Ingenious Litigation, Re [2020] EWHC 235
This complex hearing involved 6 leading counsel which highlights the costs that were being run up. The claimants sought a costs-sharing order, whilst the defendants sought security for costs. Three firms of solicitors were acting for claimants – Stewarts, Peters & Peters and Mishcon de Reya. A number of claimants were chosen to go forward as test claimants. Most of the Stewarts, and all the Peters & Peters, claimants benefited from funding from Therium. It was accepted that Therium should not be liable under s51 for costs of the self-funded claimants. One difficult question that the Court was faced with in assessing whether there was a prospect that the claimants would not be able to pay later costs awards was to express a view as to whether costs would ultimately fall to be assessed on the standard or the indemnity basis. The Court would need to be satisfied that there was something that would take the case out of the norm. An analysis of the grounds for the claim via the Particulars of Claim would be of assistance. Since the claims here alleged conspiracy, fraudulent misrep and deceit the possibility of indemnity costs was seen to be a real one. It made no difference that Therium was not responsible for the way that the case was pleaded – the funder takes the risk. The Court assessed the appropriate percentage of costs in a case where there is a realistic prospect of indemnity costs as being 75%. On this basis, the Court assessed that the costs that would need to be paid was £8.4m. The Court then went on to consider whether there was a real risk that costs orders of that magnitude would not be met.
For the purposes of that analysis, the sources to meet that liability were the claimants, the ATE policies and Therium. The Court approached Therium as follows – “I am not persuaded that I can proceed on the basis that Therium will meet any order for costs under section 51. It is striking that no actual financial information about Therium has been adduced in evidence. The evidence is that if Therium had to put up cash, it would need to make a call on its investors. It is not clear from the evidence whether it has any right to call on its investors, or whether the investors' response to that would be voluntary. I am not persuaded that the decision of Mr Justice Roth and the rest of the tribunal in the CAT, in the Trucks case, is sufficient basis for me to be confident that Therium would meet any order for costs made under section 51.” The Court did not consider that its membership of ALF made any difference. The evidence that was given as to the net worth of the claimants was not comprehensive, and did not give any comfort that a costs order would be fully discharged. On this basis, the real meat of the case was in the ATE polices. There were 4 policies.1 had a limit of indemnity of £1m, and there were 3 Stewarts’ policies. Each had a different indemnity limit and, in aggregate, the total ATE cover is £7.25m. However, just adding up the 3 amounts was not a safe way to proceed because not all the ATE cover was available to the claimants – some of it was available for the self-funded claimants. Taking account of that, the available cover reduced to £5.9m and this of course assumed that the ATE policies would respond. That could not necessarily be assumed in this case. Various terms of the policy were referred to which sought to exclude coverage. There appeared significant gaps in the coverage such that the defendants could not be confident that the ATE would respond.
The Court was faced with multiple difficulties in this case because the policies were sometimes redacted, and there was not a complete file of correspondence that would assist in the interpretation of them. An offer was made by the Stewarts claimants to assign the proceeds of the ATE policies to the defendants and further elaboration was provided by the submission of a redacted document as between Therium and the claimants in respect of insurance. This further material itself created further difficulties as to how the ATE proceeds were to be apportioned as between Therium and the defendants. The point to be drawn from this convoluted case is that everything about funding and ATE is considered fair game and the Court is going to need to see as much of the detail as is possible – preferably on an unredacted basis – in order to make fair orders otherwise there is a real risk that it will make assumptions that may appear fairer to the defendant than to the claimant. The fundamental difficulty for the Court is that an ATE policy is not designed as security for costs. Another real difficulty for the Court in a case such as this is the inherent difficulty in crystal-ball gazing and assessing what may happen if the case fails in certain ways. Without proper analysis, there is a real danger that the Court will make safer assumptions – or take the path of least resistance which is likely to be one that is seen to be fairest to both sides, which could well mean that the claimants and funders are required to bear more risk than perhaps they should. With hesitation in this case, the Court came to the conclusion that there was a real risk that the ATE policies would not respond in full. It therefore needed to assess what value could be expected. This is almost finger in the air time. The danger for funders and litigants is that it is probably the case in almost all ATE policies that the same outcome would occur if not all the facts are known to the Court.
Armed with views on the potential amount of legal costs, and an assessment of how the ATE policies would respond, the Court was then able to assess the quantum of the security. The Court also expressed a view as to the availability of the cross undertaking – there needed to be evidence that it actually cost the funder something to procure the security. It was not sufficient that the consequence of the security was merely that the funder would be entitled to a greater recovery from the claimants.
The warnings in this case are multiple. A funder needs to be very certain of how the budgets will develop over time, and needs to monitor carefully how many parties are going to be joined into the litigation. 6 firms of solicitors and 6 teams of counsel does not give comfort that the case is going to be an economic one to pursue. Without too much difficulty, the economics of a case such as this are immediately questionable, and that is before the issue of security is addressed. A funder is going to have to assume that it will need to put up some level of security, and the best chance it has of reducing that amount is bound up with having maximum clarity and cooperation from the insurer providing the ATE cover. All these discussions need to occur before the case is filed and everyone has to expect that they will need to justify the position as time goes on. By far the best outcome, of course, is to agree the mechanics between solicitors and avoid Court proceedings on this sort of point.