Addleshaw Goddard obtains security for costs order against a funder to be given in excess of the Arkin cap

Sandra Bailey & Others v GlaxoSmithKline UK Limited [2017] EWHC 3195 (QB)

The High Court (Mr Justice Foskett) last week handed down, in Sandra Bailey & others v GlaxoSmithKline UK Limited (the Seroxat Group Litigation), a judgment awarding Addleshaw Goddard's client GlaxoSmithKline UK Limited ('GSK') security for costs against a third-party litigation funder for a sum greater than the amount the funder has committed to fund the litigation. The security awarded was therefore in excess of the cap on adverse cost liabilities of professional third-party funders applied in Arkin v Borchard Lines (Nos 2 and 3) [2005] 1 WLR 3055 (the 'Arkin cap').

The Court was asked to consider, for the first time, the extent to which the Arkin cap should be applied to limit the sum a funder can be ordered to give by way of security for costs pursuant to CPR r.25.14., and found that the Arkin cap is only one of the factors to be taken into account, as part of the court's broad discretion at the security for costs stage. Ultimately, the question of whether the Arkin cap should be applied was to be determined at the conclusion of the case.

Key issues

• GSK's estimated costs to trial were significantly in excess of the sum (£1.2m) the Claimants' litigation funder, Managed Legal Solutions Limited ('MLS'), had committed to funding the litigation.
• The Claimants were said to have the benefit of ATE insurance responsive to adverse generic costs amounting to £750,000.
• The key issues to be determined by the Court were:
  • Whether the Arkin cap applied in relation to GSK's application for Security for Costs; and
  • To what extent the existence of ATE insurance should be taken into account when determining the amount of security to be ordered.

In referring to and approving the factors identified in the judgment of Mr Justice Hildyard J in The RBS Rights Issue Litigation (No 2) [2017] EWHC 1217 the Court accepted that it had a broad discretion under CPR r.25.14 whether to order security for costs against a funder, and in what sum.

The Arkin cap

The Court considered the various criticisms that have been made of the Arkin cap and found:

• Whether the Arkin cap should be applied was only a factor to be taken into consideration in the overall exercise of the Court's discretion to order security for costs under CPR r.25.14, and it is ultimately a matter for consideration after the trial;
• It was accepted that it may be argued in Arkin, the Court of Appeal was only addressing the situation where a third-party funder contributed to a part of the litigant's costs.

When considering the application of the Arkin cap at the conclusion of trial, the Court found:

• It was accepted that the wording in Arkin, that the cap applies where funding has been provided "in a manner which.. is not otherwise objectionable", leaves open the possibility that costs awards against third party funders may exceed the Arkin cap;
• It would be wrong to ignore the possibility that the cap may not apply in this case, not least because there would be a risk that the security ordered would be insufficient.

Following a broad assessment of GSK's likely recovery of its estimated costs upon assessment, the Court reduced the resulting figure by 50% to reflect the foregoing considerations relevant to the exercise of its discretion and to do broad justice in the case. The Court did not limit the order for security to future costs. The award by the Court at this level was above the level of funding provided by MLS.

Security & ATE insurance

The Court accepted that the availability of ATE insurance was relevant to the exercise of its discretion. However it did not consider it possible to discount the prospect of avoidance following the recent Court of Appeal case Premier Motorauctions v PwC LLP & another [2017] EWCA Civ 1872.

The Court discounted two thirds of the total ATE cover from the sum ordered by way of security to reflect the Court's view that the policy is more than likely to be valid and available for payment of part of GSK's costs, whilst acknowledging the risk that it would not be. Even taking into account the discount for ATE cover, the security award against MLS remained above the funding committed by MLS.

Comment

Litigation funders, funded parties and those litigating against them will need to be alive to the fact that, in appropriate cases, the Court, in awarding security, will not be restricted to ordering sums limited to the amount of funding being provided by the funder. Using the broad discretionary powers of the Court under CPR r.25.14., security awarded could be in excess of the Arkin cap. Furthermore, as noted in the judgment, in cases where funding arrangements were found to be objectionable, the Court of Appeal has left open in Arkin the possibility that its approach will not apply at the conclusion of a trial.

The full judgment can be found here

Counsel for GSK: Charles Gibson QC, Malcolm Sheehan QC, Henry Warwick (Henderson Chambers) and Nicholas Bacon QC (4 New Square Chambers)

Addleshaw Goddard LLP team: Louisa Caswell (Partner), Mark Chesher (Legal Director), Cécile Burgess (Managing Associate) and Umesh Bhudia (Associate)