“2. This is part of the Ingenious litigation. It is not necessary for the purposes of this judgment to give the background to this litigation, of which I am now the Managing Judge, in any detail, but I should give a brief account. From 2002 to 2007 a number of schemes (8 in all) were promoted under the name “Ingenious”
“1. …Taking the very helpful list of issues however, there is before we get to issue 1, in fact a prior question, which is: are the two applications necessarily linked in the quid pro quo sense? 2. My answer to that is: no, I think they are separate applications and that there is nothing wrong with the claimants bringing their application for several liability and the question of security does not need to be resolved at the same time and they do not form parts of the same coin. 3. On the other hand, as I think both Mr Bacon and Mr Kirby accepted, if I accede to the claimants’ application it will have a knock-on impact on the question of security.”
“As I understand the law, the general rule where several parties combine to advance an unsuccessful case is that each is liable for the common costs incurred by the successful party in resisting that case.”
“Should the Stewarts and Peters & Peters Claimants’ liability for adverse costs be several?”
“4. The answer to question 1 is: Yes. The Ward v Guinness Mahon case, as Mr Birt points out, actually encapsulates the issue which is: where does the risk of collection from the claimants lie? Does it lie with the other claimants or does it lie with the defendants? Ward v Guinness Mahon, which is a Court of Appeal decision, clearly establishes that it was then thought by the Court of Appeal to be demonstrably fairer that the risk should lie with the defendants, and I have not been persuaded that the change in the legal landscape and the introduction of ATE policies, the rise of the commercial funding market, the introduction of formal GLO processes in the rules and the like, changes the fundamental equation as to where the risk ought principally to lie. 5. It is noticeable that not a single case has been put before me, whether under a formal GLO or where cases have been managed without a formal GLO, in which any order has been made for joint and several liability among the claimants for potential adverse costs to defendants. Every single case that I have been shown, and the orders which Mr Bacon showed me, have been on the basis of several liability. That is also, of course, now the regime which is the default regime for the purposes ofCPR 46.6 . I accept that this is not a GLO. I accept that an application that there should be a GLO was not pressed, but I do not see that that changes the fundamental question. This case, although not yet and maybe never the subject of a formal GLO, shares very many characteristics with the sort of cases which are suitable for a GLO, and in particular, the characteristic that a very large number of claimants are bringing claims. In those circumstances, I do not see why the principles applicable underCPR 46.6 do not apply equally in this case.”
“would make the risk inherent in group actions so great as to limit access to justice solely to those plaintiffs with nothing at all to lose” (at 900C-D). Sir Thomas Bingham, having referred to this, said (at 900F): “It is, I think, plain that whichever decision one makes imposes a risk of nonrecovery of costs on someone. If we make the order that Mr Guthrie asks for [ie a several liability order], then there is a risk that Guinness Mahon (if successful) may fail to enforce all its orders against individual plaintiffs. If, on the other hand, we make the order that Mr Leaver seeks for Guinness Mahon [ie that the lead plaintiffs be jointly and severally liable for Guinness Mahon’s costs], then there is a risk that certain of the lead plaintiffs may fail to be reimbursed by some of the other plaintiffs. The broad question, as it seems to me, is: what, in this situation, does fairness demand?”
“Speaking for myself, I am persuaded by Mr Guthrie that it is, in all the circumstances, appropriate to make an order that the liability of the individual plaintiffs be limited to the proportionate share of the overall costs, whether incurred by the plaintiffs or payable by the plaintiffs to the defendant, and that such liability should be several not joint. It appears to me that the defendant is no worse off under such an order than if it had been sued to judgment by 99 plaintiffs; although it is fair to add, given the sums involved (many of which are quite small) that such an event would appear extremely unlikely. I am, however, persuaded by Mr Guthrie’s argument that the role of lead plaintiff would be one which, on the defendant’s order, no well-advised plaintiff would be wise to accept; and furthermore, that the purpose of selecting lead cases would be vitiated if regard had to be paid not to the issues in particular actions but to the means or willingness of the particular plaintiffs to accept a high degree of risk. It is, in my judgment, significant that the Law Society working party has come out strongly in favour of what Mr Guthrie urges as the appropriate rule in this case.”
“Although the Nationwide managed litigation is not a group action of the kind considered in Ward v Guinness Mahon & Co it is not relevantly different. The task is to define the defendants who can fairly be said to have benefited from the litigation among whom the burden of any order apportioning the generic costs should be shared.”
“The liability of each Party for, and each Party’s entitlement to recover Costs shall be several and not joint”
“without which many smaller investors would in all probability be prevented from pursuing a claim (since the exposure would so enormously outweigh any potential recovery).” 29. At [24] he referred to the default position underCPR r 46.6 (3) which provides as follows: “Unless the court orders otherwise, any order for common costs against group litigants imposes on each group litigant several liability for an equal proportion of those common costs.”
“What is the basis on which the Claimants’ liability for adverse costs is to be apportioned, ie should it be pro rata to the size of their cash investments or per capita?”
“6. Question 2(a): I have not the slightest doubt that it should be apportioned pro rata to the size of their cash investments, rather than per capita. I am sorry, Mr Duffy, but you were not only facing opposition from all the other counsel, but I am afraid you were facing an instinctive opposition from the bench. It does seem to me, as a matter of fundamental equitable principles, that if a number of people band together in a venture, whether that be litigation or anything else, and they stand to get out of it very disproportionate rewards, then if they are going to share the risks, the starting point as to what is fair is that they should share the risks proportionate to the possible rewards. That was what was done in RBS. 7. The notion that in a case like this, where some people have invested£35,000 or£50,000 and other people have invested millions, that they should be equally liable on a per capita share for the downsides of the litigation when the upsides of the litigation are so disproportionately spread is one that I do not find attractive in the least. I will provide for liability to be apportioned pro rata to the size of their cash investments.”
“Where there is, as there is in this case, a very considerable disparity between the values of the claims of different parties, if they are all unsuccessful the default rule is unlikely to meet the requirement of fairness. It is not fair or equitable that an institutional investor with millions, in some cases hundreds of millions, at stake should pay an equal contribution as an individual claimant with claims in the hundreds, or even hundreds of thousands. Adoption of the default rule would tend to negate a primary purpose of GLOs.”
“(3) whilst for the reasons I have already adumbrated, the starting point of equality of risk for every litigant must, where there is such a disparity in the value of claims, yield to some fairer relationship between risk and reward, the objective should be a fair alignment of risk and reward by reference to the position of each claimant, the group they have chosen to join being of little, if any, legal or logical relevance; … (5) I have taken account, and indeed when the matter of costs sharing was first ventilated in July 2013 was much swayed by, the dangers of any allocation which in effect enables persons to litigate at minimal risk individually (which is the mathematical result in the case of persons with small claims, however measured): I have concluded that the advantages outweigh the risk, and it is after all to enable claims where the reward hugely outweighs the risk that the rules have provided for several liability in the context of GLOs. Further, and as Mr Lazarus on behalf of the LK Group stressed, the effect of cost sharing is that even those with large claims face a comparatively small costs exposure: the risk is very much diluted for all.”
“Those who practise in the Commercial Court, of which Hirst J is one of the judges, will recognise the age old respectability of such an order, based as it clearly is upon the Rhodian Law, the Rolls of Oleron and the maritime law of general average.”
“606. Principle of general average. General average is part of the law of the sea founded on equity. It formed part of the Rhodian law, was based in earlier custom and existed many centuries before the existence of marine insurance. Rhodian law provided that, when cargo was thrown overboard to lighten a vessel, that which had been given for all had to be replaced by the contribution of all. The most often cited legal definition of ‘general average’ is ‘all loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo losses within general average, and must be borne proportionately by all who are interested’.”
“Should the order which the Court makes now be one which, in general terms, resembles that proposed by (a) the Stewarts and Peters & Peters Claimants of28 October 2019 , or (b) the Application Defendants as attached to the Ingenious Skeleton Argument.”
“20. That deals with the issues I was asked to deal with in relation to several liability, the claimants’ application, apart from one other point which I can make on 2(b), which is whether the order should at this stage provide for the claimants’ recoverability of costs, whether the claimants should be able to recover both their individual costs and their share of common costs and the architecture in Mr Bacon’s draft for that. 21. I see entirely why he says that logically follows and is a sensible provision to put in place, and I think at this stage, it is almost inevitable that some such architecture will need to be put in place, because just as the claimants’ liability to meet the defendants’ costs will be driven by which issues are common and which are individual, the claimants’ ability to recover costs will necessarily also be driven by which of their costs they have incurred are individual and which are common. 22. But in the light of Mr Birt’s complaint that this was not really dealt with in the evidence, and in the light of the very scanty argument that I have heard on that aspect, I am content not to make any order in relation to that aspect at this stage, but I would anticipate that such an order or an order along those lines will in due course be necessary, and one would hope that the parties would be able to agree some suitable structure for that purpose. That is all I want to say at this stage on the claimants’ application.”
“(i) costs incurred in relation to the GLO issues (ii) individual costs incurred in a claim while it is proceeding as a test claim (iii) costs incurred by the lead legal representative in administering the group litigation.”
“the Stewarts and Peters & Peters Claimants to pay the recoverable costs of the Original Defendants” which Mr Bacon read as providing for all the Stewarts and Peters & Peters Claimants to pay the recoverable costs of all the Defendants. That is a simple misreading of the Defendants’ order.
“If the Stewarts and Peters & Peters Claimants’ liability for adverse costs should be several, should Therium give security for the costs of the Application Defendants?”
“25.14 Security for costs other than from the claimant (1) The defendant may seek an order against someone other than the claimant, and the court may make an order for security for costs against that person if— (a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and (b) one or more of the conditions in paragraph (2) applies. (2) The conditions are that the person— (a) has assigned the right to the claim to the claimant with a view to avoiding the possibility of a costs order being made against him; or (b) has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings; and is a person against whom a costs order may be made.”
“13. …It seems to me that claimants who are self-funding cannot be properly made the subject of an order for security against Therium underCPR 25.14 because the principle for awarding security under 25.14 is that Therium as a funder will be liable potentially under section 51. But it will only be liable potentially under section 51, it seems to me, once an order for several costs has been made, for those claimants whose litigation it has funded and not for selffunders. I do not think there is any answer to that point.”
“Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as gaining access to justice for his own purposes.”
“Indeed, in the context of a group litigation order, where the proceedings are often likely only to be made possible by funders, and where commercial funders stand to gain very considerable financial returns if the case succeeds, often far greater than any individual claimant, there is good reason to assume that enforcement may be directed first against the funders; and a fortiori where (as here, and as is usual) the GLO has resulted in several liability for costs, making enforcement against individual claimants awkward, at best. To that extent, they stand in the front line.” (4) And at [49] he referred to one of the defects in the claimants’ approach in that case being: “to ignore the fact that ease of recourse is a material consideration especially where the difficulties of enforcement against multiple claimants have been compounded by the usual order for several liability under a group litigation order.”
“Thus it is a truism, but an important one, that every case must be considered on its facts; but in my view, a case with multiple claimants seeking to vindicate their rights under a GLO and who have been accorded by Court order the considerable benefit of several and not joint liability for costs will be likely to be considered ‘exceptional’. In such a case, the defendant(s) will almost inevitably be put to exceptional difficulty in enforcing any costs order in their favour if they obtain one at the end of the day.” (2) The fact that litigation funders are potentially exposed to an order under s. 51 does not of itself mean that an order for security should be granted [19]. Hildyard J there set out some of the factors of particular relevance to that question, of which Mr Birt said that the most relevant in the present case was whether there was a real risk of non-payment. (3) Hildyard J expanded on that at [29]-[35]. At [29] he said that the security for costs regime exists to protect defendants against the risk that a costs award in their favour would go unsatisfied and that an order for security is ordinarily therefore only appropriate where such a real, and not fanciful, risk exists. (4) On that question, the Court can take account of “deliberate reticence” as to its financial position on the part of a funder: see [31], citing Sarpd Oil International Ltd v Addax Energy SA[2016] EWCA Civ 120 at [19] per Sales LJ. (5) It is not a pre-condition to the making of an order against a funder that the defendant first show that there is a risk of non-payment by the claimant [32][34]. (6) But that does not mean the ability of the claimants to meet an adverse costs order is “entirely irrelevant” [35]. Hildyard J rejected a submission to that effect and continued: “That submission assumes a compartmentalised approach; whereas, in my view, the Court must ultimately consider the matter in the round, even if it must initially divide the issues for the purpose of analysis. The question in the round in this context, as it seems to me, is whether there is a real risk that an order for costs in the Defendants’ favour will not be paid: and that is a relevant consideration in assessing both whether a Section 51 order is sufficiently likely and whether security should be ordered in respect of that contingent liability. It is part of the overall assessment of the justice of the case.” (7) At [68] he said that both the possible alternative recourse (that is against the individual claimants) and the difficulties in enforcing it were to be taken into account. And at [69] he said: “Whilst the order for proportionate several liability for costs was to my mind appropriate and necessary in the context of the GLO it undoubtedly alters the balance between the parties and (as it seems to me) it would be unrealistic and unjust to accentuate the imbalance by underestimating the difficulties of recovering such comparatively small sums from so many.”
“(8) The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in proceedings; (a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time…” (a) Where the claimant advances and aggressively pursues serious and wide ranging allegations of dishonesty or impropriety over an extended period of time…”
“The funder chooses which claims to back, whereas, as the judge rightly observed at [125], a defendant does not choose by whom to be sued, or in what manner… I can see no principled basis upon which the funder can dissociate himself from the conduct of those whom he has enabled to conduct the litigation and upon whom he relies to make a return on his investment.”
“23. So far as the security for costs application is concerned, much of this I would like to think further about in the light of submissions that I have received today. I can say at this stage that so far as quantum is concerned, I will proceed on the basis that the Ingenious defendants and HSBC defendants, who are respectively facing allegations of deceit and conspiracy to use unlawful means, the unlawful means being fraudulent misrepresentations, are defendants who I regard as having a reasonable prospect, if they are successful, in recovering costs on an indemnity basis. 24. That, of course, is not intended to give any indication of what I would do if I were the trial judge and found those claims to fail. The question of standard or indemnity costs is always dependent on a very large number of factors, and what I have just said should not be taken as any prediction of what would happen, but I certainly regard claims of deceit and of unlawful means conspiracy, based on fraudulent misrepresentations being the unlawful means, as serious allegations which at least open the door to the possibility of indemnity costs in the event that the claims are found at trial to be unfounded. 25. I do not think that the other intermediary defendants, UBS and SRLV, are in the same camp. As I understand it, they only are facing claims of various types of negligence, and on the face of it, although one can never rule out that cases might be run in such a way as to merit an award of indemnity costs, there is nothing at this stage to suggest that failure in those claims would attract such an award.”
“Where there is no possibility of costs being assessed on an indemnity basis or where such possibility is no more than speculative the courts generally make orders for security for costs by reference to 60-70% of the incurred and expected costs. Cases noted by Mr. Crow suggest a range of 60-75% but my experience suggests that 6070% is more usual. It appears to me that where there is a reasonable possibility of indemnity costs the order should be made (at any rate in this case where very substantial costs are involved) by reference to about 75% of the incurred and expected costs. Criticisms were made of the quantum of costs claimed both by the First and Second Defendants and by the Third Defendants; see, for example, paragraph 29 of Ms. Boulton's seventh witness statement dated5 September 2018 . A reduction of 25% takes proper account of those criticisms.”
“30. So far as Therium itself is concerned, 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. 31. Nor am I confident that its membership of the ALF, and the obvious pressure which that puts on it to comply with the ALF rules, 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. 32. Nor does the evidence that in 50 cases which have terminated there has been no default, explain with sufficient detail whether any of those cases resulted in orders under section 51 against Therium, the quantum of them or whether, as Therium itself says, it looks to cap the liability for potential adverse costs orders by requiring those it funds to take out sufficient ATE policies.”
“The Claimants agree to hold the Legal Expenses insurance policy and all proceeds payable under it on trust for Therium throughout the Trust Period on terms that Therium shall be entitled to such part or all of any proceeds of the Legal Expenses Insurance which become payable as a consequence of an Adverse Costs Order as shall be equal to the amount of any security posted by Therium pursuant to clause 14.5 used to discharge the Claimants’ liability (either entirely or in part) in respect of any Adverse Costs Order, save where the security posted by Therium is otherwise reimbursed to Therium.”
“My Clients’ offer to assign the proceeds of the ATE policies is repeated and for the avoidance of any doubt, if the proceeds were assigned, Therium would waive any entitlement to rely on clause 14.8 provided credit (whether in the full amount or any proportion of the full amount) is given for the level of cover provided by the ATE policies.”
“In what form ought that security to be provided, absent agreement? (It is agreed that any order the Court should make should permit the parties to seek to agree a suitable form).”
“34. So far as question 4(b) is concerned, I have not really been addressed on alternative forms of security. The usual provision in my understanding is the court provides that security be provided, leaving it to the parties to agree a suitable mechanism, or to be determined if they cannot agree.”
“Should any of the Application Defendants be required to give the funded Stewarts and Peters & Peters Claimants [and/or Therium] a cross-undertaking in damages?” 150.The answer I gave in my oral judgment was as follows: “35. So far as a cross-undertaking in damages is concerned, on the footing that I order security, which, as I say, I think I am likely to do, I do not think that a cross-undertaking in damages should be required in relation to the losses which have been identified in Therium's evidence. Those losses are the losses that will be sustained by the claimants in having to pay Therium a larger return out of the litigation than would otherwise be the case. 36. That seems to me to be a matter between Therium and the claimants. It does not amount to an external cost on Therium and the claimants together. It amounts to a reallocation of the recoveries between Therium and the claimants. Therium and the claimants together have financial interests in the success of this litigation. It is a matter for them and their commercial arrangements as to how they share those recoveries between themselves. I do not think that the proper function of a cross-undertaking in damages is to require the defendants to underwrite those arrangements. 37. On the other hand, if there are external costs of providing securities, if, for example, Therium proposed to provide security by obtaining a bank guarantee, then the case for a cross-undertaking against that extra cost, which is an extra cost imposed on the claimant pool as a whole, is a much stronger one. 38. I am not going to make any order at this stage, because I think that questions as to that would be better addressed once it has been identified after I have made any order for security, how that security is proposed to be provided, and that should be revisited at that stage.”