The All-Party Parliamentary Group (“APPG”) have submitted a lengthy complaint to the SRA against Herbert Smith Freehills, legal advisers to Lloyds Banking Group during the lender’s compensation review scheme in relation to fraud at HBOS. The scheme is due to reopen following Sir Ross Cranston’s report that Lloyds’ original customer review had ‘serious shortcomings’.
In a 21 page complaint to the Solicitors Regulation Authority (“SRA”), APPG MPs have alleged that City of London law firm, Herbert Smith Freehills has either compromised its independence or provided incompetent advice in advising Lloyds Banking Group (“Lloyds”) on the HBOS Reading scandal.
HBOS fraud review compensation scheme
Stated in the submissions as “one of the biggest frauds in English banking history“, the complaint concerns large-scale fraud which took place at Lloyds HBOS Reading branch estimated to have caused losses of around £1 billion.
Six people, including directors of HBOS’ Impaired Assets Division in Reading, were sentenced to jail in January 2017 for defrauding and forcing vulnerable businesses customers into distress between 2003 and 2007 by referring the companies into a restructuring and turnaround unit. This led to excessive fees, charges and debts which the companies could not handle. The solicitors firm, Herbert Smith Freehills (HSF) was instructed by Lloyds to assist with the review of compensation for fraud victims.
This was intended to be an independent review carried out by Professor Russel Griggs. Lloyds denied any liability for fraud and it appeared from the review scheme findings that Lloyds was the only victim of the fraud to have suffered financial loss and that all the business failures and all of the suffering were of Lloyds customers were due to their own making.
Shortcomings in inadequate HBOS review scheme
Following widespread public and Parliamentary concern about the review, a former High Court judge, Sir Ross Cranston investigated and published a report stating that there were “serious shortcomings” in the review process.
Professor Griggs was placed in an impossible position and his appearance of independence was undermined by the way the process was structured.
APPG’s regulatory complaint to the SRA regarding legal advisers in HBOS review scheme
Beyond the allegations against Lloyds HBOS, the APPG have submitted a complaint to the Solicitors Regulation Authority, the regulator of HSF who were legal advisers to Lloyds at the time. APPG have requested assurances from the SRA that:
- HSF’s knowledge of the ‘Reading Incident’ was not such as at any time to compromise its ability to exercise independent judgment.
- HSF was not responsible for the unreasonableness and unfairness in the review scheme in either:
- Structure (including the decision as to what information was provided to the bank’s customers/victims); or
- Implementation (in devising the relevant tests applied by Professor Griggs in his evaluation of their claims) of the review scheme.
- So far as HSF was responsible for unreasonableness and
unfairness in the review, the cause was incompetence of HSF and inadvertence rather than intentional/designed unfairness and unreasonableness.
- HSF at no point ceased to maintain proper professional
independence so that it aligned its own interests and actions with those of its client so as to subordinate to those interests its higher duties and independence of judgment owed as solicitors and officers of the court. This, in particular, in presenting to the victims and public under the Griggs Review the misleading impression that LBG was the only victim of the fraud to have been caused financial loss, that all the business failures and all of the suffering were of LBG’s customers’ own making and the related ‘unacceptable’ denial of liability by LBG.
- HSF has taken proper steps to correct statements of fact
made by it on behalf of LBG as its client in or about 2014 to statutory bodies/authorities that Ms Masterton had prepared the PLT report without instructions from LBG, but rather of her own volition and at her own initiative, statements now known to have been false. It would also seem appropriate for the SRA to be satisfied that at the time those statements were made, given their importance, HSF was reasonably
satisfied that the statements made were true.
- So far as HSF were unable to appreciate that Professor Griggs had been placed in an impossible position and that his appearance of independence had been compromised, and that this had happened by oversight rather than design, the SRA will take such steps as it is able to in ensuring appropriate relevant guidance is provided by the Law Society to the solicitors’ profession.
Were you a victim of the HBOS Reading fraud scheme?
Sir Cranston found that the review process, which involved 1919 victims of the fraud, had been unsatisfactory and this has led to Lloyds being forced to set up another review (to be carried out under former High Court Judges Sir David Foskett or Dame Linda Dobbs) to examine the extent to which it may itself be said to have covered up the Reading scandal since the time it acquired HBOS.
Sir Cranston has recommended that an independent body (‘the Panel’) be set up to reassess the direct and consequential losses suffered by victims of the HBOS fraud.
If your business was a victim of the HBOS fraud scheme you may be entitled to have your complaint reassessed. Our specialist litigation team (who successfully assisted clients in the FCA IRHP review and RBS GRG complaints process) can be instructed to assist you in the review once the Panel has published its methodology and procedure.
Instruct our banking and fraud specialist litigation lawyers
Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in this area of banking litigation and have acted on IRHP mis-selling, GRG and LIBOR rigging claims against major UK banks including Lloyds, RBS and Barclays. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks.