Examination and application of the principles applicable to the exercise of the court's discretion to make costs orders against a non-party professional funder of an impecunious claimant. In the instant circumstances, the public policy objectives of the deterrence of weak claims and the protection of the due administration of justice from interference by those who funded litigation, had to yield to the objective of making access to the courts available to impecunious claimants with claims of sufficient substance.Application for a costs order against the eleventh Part 20 defendants ('MPC'). The applicants were successful defendants and Part 20 defendants to a claim (see Yeheskel Arkin v (1) Borchard Lines Ltd (First Defendant/Part 20 Claimant) & Ors & Zim Israel Navigation Company Ltd & Ors (Part 20 Defendants) (2003) EWHC 687 (Comm)). MPC was a professional funding company. At all material times since the commencement of the claim in 1997 the claimant ('Y') had no available funds to pay for any aspect of the litigation. He was not eligible for legal aid and could not obtain after-the-event ('ATE') insurance cover. In 2000, MPC entered into a funding agreement with Y, whereby it funded the employment of expert witnesses, the preparation of their evidence and the organisation of documents that became necessary to investigate before the trial. Under the funding agreement, MPC was to receive 25 per cent of the first ?5m of any recoverable damages and 23 per cent of any excess. MPC did not take out any form of ATE cover. The issue that arose on the application was the circumstances, if any, in which an order for costs should be made against a professional funder that carried on business for the purpose of litigation support in consideration of contingent fees, where the share in the proceeds, if the claims were successful, was agreed to be substantial.HELD: (1) Three principles of public policy were material to determining how to exercise the wide discretion to order costs, namely: (i) the purpose of discouraging ill-founded claims or defences and of compensating those who were obliged to protect their rights underlay the rule that a successful party was generally entitled to recover its costs; (ii) the purpose of facilitating access to justice for impecunious claimants in the absence of public funding, insurance or trade union membership needed to be supported; and (iii) the purpose of protecting the due administration of justice required that the courts should discourage interference by funders in the proper and responsible management and conduct of litigation in any manner adverse to that purpose (Hamilton v Al Fayed (No.2) (2003) 3 All ER 641 and R (Factortame Ltd) v Secretary of State for Transport (2002) EWCA Civ 22 considered). (2) Whether an order for third party costs against a professional funder should be made depended primarily on whether the court was satisfied that such an order was appropriate to reflect the defendant's success and the risk of prejudice to the objective of protecting the due administration of justice. The mere fact of a contract for a share in the proceeds of the litigation did not necessarily involve such material prejudice. Whether it did depended on the legal and practical relationship between the professional funder and the claimant. Whether the risk of funder intervention, adverse to the due administration of justice, was likely to be or had effectively been removed or reduced to insignificance by the interposition of independent and objective legal advice was a key consideration in deciding whether the funder's relationship with the prosecution of a claim justified a costs order against the funder. The fact that a professional funder failed to agree with an impecunious claimant to pay the defendant's costs, if the claim failed, should not necessarily lead to a costs order being made against it. (3) MPC's relationship to Y and the proceedings generally was not adverse to the public policy considerations that would otherwise have called for a costs order. MPC could not and did not attempt to control or influence the conduct of the proceedings otherwise than in accordance with the advice of Y's leading counsel. If Y had not entered into the funding agreement with MPC he would have had to abandon the claim or fight it without expert evidence and therefore without equality of arms. MPC could not commercially undertake responsibility for the defendants' potentially huge costs as part of the funding agreement. ATE cover would have been so expensive as to render it impossible to bear the premium. MPC was entitled to rely on leading counsel's advice that Y had a strong claim. In those circumstances, the public policy objectives of the deterrence of weak claims and the protection of the due administration of justice from interference by those who funded litigation, had to yield to the objective of making access to the courts available to impecunious claimants with claims of sufficient substance. An order for costs against MPC would operate as a strong deterrent to professional funders to proved support for impecunious claimants with large and complex claims. (4) The court should not exercise its discretion in favour of a costs order against MPC.Application dismissed.

[2003] EWHC 2844 (Comm)

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