The recent High Court decision of ECU Group PLC v HSBC Bank PLC & Ors holds litigation funder (Therium) liable for the defendants’ costs incurred prior to the signing of the Litigation Funding Agreement (LFA). The Court also ordered Therium to be jointly and severally liable with ECU for those costs, despite the existence of other funders and investors who funded ECU’s claim.
Case Background
The decision arises from underlying proceedings brought in February 2019 by ECU Group Plc (ECU), an investment firm specialising in currency risk management, against companies in the HSBC Group (HSBC). ECU alleged that between 2004 and 2006, HSBC was responsible for manipulating the interbank spot rate to intentionally trigger “stop loss orders” placed by ECU in connection with the management of their clients’ mortgage debt under their multi-currency facilities with HSBC’s UK private bank.
Therium, a commercial litigation funder, had entered into a litigation funding agreement with ECU in September 2019, when the statement of claim and defence had already been filed. Therium agreed to provide ECU with a commitment of approximately £6.6 million to fund the proceedings until the conclusion of the liability litigation and to reimburse ECU for a portion of the costs incurred since 30 November 2018.
In November 2021 the High Court ruled that the claims were time-barred and ordered ECU to pay £10 million in legal costs to HSBC on an indemnity basis. HSBC received approximately £9 million, which was the amount ECU received under its adverse cost insurance policy. As ECU did not have the funds to pay the outstanding amount, HSBC applied to the court to order Therium to pay the remaining amount. Therium accepted that it should be held liable for the costs after the date of the LFA (19 September 2019) and of those costs, it should only be liable for a percentage corresponding to its percentage contribution to the total funding after that date.
Decision
The Court held that Therium was liable for costs from 30 November 2018, which was before the date of the LFA. This case was different from the authorities to which it had been referred because Therium had assumed liability for costs incurred before that date when it signed the LFA. Although Therium had not incurred these costs, it had made a positive decision that it would fund them as part of the funding arrangements. Accordingly, Therium’s claim for the success fee and reimbursement of the funded costs related both to amounts incurred between 30 November 2018 and the LFA date and to future costs. Having claimed the potential benefits of the contingency fee (calculated by reference to all funded costs pursuant to the LFA), it would be unfair for Therium to avoid the corresponding disadvantages of being liable for the costs incurred if the litigation was unsuccessful.
The court also decided that Therium should be jointly and severally liable with ECU for the costs of the HSBC. In reaching this decision, Mrs Justice Moulder took into account the fact that Therium had by far the dominant financial interest in the outcome of the proceedings and effectively controlled the proceedings through the LFA. The HSBC had no choice but to bear the costs of defending the action and it would not be fair to make the recovery of those costs dependent on the prosecution of numerous individuals and entities.
Conclusion
Mrs Justice Moulder’s decision is a clear example that litigation funders should not assume that their liability for costs, if a claim is unsuccessful, is determined by the date of the LFA or the percentage of funding. The court has a wide discretion in deciding costs orders and will weigh what outcome is fair in the circumstances. Moreover, litigation funders should not expect the presence of other sources of funding to reduce their potential exposure to liability for costs where they have the dominant financial interest. In this case, the court took into account the fact that Therium had the dominant financial interest in the proceedings, stood to gain a large sum if the litigation was successful, and had taken on the potential benefits of funding the costs incurred from 30 November 2018 – and decided that it should therefore bear the corresponding disadvantages.
Link to decision: https://www.bailii.org/ew/cases/EWHC/Comm/2022/1616.html
September 7, 2022
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