Monday, 27 January 2020

RBS wins legal case against Morley – But it should not be a common victory

RBS has been the subject of so many posts here in Financial Regulation Matters it is hardly worth providing links, although most recently we were looking at updates on the notorious GRG division within the bank. Today, there was a ruling regarding the conduct of the bank and the Unit, which has caused RBS to celebrate. However, in this short post we will see that the case is so unique, that it really is not a predictor of how future cases will be heard (that is, if they are).

We had looked at the case of Oliver Morley recently, a business man who had claimed that RBS owed him £100 million for the damage that was caused to his business portfolio once he entered into the GRG’s remit. The case was based around the concept of ‘economic duress’ and the processes that RBS initiated once Morley struggled to re-finance etc. In today’s case, heard by Mr Justice Kerr, the Judge ultimately ruled that the bank did not place Mr Morley under any economic duress and were not guilty of intimidation: ‘the bank’s duty of skill and care did not require it to negotiate the restructuring any differently from the way it did so’. As opposed to the Business Man who was innocently fed into the GRG machine, Mr Justice Kerr held that, instead, Morley had been somewhat irresponsible during his business ventures and that, after taking an original £75 million loan from RBS, of which £15-£20 million was for personal use, he had not acted particularly diligently. Examples cited include investments in property, cars, jets, and yachts that ultimately proved to become illiquid assets during the downturn, and ill-conceived investments in South African mining ventures. Kerr concluded that if Morley had had the wherewithal to save just £5 million in reserve, he could have held onto his portfolio and had the ability to refinance his assets better. RBS, rather obviously, were happy with this ruling; a spokesperson for the bank declared ‘the judge found that the bank dealt with Mr Morley – a sophisticated business customer – in accordance with the terms of their contractual agreement following a breach of covenant and in a manner that was rationally connected to its commercial interest’. However, the article in The Financial Times is rightly quick to remind readers that an investigation into the GRG by the FCA – who themselves have become mired in the scandal, as well as the Treasury – found that there were ‘widespread and systematic’ problems at GRG, although they found no evidence that RBS intentionally pushed healthy companies to failure.

This post has been a very quick update on an issue we have covered many times before. However, there is a point that must be made at this juncture. Whilst Morley may have been a ‘playboy’ businessman that got caught out by the Crisis and has since sought to blame RBS for his losses, his case is certainly not the norm when it comes to GRG and RBS. Not everybody fed into the process owned jets and mansions. Many were simply seeking to conduct business on their own terms, and suffered as a result. Whilst this will not be the case right throughout the cohort of those affected by the actions within GRG, there were enough innocent people fed into an appalling practice to suggest that this victory being celebrated by RBS this evening will not be repeated too often. If the affected clients of the Unit can muster the energy and resources to fight the issue, then RBS should be in for some serious pain from the judiciary and, in the cases of those who could not be described as financially ‘sophisticated’, absolutely rightly so.

Keywords – RBS, GRG, Oliver Morley, Judges, Courts, Business, @finregmatters

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