Much of the consumer credit litigation brought
against finance companies in recent times has been funded by
conditional fee agreements – “no-win, no-fee” agreements – backed
up by an after-the-event (ATE) insurance policy.
The claims management companies harvesting
such claims have used this as a selling point to the consumer – if
you win you pay nothing, if you lose you pay your legal adviser
nothing and the costs incurred by the finance company will be
covered by insurance.
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A win, win situation for the consumer and very
lucrative for the lawyers and claims management companies. That is,
until the lawyer neglects to take out the ATE insurance policy.
In Adris and others v Royal Bank of
Scotland PLC and others, various claims were
discontinued due to decisions based on Section 78 of the Consumer
Credit Act 1974 (Duty to give information to debtors), which had
gone against the claimants.
The claimants were ordered to pay the costs
and the bank sought those costs against their lawyer (CCLS) and the
sole shareholder and managing director (W) of the claims management
company (CCR) who had made the referrals to CCLS.
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By GlobalDataCourt’s jurisdiction
The court can, exceptionally, award costs
against non-parties who fund the litigation and substantially
control it or are to benefit from it. No impropriety on behalf of
the non-party is needed.
The court’s findings
The court held that a third-party costs order
was justified against CCLS. CCLS was to obtain ATE insurance cover
for its clients’ claims. It had failed to do so or put in place any
other protection regarding costs or tell its clients.
This was a gross breach of duty. Had the
claimants been told the true position (that there was no costs
protection) they would have been likely to instruct CCLS not to
proceed with the claims and the costs would not have been incurred.
There was therefore a direct causal link between the default of
CCLS and the costs generated by the cases.
CCLS had also borrowed substantial sums from
CCR to fund the litigation, which it intended to pay back from the
costs recovered from the bank and other defendants.
Additionally, CCLS was, in effect, controlling
the litigation as the evidence showed that CCLS was taking
decisions without proper instructions from the claimants.
The court refused, however, to pierce the
corporate veil and make a costs order against W personally. He had
done nothing improper. The court found that although CCR was
entitled to a success fee dependent upon sums awarded to the
claimants, that was not improper and the claimants remained the
“real parties” to the litigation. CCR had not controlled or
influenced the claims.
Although CCR was the true funder of the
litigation, that was not sufficient, in the absence of other
factors, to justify a costs order.
Comment
There will be many such claims where
claimants discontinue the proceedings because the case law has gone
against them. On discontinuance, a defendant is generally entitled
to its costs.
If the claimant pleads impecuniosity, and
there is no ATE insurance to be called upon, consideration should
be given, as it was here, to seeking such costs orders against
those who have run the litigation on the claimants’
behalves.
The author is a partner at
Wragge & Co LLP
