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Appeal costs force LCF victims to drop FSCS legal challenge

Losing could have resulted in a £600,000 bill for bondholders


A judicial review against the Financial Services Compensation Scheme (FSCS) by four London Capital & Finance (LCF) bondholders has been withdrawn.

On 29 March 2021, the court accepted certain submissions made by the LCF victims, but the judge considered some of the documentation was insufficient to prove that the mini-bonds were, in fact, regulated.

As a result, the bondholders remain ineligible to receive compensation from the lifeboat scheme.

Financial ramifications

They appealed the decision on 10 June.

The claimants – Emmet Donegan, Joanne Ellis-Clarke, Nathan Brown and Alan Considine – said they engaged in negotiations with the FSCS which ended on 6 August 2021.

They then had 14 days to decide whether or not to go ahead with the appeal, with the potential financial ramifications the ultimate deciding factor.

While the FSCS agreed not to recover the legal costs it incurred for the judicial review, it did not extend the offer to the appeal.

Had they lost the appeal, the claimaints would have been hit with a £300,000 bill – had they subsequently taken their claim to the supreme court and lost, the total bill would go up to £600,000 ($817,000, €700,000).

Lack of funding

The claimants, who are also part of the LCF creditors’ committee, said on their crowdfunding page: “This means that, if our appeal were to fail, the four of us claimants would stand to be personally liable for all of the FSCS’s legal costs.

“We four bondholders bringing the case, and no one else, would be putting at serious risk what remains of our life savings and even our homes, for a case that would only benefit us each personally in a modest way, while benefitting approximately 6,200 other people, who would bear no such costs risk at all.

“This cost risk stands in addition to the time commitment and stress that is inevitably involved in major litigation such as this. Despite the merits and importance of the case, we do not consider that it would be reasonable for us to continue with the case while bearing this financial risk personally.”

No alternatives

Their preferred option had been crowdfunding to pay for legal fees, but they have had limited access to the other thousands of LCF bondholders to ask for contributions.

They quartet continued: “We believe that, if we had a mechanism to contact all investors, we might be able to raise the required amount of funds. However, the FSCS has refused to contact interested investors on our behalf for this purpose.

“Another party able to contact LCF investors to alert them to the proposed crowdfunding would be the administrators of LCF, who are insolvency officials working at Smith & Williamson. After several communications with them on this topic, we have been unable to secure their support for such a communication.

“We are able to contact around 2,000 bondholders, around half of which are likely to be financially interested in the appeal, via Facebook groups. We note that these groups were set up by us as support and information-sharing groups and not in order to seek funding for litigation.

“We believe, based upon polling of investors in these groups, that these channels are unlikely to result in the funding of an amount approaching anywhere near the £600,000 requested by the FSCS to fund its legal costs of the appeal.”

Other funding options have been unsuccessful, including HM Treasury declining to finance FSCS’ legal costs for the appeal, they added.

One other way was to apply for a ‘cost-capping order’ which would have limited legal costs at £54,000, but they said this mechanism is only available for the court of appeal and not the supreme court.

As a result, the judicial review appeal is now over.

“The appeal is being withdrawn only due to the unmitigated, unreasonable and substantial personal costs risk that it would involve,” the four claimants said.

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