Financial Services Compensation Scheme  

Legal costs killed LCF case, claimants say

Legal costs killed LCF case, claimants say

Investors in London Capital & Finance minibonds dropped their appeals case against the Financial Services Compensation Scheme due to the significant personal cost they would have faced if they lost.

According to a statement by Emmet Donegan, Joanne Ellis-Clarke, Nathan Brown and Alan Considine, who were elected to represent the investor group, they were forced to drop their appeal against the lifeboat scheme due to the “unmitigated, unreasonable and substantial personal costs risk” that it would involve.

The claimants had brought a case to judicial review in an attempt to reverse the FSCS’s stance that the majority of bondholders are not entitled to compensation following the LCF collapse.

The FSCS won the first round of the case back in March, but the claimants filed an appeal thereafter, which was later withdrawn.

It has now emerged the FSCS did not agree to cover its own costs in the event the lifeboat fund won the appeal. It had done so in the first round of the case out of courtesy to ensure the investors' concerns could be heard in court.

The investors said they were unable to take the risk of a £300,000 legal bill in case of a second disappointment and a further £300,000 bill if the case goes to the Supreme Court.

According to the investors, negotiations had taken place with the FSCS over the costs of the appeal for several weeks, which were ended by the FSCS on August 6, 2021.  

The investors stated: “The end of the negotiation triggered a 14-day period (ending on 20 August 2021) for us to carry on with the appeal and be at risk on costs or withdraw it.  

“During the negotiations, the FSCS has clarified its position on several points, including by agreeing to cap the amount it would claim from us if we lost the appeal to £300,000 for the Court of Appeal proceedings and a further £300,000 for any Supreme Court proceedings, resulting in a total of £600,000 personal costs exposure for the four of us claimants.  

"However, following these negotiations and a study of the costs of the appeal, we have concluded that the potential personal financial losses of taking the case further are not warranted."

The investors said they looked at the option of crowdfunding to raise funds and carried out a poll on a Facebook group for LCF investors.

It found that about half of LCF bondholders would be prepared to fund an appeal, but only about 25 per cent would be prepared to make contributions that would be sufficient to fund the FSCS's costs.  

The investors stated: “We remain grateful to the FSCS for allowing the first instance case to proceed on the basis that each side would pay their own costs and for agreeing to allow our appeal to be filed whilst costs were negotiated. We now must accept the outcome.”

Before it entered administration in January, LCF raised in excess of £237m from more than 11,500 investors over the course of two years, and it has been embroiled in a scandal since.