Mr Nigel Rowe and Others v Ingenious Media Holdings Plc and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Popplewell,Lord Justice Henderson,Lord Justice Floyd |
| Judgment Date | 15 January 2021 |
| Neutral Citation | [2021] EWCA Civ 29 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case Nos: A3/2020/0483 & A3/2020/1165 & A3/2020/1166 & A3/2020/1167 & A3/2020/1168 |
| Date | 15 January 2021 |
[2021] EWCA Civ 29
Lord Justice Floyd
Lord Justice Henderson
and
Lord Justice Popplewell
Case Nos: A3/2020/0483 & A3/2020/1165 & A3/2020/1166 & A3/2020/1167 & A3/2020/1168
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
MR JUSTICE NUGEE
Royal Courts of Justice,
Strand, London, WC2A 2LL
Andrew Hunter QC, Tom Cleaver and Gayatri Sarathy (instructed by Stewarts Law LLP) for the Funded Stewarts Claimants
Simon Birt QC and Craig Morrison (instructed by Reynolds Porter Chamberlain LLP) for the Ingenious Defendants
Richard Handyside QC and James Duffy (instructed by Herbert Smith Freehills LLP) for UBS AG, London Branch
Carlo Taczalski and Frederick Simpson (instructed by Kennedys Law LLP) for SRLV (a firm)
Simon Pritchard and Harry Adamson (instructed by Eversheds Sutherland (International) LLP) for HSBC UK Bank Plc
PJ Kirby QC (instructed directly) for Therium Litigation Finance AF IC and Therium Litigation Finance Atlas AFP IC
Hearing date: 1 December 2020
Approved Judgment
Introduction
These are appeals against two decisions of Nugee J when ordering security for costs against Therium Litigation Finance AF IC and Therium Litigation Finance Atlas AFP IC (together “Therium”), who provide litigation funding to certain of the Claimants. The appeals raise the question as to the circumstances in which a defendant seeking security for costs may be required to provide a cross-undertaking in damages as a condition of ordering security.
The issue arises in litigation involving over five hundred claimants pursuing claims in various actions in the Chancery Division. The claims are in respect of eight schemes for investment in financing films, and in one case video games, which were promoted and operated between 2002 and 2007 by entities in the Ingenious group. The schemes were promoted as tax-efficient vehicles through which individual taxpayers could contribute funds to a limited liability partnership (“LLP”) and set off their share of the LLP losses against other taxable income. For the schemes to have their intended tax consequences it was necessary that the LLPs should be trading with a view to profit, and that the losses should be of an income nature so that what is called sideways loss relief would be available to the individual investors as members of the relevant LLP. The schemes were later challenged by Her Majesty's Revenue and Customs (“HMRC”) on various grounds, including that the relevant LLPs were not in fact trading with a view to profit. In August 2016, the First-tier Tribunal held that the entities were trading with a view to profit but on a much more limited basis than that on which the schemes had been promoted ( Ingenious Games LLP & ors v HMRC [2016] UKFTT 0521). In July 2019, the Upper Tribunal dismissed the appeals against that decision, and allowed a cross-appeal by HMRC, holding that the LLPs had not been trading with a view to profit at all ( Ingenious Games LLP & ors v HMRC [2019] UKUT 0226).
Most of the Claimants pursue a range of claims against companies in the Ingenious group and certain key individuals involved in the design and promotion of the schemes (together, the “Ingenious Defendants”). Claims are also advanced against those from whom Claimants received advice in respect of their investments, including UBS AG (“UBS”) and SRLV, a firm of accountants, and in one case HSBC UK Bank Plc (“HSBC”). HSBC also faces claims advanced on the basis of its involvement in financial arrangements connected with the design of the later schemes. The claims total approximately £200 million.
Of the total cohort of Claimants, 250 are directly relevant to these appeals. They are represented in the litigation by Stewarts Law LLP (“Stewarts”) and are funded in respect of the pursuit of their claims by Therium. They are referred to as the Funded Stewarts Claimants. There are three other relevant groups of Claimants:
(1) A further 110 Claimants are represented by Stewarts who are not funded by Therium.
(2) 115 Claimants are represented by Peters & Peters Solicitors LLP. These Claimants are also funded by Therium and security has been ordered against Therium in respect of their claims, although they are not participating in these appeals.
(3) 113 Claimants, who sue only the Ingenious Defendants, are represented by Mishcon de Reya LLP. These Claimants have funding from Harbour Fund III LLP, a member of the Harbour litigation funding group (“Harbour”). Arrangements for the provision of security for costs were agreed between Harbour and the Ingenious Defendants without the need for any court decision. Harbour agreed that it would offer a direct indemnity, up to an agreed limit, in respect of the Ingenious Defendants' costs; and provided relevant financial information to confirm that the relevant entity would be able to meet its obligations under the indemnity; no cross-undertaking was requested or given.
Procedural history
Under an order made at a first case management hearing by Morgan J in March 2018, the various actions are being case managed together. A group of 28 Claimants have been selected to plead their claims, and the trial of test claims (to be selected from the 28) is to take place from 26 April 2022 with a trial estimate of 24 weeks.
Between May and October 2019, applications were made by the Ingenious Defendants, HSBC, UBS and SRLV (“the Security Defendants”) for security for costs against Therium pursuant to CPR 25.14.
Those applications were due to be heard by Nugee J, as he then was, at an interim hearing commencing on 19 November 2019, at which he decided amongst other things that any liability of the Claimants for an adverse costs order should be several, not joint and several. There were disclosed after the event (“ATE”) insurance policies indemnifying 280 of the Stewarts Claimants, and the Peters & Peters Claimants, against adverse costs orders up to specific limits.
Shortly before the hearing, on 12 November 2019, the Funded Stewarts Claimants disclosed redacted copies of three “Letter Agreements” to the other parties and the court which, subject to the formalities of execution, had been agreed between the Funded Stewarts Claimants and Therium in respect of the treatment of any security which Therium might be ordered to provide. Those Letter Agreements provided, in summary, that Therium would fund the security for costs, if ordered, and any additional costs of providing such security, including any costs of fortification (the “Security Costs”), unless there had been a material adverse decline in the merits of the claim and/or its commercial viability; and that, if the Funded Stewarts Claimants succeeded in their claims, they would be liable to pay to Therium the Security Costs and additionally a sum representing 2 1/2 times the Security Costs, to be treated in accordance with the “waterfall” arrangements in the funding agreements. The amount of 2 1/2 times the Security Costs was called “the Enhanced Return” and involved the Funded Stewarts Claimants giving up to Therium that amount out of any damages recovered from the Defendants in the litigation.
At the hearing before Nugee J in November 2019, Therium and the Funded Stewarts Claimants were represented by the same counsel and resisted the applications for security for costs. In the alternative it was submitted on their behalf that, in the event that security was ordered, it should be on the basis that the Security Defendants provide a cross-undertaking in damages in respect of any loss suffered by Therium and/or the Funded Stewarts Claimants as a consequence of that order. One loss identified was the Enhanced Return.
At the conclusion of the third day of the hearing, on 21 November 2019, Nugee J gave a short oral judgment in respect of the various issues which had been argued. In respect of some issues he gave his decision and said that he would provide more detailed reasons in due course if desired. Others he reserved for further consideration, but gave an indication of his likely determination in order to assist the parties. In relation to the applications for security for costs, he said he would like to think further about much of the argument in the light of the oral submissions, but gave an indication that he was likely to find it was an appropriate case for Therium to provide security. In relation to the provision of a cross-undertaking he said:
“35. So far as a cross-undertaking in damages is concerned, on the footing that I order security, which, as I say, I think I am likely to do, I do not think that a cross-undertaking in damages should be required in relation to the losses which have been identified in Therium's evidence. Those losses are the losses that will be sustained by the claimants in having to pay Therium a larger return out of the litigation than would otherwise be the case.
36. That seems to me to be a matter between Therium and the claimants. It does not amount to an external cost on Therium and the claimants together. It amounts to a reallocation of the recoveries between Therium and the claimants. Therium and the claimants together have financial interests in the success of this litigation. It is a matter for them and their commercial arrangements as to how they share those recoveries between themselves. I do not think that the proper function of a cross-undertaking in damages is to...
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