Page 19 - PIC e-newsletter Spring Issue 8

Is the Arkin ‘cap’ to be taken into account at the security for costs stage? In Bailey, there
were concerns about the funder MLS, that was not a member of the Association of Litigation Funders, and whose key shareholder had previously been convicted of serious dishonesty. In future cases
it may be possible still to argue that the amount of security should be limited by the cap.
The Court of Appeal considered
the issue fully for the first time
in Premier Motorauctions v PriceWaterhouseCoopers LLP [2016] EWHC 2610 (Ch), with security being sought against the claimant insolvent company. Longmore LJ noted that the court had not been provided with the placing information put before insurers, but considered that even if it had been, it was unlikely that the court could be satisfied that the prospect of avoidance was illusory.
In Bailey v GlaxoSmithKline UK Ltd [2017] EWHC 3195 (QB) Foskett J had to consider an application for security for costs against the Claimants’ funder, Managed Legal Solutions Limited. MLS relied on an ATE insurance policy obtained by the Claimants and on the fact that its own liability as a funder would be subject to the Arkin ‘cap’. Foskett J determined that:
(a) In this case the funder could not rely on the Arkin ‘cap’ at the security for costs stage: he noted that there had been criticism of the decision in Arkin, such as by Sir Rupert Jackson’s Review of Civil Litigation Funding: Final Report; Foskett J postulated that a challenge
to Arkin might be made, particularly in a case where the funder underwrote the whole of the claimant’s costs or where the funding arrangements might be said to be objectionable in some way; it could not therefore be said with certainty that if an order for costs was made under s51 at the conclusion of the case, the funder would be able to rely on the Arkin ‘cap’;
(b) Even though the ATE policy did not contain an anti-avoidance provision, the court could, at the security for costs stage, attribute some value to the ATE policy to take into account the likelihood that the policy would not
be avoided. With the policy providing cover at £750,000, and assessing, in
a very broad-brush way, the risk of avoidance at 1/3, the judge reduced the amount of security which was to be ordered by £500,000.
For The Future
In December I was instructed, with Nicholas Bacon QC, in the substantive hearing of the security for costs application against funders in Hellas Telecommunications. The application was again heard by Snowden J. In this case the application was ultimately resolved by agreement, so a ruling was not required but the submissions and discussions in court indicate some issues that are likely to be explored in future cases:
(a) What type of funding arrangement is caught by CR 25.14? The funder must have contributed to the claimant’s costs “in return for a share of any money or property which the claimant may recover in
the proceedings” but what is meant by a ‘share’ here? At one end of the spectrum, this requirement will plainly be met where the funder is to receive a fraction or percentage of the proceeds. At the other end of the spectrum, it seems to be generally recognised that a bank that simply makes a loan to a claimant, subject to a normal commercial rate of interest, would not be caught by this provision. Yet how will cases
in between be determined? How does the payment to the funder following settlement or judgment have to be related to the proceeds in order for the funding arrangement to be caught?
(b) Is the Arkin ‘cap’ to be taken into account at the security for costs stage? In Bailey, there were concerns about the funder MLS, that was not a member of the Association of Litigation Funders, and whose key shareholder had previously been convicted of serious dishonesty. In future cases it may be possible still to argue that the amount of security should be limited by the cap, and;
(c) Can it really be right that at the security for costs stage it is possible to attribute some partial value to an ATE policy to take into account the risk of the policy being avoided, when in reality the value will turn out either to
be zero of the policy is avoided or 100% if it is not?
Stephen Innes
is a Barrister
at 4 New Square Chambers.
www.pic.legal Spring 2018
INDUSTRY EXPERTS
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