The High Court’s decision in Rowe v Ingenious Media Holdings plc [2020] EWHC 235 (Ch) established that several liability applications and security for costs applications are separate matters, with no automatic quid pro quo required in multi-party litigation.
Background
The Ingenious litigation comprised multiple claims brought by over 500 investors who participated in tax-efficient schemes promoted by Ingenious entities between 2002 and 2007. The schemes involved investments in limited liability partnerships for film and video game production, with investors claiming sideways loss relief against other taxable income. HMRC disallowed these losses, leading to appeals by the LLPs. The First-tier Tribunal found the losses were largely capital in nature, and the Upper Tribunal held that the LLPs were not trading at all, meaning no loss relief was available. [§4-5] Consequently, investors faced not only the loss of their investments but also potential liabilities for arrears of tax, interest, and penalties.
The investors issued claims to recover their losses against a range of defendants, including Ingenious entities, associated individuals, and financial intermediaries. The claims are being managed together under an order of Morgan J dated March 2018, with 28 ‘Pleading Claimants’ selected to serve amended particulars of claim. [§6] Three firms of solicitors represent the claimants: Stewarts Law LLP, Peters & Peters Solicitors LLP, and Mishcon de Reya LLP. Many of the Stewarts Claimants and all Peters & Peters Claimants benefit from funding provided by Therium Litigation Finance AF IC (“Therium”), while some Stewarts Claimants are self-funded.
On 19 to 21 November 2019, the court heard applications concerning the funding of the litigation. The claimants applied for a costs-sharing order, primarily seeking a “several liability order” to limit their potential liability for adverse costs to several rather than joint. Several defendants applied for security for costs against Therium. The court provided an oral judgment on 21 November 2019 and subsequently issued this expanded judgment to address specific points in more detail. [§1-3]
Costs Issues Before the Court
The key costs issues for determination were:
(1) whether the claimants’ liability for adverse costs should be several;
(2) the basis for apportioning that liability (pro rata to cash investments or per capita);
(3) the appropriate form of the costs-sharing order;
(4) whether security for costs should be ordered against Therium;
(5) the quantum of any security;
(6) the form of security; and
(7) whether a cross-undertaking in damages should be required from the defendants. [§52]
A threshold question, though not on the formal list of issues, was whether the two applications—several liability and security for costs—were necessarily linked in a “quid pro quo” sense. [§7]
The several liability issue centred on whether the risk of non-recovery of costs should fall on the defendants (if liability were several) or on the claimants inter se (if joint). The apportionment issue involved balancing fairness between claimants with vastly different investment sizes. The security applications turned on whether there was a real risk that adverse costs orders would not be satisfied, considering the claimants’ resources, ATE insurance policies, and Therium’s position as a commercial funder.
The Parties’ Positions
The claimants, represented by Nicholas Bacon QC, argued for a several liability order, relying on authorities such as Ward v Guinness Mahon plc [1996] 1 WLR 894 and Davies v Eli Lilly & Co [1987] 1 WLR 1136. They contended that in large-scale litigation with multiple unconnected claimants, several liability was fairer and aligned with the default position under CPR r 46.6 for group litigation orders (GLOs). On apportionment, they advocated for a pro rata basis tied to cash investments, emphasising equity and the disparity in claim values, as seen in Greenwood v Goodwin [2014] EWHC 227 (Ch) (the RBS litigation). [§14-22] Their proposed costs-sharing order included detailed architecture for categorising common and individual costs.
The defendants, including the Ingenious Defendants, HSBC, UBS, and SRLV, resisted the several liability order or sought to link it to security for costs. The Ingenious Defendants, led by Simon Birt QC, argued most clearly that the applications were interconnected, with several liability depriving defendants of joint enforcement rights, necessitating adequate security. [§8] On apportionment, James Duffy for UBS alone argued for per capita sharing, citing administrative simplicity and the lack of a direct link between investment size and costs. The defendants criticised the claimants’ draft order as overly complex and premature, proposing instead a process to agree a costs list of issues at a later case management conference.
Regarding security for costs, the defendants applied under CPR r 25.14 against Therium, asserting a real risk of non-payment given the several liability order. They highlighted Therium’s commercial motive and the difficulties in enforcing costs against numerous claimants individually. They questioned the reliability of ATE policies, citing policy exclusions, termination clauses, and the fact that some ATE cover had to be discounted because self-funded claimants were also co-insured, reducing the recoverable portion for funded claimants. [§122, 127] They argued that Therium’s financial resources were undisclosed. The defendants sought security based on estimated costs to the end of CMC 3, with percentages ranging from 70% to 75% to reflect potential indemnity costs awards.
Therium, represented by P J Kirby QC, opposed security, contending that its potential liability under s. 51 Senior Courts Act 1981 extended only to funded claimants, not self-funded ones. [§80-83] It pointed to the claimants’ ATE policies and the wealth of some claimants as sufficient protection. Therium argued that the ATE policies, with aggregate limits of £7.25 million for Stewarts Claimants and £1 million for Peters & Peters Claimants, adequately covered adverse costs risks. It also offered to assign policy proceeds and waive certain rights under funding agreements to address defendants’ concerns.
The Court’s Decision
Several Liability: No Quid Pro Quo
The court granted the several liability order, holding that the claimants’ liability for adverse costs should be several rather than joint. It rejected the defendants’ argument that the applications were linked, stating that several liability could be considered separately from security. Nugee J held that the application for a several liability order was “not logically dependent on there being adequate security for the Defendants’ costs, and can be addressed on its own merits.” [§9] The court noted that courts had made several liability orders long before defendants could obtain security from third party funders.
The court rejected the premise that the default position was joint and several liability. Nugee J stated: “It is far from obvious, at any rate to me, that if such actions are unsuccessful at trial the default position, or starting point, is, or should be, that every single claimant, however small their personal stake in the outcome of the proceedings, should be jointly liable for what are bound to be very heavy costs running into many millions of pounds.” [§12]
The court found that in litigation with numerous unconnected claimants, several liability was fair, following Ward v Guinness Mahon and noting that no case law supported joint liability in such contexts. [§14-33] It emphasised that the discretion under CPR r 46.6 (for GLOs) informed the approach, even though no GLO was in place. The court noted the “formidable” practical difficulties defendants would face in enforcing joint liability against hundreds of individual claimants. [§111]
Pro Rata Apportionment
On apportionment, the court ordered that liability be shared pro rata to each claimant’s cash investments, not per capita. It cited the significant disparity in investment sizes—ranging from £36,000 to £10.5 million among Stewarts Claimants—and endorsed the reasoning in Greenwood v Goodwin, where pro rata sharing was adopted to align risk with potential reward. [§34-49] The court found per capita sharing inequitable, as it would impose equal liability on claimants with vastly different stakes.
Nugee J stated: “It seems to me fairer that the risks to a Claimant of participating in the litigation should be proportionate to the reward that he or she might obtain from the litigation.” [§41] He drew an analogy to the maritime law of general average, where those interested in preserving a vessel contribute proportionately to their interest. [§42-43]
The court rejected UBS’s argument that per capita sharing was simpler, noting that the claims would be managed together rather than separately litigated, so the cost of defending individual claims was not determinative of how liability should be apportioned. [§44]
Costs-Sharing Architecture
Regarding the form of the costs-sharing order, the court did not fully adopt either party’s draft. It articulated the general principle that common costs should be shared severally and pro rata among interested claimants but declined to impose a detailed structure prematurely. [§51-75] The court noted the complexity of defining “common costs” and “relevant claimants” across multiple defendants and schemes, suggesting that further refinement should await case management decisions.
Nugee J expressed concern about the “tripwires” in the claimants’ proposed detailed architecture, noting that it might prove too prescriptive and have “unexpected and unwelcome side-effects.” [§68-70] The court approved maintaining a claimant register and quarterly accounting periods but left other details to be agreed or determined later. It emphasised that the key principle—that common costs should be shared by those interested—had been established, and “how one puts flesh on the bones” was less important. [§75]
Security For Costs Against Therium
The court ordered security for costs against Therium under CPR r 25.14, but only in respect of the funded claimants (Stewarts and Peters & Peters). It held that Therium could not be liable for costs attributable to self-funded claimants under s. 51 Senior Courts Act 1981, as it did not control or benefit from their claims. [§80-83] The court calculated that funded claimants represented approximately 83.73% of claims against Ingenious Defendants, 65% against HSBC, 78% against UBS, and 73% against SRLV, including one assumption regarding a Peters & Peters claimant bringing a claim against UBS. [§82]
On quantum, the court assessed the defendants’ costs to the end of CMC 3 and applied percentages to reflect potential costs recovery: 75% for Ingenious Defendants and HSBC (due to allegations of deceit and conspiracy, warranting consideration of indemnity costs) and 70% for UBS and SRLV (facing negligence claims). [§90-103] After adjusting for the funded claimants’ share, the court derived initial figures of £5.0 million for Ingenious, £1.25 million for HSBC, £1.35 million for UBS, and £0.8 million for SRLV.
ATE Policy Reliability
The court considered the ATE policies but found “a real, and not a fanciful risk, that the ATE policies will not respond in full.” [§138] It identified several concerns: risks of avoidance for fraud or deliberate non-disclosure; termination provisions that insurers might invoke; the fact that self-funded claimants were co-insured, reducing the portion available for funded claimants; and the presence of competing claims from other defendants under the same policies. [§115, 122, 137]
The court required the claimants to provide confirmations from insurers and assignments of policy proceeds to opponents as a condition for giving credit. Subject to these steps, it allowed deductions: two-thirds of the value for policies covering only Ingenious and HSBC, and half for policies covering multiple defendants. [§141-142] After deductions, it ordered Therium to provide security in rounded sums: £1.85 million for Ingenious Defendants, £0.6 million for HSBC, £0.95 million for UBS, and £0.55 million for SRLV. [§145]
Cross-Undertaking
The court declined to require a cross-undertaking in damages from the defendants. It held that any reallocation of recoveries between Therium and claimants under funding agreements was an internal matter, not an external cost warranting protection. [§149-153] However, it left open the possibility of revisiting this if external costs (e.g., bank guarantee fees) arose from providing security.
Finally, the court left the form of security to be agreed by the parties, with liberty to apply in case of disagreement. [§147-148] It emphasised that the orders were subject to further refinement based on practicalities and ongoing case management.
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