High Court: Claimants' litigation funder ordered to provide security for costs

The High Court has handed down a significant judgment giving important guidance on the Court’s approach to issues of costs-sharing and security for costs against litigation funders in large multi-party claims. The judgment will be a key touchpoint in this developing area of law.

Background

The Ingenious Litigation arises out of a number of film production partnerships, set up by the Ingenious group in the mid-2000s. Individual investors made capital contributions to the partnerships, which produced a number of leading films including Avatar and Life of Pi. The investors anticipated being able to secure certain tax benefits from their investments.

Several years later, HMRC challenged the tax treatment of the partnerships. A number of investors have brought claims against Ingenious and various financial advisers, alleging (amongst other things) that they entered into their investments as a result of misrepresentations. Most of the Claimants’ costs are funded by third party litigation funders, including an entity forming part of the Therium group.

Security for costs application

The Claimants sought an order that their liability for adverse costs should be several, rather than joint, and allocated pro-rata to the size of their original investments. Ingenious, as well as certain of the financial advisers sought, in turn, an order that Therium provide security for the Claimants’ costs.

Therium's argument in opposition in part focused on the fact that, it said, any adverse costs order would be able to be met by either (i) the Claimants themselves, some of whom were (it said) wealthy; (ii) Therium's own resources; and/or (iii) certain ATE policies taken out by the Claimants.

The Claimants and Therium had declined to provide, in advance of the hearing, full details or comprehensive evidence in relation to any of these three potential avenues of resource. For example, Therium did not provide any financial information about the entity funding the claims; any specific information about the Claimants' assets; or full unredacted details of the ATE policies.

Judgment

Following a three-day hearing in November 2019, Nugee J handed down judgment on 10 February 2020 granting Ingenious' application for security for costs.

Nugee J first held that it is appropriate for the Claimants to have the benefit of several liability, pro-rata to their contributions. He noted that the amount of each claim was relatively small as a proportion of the whole, and the size of the claims varied significantly, so that it would not be appropriate for any one Claimant (or subset of Claimants) to be liable for all the Defendants’ adverse costs.

However, Nugee J then went on to hold that Therium should provide security for costs in relation to the Claimants it was funding. In doing so the Judge:

• Rejected Therium's argument that a costs order could be fulfilled by individual Claimants. The evidence before the Court did not "give enough comfort that a costs order in favour of a Defendant would be fully discharged." The Claimants had provided only "ballpark" figures about the net wealth of 33 of the largest Claimants, but the Judge noted that this information was not granular enough: the figures "do not indicate what sort of assets are held by each Claimant, whether permanent or transient, where they are located, or how easy it would be to execute against them, or even if they are held in the name of the individual…a snapshot of a person’s wealth does not give any guarantee that their position will be the same in a number of years’ time when the proceedings have run their course." The effect of the Judge's ruling on liability apportionment also meant that individual Claimants could only ever be liable for their apportioned share anyway, so information about 33 of the Claimants was not sufficient in any event.

• Rejected Therium’s assertion that it could be assumed that Therium would fulfil any costs order made against it or the Claimants given its reputation and membership of the Association of Litigation Funders. The Judge noted that, as set out above, "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…Nor am I confident that its membership of the ALF…is sufficient to give one enough confidence that if it were facing a large liability for costs at the end of the day, that the money would be forthcoming."

•  Rejected the Claimants’ and Therium’s argument that certain policies of ATE insurance would constitute adequate security for the Defendants. The terms of the ATE cover suggested that they might not be enforceable by the Defendants. Moreover, the Judge was concerned that one particular clause in the litigation funding agreement between certain of the Claimants and Therium suggested that money recovered by the Claimants under the relevant ATE policies would be immediately held on trust for Therium anyway, suggesting it would not be available to satisfy an adverse costs order in favour of the Defendants. Ultimately, subject to the Claimants procuring certain further assurances and waivers in relation to the ATE terms, and assigning the proceeds to the Defendants, the Judge decided that between half and 2/3 of the value of the policies would be taken into account.

   

• Held that the Defendants had real prospects of securing an order for indemnity costs if the claims were unsuccessful. In the circumstances it was appropriate for them to receive security for 75% of their incurred and estimated costs.

   

• Rejected Therium's argument that it should have a cross-undertaking in damages, on the basis of the losses identified in Therium's evidence (i.e. the Claimants having to pay Therium a larger return than would otherwise be the case, as a result of Therium's provision of security). The Judge did not consider that the function of a cross-undertaking in damages was to "underwrite" the commercial arrangements between claimants and their funder.

Therium was in total ordered to pay approximately £4 million in security, in a form to be agreed. That figure assumes that the assurances and waivers the Claimants need to procure in respect of the ATE policies, mentioned above, are indeed procured. The Judge indicated that if they were not, he would be "prima facie inclined to order Therium to provide security without regard to the value of the ATE policies".

RPC acts for Ingenious in the proceedings.

The judgment citation is [2020] EWHC 235 (Ch).