Spring Lecture Tour

Already the diary is filling up for the first few months of next year, and so, precipitate as it may seem, I have had to bring forward my booking arrangements for my spring lecture tour.

If you would like me to come and give a talk to your firm, please do drop me a line and we can discuss matters further.

I charge a reasonable fee and some travelling expenses, and would like some lunch and coffee.

Popular seminars that I deliver include:

Costs budgeting

Clients, retainers and bills

Costs and commercial clients

A conversation on costs

Soon the clocks will be changing and winter will have arrived, but the next few months usually pass very quickly. Mince pie anyone?

A new model for group litigation

This summer has seen the conclusion of a number of group actions, including the RBS Rights Issue litigation and the failed attempt at collective proceedings of Merricks v MasterCard Incorporated [2017] CAT 18 under section 47B of the Competition Act 1998. All of these group actions have thrown up interesting issues on the relationship between group litigation or “class action” and litigation funding, which will prove food for thought in the years to come.

Group litigation is on the rise. The 1980s and 1990s saw a series of pioneering group actions in the fields of product liability and personal injury, which in turn led to judges developing a series of principles for the efficient management and disposal of group litigation. These in turn found their way into the Civil Procedure Rules, in particular part 19, practice direction 19B and part 46, which deals with costs. These actions may historically have benefitted from Legal Aid funding, or the backing of trade unions.

The demise of Legal Aid and the introduction of LASPO 2012 with the removal of recoverable additional liabilities left an effective funding gap: whilst for example personal injury claims continue to benefit from a protected costs regime, through for example, qualified one way costs shifting, other areas such as environmental litigation where there is a need to insure against adverse costs have been much more problematic.

The way this gap can and is being filled, is through group litigation to achieve economies of scale and to obtain litigation funding, which can be used to purchase ATE insurance and fund what can be very expensive disbursements.

The important group actions of the second decade of the 21st century, will include environmental litigation, shareholder actions, competition claims, and particularly claims for breach of data protection and privacy laws: a single data breach of personal information held by a large plc could affect tens of thousands of customers or employees.

In turn, the compilation and structuring of cohorts of claims and funding them, will pose unique challenges for solicitors in terms of constructing a litigation scheme, complying with increasingly onerous requirements for client care and regulatory considerations, and measuring and recovering costs. Information technology, and artificial intelligence will assist this process and also throw up more problems which will have to be anticipated and managed.

I therefore turn to what I consider can be described as the key considerations when contemplating venturing into the field of group litigation. Overall I am optimistic that information technology and increasing access to capital, through litigation funding will facilitate group litigation but also lower barriers to entry into what is a very profitable line of business. Even a small well run firm, provided it can access the necessary expertise, technology and capital, can rapidly step up to handle this challenge.

The starting point for group litigation will inevitably be “an event”, causing harm to large numbers of people. It will become apparent that there has been a disaster, a large scale data breach, a well publicised breach of competition law, a product liability scandal, a chemical leak or some other event giving rise to a cause of action.

A solicitor who realises that there is a business opportunity and wishes to act for the victims must then carefully set about constructing a litigation scheme, which satisfies regulatory requirements, is properly funded, fair to the clients and which will profitable at the end of the day.

Underpinning every consideration are the regulatory requirements. Many solicitors will not have read the Code of Conduct since law school, but it contains clear and precise directions on how clients must be treated fairly, provided with the best possible costs advice, the restrictions on advertising and payment of referral fees. Solicitors must also consider the requirements they are subject to, when undertaking insurance mediation activities and now the role of the FCA, which is an issue when funding litigation, if clients are being provided with credit, for eg the funding of disbursements.

Client relationships have a new dimension, when undertaking group litigation. How do you take instructions from 10,000 clients? The usual way is to structure a management committee of representative clients, who have authority to act on behalf of all the clients, effectively being the body which gives instructions to the solicitors in a manageable way. This in turn means that an agreement to provide authority to act must be made between each client and the committee, and then between the committee and the solicitors. Both agreements are usually contained in one document. This is often described as a litigation management agreement.

The drafting of a litigation management agreement poses further challenges. A solicitor will be conscious that it should contain provisions which deal with the usual incidences of litigation, a procedure for settling the case, or a formula for distributing the proceeds to clients who may have different degrees of interest. Can it legitimately commit the cohort of claimants to agreeing unlimited funding advances, ultimately repayable from damages? Can it grant a unilateral power of variation of the terms of the retainer to the solicitors? Would these provisions infringe the obligations in the Code of Conduct to act fairly?

In a group action, the need for funding will be evident and the funding requirements will run into millions. How can this money be obtained, as few firms will have a “war chest” which they could or would wish to use to fund the litigation?

Litigation funding is often used as a synonymous term for third party funding, but it is wider than that. Third party funding is on the rise due to the enormous thirst litigants have for capital. A firm such as Burford Capital, has seen its share price rise from just over 400p per share a year ago, to 1135p at the time of writing, as business is booming.

The drafting of a funding agreement is an intricate business as it must lock in, with the litigation management, and also the terms of the ATE insurance policy, it will invariably be used in part to purchase. The suite of documents would ideally be drafted together.

But third party funding, where the funder asks for three times their outlay or a percentage of damages recovered, whichever is higher, as their fee is expensive. There are other options available.

The litigation against the West Bromwich Building society last year, by the Property118 action group, was crowded funded, using the platform www.crowdfunder.co.uk. It’s campaigns are still ongoing. There is no reason in principle, why crowdfunding cannot be used more widely for group litigation, but it requires detailed knowledge of the regulatory provisions, special purpose vehicles and potential liabilities eg for non party costs to structure efficiently.

On the horizon, is an even more interesting potential development that of raising litigation funding through an initial coin offering (ICO), a cryptocurrency. Although bitcoin remains the best known currency, anyone can launch an ICO, which involves selling cryptographic tokens to investors. These can represent anything from a currency to exclusive access to a service, or potentially a share in the proceeds of litigation. Regulators are globally playing “catch up” with this phenomenon, where already there is a global market estimated at £136 billion.

A solicitors retainer in group litigation will almost invariably be a variant of a conditional fee agreement (CFA). But this could be a collective CFA (CCFA) made with a special purpose vehicle or a normal CFA or a CFA Lite. Almost inevitably a solicitor will charge a success fee. But this in turn, as it will be payable out of the proceeds of the action, will necessitate a priorities agreement, between the litigation funder, the ATE insurer and the lawyers, as a scenario might arise where there would be insufficient money recovered to pay all these parties in full. Moreover, a solicitor will be mindful of the need to ensure that the client’s interests are protected too, with a given percentage of recoveries ringfenced for the client.

The efficient running of group litigation will be dependent on information technology. A solicitor can expect to obtain his clients through the Internet and should consider the construction of a “portal” which acts as an advertisement, but also permits a client to complete retainer documentation, to signify agreement to giving authority to a committee, and which provides information to the client. This in turn requires consideration of regulatory requirements and also cyber security.

Information technology also raises interesting dilemmas for the calculation of individual costs. The cost of servicing a client through email, who is simply part of the cohort, will be very low, well under a £100. At a press of a button, 10,000 standard letters providing a monthly update can be sent. How does one quantify and claim for such work which is delivered at near zero marginal cost? In earlier litigation 1/3 of a unit has been allowed for paralegals stuffing form letters into envelopes and paying for a stamp. In the digital age such justifications can’t apply. The humble unit, however, may not yet have had its day.

From the defendant’s point of view, any costs Order made as part of the GLO will usually provide for several liability on the part of the claimants. There are few defendants who will contemplate with equanimity 10,000 or more sets of enforcement proceedings, each to recover a fraction of their total costs.  Accordingly a defendant will scrutinise hard the provision made by the claimants for ATE insurance, be concerned to find out the identities of the litigation funders, and consider at an early stage, applications for security for costs. The RBS Rights Issue litigation demonstrates how important early applications are, and astute litigators will also be aware of the pressure such applications can place upon claimants.

A version of this article first appeared in Litigation Funding magazine October 2017.

Creative accounting

In the last few months I have been undertaking an increasing number of detailed assessments where costs management orders have been made in the substantive proceedings and there are “budgeted costs” and phase totals to consider when assessing the costs, acting for both receiving and paying parties.

The hearings have been illuminating both for the problems that are emerging when carrying out the assessment, but also for the fact that many of the problems are created at the time when the costs management order is made but not spotted and then lie placidly hidden within the file, until bursting into sight again some years down the line. So what follows are some personal thoughts, on the problems and potential improvements that can be made to the budgeting process.

Take ownership

All too often the budget is outsourced, to a costs draftsman or costs lawyer, who is left to get on with the budget. The reasons for taking this course can range from a belief that it is more efficient, needs a specialist knowledge of costs or simple disinterest in the turgid exercise of creating Precedent H.

But unless there is extremely close co-operation between the drafter and the solicitor actually running the case, there will be a plain disconnect between the budgeted costs and what the case actually requires. This will only be exacerbated, if the budget is prepared a significant time before the CCMC. There is no substitute in my view, for the solicitor running the case, going through the Precedent H, line by line, and checking or challenging what is put in it by the drafter. The profitability of the case depends upon getting a robust budget, fit for purpose.

Take stock

I still undertake a significant amount of personal injury litigation and have devised my own project management form, whereby I list the assumptions that I have made about the case, and then plot out my fees. Drafting particulars of Claim, drafting schedule(s) of loss, conferences, part 35 questions, brief fees for CCMC and PTR, refresher fees, advices, approval hearings, a joint settlement meeting etc and provide this to my instructing solicitor for inclusion in the budget.

This “project management” function extends to all aspects of the budget, including getting quotations from expert witnesses, and particularly a solicitor sitting down and estimating the time that will be required for key pieces of work, such as disclosure, and drafting of witness statements. The Precedent H will never be perfect, but at least it should be informed.

Update

“Phew. That’s that done. Lets get on with the case.” is a recipe for disaster and selling the ultimate costs claim short. There is scope within the rules in part 3 CPR, to revise budgets when there have been significant developments in the litigation. If there needs to be a further round of expert evidence, or further experts instructed, plainly the budget should be revised.

But I would go further and suggest that every time the case comes back to court, there should be scope to revise the parties budgets. And this should be seized by the paying party as well as the receiving party: budgets can go down as well as up, and if the experts are largely agreed, the trial length and its costs might fall to be revised downwards. Moreover if there is a significant gap between the submission of Precedent H and the CCMC hearing, do an updated Precedent H, a few days before.

Attendance

I can see no need for there to be more than one advocate at a CCMC, who should be competent to conduct both the advocacy for the directions and the costs management. Costs and costs budgeting is a necessary skill set for all advocates. Moreover it removes duplication and the need to co-ordinate submissions, ensuring that matters are more likely to be addressed holistically.

Good reason arising from flaws with the budgeting process

Problems that have recently have arisen, include budgets which have significantly underestimated costs for phase totals, but for which there is no good reason for a  departure and budgets which were prepared 4 months before a CCMC, which massively understated incurred costs when the budget was approved, which were then sought to be later claimed in the Bill.

Accuracy in calculating incurred costs is important. Budgets which underestimate incurred costs, might be misleading, and falsify the premise on which budgeted costs are set, opening the door for a paying party to argue there is good reason to depart from the budgeted costs, as a false picture was presented at the CCMC.

Trust and fiction

I always read carefully the Precedent Q, I receive with the Bill when acting for  a paying party to look at the costs claimed against the budgeted costs. God knows why, because it could be a complete work of fiction, and I would have very little means of discovering that.

Although Bills are divided into many, many parts, with work attributed to phase totals, I have no means when acting for a paying party of doing more than the crudest cross check as to whether the costs claimed actually have been properly attributable to the correct phase. The scope to conceal work within the Bill or indulge in creative accounting is enormous.

Revised budgets

Rule 3.18 CPR is clear that when applying the budget, it is the last approved or agreed budget which is applied. The Rules contemplate that a budget will be revised at various points in the case. But what does one do with budgeted costs, which by the time a further CCMC takes place, have by reason of effluxion of time become incurred costs? Practically how does one draft the Precedent H, given that there is no column for incurred costs which were once budgeted? Which column do they go in then? And if it is incurred, then on the last approved budget, the former budgeted costs will escape the stricture of costs budgeting.

Apportionment of phase total

Say £20,000 is allowed as a phase total for trial. The costs claimed on the Bill amount to £30,000. But included within the trial costs, are VAT’able and non-VAT’able disbursements, fees some of which attract a recoverable success fee, and others of which do not. Which elements of fees and in what proportions, of the £30,000 is allowed as a phase total? There is no guidance, and some judges are adopting a parri passu approach. This can have a very significant effect on the total claim for costs.

Perhaps most significantly, I have not to date, found that costs management is making for shorter detailed assessment hearings, not least because the incurred costs still have to be gone through, and the costs budgeting arguments simply add to the overall time required, to assess a bill.

Costs budgeting 2017

On 16th October 2017 I am speaking at the Law Society Commercial Litigation Conference in Chancery Lane on the subject of costs budgeting.

Full details of the conference can be found here:

https://events.lawsociety.org.uk/ClientApps/Silverbear.Web.EDMS/public/default.aspx?tabId=37&id=1798&orgId=1&guid=07979564-cb9b-404e-ae6c-190c60330413

I understand that there are still a few places left, but for those who cannot attend the conference, I have placed a copy of the paper that I am delivering here:

Costs Budgeting A presentation for the Law Society PDF

I am now undertaking a significant number of detailed assessments, both for paying and receiving parties, in budgeted cases where a lot of new issues are being thrown up about the budgeting regime. In the next couple of posts on this blog, I shall consider those further.

 

Hard times

The Civil Proceedings Fees Order 2008 amongst other horrors, provides a set of convoluted provisions for remission of court fees for people of modest means.

A complicated scheme is set up by article 5 and schedule 2 of the Order, providing that if a gross monthly income and/or disposable income test is met, then a party can be granted a fee remission.

The amount of detail required to complete a fee remission application, and the supporting documents is frankly eyewatering, and must be completed on a “per fee” basis, not a per case basis, so potentially requiring multiple applications during the same piece of litigation.

I am seeing points of dispute arise that paying parties can take advantage of a receiving party’s right to a fee remission to argue that they should not have to pay court fees, which may have been paid by the receiving party.

The arguments put forward by paying parties are that in circumstances where court fees are paid when a client is entitled to a remission, the payment constitutes an unreasonable expense, as the receiving party could have avoided the expense entirely. The argument is not the same as, but akin to, an argument that the failure to claim a remission is a failure to mitigate.

Such an argument is likely to be misconceived for two reasons. The first is that the sheer amount of time a solicitor must spend, to complete the applications will in many cases outweigh the savings to be gained from doing so. The decision to pay the court fee may actually be a conscious decision to adopt a cheaper course of action.

The second reason arises from a point of law. Many personal injury practitioners will be familiar with the battles a decade ago, where it was argued on the part of the insurers that they could reduce their claims for care, by requiring a claimant to claim their entitlements to social care from the public purse, and if they did not, that claimant was acting unreasonably in failing to mitigate their loss and the sums which could have been obtained from the state, should be deducted from the damages they were claiming for care costs.

In the case of Peters v East Midlands Strategic Health Authority [2010] QB 48, the Cout of Appeal found no difficulty in finding that the argument was misconceived, as the claimant had a right to claim damages from a tortfeasor without any requirement to mitigate their loss by reliance on the public purse:

53 Having reviewed these authorities, we can now express our conclusion on this issue. We can see no reason in policy or principle which requires us to hold that a claimant who wishes to opt for self-funding and damages in preference to reliance on the statutory obligations of a public authority should not be entitled to do so as a matter of right. The claimant has suffered loss which has been caused by the wrongdoing of the defendants. She is entitled to have that loss made good, so far as this is possible, by the provision of accommodation and care. There is no dispute as to what that should be and the council currently arranges for its provision at The Spinnies. The only issue is whether the defendant wrongdoers or the council and the PCT should pay for it in the future.

54 It is difficult to see on what basis the present case can in principle be distinguished from the case where a claimant has a right of action against more than one wrongdoer or a case such as The Liverpool (No 2) [1963] P 64 where a claimant has a right of action against a wrongdoer and an innocent party. In The Liverpool (No 2) , those two cases were treated alike. In our judgment, the present case should be treated in the same way. It is true that in the present case, the claimant’s right against the council is the statutory right to receive accommodation and care. But the fact that there is a statutory right in the claimant to have his or her loss made good in kind, rather than by payment of compensation, is not a sufficient reason for treating the cases differently.

If that is the position in relation to damages, it is difficult to see why it should be any difference in relation to costs, and a claimant declining to rely on a statutory right to fee remission and actually paying the court fees should be able to recover them as of right from the tortfeasor.

The Imitation Game

QUOCS (or QOCS as some term it) is one of the more sensible aspects of the LASPO 2012 reforms: in return for the abolition of recoverable success fees and ATE premiums, the insurance industry and other compensating bodies were made subject to a regime of one way costs shifting, which was broadly fair and ensured access to justice for injured people.

This is not to say that the scheme is not without its rough edges: there are still quite a number of points, which fall to be worked out.

Earlier this year I wrote about one of them, namely to what extent in a multi-party action successful defendants could recover their costs from any pot of damages that a claimant won against an unsuccessful defendant.

The article is here:   http://costsbarrister.co.uk/uncategorized/quocs-and-nihl-claims/.

Rather sooner that I expected, the arguments I formulated have found favour with the County Court bench and have been accepted in this case:  Bowman v Norfran Aluminium HH Judge Freedman County Court at Newcastle 11th August 2017 Approved judgment.

I am grateful to Caroline Cousins of A and M Bacon, for kindly forwarding me a copy of the judgment and acknowledging that the article on this blog played some useful role in the arguments put forward successfully on the part of the claimant.

I do not yet know if there will be an appeal from this judgment. There are a number of potentially very good arguments on the part of a defendant in this situation, which do not feature in the judgment and may or may not have been raised in oral argument.

The point is now starting to gather traction: I am arguing it next month in another case, and so yet another area of satellite litigation is launched.

Your flexible friend

An interesting and potentially lucrative area of work for practitioners in the field of consumer rights can be found in competition law. Competition law in England and Wales has a long pedigree which pre-dates the establishment of the common law and can trace its origins back to legislation emanating from the Roman Empire.

In medieval times, the Plantagenet kings legislated through Parliament such acts as the Statute of Labourers which to control wages and prices, in an early attempt at market manipulation, in the aftermath of the Black Death.

Even before the birth of modern economics it was recognised that markets are prone to failure, have a tendency towards monopoly and need to be regulated in the public interest.

Historians will note that on the other hand the same kings also were very fond of granting monopolies themselves to such of their subjects as were willing to pay a fee, finding them a useful source of income not dependent on the will of Parliament.

These days modern competition law in England and Wales is largely to be found in the Competition Act 1998 and the Enterprise Act 2002, but this area of practice is also strongly influenced by European Union law, as inevitably many transactions will span European borders. For how much longer this will remain the case as the country lurches towards the door marked Brexit, remains to be seen.

The principal body tasked with the enforcement of competition law is the Competition and Markets Authority, but other public bodies have a role to play within particular spheres in enforcing competition law and consumer disputes can end up in the Competition Appeal Tribunal by way of litigation. It is this latter aspect of the work of the tribunal which can give rise to cases where damages can be claimed on a massive scale.

One particular case that is of interest for reasons of costs and litigation funding, relates to the MasterCard litigation which concluded this summer and which will be considered below.

The case of Merricks v Mastercard Competition Appeal Tribunal [2017] CAT 16 was concerned with an application for a collective proceedings Order. The application was summarised by the tribunal in these terms:

This is an application for a collective proceedings order (“CPO”) under sect 47B of the Competition Act 1998, as amended, (the “CA”) to enable the continuation of collective proceedings on an opt-out basis claiming damages for breach of what is now Art 101 of the Treaty on the Functioning of the European Union (“TFEU”). The proceedings are brought on behalf of a class of some 46.2 million people. The class is defined in the application as follows: 1

“Individuals who between 22 May 1992 and 21 June 2008 purchased goods and/or services from businesses selling in the UK that accepted MasterCard cards, at a time at which those individuals were both (1) resident in the UK for a continuous period of at least three months, and (2) aged 16 years or over.”

The collective proceedings regime warrants some further explanation as was later set out in the tribunal’s judgment.

The Consumer Rights Act 2015 (“CRA”) made substantial amendments to the CA as regards private actions in competition law. The new sect 47A CA entitles a person to make a claim in the Tribunal for loss or damage in respect of an infringement of, inter alia, Art 101 TFEU determined by a decision of the EU Commission, or an alleged infringement of Art 101 TFEU. The new sect 47B is entitled “Collective proceedings before the Tribunal” and includes the following provisions:

“(1) Subject to the provisions of this Act and Tribunal rules, proceedings may be brought before the Tribunal combining two or more claims to which section 47A applies (“collective proceedings”).

(2) Collective proceedings must be commenced by a person who proposes to be the representative in those proceedings…

(4) Collective proceedings may be continued only if the Tribunal makes a collective proceedings order.

(5) The Tribunal may make a collective proceedings order only—

(a) if it considers that the person who brought the proceedings is a person who, if the order were made, the Tribunal could authorise to act as the representative in those proceedings in accordance with subsection (8), and

(b) in respect of claims which are eligible for inclusion in collective proceedings.

(6) Claims are eligible for inclusion in collective proceedings only if the Tribunal considers that they raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings.

(8) The Tribunal may authorise a person to act as the representative in collective proceedings— (a) whether or not that person is a person falling within the class of persons described in the collective proceedings order for those proceedings (a “class member”), but

(b) only if the Tribunal considers that it is just and reasonable for that person to act as a representative in those proceedings.

(11) “Opt-out collective proceedings” are collective proceedings which are brought on behalf of each class member except—

(a) any class member who opts out by notifying the representative, in a manner and by a time specified, that the claim should not be included in the collective proceedings, and

(b) any class member who—

(i) is not domiciled in the United Kingdom at a time specified, and

(ii) does not, in a manner and by a time specified, opt in by notifying the representative that the claim should be included in the collective proceedings.”

17. Further, sect 47C(2) provides:

“The Tribunal may make an award of damages in collective proceedings without undertaking an assessment of the amount of damages recoverable in respect of the claim of each represented person.”

18. The claims which are combined in collective proceedings must each be claims “to which section 47A applies”. The statutory regime for collective proceedings therefore constitutes a new procedure not a new form of claim.

19. Moreover, the grant of permission to pursue such claims by way of collective proceedings is expressed in discretionary terms in sect 47B(5) and requires two distinct aspects to be satisfied: (a) the Tribunal must authorise the person bringing the proceedings to act as the class representative; and (b) the Tribunal must certify the claims as eligible for inclusion in such proceedings. This is reflected in rule 77(1) of the Competition Appeal Tribunal Rules 2015 (the “CAT Rules”).3 The two requirements are addressed in separate rules: rule 78 (authorisation of the class representative); and rule 79 (certification of the claims). The CAT Rules are supplemented by the Tribunal’s Guide to Proceedings 2015 (the “Guide”), which has the status of a practice direction pursuant to rule 115(3).

MasterCard (unsurprisingly) fought the making of a collective proceedings order tooth and nail, and part of their arguments as to why the Order should not be made, related to the litigation funding which had been obtained to support the proceedings. The thrust of their objections on this aspect is summarised below:

93. Mastercard submitted as a separate and independent ground of objection that the Applicant should not be authorised as a class representative. The Applicant, Mr Walter Merricks CBE, is a qualified solicitor who has had a long and distinguished career in fields concerned with consumer protection. From 1996-1999, he was the Insurance Ombudsman, and between 1999 and 2009 he was the chief ombudsman of the Financial Ombudsman Service, which operates under the statutory framework of the Financial Services and Markets Act 2000. The Applicant has served on a number of public inquiries examining issues related to legal procedure and he is currently a commissioner on the Gambling Commission and a trustee and non-executive director of the legal charity, JUSTICE.

94. The Applicant is a member of the class covered by the proposed CPO but there is no suggestion in that respect that he has any conflict of interest with other class members. By his background, experience and qualifications, it is clear that the Applicant is well able to give appropriate instructions to the lawyers instructed on behalf of the class and is eminently suited to act as the class representative in these collective proceedings. Mastercard indeed did not suggest otherwise.

95. The opposition to authorisation of the Applicant related not to him personally but to the terms of the agreement (the “Funding Agreement” or “FA”) which he had entered into with a third party funder, by which the collective proceedings and any liability in costs would be funded. It was argued by Mr Ben Williams QC for Mastercard and by Mr Nicholas Bacon QC for the Applicant in response.

97. The objection was based on three grounds, which can be summarised as follows:

(i) the Funding Agreement would not enable the Applicant to continue to fund the litigation or pay Mastercard’s recoverable costs, if he were ordered to do so, since it could be terminated by the funder;

(ii) even if it could not be so terminated, the limit of £10 million for funding a liability for Mastercard’s recoverable costs was inadequate;

(iii) the terms of the Funding Agreement gave rise to a conflict of interest on the part of the Applicant.

Mastercard contends that these are very material considerations on the question of authorisation of the class representative. See in that regard rule 78(2)(d) and (3)(c)(iii).

In effect, the existence of litigation funding in a particular form, was turned against the applicant, as a reason why the proceedings should not be authorised. The tribunal therefore had to consider how litigation funding which provided for a substantial fee to be paid in the event of a successful outcome ran with the grain of the costs provisions governing the proceedings.

The starting point was that it was accepted by the tribunal that a funder’s fee was a proper item of costs or expense, with echoes of the arguments in  the case I argued last year of Essar being deployed:

115. Sect 47C CA introduced new and distinct provisions concerning the costs of collective proceedings. We see no reason to give the words used a special meaning or to treat them as terms of art governed by jurisprudence on very different statutory provisions. In the ordinary sense, if a third party agrees to provide substantial monies in order to fund litigation, the payment which has to be made to that third party in consideration of this commitment, whether out of the damages recovered or otherwise, is a cost or expense incurred in connection with the proceedings.

116. As for the supposed difficulty of the lack of expertise of the Tribunal in deciding what is an appropriate price for litigation funding, on which Mr Williams sought to rely, that is no less novel a task than the process of approving a collective settlement under sects 49A or 49B CA. There is now a developing market in litigation funding, and the Tribunal can if necessary hear evidence as to what would represent an appropriate return. We note that this appears to be what Sir Philip Otton did as the arbitrator faced with such a question in the Essar Oilfields case: see at [22].

117. Mr Williams submitted that the CAT Rules cannot give the Tribunal a broader power than the governing statute. That is clearly correct, but our conclusion is entirely consistent with the CAT Rules. Rule 104(1) defines “costs” in terms of the costs and expenses recoverable in proceedings in the civil courts. As the further sub-paragraphs of rule 104 show, that is clearly referring to an adverse costs order (e.g inter partes costs). This definition is expressly “for the purpose of these rules.” Rule 93(4) addresses specifically the operation of sect 47C(6) CA. It provides that an order can be made for payment in respect of the class representative’s “costs, fees or disbursements”. Since the word “costs” in that expression accordingly has the meaning defined by rule 104(1), “fees or disbursements” clearly refer to additional matters. They are apt to cover, for example, an ATE premium or the fee of a commercial funder.

So far, so good but due to drafting errors, in the litigation funding agreement there was not actually an obligation on the part of the applicant to pay the funder’s fee: which in turn raised the question how this could be one of his costs or expenses.

118. For Mastercard, it was submitted that even if the amount due to the funder under sect 2.5(b) FA constitutes “costs or expenses” within the terms of sect 47C(6) CA, given the nature of the contractual obligations on the Applicant under sects 2.1 and 2.5 FA, it was not a cost “incurred” by the Applicant. The obligation under sect 2.1, which appears to be somewhat duplicated in sect 2.5(b), is only a “best endeavours” obligation and in any event does not impose any liability on the Applicant to pay the “Total Investment Return”. As we understood it, the objection to the obligation under sect 2.5(c) was that it is entirely contingent: there is no obligation at all until the Tribunal has made an order for payment of these monies to the Applicant. As regards either form of obligation, it was therefore submitted that since this is not a cost incurred by the Applicant, there is no basis on which the Tribunal could order that it be paid to him, and the primary position of payment to the prescribed charity under sect 47C(5) CA would therefore apply.

119. For the Applicant, it was emphasised that payment of the fee charged by the funder was essential for the operation of the Funding Agreement. Clearly, no commercial funder would provide substantial funding and assume the significant financial risk of major litigation without consideration, and the structure of the collective proceedings regime for opt-out proceedings was to enable that consideration to be paid out of the unclaimed damages awarded to the class of claimants. The Applicant could not be expected to assume an independent personal liability to the funder for its fee. The statute should accordingly be given a purposive interpretation to encompass a funding structure such as the present. In that regard, we were referred to a range of extra-judicial material which recognised the importance of third party funding in enabling access to justice.

120. We accept that sect 47C(6) CA should be given a purposive construction to further the effective operation of the collective proceedings regime introduced by Parliament. However, such a purposive approach has limits and cannot do violence to the language of the statute. We do not see how the obligation in sect 2.1 and/or sect 2.5(b) FA can be viewed as an obligation on the Applicant to pay the fee of the funder and thus come within the ambit of sect 47C(6), even if broadly interpreted. The obligation in sect 2.5(c) FA comes closer, but since it does not arise until after the Tribunal has made an order for payment, we still consider that it would not constitute an incurred liability for which the Tribunal has power to make an order.

121. Thus, in its present form, we consider that the Funding Agreement would not entitle or enable the Tribunal to order the payment of the “Total Investment Return” in the manner envisaged. It follows that the funder could terminate under sect 2.4 FA; and given that it faces the prospect of failing to recover the consideration for which substantial funds would be advanced, that must be, at the very least, a realistic possibility. As things stand, therefore, we would not authorise the Applicant to act as the class representative.

This could have been fatal to the application. However the tribunal went on to exercise the prerogative of mercy:

122. However, faced with this submission, Mr Bacon said that the Applicant was prepared to amend the Funding Agreement so as to provide for an obligation on him to pay the Total Investment Return, subject to recovering it out of the unclaimed damages pursuant to an order of the Tribunal. That would create a conditional liability, but nonetheless a direct liability. Although this offer was made only towards the end of the oral argument, it clearly would not be right to refuse to authorise the class representative if the obstacle to that authorisation could be readily overcome Accordingly, the Applicant was permitted to put in a short note after the conclusion of the hearing, setting out the terms of the proposed amendment, with permission for Mastercard to submit its observations in writing in response.

123. This was duly done, and the Applicant informed the Tribunal that he had agreed with the funder that sect 2.1 FA could be amended so as to read:

“In consideration of the Commitment, Seller, agrees to pay the Purchaser the Total Investment Return, limited to such amount of the Total Investment Return as determined by the Tribunal to be payable to the Seller pursuant to Competition Act 1998, s.47C(6) and, subject to any order of CAT, (a) absolutely assigns, conveys, sells, sets over, transfers, and warrants to Purchaser the Transferred Costs Rights, free and clear of any Encumbrance; and (b) agrees to use his best endeavours to ensure Purchaser obtains the full benefit of the Transferred Undistributed Proceeds Rights.”

Somewhat surprisingly, no corresponding amendment was proposed to sect 2.5(b) FA. Nonetheless, the additional wording inserted into sect 2.1 imposes an obligation on the Applicant to pay the funder, conditional upon the Tribunal making an order to pay the Applicant the equivalent amount under sect 47C(6) CA.

The arguments did not stop there, as an issue was then taken on the point that section 47C did not include provision similar to that made in the Civil Procedure Rules 1998 for “CFA Lites”, permitting waivers without erosion of the indemnity principle. It can of course be observed, that there is a school of thought that no statutory intervention was required for the CFA Lite regime at all, and the original 2003 Regulations were an exercise in excessive caution.

124. In his written observations, Mr Williams argued that this does not solve the problem as it is circular: no costs are incurred by the Applicant unless an order is made by the Tribunal; therefore the Tribunal has no power to make an order since no costs have been incurred. He submitted that to encompass such a situation sect 47C(6) CA would need to contain wording analogous to those inserted by amendment in sect 51(2) SCA and the consequential rule of the Civil Procedure Rules (“CPR”) to enable the recovery of costs covered by conditional fee agreements. CPR rule 44.1(3) thus provides:

“Where advocacy or litigation services are provided to a client under a conditional fee agreement, costs are recoverable under Parts 44 to 47 notwithstanding that the client is liable to pay the legal representative’s fees and expenses only to the extent that sums are recovered in respect of the proceedings, whether by way of costs or otherwise.”

In the event the tribunal were not troubled by this point when reaching their decision:

125. However, sect 47C(6) CA is not an inter partes costs rule and it is not dependent on a strict application of the indemnity principle as that applies to recovery of costs. As we have already observed, this is a specific rule designed for a new and discrete procedural regime. The question is whether the statutory reference to a cost or expense being “incurred” is broad enough to cover a conditional liability. In our judgment, it is. Given the purpose of the CRA and the new collective proceedings regime, that is the correct and appropriate construction. Indeed, we think it is similarly the basis on which this provision, in conjunction with rule 93(4), enables the recovery out of unclaimed damages of the success fee or ‘uplift’ element of legal costs “incurred” under a conditional fee agreement, which is not recoverable as costs in the High Court (and therefore does not fall within rule 104: see also rule 113). Put another way, if a funding agreement contained a clause stating:

(a) the class representative is obliged to pay the funder’s fee of £x;

(b) the obligation under sub-clause (a) is reduced to the extent that the amount which the Tribunal orders should be paid to the class representative in respect of this obligation falls below £x”

then we consider the obligation to pay the funder’s fee of £x would be a cost “incurred” within the meaning of sect 47C(6) CA. And on that basis, we do not see that the different formulation used in the amendment here should produce a fundamentally different result: that would elevate form over substance.

126. We accordingly do not think that this is a case of statutory ambiguity so as to justify resort to Hansard under the principle of Pepper v Hart. However, in the course of argument both sides took us to different passages in the Parliamentary debates on what became the CRA. We did not find the passage relied on by Mr Williams advanced matters either way. But Mr Bacon referred us to the House of Lords debate on 3 November 2014, when the Parliamentary Under Secretary of State for Business, Innovation and Skills resisted a proposed backbench amendment to what became sect 47C CA that would have prohibited the use of third party funding in collective proceedings. Baroness Neville-Rolfe stated:

“We have thought carefully about this. The Bill already contains restrictions on the financing of claims as it prohibits damages-based agreements and does not provide for a claimant to be able to recover any uplift in a conditional fee agreement. Therefore there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers.

Blocking access to such funding would result in a collective actions regime that is less effective. This would bar many organisations, including reputable consumer organisations such as Which?, from bringing cases as Parliament hoped in 2002. Restricting finance could also create a regime which was only accessible to large businesses. This would weaken private enforcement in competition law, which is of course not the Government’s wish or intention.”

The tribunal went onto observe:

127. The Government in promoting the legislation therefore clearly envisaged that many collective actions would be dependent on third party funding, and it is self-evident that this could not be achieved unless the class representative incurred a conditional liability for the funder’s costs, which could be discharged through recovery out of the unclaimed damages. Accordingly, insofar as it might be thought that the statutory provision is ambiguous, we consider that the statement from the relevant Minister in the House of Lords on the passage of the Bill supports the conclusion we have reached. In the form in which it is proposed to be amended, the Funding Agreement is therefore not rendered ineffective by sect 47C(6) CA.

The application failed on more substantive grounds, but the arguments put forward in relation to the effect of litigation funding may well have traction in other more mainstream areas of work where a group litigation order is sought.

In particular, a prize that is usually sought by claimants at the time of making the GLO is several liability for costs: this can in turn render scrutiny of funding arrangements and the ATE policy a legitimate exercise antecedent to making such an order. It may in turn fuel applications for security for costs against funders.

Loathsome reptiles

One of the few intangible benefits of the Credit Crunch and subsequent recession, was to make the banking profession more unpopular with the public than the legal profession and to shine a spotlight on a lot of their more dubious activities, including some actions which were outright criminal.

Earlier this year a number of former bankers from HBOS were jailed in consequence of their activities relating to the impaired assets unit of that bank, unhappily inherited by Lloyds. A lurid account can be found here, in that most guilty of pleasures, the Daily Mail:

http://www.dailymail.co.uk/news/article-4183510/HBOS-banker-jailed-11-years-1bn-fraud.html

Where there is a crime of this nature, there is undoubtedly a civil action: and the Daily Mail dutifully reported on the multi-million pound claim instituted by that former staple of the BBC’s light entertainment division Mr Noel Edmonds.

http://www.dailymail.co.uk/news/article-4616428/Bank-gang-caused-kill-says-Noel-Edmonds.html

That action has not reached its conclusion, and compensation claims from other victims are doubtless yet to come.

But this case is only a tip of one particular iceberg in a sea of financial mis-selling, shareholder’s rights action and civil fraud claims brought out of the wreckage of the Credit Crunch.

Many of these claims, which can be very substantial are backed by litigation funding: which is a necessary element in causing group action or large commercial claims to gain critical mass.

Litigation funding is used to pay for expensive expert evidence, to partly fund the fees of expert commercial counsel who typically work on a partial CFA basis, with base fees due in any event and above all to purchase ATE insurance, the existence of which buttresses arguments that the potential adverse costs liability of any individual claimant to group litigation should be several and not joint.

The role of a solicitor acting for claimants who bring large scale litigation backed by litigation funding, can assume elements of project management as financial implications, the operation of litigation management agreements, and problems of co-ordination of a cohort of many thousands of clients can consume large amounts of time.

Litigation funding is often central to points raised in interlocutory skirmishing, as lawyers acting for defendants will see that it’s existence both fuels the litigation brought against their clients, but also presents an opportunity to derail litigation if the benefit the claimants can draw from it can be curtailed.

The  litigation funder (whose identity may not be apparent) may also form a tempting target both for a security for costs application and a source of non-party costs, should any ATE policy prove inadequate.

Some of these considerations were seen at work, in the Royal Bank of Scotland Shareholder Rights Issue litigation, which reached it’s conclusion this year, in particular there were two lengthy judgments of Hildyard J, which dealt with issues such as the disclosure of an ATE policy, whether litigation funders should be identified, and whether security for costs should be ordered against a litigation funder.

In the first of these judgments The RBS Rights Issue Litigation [2017] EWHC 463 (Ch) the judge had little difficulty in determining both that there was jurisdiction to order disclosure of the identities of litigation funders, but also that there was a low threshold for making such an order:

33. As to (a) above, I am not persuaded that the Court should require to be satisfied, as a condition of making an order disclosing details as to the funder(s), that the applicants have unequivocally determined to bring an application for security for costs once the details are revealed.

34. Such a test would be inimical to the sensible application of the jurisdiction which not only serves to thwart any attempt by a defendant to obtain security against the claimant’s third party funder under CPR 25.14, simply by refusing to provide details of the funder’s identity, but also to enable an applicant properly to consider the merits of an application against the particular funder concerned having regard to its position, whereabouts and substance. Furthermore, such a test would be difficult to apply since it calls for what is likely to be speculation as to true and settled intent, whereas such issues are seldom black and white.

The more difficult part of the application dealt with whether the court should order the disclosure of an ATE insurance policy: English law, unlike federal law in the USA has often taken the view that insurance arrangements are irrelevant, and for example, liability insurance policies are not disclosable documents, as a claimant must “take his defendant as he finds him” including the risk, that that defendant might lapse into insolvency.

Nonetheless there are various cases in the law reports where disclosure of ATE policies has been ordered, under the general rubric that such disclosure is necessary for particular instances of “case management”, an approach that could be said to represent an unhappy fudge between the general rule of English law and a reluctant recognition, that perhaps (whisper it) the American rule is to be preferred.

Hildyard J refused to order disclosure of the ATE insurance policy, first noting:

109. Thus, I accept that generally an ATE policy, which does not impact on the issues in the case now that the premium can no longer be recovered as part of a costs award, will not be relevant. However, there may well be exceptions: for example, where the ATE policy has been deployed in the course of the proceedings whereby to influence or impact on a decision (procedural or otherwise) such as it has been in the present case (see below). That is especially likely, as it seems to me, in the context of group litigation where the considerable benefit to claimants of several liability has been obtained. More generally, I would add that, to my mind, the court will in such a context tend to be more amenable to such disclosure as the price of the other benefits, and to ensure that claimants themselves have transparency.

And then concluding:

122. In my judgment, there is some force in the Claimants’ contention that this limb of the application is to some extent in contrived clothing. It is said to be a matter of case management, rather than going to enforcement, because it would flush out a possible defence to an application, and assist the Defendants whether to bring it at all. But the case management characterisation and rationale is still ancillary to enforcement; and the true or at least primary objective is demonstrated by the form of order sought, which is premised not on the documents being needed for case management purposes, but only that there are efficiencies in making the Claimants determine now their defence to an uncertain application for security which may not be pursued anyway and further or alternatively may be demonstrated (by reference, for example, to the position of the funders) to be unwarranted. I do not think it would be right to exercise case management powers to put the Claimants to an election in respect of a potential application for security for costs to which there may well be other answers, and to which the ATE policy may not be a complete answer anyway.

Sometime thereafter the case returned to court before Hildyard J to deal with the further application pursued on behalf of the Bank, for security for costs against the litigation funders and reported in a judgment at In the Matter of the RBS Rights Issue Litigation Third Party Funders Security for Costs [2017] EWHC 1217 (Ch). He summarised the criteria by which such an application should be assessed in these terms:

19. The potential exposure of litigation funders to orders for costs against them at the end of the day does not, of course, of itself mean that an order for security for costs should be granted. At such an interlocutory stage the court must assess not only whether it is sufficiently clear that the criteria for the potential imposition of liability are fulfilled, but also whether there is a sufficient basis for interlocutory intervention. Of particular relevance in assessing whether an interlocutory order against a non-party under CPR 25.14(2)(b) to secure a contingent liability pursuant to section 51 is appropriate and just will be

(1) Whether it is sufficiently clear that the non-party is to be treated as having in effect become in all but name a real party motivated to participate by its commercial interest in the litigation;

(2) Whether there is a real risk of non-payment such that security against the contingent liability should be granted;

(3) Whether there is a sufficient link between the funding and the costs for which recovery is sought to make it just for an order to be made;

(4) Whether a risk of liability for costs has sufficiently been brought home to the nonparty, either by express warning, or by reference to what a person in its position should be taken to appreciate as to the inherent risks;

(5) Whether there are factors, including for example, delay in the making of an application for security or likely adverse effects such as to tip the overall balance against making an order.

The court then went on to order security for costs against one funder of the claim, but not another, applying the principles to the particular evidence of each funder’s position that was before it.

Perhaps the most interesting part of the judgment relates to the careful analysis of the ATE position, what this might mean for a shortfall in recovery of the defendant’s costs and the fact that delay (these applications were made in 2017), with a trial only months away was not treated as a showstopper, for the purposes of determining the application.

 

Non party costs and credit hire

One of the other areas of work that keeps me busy, is credit hire. The gift that never stops giving, as I have been arguing those claims both for and against insurance companies for 20 years. I have another webpage I devote to all matters to do with credit hire here: http://www.credithirebarrister.com.

An interesting point that is arising with increasing frequency are applications against credit hire companies for non party costs Orders, under parts 44 and 46 CPR and section 51 of the Senior Courts Act 1981.

At the moment the tide is flowing strongly against the insurance industry: perhaps the leading case is the decision of Mr Justice Turner in Select Car Rentals v Esure [2017] EWHC 1434 (QB). I am grateful to counsel in the case Mr Matthew Stockwell for forwarding to me a copy of the judgment and also confirming that the case is not going further to the Court of Appeal.

The significance of the case, is that it confirms that despite an unfortunately worded Practice Direction, the scope of the court’s discretion to make a non party costs order, is no wider than it would be in any other type of case, where a non party costs application might be considered. The judgment also considered the earlier case I argued before District Judge Avent last year, a copy of which can be found here: Nathanmana-v-Uk Insurance Judgment.

Mr Justice Turner within his judgment, also cites Cook on Costs with approval, a further example of that text’s revived authority with the higher judiciary, under the careful stewardship of its current authors.

In May I argued one of these applications whilst acting for a credit hire company, before District Judge Burn in the County Court at Lambeth, with judgment being reserved and handed down last month. A copy of that decision with her reasons for refusing to make a non party costs Order can be found here: Hussain v Bradford and Euronex Lambeth County Court 2nd August 2017 District Judge Burn.

Of course these applications can properly be made against credit hire companies and can succeed: last year, at the door of the court, when acting for an insurance company, I settled a case for a sum exceeding £30,000, the credit hire company accepting that it had to pay costs. But the insurers have to pick their fights carefully.

And so another branch of satellite litigation continues to flourish.

Winter has come

The clouds closed in today, the temperature plunged and the heavens opened. A sure sign that summer has effectively come to an end and autumn has begun.

I have returned from various trips to a mountain of work, and a hefty backlog of topics to write about in relation to matters of costs and litigation funding.

On the plus side, season 7 of Game of Thrones is now available to buy, and an artisan bake house has opened just round the corner from chambers, with a tempting array of sourdough creations (particularly the cinnamon whirls) which pair perfectly with 11am coffee. Here it is:

In the next few blog entries I shall be looking at a number of issues, including the ongoing war between the insurance industry and the credit hire companies over the scope of the non party costs jurisdiction, some recent group actions, successful and unsuccessful and the use of litigation funding made in them and also consider the new Jackson Report, not least because I am giving a seminar on it next month. In truth, it is a curious document, which repays careful attention.

In the meantime, for those cake lovers amongst my readership, here are some of Tough Mary’s finest creations: