An unfair tax on accessing justice

If the point of access to justice is to help those seeking justice, then the pre-Jackson personal injury market failed. A vast number of accident ‘victims’, otherwise not seeking justice because of their virtually non-existent injuries, were commoditised by law firms in the pursuit of profit - with the societal change that the cost of car insurance rose significantly for all. Hence, the Jackson report and the subsequent non-recoverability of CFA success fees and ATE premiums via the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) was correct.

However, reform also brought the non-recoverability of uplifts, insurance premiums and litigation funding costs for commercial litigation, which at the time was largely associated with regular fee-paying work. And because commercial litigation funding barely existed in 2009, the Jackson report spent very few of its 584 pages on commercial litigation.

The time has now come to revisit the recoverability of uplifts, premiums and funding costs. These are no longer the primary domain of personal injury but of commercial litigation where it is widely accepted and used to support those seeking justice, but otherwise unable to pay for it, to pursue a claim. As things currently stand, if a claimant wins, the consequence is they are taxed out of their damages for using the very tools encouraged by the judiciary to access justice.

Of course, the anti-funding lobby argues that losing defendants shouldn’t pay for uplifts, premium or funding costs because it is not theirs to incur and why should they pay for someone else’s profits? But when the court finds the defendants have wronged and necessitated the proceedings in the first place, why shouldn’t they pay, especially when the cause of action is so often driven by their own pursuit for profit?

Moreover, at a basic human level, this principle is surely correct. A child has 10 sweets stolen from the playground bully so they report the bully. The bully is forced to repay the 10 sweets but the child recovers only six sweets because the school tribunal will take four for enforcing justice. The four is necessary because the tribunal costs money to run and someone has to pay. Should that someone be the wronged child or the wrong-doing bully?

It’s not to say that recoverability should apply in every commercial litigation case in full because each case has its own nuances. Perhaps it is varying degrees of recoverability. However, it clearly makes sense for the court to have the power to make that determination, perhaps as an extension of its powers under section 51 of the Senior Courts Act 1981 where the 'court shall have full power to determine by whom and to what extent the costs are to be paid'.

In the recent well-covered Cabo Concepts Ltd v MGA Entertainment (UK) Ltd & Anor, the claimant, a small company, alleged that the defendant, a large corporate, stifled the launch of a competitor product by using size and strength to threaten retailers who planned to stock the claimant’s products. However, in seeking justice, the claimant opted for litigation funding, presumably because (as is often the case) it was the option of last resort. The case was due to be heard in June, but in the lead-up to trial, the defendant was found to have missed 40% of documents or 800,000 documents, delaying the trial for two years.

The judge may have awarded indemnity costs on the aborted trial and criticised the law firm in her judgment but that does not cover the resulting additional funding costs incurred, meaning the claimant, if successful, will have to pay for them out of any damages it recovers, even though the defendant is entirely responsible for those additional costs.

Another useful to case to look at is the high-profile Postmasters, where those seeking justice had no other option but to use uplifts and funding. Critics of litigation funding often argue how funders take from deserving litigants, this case being a prime example (it was reported the victims received only £12m of the £58m damages). But when the injustice has been created by the defendants, why should the wronged parties pay? MPs seemed to pick up on this point in saying the government should pay the costs, a recognition that it is not fair for victims to be taxed.

While no one expects a sudden change that makes uplifts, premiums and funding costs recoverable, it is happening elsewhere. In commercial arbitrations, Essar Oilfields Services v Norscot Rig Management and Tenke Fungurume Mining SA v Katanga Contracting Services SAS are well-known examples, if only because the High Court opined that funding costs can be recovered following challenges by the losing defendants under s68 Arbitrations Act 1996. But even further afield in Delaware, US, where there is no costs shifting regime, the courts allowed (in Shareholder Representative Services LLC v Shire US Holdings, Inc.) the winning party to recover the full $20m of the law firm’s contingent fees, including the uplift.

The principle of non-recoverability is based on addressing an unintended consequence of success fees and premiums that had a societal cost over a decade ago in the personal injury market. In an ever-evolving landscape, so the time has come to consider reintroducing recoverability in commercial litigation cases.

Tets Ishikawa is managing director of LionFish, a litigation funder

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