06 Nov 2018

US Class Actions may not currently exist in the UK, but with the establishment of damage based agreements, collective conditional fee arrangements and a growing litigation funding market, we have an increasingly supportive litigation environment for group litigation. As at 22 May 2018, the High Court had issued 105 Group Litigation Orders (GLO's) and there have been many more large groups of claims that have been Court managed without the GLO label. Becoming adept at handling this type of litigation and managing the significant level of legal costs arising is therefore crucial to both sides of the claimant/defendant divide. The recent cost management guidance provided by Chief Master Marsh at the costs management stage in Various Claimants v Scott Fowler Solicitors (a firm) and Others [2018] EWHC 1891 (Ch) is therefore worthy of consideration for those involved in UK group litigation.

Facts

The case concerns the growing trend of foreign investors seeking to secure long leasehold interests in UK hotels and student accommodation. In this case, a large number of investors provided substantial deposits at exchange for the purchase of redeveloped student flats before the developers became insolvent, leading to the non-completion of the project. When the deposit protection bond provider for the development also went into liquidation before paying the investors their deposits, claims were issued against the investors' conveyancing solicitors.

Status of the Group Litigation

At the time of the hearing, three firms of solicitors were acting for 222 investors who were claiming against two firms of conveyancing solicitors. Although the claims were not subject to a GLO, they were being case managed together in a similar manner to a GLO, with the following key features: 

  • The parties had been ordered to identify generic issues in the litigation
  • 22 lead cases were to be tried (involving cases from each of the three firms of claimant solicitors)
  • Cost management related to the 22 lead cases, apart from costs relating to settlement and disclosure on generic issues; and
  • Each of the three claimant firms filed a costs budget for their respective client investor claims.

Front loading of costs

As successful group litigation requires claimant firms to secure suitable funding arrangements for the largest possible claimant cohort as quickly as possible, thereby establishing the lucrative title of "lead solicitor", the front loading of costs is understandable. Claimant solicitors also benefit from being able to generate costs arising from pre-action protocol compliance and then issuing proceedings (if required). Accordingly, significant "incurred costs" have often already been established by the time of a CCMC. For example, in this case, two of the claimant firms had already incurred 35% and 40% of their respective total budgeted costs by the time of the hearing.

In response to one of the claimant firms submitting an incurred costs figure of £925,000, Chief Master Marsh conceded that he was unable to comment on the appropriateness of this sum for any future detailed assessment proceedings because "the Court has very limited information about the work that was undertaken and there is a real difficulty in making a comment that is of value". It therefore seems likely that claimant firms will continue to front load the costs of group litigation due to (i) the natural tendency to incur substantive costs at the outset and (ii) the inherent difficulty the Court faces at the CCMC stage of being able to reduce significant levels of incurred costs by reference to any early adverse costs comments.

Consequently, it would appear prudent for defendants to engage with group litigation claims at an early stage to limit the scope of claimants' costs being incurred by (i) avoiding such claims progressing to the formal proceedings stage and/or (ii) securing early costs protection, if early settlement of the litigation is required.

Compare and contrast 

On a separate note, Chief Master Marsh reiterated that cost management in group litigation is predicated on objectively assessing a claimant solicitor's costs budget by reference to whether the total costs of each litigation phase falls within a range of reasonable and proportionate costs. Accordingly, the Court should not be "a slave to comparison" if an opposing party highlights any large discrepancies in the costs budgets between competing Claimant (or Defendant) firms. He also acknowledged that there is more than one way to litigate and firms should not necessarily be criticised on costs if they approach the various phases of litigation differently. However, Chief Master Marsh did still go on to reduce costs for certain litigation phases where one firm's estimated future budgeted costs were considerably higher than the other firms.

With that in mind, it would appear to be advisable for competing co-claimant and co-defendant firms to put aside their commercial rivalries and co-operate with each other in the early drafting of their respective costs budgets (possibly on a common interest privilege basis). This in turn will help to minimise the chances of the opposition at the CCMC seeking to attack and reduce the recoverability of future costs by playing co-claimant (or co-defendant) firms off against each other.

Claim value vs claim costs 

As it is arguably the litigation funders who are most interested in the recovery of costs from the defendant(s)/Insurers, they may have paid particular attention to Chief Master Marsh's comments on the inter-relationship between the value of the claims and the approved budgeted costs. Chief Master Marsh sought to agree with Justice Morgan's comments in Group Seven Limited & Others v Nasir & Others [2016] 2 Costs LO 303 that the cost rules "do not prescribe any particular mathematical relationship between the costs and the sums being issued. It would obviously be inappropriate to do so". Chief Master Marsh also sought to dismiss any suggestion that Justice Morgan's judgment laid down any principle that litigation costs in excess of 50% of the value of the claim would be disproportionate. 

However, it is noteworthy that none of the three claimant firms' approved costs budgets exceeded 50% of the value of their clients' claims. It is therefore an interesting question whether litigation funders and defendant insurers alike will privately adopt an early rough and ready approach to the maximum recovery of claimants' costs in group litigation by reference to 50% of the total claim value.

Conclusion 

Group litigation in the UK is still at a comparatively early stage compared to the US Class Action model. However, Chief Master Marsh's views in the Scott Fowler & others case is a welcome insight into how the Courts and the opposing sides in UK group litigation are approaching one of the most important battle grounds in this area. It is also inevitable that there will be many more battles to come as UK litigation continues to embrace this growing litigation trend.