Premium protection: The disclosure of funding arrangements

In two recent cases, the Competition Appeal Tribunal (CAT) has refused to order the disclosure of a Proposed Class Representative (PCR)’s after the event (ATE) insurance premia and certain details of their Litigation Funding Agreements (LFA), on the basis that to do so might reveal the PCR’s assessment of risk, conferring an unfair tactical advantage on the defendants.

Both of the CAT decisions were made in the context of early Case Management Conferences (CMCs), following the filing of applications for Collective Proceedings Orders (CPO’s):

• The first set of proceedings, Dr. Rachael Kent v. Apple Inc and another (Kent), was brought by Dr. Rachael Kent against Apple, alleging that Apple abused its dominant position in app distribution and payment processing services on certain Apple devices provided via the App Store.The proceedings are brought on behalf of approximately 19.6 million UK consumers who have purchased apps, services or subscriptions within an app from the UK version of the App Store or an iPhone or iPad since October 2015.

• The second set of proceedings, Elizabeth Helen Coll v Alphabet Inc. and Others (Coll) was brought by Ms Elizabeth Coll on behalf of approximately 19.5 million UK consumers against certain Google entities, alleging that they abused their dominant position in app distribution and payment processing services on certain Android devices provided via Google’s ‘Play Store’.

The issue of disclosure of funding and insurance arrangements typically arises at an early stage in CPO applications, because, in determining a CPO application, the CAT is required to consider whether the PCR will be able to pay both their own and the proposed defendant’s costs if ordered to do so.  It is therefore common (and expected) for PCRs to disclose certain aspects of their funding and insurance arrangements at an early stage in order to obtain certification.

In both Kent and Coll, the PCRs had provided disclosure of certain, but not all, details of the litigation funding for the collective proceedings, including a budget to trial and details of the ATE insurance policy to cover any award of adverse costs.  Pursuant to rule 101 of the Competition Appeal Tribunal Rules 2015 (the CAT Rules), the PCR’s requested confidential treatment for the following aspects of the ATE insurance policy and LFAs:

• ATE premium: in both proceedings, the PCRs had provided details of the total cover under the ATE policies but refused to disclose details of the ATE premia.

• LFA – Solicitors’ excess fees: in Kent, the PCR refused to disclose details of the “slice” (or “layer”) of solicitors’ costs above the budgeted amount which the Funder would not pay and which would be at the solicitors’ risk if the claim was unsuccessful.

• LFA – success fees in Conditional Fee Arrangement (CFA): in Coll, the PCR refused to disclose the percentage level of the “success fees” payable under the CFAs entered into with solicitors and counsel.

In both cases the CAT unanimously found in favour of the PCRs refusing to order disclosure of the requested details:

• ATE premium: On the question of the ATE premium, in both Kent and Coll, the CAT refused to order disclosure, holding that the amount of the premium was not relevant to any question that the Tribunal was required to decide at the CPO hearing, namely whether the PCR would have adequate funds to meet its costs to trial:
  • In Kent, the CAT held that disclosure of the premium could confer an unfair tactical advantage on the defendants, as it might indicate the insurers’ views as to the strength of the claim.The CAT considered that the tactical disadvantage of disclosure would outweigh the peripheral relevance of the information.
  • In Coll, the CAT refused to provide disclosure of the ATE premium on a similar basis.In this case, the unfair tactical advantage was that disclosure of the premium might enable the defendants to calculate the deferred element of the PCR’s legal fees, and hence its appetite towards risk.
• LFA – Solicitors’ excess fees: the CAT refused to provide disclosure of the “slice” of solicitors’ costs which the Funder would not pay if the claim was unsuccessful. In doing so the CAT noted that the size of this amount meant it was not relevant to the issue of whether the PCR had the ability to fund their own costs.The CAT also held that such information might be privileged and, in any event, was likely to disclose the solicitors’ assessment of risk and thus had strategic sensitivity (i.e. the size of the “slice” may indicate the solicitors’ assessment of the prospects of success - if it was small then it might indicate that the solicitors were not prepared to take the risk of those costs, but if it was large it might indicate that they viewed the prospects of success as stronger).

• LFA – success fees in CFAs: in Coll, the CAT refused to order disclosure of the percentage level of “success fee” as it was not convinced by the defendants’ assertion that there was a conflict of interest between the proposed class members and the PCR’s lawyers (owing to the fact that the success fee would be payable from undistributed amounts - such that there was an incentive for the PCR’s lawyers to ensure that there was a sufficient pot of undistributed damages).The CAT did not agree with the thrust of the proposed defendants’ assertion that there was a risk the PCR’s legal team would not comply with their professional obligations, holding that this was not an appropriate assumption in the absence of any evidence.

Comment

It is now common practice, both in collective proceedings brought in the CAT and in general civil litigation to seek details of a claimant’s ATE insurance and litigation funding.  However, as the CAT noted in Coll, the collective proceedings regime is a statutory regime and there is a presumption of transparency.  PCRs are required to disclose their funding arrangements to the Tribunal in order to obtain certification and the Tribunal is under a duty to examine them.  The same is not true of general civil litigation and the scope to apply these decisions to general civil litigation may be limited.  Nevertheless, defendants in civil litigation might be tempted to point to the limited redactions permitted by the CAT regime when seeking evidence confirming that claimants have adequate costs protection or security for costs.  Equally, the ‘strategic sensitivity’ ground may prove to be attractive to claimants seeking to maintain confidentiality and resist disclosure.

Although the decisions of the CAT in Kent and Coll will be welcomed by claimants, insurers and litigation funders as an indication that the Courts are moving away from full disclosure of funding and insurance agreements, it should not be assumed that the CAT will take the same approach in all future collective proceedings. Other recent CPO applications (Michael O'Higgins FX Class Representative Ltd v Barclays Bank PLC and Others Case No: 1329/7/7/19 and 1336/7/7/19) have seen PCRs voluntarily disclose ATE premiums, albeit in the context of a dispute over which PCR should have carriage of the collective proceedings.  Further, in Coll the CAT stressed the importance of transparency in relation to the PCR’s funding arrangements and noted that it may in the future be prepared to revisit the issue of where the balance lies between relevance and the likely risk of tactical advantage.