It will come as no surprise to many that the court has needed to determine another application in this high stakes/high cost litigation.

The issue on this occasion: when can the Court order a claimant to name its litigation funders and give details of its, arguably privileged, ATE cover for the purposes of a defendant’s threatened security for costs application?

The answer is an important one for parties, insurers, and their advisors who are, or may yet be, involved on either side of funded litigation.

Background

Some 27,000 institutional and individual investors have been pursuing RBS and a number of its directors for breaches of s.90 FSMA 2000 concerning alleged misleading statements and critical omissions in a pre-financial crash Rights Issue Prospectus. The losses claimed have previously been estimated at £1.2 billion. While a number of claimant groups settled their claims last December, a trial on liability for the remainder is listed this May.

Somewhat unsurprisingly for complex and high value litigation, the legal costs are sizeable: the defendants have incurred more than £100 million and estimate that a further £25 million will be incurred to the end of the liability trial. The claimants’ costs are significantly lower at an amount in excess of £20 million, although CFA terms may increase that number if they are successful.

The application

In preparing to make an application for security for costs, apparently prompted by changes in circumstances and inconsistent statements about the sufficiency of ATE cover, the RBS defendants applied for (a) disclosure of the names and addresses of the claimants’ litigation funders and (b) either a copy of any applicable ATE policy, or confirmation that the claimants would not rely on policy terms for the purposes of defending an application for security.

The defendants argued that such information was a necessary precursor to considering whether it was worth applying for security for costs and justifiable on grounds of ‘efficient case management’ and a ‘cards on the table’ approach. The claimants contended that the defendants’ application for disclosure was premature and unnecessary because any subsequent application for security for costs would be bound to fail. They further contended that the ATE policy was not relevant to any substantive issue and, moreover, legally privileged.

There was no substantial dispute between the parties about the jurisdiction of the court to order disclosure of funder details. Submissions therefore focused on whether the court should exercise its discretion to order such disclosure where a future security for costs application was uncertain and, according to the claimants, had no real prospects of success.

In relation to the claimants’ ATE policy/policies, the defendants argued that disclosure would enable them to decide once and for all whether to pursue the application for security and avoid a potentially pointless and expensive application. The claimants relied in particular on the decision in Ocensa Pipeline Group Litigation2 in which the Senior Master concluded that (i) the court had no jurisdiction to order disclosure of an ATE policy, records of its negotiation, or earlier drafts; and (b) as the ATE materials had been created for the dominant purpose of litigation and were likely to reflect legal advice on prospects and tactics, they were all privileged such that the court could not compel their production.

Decision

While Mr Justice Hildyard concluded that the prospective application for security would face “difficult hurdles” and was not something that he would encourage, it was not something that was so unrealistic or hopeless that the defendants should be prevented from trying. He therefore ordered the claimants to name their funders, but hoped that it might discourage an application for security which, he warned, should be carefully circumscribed if it was made.

The Judge did not agree that the court’s general case management jurisdiction to order disclosure of ATE information was so limited but accepted that ATE policies would not usually be susceptible to ordinary disclosure applications under CPR Part 18 although there may be exceptions. The Judge also did not agree with the views expressed by the Senior Master in Ocensa in relation to privilege on that basis that his characterisation of the ATE materials was too broadly stated: in the Judge’s view it was unlikely that an ATE policy would be privileged except to the extent that its parts allowed a reader to work out what legal advice had been given. In spite of these conclusions, the Judge was not prepared to exercise his case management discretion in favour of the defendants, expressing concern that ATE policy disclosure would lead to disproportionately costly collateral issues concerning ATE policy terms and scope and that “it is better to save costs than rely on compensation for costs in a costs order”.

Comment

There are a number of potential points for parties, their insurers, and their advisors, to consider as a result of this recent judgment:

It may now be more difficult to withhold ATE policies in their entirety as of right on grounds of privilege. Parties and their advisors may need to reconsider with ATE insurers what is included in their ATE policies. Those seeking litigation funding may want to give some thought to their choice of funder in case they would be susceptible to an order for security for costs which could, in turn, have a negative impact on the conduct and success of the claims. Parties seeking funding and their advisors should continue to put in place from the outset mechanisms for preserving privileged information which might otherwise be susceptible to an application for disclosure.

This RBS decision also resonates with the recent decision of the New South Wales Court of Appeal in the Hastie case (see article below) in which the Australian court considered whether funding agreements are privileged