Do the courts favor the party with the biggest pile of chips?

Guest article by Jonathan Tickner, Partner, and Paul Johnson, Legal Adviser, London law firm Peters & Peters

Jonathan tickner

The English courts have expressly stated that “it is a principle of our law that every citizen has the right of unhindered access to a court”. This right is supplemented by the right to a fair trial enshrined in Article 6 of the European Convention on Human Rights.

Readers will be aware of the key role that the litigation finance and insurance market play in collective litigation, helping those who may have limited resources to pursue a claim.

However, the imbalance between cost protection and access to justice has increased the frustration of claimants, especially in the context of funded collective litigation.

While Post-Event Insurance (ATE) is primarily designed to protect the insured against adverse charges payable to an opponent in litigation or arbitration, a by-product is that it can also be used as collateral for a defendant’s costs. But unlike hard cash, ATE is not always enough on its own to defeat a demand for security for costs.

So how does ATE insurance work in funded cases when used as collateral for a defendant’s costs? Who bears the financial risks when David confronts Goliath? Where do the cards fall and is the court favoring the party with the biggest pile of chips?

The first significant case reported in which the English court confirmed that a cost guarantee order could be made against a funder in group litigation was that of Hildyard J in litigation over RBS rights issue, the jurisdictional basis for such a position being rooted in CPR 25.14.

More recently, however, in the Ingenious litigation, a case involving more than 500 (mostly funded) plaintiffs seeking to recover significant losses resulting from the Ingenious film program, the defendants’ claim against one of the backers of the litigation in under CPR 25.14 forced Judge Nugee (as he then was) to reconsider various points of legal principle.

In doing so, he had to address an important issue – namely, whether there was a real risk as opposed to an imagined risk that the defendants would not be paid if they were successful in obtaining a costs order against the plaintiffs.

In deciding this issue, the judge considered each of the sources from which costs orders could be paid, which included, without limitation, the various ATE policies in place.

Ultimately, Nugee J found that the relevant ATE policies in question did not provide sufficient protection against the risk of policy non-response, raising concerns such as:

  • Circumstances in which insurers might avoid covering fraud / deliberate non-disclosure;
  • Events where insurers could exclude and terminate coverage under the terms of the policy;
  • What insurers might do when there is more than one insured and if the possibility of avoiding the policy against one of the insureds may affect the coverage of the other insureds;
  • Other costs covered by the contract which could affect the compensation ceiling, and
  • Assignment rights of the ATE contract to the financial backer if he has been ordered to post a surety.

Paul johnson

As it stands, the only option available to claimants is to purchase an anti-avoidance rider or indemnity deed to ensure that the insurer cannot avoid or terminate the policy. and which indeed guarantees the settlement of claims up to the limit of compensation.

But this “improved” product has a significant additional monetary cost. While insurers would say this is considerably cheaper in a funded litigation than forcing a plaintiff’s backers to pay money into court, it is a significant additional expense that cannot be recovered as a result of the Jackson reforms.

It is therefore an expense which is borne by the applicants and which eats away at any recoveries.

The inadequacy of the position is further compounded by the fact that, except in rare and exceptional cases (which, it seems, are even rarer in litigation funded following the decision of Popplewell LJ in another ingenious litigation decision this year), a defendant who wants a guarantee for costs will not have to provide a reciprocal liability for damages as a condition of the guarantee.

This approach imposes only additional costs on applicants and funders, and invariably makes funding applications more expensive. This has a ripple effect and limits access to justice to cases where the value of the claim is large enough to bear the additional costs.

Is this consistent with the stated objective of giving all claimants “unhindered access to a court”?

Peters & Peters represents some of the plaintiffs in the Ingenious litigation.

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