Important judgment on costs-sharing and security for costs in multi-party litigation

10/02/20

Nugee J has handed down an important judgment in the ongoing Ingenious Litigation, giving guidance on the court’s approach to issues of costs-sharing and security for costs in large multi-party claims.

The Ingenious Litigation arises out of a number of film production partnerships, set up by the Ingenious group in the mid-2000s. Individual investors made capital contributions to the partnerships. They then produced a number of leading films including Avatar and Life of Pi. The investors anticipated being able to secure certain tax benefits from their investments.

Some years later HMRC challenged the tax treatment of the partnerships. A number of investors have brought claims against Ingenious and various financial advisers, alleging (amongst other things) that they entered into their investments as a result of misrepresentations. Most of the Claimants’ costs are funded by third party litigation funds, including an entity forming part of the Therium group.

The Claimants sought an order that their liability for adverse costs should be several, rather than joint, and allocated pro-rata to the size of their original investments. Ingenious and certain of the financial advisers sought, in turn, an order that Therium provide security for the Claimants’ costs.

Following a three day hearing in November 2019 Nugee J has held that it is appropriate for the Claimants to have the benefit of several liability, pro-rata to their contributions. He noted that the amount of each claim was relatively small as a proportion of the whole, and the size of the claims varied significantly, so that it would not be appropriate for any one Claimant (or subset of Claimants) to be liable for all the Defendants’ adverse costs.

However, Nugee J then went on to hold that Therium should provide security for costs in relation to the Claimants it was funding. In doing so the Judge:

• Rejected an argument that the Defendants could recover most of their costs from a relatively small number of Claimants, who had made larger investments in the partnerships, so did not require security. The evidence of those Claimants’ means to meet a costs order was very limited. In any event, much of the Defendants’ costs would still have to be recovered from the remaining Claimants.
• Rejected Therium’s assertion that it could be assumed that Therium would fulfil any costs order made against it or the Claimants, given its reputation and membership of the Association of Litigation Funders.
• Rejected the Claimants’ and Therium’s argument that certain policies of ATE insurance would constitute adequate security for the Defendants. The terms of the ATE cover suggested that they might not be enforceable by the Defendants. Subject to the Claimants procuring certain further assurances and waivers in relation to the ATE terms, and assigning the proceeds to the Defendants, between half and 2/3 of the value of the policies would be taken into account.
• Held that an indemnity from Therium to certain Claimants would be taken into account in assessing the amount of security, but only if its terms were disclosed.
• Held that the Defendants had real prospects of securing an order for indemnity costs if the claims were unsuccessful. In the circumstances it was appropriate for them to receive security of 75% of their incurred and estimated costs.

The judgment is here.