The Ingenious Litigation – security for costs and litigation funders
Rowe & Ors v Ingenious Media Holdings plc & Ors [10.02.20]
The High Court has handed down judgment in the multi-party Ingenious Litigation (Rowe & Ors v Ingenious Media Holdings plc & Ors [10.02.20]), which provides further guidance on the circumstances in which litigation funders may be required to provide security for costs (SFC).
The judgment partly concerns SFC applications brought by four defendants against the claimants’ third party litigation funder, Therium. These followed a successful application made by the claimants seeking several liability in respect of common costs (altering the arguably standard position of joint and several liability).
Where a third party controls or benefits from proceedings which are unsuccessful, the court has discretion under s.51 Senior Courts Act 1981 to order adverse costs against that third party (Travelers Insurance Co Ltd v XYZ ). Having decided that the Act applied to Therium, in assessing whether SFC should be provided, the court considered that “the most significant question is whether there is a real and not fanciful risk that the relevant Defendants will not be paid” if they obtain costs orders in their favour. The court made the following notable points:
- It will often be necessary for claimants and their funders to show that they have assets by which to settle an adverse costs award. In this instance:
a. Whilst some claimants disclosed cursory information about their financial resources, that information “clearly does not give any comfort that a costs order in favour of a Defendant would be fully discharged”, particularly where: (i) the nature of the assets was not disclosed; (ii) the ability to enforce against them was not apparent; and (iii) a person’s current wealth “does not give any guarantee that their position will be the same in a number of years’ time”.
b. Whilst the claimants held after-the-event (ATE) insurance , there was “a real, and not a fanciful risk” that those policies would not respond in full. To reflect those risks, the court reduced the level of security it would otherwise order by 50%.
c. Being a member of the Association of Litigation Funders did not demonstrate that Therium would be in a position to discharge a substantial costs award, particularly where it was “striking that no actual financial information about Therium has been adduced”.
- Where a funder only funds some of many claimants, the court will rarely require it to provide security in respect of self-funded claimants. This is because “in the case of the self-funded claimants, there is no reason to think that Therium either controls the proceedings, or will share in the recoveries”.
- Allegations of fraud and dishonesty “makes the possibility of indemnity costs” being ordered against any unsuccessful claimants “a real one” (Three Rivers DC v Bank of England ). Where there is a reasonable possibility of indemnity costs, the appropriate security to award is usually 75% of defendants’ estimated costs (Danilina v Chernukhin ). Where this is unlikely, 70% is “at the top end” of what may be ordered, but 65% “is more typical”.
This judgment demonstrates the risk of claimants failing to evidence their ability to discharge possible costs awards. It seems that the court will take a dim view of claimants and funders who fail to provide detailed evidence of: (i) their financial assets (ii) the ease of enforceability against those assets and (iii) whether those assets are likely to be preserved for the life of the proceedings (or otherwise replaced with other assets against which enforcement would be similarly practical).
Group litigation is often a concerning prospect for insured parties and their insurers. Whilst an insured may play only a small role in group litigation, the quantity of work which that litigation generates often requires them to incur disproportionate costs relative to the sums claimed. It is therefore important for insureds to carefully consider the prospect of claimants not being in a position to discharge their costs liability in the event that the claims are unsuccessful. It will often be appropriate to request detailed financial information of the claimants early in the litigation. Insureds should also seek detailed information of any third party funder or ATE insurer retained by the claimants. The evidence provided may provide a sufficient basis upon which to justify a successful SFC application.
The court indicated that ATE policies are usually written to benefit claimants and their funders. They are rarely designed to provide “sufficient protection for defendants”. The court noted that it may be prudent for ATE Insurers to develop ‘defendant friendly’ ATE policies, which might obviate the need for claimants and their funders to provide security for costs. Those policies could be directly enforceable by defendants and contain stringent anti-avoidance provisions. Insurers offering ATE insurance should consider the merits of developing such products, which may attract a higher premium, and stand to provide greater protection to all parties to group litigation.
Kennedys’ professional liability team is instructed by one of the advisory defendants in the Ingenious Litigation, who successfully obtained security for costs against Therium.