The request by the Financial Services Compensation Scheme’s lawyers to delay a case management conference on Keydata has raised questions over the viability of its litigation.
The FSCS has been seeking new lead case defendants since January as part of efforts to recoup some of the £400m it has paid out in compensation over products sold by the firm. It originally selected six lead case defendants last year, with one firm, Investacc, formally receiving notice that the case against it had been closed in December.
Following settlements agreed by the FSCS with all but one of the original lead case defendants, the court was due to consider the selection of new lead case defendants at a case management conference on 21 March. Lawyers acting for the FSCS have now asked for the conference to be delayed until May. Only Chase de Vere remains a lead case defendant from the original selection.
There is a consensus that the court must be satisfied there are sufficient lead case defendant cases to cover both the variety of Keydata products (both SLS Capital and Lifemark) that were sold and the range of allegations made by the FSCS.
It is believed the FSCS is having difficulty in identifying potentially suitable candidates to replace the original lead case defendants and is also meeting resistance from the potential candidates that have been identified.
Where firms may look like suitable candidates, matters may be complicated by the firms’ individual circumstances.
The FSCS appears to be in a quandary. If an unsuitable test case is taken to court, several things could happen. For example, the lead case defendant could take the opportunity to settle, which would potentially put the FSCS back to square one
as the court will not have made any substantive determinations.
Alternatively, even if the case were to proceed and principles be established to be rolled out to the non-lead case defendants, there may not be sufficient guidance for all classes of defendants covering the wide variety of Keydata products in issue.
The court may also be reluctant to establish principles of general application to the non-lead case defendants in situations where firms have been prevented from mounting a proper defence because of their circumstances.
Ultimately, the FSCS may be required to risk proceeding with potentially unsuitable lead case defendants and
bear the associated costs this will bring.
The alternatives are to settle with the remaining defendants or draw a line under the case altogether.
The messages emanating from the FSCS are that it remains convinced it has a strong case to pursue.
It told Money Marketing: “Proceedings remain stayed against all remaining defendants not selected as lead case defendants, and the FSCS is in the process of identifying appropriate replacement lead case defendants from the remaining pool.”
The FSCS says it will tell the court of its intentions over the selection of lead case defendants at the rescheduled case management conference. But it remains unclear what these representations will look like, how the court will receive them and, importantly, the suitability of the remaining candidates.
Terence Dickens is an associate at Foot Anstey