Monitoring and Mitigating Adverse Cost Risk in U.K. Securities Suits
When it comes to securities class actions, harmed investors enjoy a straightforward claim filing process in the United States, where they can submit claims for settled cases without assuming financial or legal risk.
In contrast, the United Kingdom’s legal system makes participation a more complicated decision for shareholders. Adverse costs, which are incurred when the losing party is held liable for the case winner’s legal costs, are one major example.
The U.K.’s “loser pays” rule is a risk for both plaintiffs and defendants in all civil litigation, including securities suits. In theory, adverse cost awards are uncapped. However, the English courts do have controls that limit this financial penalty to the “reasonable” costs of prosecution or defense for a given case.
Andrew Hill, partner at U.K. law firm Fox Williams, provided more context around these guardrails in a recent conversation with FRT.
“If you choose the most expensive lawyer, or barrister, or expert, and you really amp that up – if you’re successful, you’re not automatically entitled to get all of that back,” says Hill, who leads the securities litigation team at Fox Williams.
“There are cost assessors and other court officials who will look at the bill of costs. There’s an assessment process that’s gone through to determine what the reasonable costs are of participating in the litigation,” Hill adds.
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Sharing the Burdens of Group Litigation
FRT identified 28 shareholder actions filed in the U.K. from 2022-23, which was more than double the number of filings tracked in the prior two-year period. Given this trend, global investors should closely consider adverse cost risks when weighing participation in these opt-in litigations.
Fortunately, U.K. participants have legal and financial tools that can mitigate this risk. One of them is to request that the court order the parties to exchange legal costs incurred throughout the proceedings.
“And I think the courts are open to that and want that to be the case,” Hill says. “It will be bespoke, but it’s certainly a strategy we employ to ensure we keep a handle on the costs the other side is incurring.”
In group litigation, claimants can take the added step of collectively deciding how much adverse cost risk each plaintiff should bear. The most common approach, Hill notes, is the same method by which plaintiffs might calculate how they share their own prosecution costs: a pro rata amount based on each claimant’s estimated losses as a percentage of the total damages alleged.
More Insights on U.K. Securities Actions
Changing regulations have introduced new factors for shareholders to consider when developing an affirmative litigation policy. For example, a recent U.K. Supreme Court ruling has created challenges for some litigation funding agreements.
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