Author: Sarah Breckenridge
In the Competition Appeal Tribunal, claimant and defendant arguments around the grant, nature and scope of a Collective Proceedings Order (“CPO”) are developing quickly. The issues around opt-in and opt-out seen in Le Patourel v BT for example, and on carriage of disputes (FX), have been commented on extensively. Two factors which underpin all issues around certification are the requirements to demonstrate adequate funding and adverse costs cover for the claim. These are elements that can make or break a certification.
The recent judgment in Consumers’ Association v Qualcomm Incorporated (17 May 2022) develops points on adverse costs insurance, primarily the assertion by defendants that they need assurance, beyond the existence of an After-the-Event policy, that in the event they obtain a costs award, the claimant’s policy will pay out for their ultimate benefit.
It’s become market practice – in competition claims but more widely in litigation – for defendants seeking that comfort to require that claimants obtain (at further cost) an Anti-Avoidance Endorsement (“AAE”) or deed of indemnity in favour of the defendant, both mechanisms which are designed to augment an ATE policy taken out by the Claimant. An AAE amends the policy to remove or reduce the risk that conditions or exclusions operate to deny indemnity. A deed of indemnity is a guarantee to pay the defendants issued by the ATE insurer. Both are designed to ensure pay-outs reach the defendant as the “wronged” but uninsured party.
TheJudge has frequently arranged these products and has been involved in most of the seminal cases that have led to the evolution of both deeds of indemnity and more latterly, AAEs. The need for such instruments increased following the COA decision in Premier Motorauctions [2017] (see High Court provides useful guidance on ATE | TheJudge (thejudgeglobal.com)) and subsequent judgment in Lewis Thermal [2018]. Both cases highlighted that whilst an ATE policy can offer sufficient protection, the threshold for accepting a bare ATE policy is high.
Significantly, though, in Qualcomm the CAT has refused to order that the Consumers’ Association, the claimant representing the class of end consumers, must purchase an AAE to protect Qualcomm’s interest in the underlying ATE policies. It seems that while it has become customary practice to ask for extra comfort, it will not always be a given.
The identity and reputation of the Consumers’ Association was relevant in this case. Given its “reputation and experience” in consumer claims, and the perceived low risk of such a body breaching its duty of fair representation so as to give rise to a risk of voidance of the policy, the CAT ruled that no AAE was necessary.
Other factors, not specific to the Consumers’ Association, were in play too and they are instructive for lawyers obtaining ATE cover for a claim. The claimant’s lawyers were able to direct the CAT to a quote which they had already obtained for the cost of the enhanced comfort via an AAE – some £1.7m including tax. The CAT deemed this “disproportionate”. That cost no doubt would have strained the economics further for funders and insurers, whose backing in claims of this nature is vital. Secondly, the insurers had already been consulted and had agreed to amend a clause in the policy dealing with the insurers’ rights to exclude cover for the claimant’s failure to cooperate with its lawyers. Proposed softened wording was presented to the CAT and appears in the judgment.
The Tribunal did not accept Qualcomm’s argument that the underlying risk (which exists for any policy) that the insurer could terminate cover altogether could be cured by an AAE. No AAE would exclude all possibility of termination. Further, in a comment that itself demonstrates how vital insurance cover is to the existence of these claims, the Tribunal pointed out that termination of the insurance policy would doubtless bring the whole claim itself to an end, something which Qualcomm would welcome.
The judgment will of course not close off the need for AAEs and deeds of indemnity, and defendants will continue to seek them. However, it does show that claimants who are well prepared, and are able to work with cooperative insurers to determine in advance how to deal practically with the risk of such an application, will potentially prevail and can rely on the underlying ATE policy alone.