidence to explain all this and what, given the orders made, they could best do now, is less than wholly satisfactory: I agree with the Claimants that more detail should have been provided, especially as to the real need for the “Disclosure Analysis”, and whether it might be streamlined, and as to what steps have been taken and what remain outstanding in respect of the compilation of witness statements, the identity of witnesses and the practical impossibility now asserted. Whilst I do not intend by any means to peer behind the curtain of legal privilege in this regard, the lack of clear evidence is all the more worrying given the apparently small percentage of their allotted budget for witness statements the Defendants’ legal team have so far spent on this process, as was pointed out by Mr Onslow, and which does seem to raise questions as to exactly what (if anything substantial) has been done so far in this regard.(11) Some of the evidence that has been provided by the Defendants has also been both unsettling and less than compelling: for example, the description by Ms Massey of the pleaded issues as “incredibly broad and complicated, in the sense that they range over large areas of the business of what was at that time a huge financial institution, and seek to call into question, in a general way, the manner in which the state of that business was reported to the market” provides no compelling reason for not having advanced further with the process of proofing witnesses more than two years after the action formally commenced and many more years after proceedings were threatened. Nor does it take into account the fact that the Bank has had to collate documents and evidence both for the purposes of regulatory investigations and in order to plead a Defence verified by a statement of truth.(12) Even though I accept that, whatever the deficiencies or difficulties in the past, the question now is what time is required to ensure a fair and orderly pre-trial and trial process, Mr Onslow’s submission on behalf of the Claimants to the effect that the Defendants must re-think their approach and strategy and must be able to achieve better progress in the future carries force. I am inclined to view sceptically the Defendants’ gloomier predictions as to how long everything is likely to take.(13) I accept also that there is prejudice to the Claimants in the very fact of further delay, including that costs rise inexorably with every day that passes before trial.(14) I take into account also that the trial date has been fixed for some time, and moving it may dislocate other timetables. I have also considered the public interest in trials such as this not being perceived to be delayed unduly, and the incredulity inevitable in some quarters that a trial fixed for more than a year hence in respect of proceedings commenced years ago should have to be adjourned now on the basis that it is “impossible” to complete preparation for it.(15) However, it is also my obligation to maintain a sense of perspective. A three-month delay in commencing the trial is not great in the context; and the timings I propose should not result in any substantial delay in the final determination of the matter.(16) I have concluded that, despite my very great reluctance to do so, there is a sufficient risk of unfairness to the Defendants that I should grant a relatively short (and in all ordinary circumstances final) adjournment. I propose a revised start date of 6 March 2017, with time for earlier pre-reading in the preceding two weeks (which will necessitate the provision of skeleton arguments in good time before then).[79]I say reluctance; but (as may already be apparent) I also feel considerable disquiet. The problems that have apparently beset and swamped the Defendants might have been attenuated by referring the difficulties being encountered in the disclosure exercise back to Court.[80]I was also, as I made clear during the hearing, troubled by the reluctance of the Defendants to disclose any more about their witnesses than a broad spread of possible numbers. I consider that the past has revealed a need for tighter control in the future; and I am likely to start this by requiring the parties to disclose the identities of their proposed witnesses and a short statement of the subject matter of their intended evidence as the rules provide (see CPR 32.2(3)). As well as emphasising that all witness statements are to be restricted to factual evidence and must not unnecessarily rehearse documentation or include submissions, I may well wish to consider giving directions as to the issues to which they may be directed and to limit their length (see ibid.).[81]After handing down this judgment I shall wish to consider the timetable for exchange of evidence and other procedural steps, but would first invite the parties to seek to agree one, in the light of this judgment, for my consideration.

Cited in 24 later judgments

and 15 more of the most senior