Group Litigation Costs & Risks to be Taken into Account

 Sharp v Blank [2020] EWHC 1870 (Ch)

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What is Group Litigation?

Group litigation costs and the action to which it relates refers to multi-party or collective legal action which is brought by numerous Claimants in a group where they have all been affected by an event in the same way. This may include a large scale accident or act of negligence.  Group litigation costs can be extensive, and generally fall into two categories: generic work and Claimant specific work.

Costs in group litigation should be divided between generic work or common issues relating to all the Claimants and specific work relating to each specific Claimant as per CPR 46.6(2). The purpose of this is to ensure common costs are not duplicated with each individual Claimant. Each party will only be required to pay a proportion of the common costs. Individual costs will be paid in full by each individual they relate to.

 

Sharp & Ors. v Blank and Ors. [2020] EWHC 1870 (Ch)

This case is a reminder of the risks which can arise from group litigation. The Claimants of the action lost the case and were ordered to pay the Defendants’ costs, at around £30 million. The judge considered numerous issues such as the liability of the parties to pay, each individual Claimant’s position, the liability of a litigation funder, interest on costs and an interim payment on account of costs.

This case was brought forward by around 5,800 former and current shareholders of Lloyds bank. They issued a case against the Directors of Lloyds bank, claiming damages relating to the HBOS Plc acquisition which took place during the financial crisis of 2008.

The Claimants had an ATE Policy in place and had also selected a commercial litigation funder. On the dismissal of the Claimants case, questions therefore arose as to the party or parties liable to pay the adverse costs.

 

Liability to Pay

The Claimants had succeeded on some of the points and thus argued they should only be liable to pay 65% of the Defendant’s costs. The Defendant argued that the case warranted a straightforward application of the ‘general rule’ in CPR 44.2(2) (a), awarding the Defendant’s costs on the standard basis.

The Court did not accept the Claimant’s argument, stating:

‘this is a case in which the general rule should apply, and costs should follow the event’

The Position of the Individual Claimants

The Court found that the Claimants had been underinsured. It was held that the Claimants were to bear the costs which were not covered by insurance between themselves. The terms of the costs order made by the judge could not change the costs liability of the Claimants and must reflect the terms of the Group Litigation Order (GLO).

 

Interim Payments and Interest

Another issue which arose was in relation to interim payments and the interest owed. The Defendant sought a payment on account in line with their Costs Budget. The judge held that ‘the costs management process does not completely eliminate the possibility of an estimation error in the payment on account process’. An interim payment of £17 million was ordered by the Judge which was to be paid within 6 weeks of the costs order being handed down. The calculation for the interim payment was half of the incurred costs and 90% of the budgeted costs (plus VAT), and provides guidance on other cases where an application for an interim payment on account of costs is required in a matter with a costs management order.

Interest was also awarded, and the Claimants were required to pay interest on the costs incurred by the Defendants in line with the standard rate set under the Judgments Act 1838 (8% above base rate).

 

Liability of the Litigation Funder

Another issue addressed by the Court was the Third-Party funder’s liability for group litigation costs. The funder in question sought to limit its liability in how much they would be required to pay to the level the Claimants failed to settle the adverse costs order.

The “Arkin Cap” is a principle which was established by the decision in the case of Arkin v Borchard Lines Ltd [2005] 1 WLR 3055, to limit a third-party funder’s liability to adverse costs. However, in the case of Davey v Money [2020] 1 WLR 1751, it was held that the “Arkin Cap” rule was not binding.

In this case, the Judge referred to the decision in Davey v Money and highlighted the fact that a Judge should exercise discretion when considering the extent of the funder’s liability.

Unfortunately, this issue was adjourned as the Court could not exercise their discretion as they did not have sufficient information regarding the funding arrangement, and therefore could not exercise its discretion regarding the whole costs claim.

However, the Court did have enough information in relation to the funding amount and the ATE cover to order the interim costs order to be satisfied.

It was further ordered that the third-party funder was jointly and severally liable for costs owed to the Defendant.

 

How can ARC Costs Assist?

ARC Costs as a team have assisted in a number of group litigation costs dispute matters and are a team of specialised Costs Draftsmen and Costs Lawyers, assisting in both costs recovery and disputing claims for costs. We can assist with all stages of your claim from costs budgeting and costs management to the detailed assessment of your costs. We are well versed in GLO issues in relation to costs, and often deal with both group actions and individual claims. We specialise in acting in respect of both Claimant’s costs and Defendant’s costs.

Should you require assistance on any part of your costs recovery, or should you simply have a query, please call us on 01204 397302, email us at info@arccosts.co.uk, or contact us via the live chat facility, below.

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