In the high profile Lloyds/HBOS litigation, the High Court recently handed down judgment in respect of costs. This followed the court’s dismissal in November 2019 of a shareholder class action (the first of its kind in the English courts) by a group of Lloyds shareholders against Lloyds and five of its directors relating to the acquisition of HBOS in 2008.
In respect of the claimants’ cost liability, the judge held that in accordance with the terms of a Group Litigation Order, the claimants’ liability should be several (not joint and several), and there therefore needed to be an inquiry as to the share of the defendants’ costs for each of the claimants. The Judge noted that: “It may well be that many of the 5800 Claimants never foresaw this as a real question because they thought that they were litigating risk-free. But most unfortunately that is not the case” and that there was “a (most regrettable) risk that individual Claimants may face a several liability for costs to the extent that it overtops their direct ATE cover”.
In respect of the litigation funder, Therium, who was joined as an additional party for the purposes of costs. Therium accepted that as a commercial funder it should be liable to pay costs awarded to the claimants but submitted that it should be so liable only:
(i) to the extent that the claimants do not satisfy the adverse cost order; and
(ii) to the extent of the funding that Therium actually provided (i.e. subject to "the Arkin cap").
Regarding the first issue, the judge saw no reason why Therium’s liability should be secondary to the claimants and not simply joint and several in the usual way.
Regarding the second issue, the judge cited the recent Court of Appeal decision in Davey v Money  1 WLR 1751, highlighting that the Arkin cap is not a binding rule but simply guidance given to individual judges who retain complete discretion in relation to third party costs orders: and whilst the extent of the third part’s investment may be a factor to be weighed, so also might be the potential return of the third party funder from a successful costs investment (along with other factors). The question of the extent of Therium’s liability was adjourned for further consideration. Therium provided funds to the claimants (including from insurance cover) of over £21m but the defendants’ costs are estimated to be in excess of £30m.
At a time when litigation funding may play an ever greater role in financing claims, particularly as a result of Covid-19, the decision reiterates the adverse costs risk for funders in high-stakes group litigation. From the defendant perspective, this may be welcome news, increasing the prospects for cost recovery, even if the claimants are unable to pay. From the funder and claimant perspective, it could lead to a greater uptake of ATE insurance as a condition of funding, and cause funders to undertake greater due diligence on potential claims. It remains to be seen whether the increased cost risk will make funding more expensive as competitive pressures from the increasing number of funders may minimise any impact.
View the costs judgment: Sharp and Ors v Blank & Ors  EWHC 1870 (Ch)
With thanks to Kate Almond for her assistance preparing this post.