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A recent order from the High Court has put listed law firm, Rosenblatt at the centre of a multimillion-pound dispute over costs in Jalla v. Shell. The High Court has now allowed for cost order proceedings to be issued against Rosenblatt, which will raise several issues related to funding and costs, likely to have wider implications.  In its bid to secure a third-party costs order, Shell alleges that Rosenblatt “crossed the line” from legal representative to funder and became a party to the failed group action. While it remains unclear for the moment whether third-party funding from another source was also involved, significantly, the case appears to lack an ATE insurance policy for adverse costs.  

The underlying matter  

The case originated from allegations of environmental damage and human rights abuses by Shell in Nigeria following one of the largest-ever oil spills in the country. Rosenblatt initially provided support and funding for the matter (though what level is unclear) under a collaboration agreement with London law firm Johnson & Steller but later took over the running of the case in 2020. Rosenblatt signed up the two lead claimants, who were stated to have authority to act on the individual claimants’ behalf, and the claimant steering committee to a damages-based agreement (DBA) but acted for 27,000+ individual claimants and 479 communities in Nigeria.  The matter failed last year when the Supreme Court ruled it was statute-barred for limitation. Shell also raised that as a matter of Nigerian law, Rosenblatt did not have the authority to act for the majority of the claimants. 

Costs  

The court made cost orders following a hearing in which Rosenblatt was found to have lacked authority for the vast majority of the claimants (they appear to only have authority for 5 of the 27,000+ individuals, and 4 of the 479 communities named on the claim form.) Rosenblatt also provided some funding for the litigation and acted under a DBA. The judge awarded Shell 90% of the costs of the authority issue. The court granted an application for the solicitors to justify why a wasted costs order should not be made in relation to the authority issue, and to the defendant’s application for disclosure of funding documentation to determine whether the defendants should apply for a non-party costs order (which would potentially include the costs at large of the dispute, some £14m). 

In the order, the judge writes  

“[Having regard to the issues raised by the defendants, namely, RBL’s control of the litigation, potential benefit from the litigation, the absence of authority from individual claimants, the lack of ATE insurance and involvement of third party investors, the application could not be described as fanciful or speculative. Whether it has any real merit is not a matter for the court at this stage” 

 

 COMMENTARY 

A curious case of missing ATE 

Shell’s focus on recovering from a non-party here is unsurprising, as most of the claimants in Jalla were individuals domiciled in Nigeria, unlikely to have deep pockets or present easy enforcement options for Shell.  

What is surprising is that there is a need for a non-party costs order in relation to a funded matter. ATE insurance would normally be in place to obviate the need for a non-party costs order. Yet, it appears from the comments of Mrs Justice O’Farrell in the order that ATE insurance for adverse costs was not in place. Perhaps ATE was never applied for because it was not seen as particularly crucial at that stage in the matter (as recovery against the claimants was unlikely and cost orders against law firms are rare).  Or perhaps ATE was sought but (as establishing jurisdiction forms part of an underwriting assessment) it may be that insurers were hesitant to cover the action given the issues on limitation and may have either passed on the matter entirely or were waiting to see if the limitation defence could be overcome.  

However, the claim did appear strong enough to attract a significant investment from Rosenblatt – in the form of resources and funding under a DBA. Most third-party funders will require, a robust adverse costs insurance policy to be in place when funding a matter, and many will provide funding towards an up-front premium.  It is therefore unusual that a funded matter would not have ATE insurance in place, particularly because an application for security for costs is often made by the defence in matters such as these and ATE insurance forms a key part of overcoming such challenges.   

It does not appear that security for costs was ever raised by the defendant Shell in the proceedings (potentially because to apply for an order for security for costs may have meant submitting to jurisdiction in E&W).  

 

Is a law firm ever a ‘funder’ when it comes to non-party costs?  

Another question the recent judgment raises is to what extent law firms backing litigation can be considered ‘funders.’ Rosenblatt maintains that a law firm acting under a DBA is acting as a legal service provider and not a third-party funder. However, Shell submits that they ‘crossed the line’ and became both a ‘funder’ and ‘party’ to the litigation in this matter. The judge, in this case, has now ordered disclosure of the retainers, agreements and funding arrangements, to determine if there is cause for a third-party costs order against Rosenblatt (there is also potential for a wasted costs order, due to the above-mentioned authority issues).  

Many law firms have ‘funding facilities and partnerships with professional third-party funders (the arrangement of which can benefit both parties – as funders get a spread of risk across all of a firm’s funded cases, and law firms may get preferential treatment from the funder).  However, it may be that Rosenblatt’s funding went a bit further than a facility-type arrangement, as Rosenblatt’s parent company RGB Holdings appears to have gone into the litigation funding business themselvesi – funding Rosenblatt’s litigation as well as others outside the firm through Lionfish (a litigation fund it later sold in July 2023).ii  These, perhaps, less-than-clear lines between the law firm and its parent company’s funding arm may be a contributing factor for the ordered disclosure in this matter, with the judge noting ‘…a lack of third party investors…’ in her order.  

 

Can a law firm become ‘party’ to a matter?  

Rosenblatt’s position seems uniquely difficult in this instance, as its argument that it acted only as a legal service provider is not helped by the finding that it did not have the authority to act for most of the 27,000+ claimants (as a matter of Nigerian law).  This appears to be lending support to Shell’s position that the law firm was exercising more control over the matter than might be usual for a law firm (or a third-party funder) which it seems also led to the increased scrutiny, and call for disclosure of the commercial arrangements.  Shell has asserted that not only did Rosenblatt cross the line into funder but also ‘party’ to the action.  

Control of litigation by third-party funders is consistently raised by those who oppose the industry, but it is not typically a criticism of law firms acting on behalf of groups of litigants in England & Wales. Though much talked –about, professional, reputable third-party funders rarely exercise control over disputes. The Association of Litigation Funders (ALF) of England and Wales, the independent body charged by the Ministry of Justice, with delivering self-regulation of litigation funding in England and Wales (and to which many long-standing professional third-party funders belong), has a code of conduct which explicitly prevents funders from taking control of litigation or settlement negotiations.  

 

What are the implications for law firms and the industry, so far?  

 

  • Authority – This is likely to be a rare situation, partly due to the issue of Rosenblatt’s authority to act which may be heightening the scrutiny of the court when it comes to the role the firm played in the matter, as Shell alleges that not only was Rosenblatt a funder, but a party to the action. Most lawyers acting on DBAs are unlikely to encounter this issue, but it may serve as a cautionary tale to firms acting on a DBA where a matter’s firm-driven nature could leave them open to questions of ‘control’ being raised by their opponent. 

 

  •  Acting as a Funder – Whether a DBA is funded through internal resources or external finance behind the scenes, the results of this case will shed light on any risk a firm runs of receiving a non-party costs order. Again, it appears that Rosenblatt had a funding arrangement through its parent company which is unlikely to be typical for firms in the UK.  We expect that most firms that either engage third-party funders to fund the firm itself or have funding facilities with external funders would remain at relatively low risk of a cost order. However, as the judge in this matter points out “the information in the documents in respect of which the defendants seek to disclosure are likely to shine a light on the control and funding arrangements of the litigation.”  

 

  • ATE – The safest approach for any law firm funding a matter in any way would be to secure ATE for the claimants or for the firm itself to have secured insurance to back an indemnity to the claimants. Indeed, one of the reasons for disclosure here as listed by Mrs Justice O’Farrell in the order is ‘the lack of ATE insurance.’  

 

  • Market Contraction and ESG Matters – Commercial arrangements aside, it is deeply unfortunate that the cost fallout, in this case, arises under the circumstances of a law firm trying to support victims of an environmental disaster. While we know the case could not overcome the limitation defence presented by Shell, we don’t know if there was a meritorious underlying claim — certainly, Rosenblatt thought so. The level of the cost consequences here may yet have a chilling impact on DBAs as well as funding for important ‘ESG’ cases which require expensive bookbuilds to gather claimant groups and external finance to progress.  

 

The team at TheJudge Global will continue to monitor the cost outcome of this case and provide commentary on the potential industry implications for this matter.   To stay up to date on this and other litigation finance matters, subscribe to our newsletter here and follow us on LinkedIn.