London Capital & Finance (LCF) bondholders have filed their judicial review appeal in the Court of Appeal, following a standstill agreement on costs with the Financial Services Compensation Scheme (FSCS) whilst further negotiations take place.
The case centres around the FSCS’s decision not to compensate more LCF borrowers. The FSCS has already paid out £57.6m in redress for customers which it believes bad advice but has stopped short of further payments.
If successful, the appeal would result in full pay-outs being due in respect of all investments in LCF made on or after 3 January 2018.
The appeal was made possible after four of the LCF bondholders, who are themselves representing the rest of the mini-bond provider’s investors, reached a temporary standstill agreement on costs this week with the FSCS.
The agreement means that the FSCS will not pursue LCF bondholders for FSCS’s legal costs for the time being, whilst further negotiations take place in respect of the funding of the FSCS’s legal costs for the appeal.
The bondholder’s lawyers, at Shearman & Sterling LLP and Brick Court Chambers, are acting for free on a pro bono basis while FSCS’s lawyers, at Dentons and Fountain Court Chambers, are not.
Last month, the bondholders said by refusing to agree not to pursue costs against the four of them personally if an appeal is unsuccessful, the FSCS knows it is stifling the possibility of the appeal going ahead, and said they were looking to crowdfunding to fund these costs.
The bondholders won permission to take their case to the Court of Appeal following a High Court ruling against the bondholders. LCF had claimed not to be regulated for issuing bonds, because the bonds it issued were stated to be “non-transferable”.
“We would like to thank the FSCS for agreeing a temporary standstill in relation to the parties’ legal fees, while we seek to negotiate an acceptable agreement relating to costs,” the four bondholders said.
“This means that, for the time being at least, the appeal is able to proceed. We intend to issue a further statement in due course, upon the outcome of our negotiations with FSCS, or any application to the Court, in relation to costs.
“We note now that it is possible that the negotiations with FSCS could result in a need to crowd-fund an amount which would be available, if needed, to cover FSCS’s in the event they win the appeal.
“It might also be possible to develop another mechanism whereby the FSCS’s legal costs could be met should our appeal not succeed.
“We aim to explore all possible options in the forthcoming negotiations with FSCS. As mentioned, we will of course be communicating again with bondholders in this regard.
“We would also like to thank again our legal team at Shearman & Sterling and Brick Court Chambers, for their unstinting support.”