Recovering pension losses through civil proceedings has always been an uphill struggle. This is particularly so during the pandemic, when even fewer claimants have the means to engage lawyers to untangle complex investment structures and identify fault on the part of those defendants with the deepest pockets (the investments generally having been structured to limit the liability of such defendants).

These defendants then need to be pursued, often in foreign jurisdictions and under local laws. If the claim fails, the claimant will not only have to pay their own legal costs but will also likely be ordered to contribute towards those of their opponent (known as the ‘adverse costs risk’). In short, it is a process which is not for the faint hearted, and which has resulted in many millions of pounds worth of pension claims left unpursued.

It is perhaps therefore unsurprising that law firms, litigation funders and insurers are coming together to offer claimants a solution in the form of funded and insured group claims against both pension trustees and financial institutions who have supplied poor performing pension investments.

The attraction from a claimant perspective is that civil claims can be pursued without the usual on-going legal costs (the litigation funder pays these), while the insurer insures against the adverse costs risk (the litigation funder usually pays any upfront insurance premium).

If the claim is successful, the litigation funder will generally receive back its committed capital, plus a healthy premium, to be paid out of the claim recoveries. The insurer will also receive any deferred element of its premium.

If the claim is unsuccessful, the litigation funder loses its money and the insurer foregoes any deferred premium. In essence, the financial risk of the proceedings is transferred from the claimants to the litigation funder and insurer in return for a premium / share in recoveries. This is often a worthwhile trade-off for claimants, who would otherwise lack the funds to pursue the claim.

The litigation funding market has been rapidly increasing over the last five years (with a reported 400 per cent increase in assets held by funders). Pension investment claims are particularly suitable for group actions because they often involve large numbers of individual investors who have followed very similar investment journeys, and who have been subject to the same investment procedures and protocols.

If it can be established that there was a problem with any part of the investment journey which resulted in investment losses, many of the investors may be able to pursue the same claim via a group action.

Institutional pension trustees and financial institutions supplying pension investments make particularly attractive defendants (and claims are often specifically formulated to target these, rather than, for example, financial advisors), as they generally have healthy insurance policies to meet potential liabilities.

Litigation funders are often willing to fund foreign law claims against offshore defendants in their home jurisdictions, which opens up a pool of defendants that might otherwise be too tricky to pursue. In addition, historic pension claims (i.e. claims which arose more than six years ago, which would usually be time barred) may be included in current group actions if the claims involve allegations of fraud, concealment or latent damage.

It is particularly important that pension trustees are switched on to this growing trend. Trustees may find themselves on the receiving end of a funded group claim (for example, a claim that they breached their duties, acted negligently, or in serious cases, were complicit in fraud).

Alternatively, a trustee may find itself as a claimant in a funded group action - for example, it may consider itself duty bound to participate (directly or by delegation if the trustee prefers) as a claimant in a funded claim against a third-party investment provider to recover pension losses for beneficiaries.

Indeed, a trustee may even find itself in both roles simultaneously, such that it is being pursued as a defendant in a funded group claim, while at the same time participating as a claimant in a corresponding group claim against a third party to mitigate any potential liability in the proceedings it is defending.

In either event, pension trustees should instruct lawyers who are experienced in running and defending funded pension group litigation. When on the receiving end of such a claim, trustees need advice from lawyers experienced in group actions on how best to exploit the particular difficulties the claimants will face in pursuing a funded group claim, so as to defend the claim in a way that weakens the claimant group and, if appropriate, drives the most advantageous settlement.

Similarly, a pension trustee participating in a group claim as a claimant needs advice in relation not only to the claim itself (group actions involving thousands of separate claims should be strategized and managed in an entirely different way to privately funded, single claimant claims), but also in relation to protecting the trustee’s own position (e.g. in relation to the extent and most appropriate method of participation / facilitation and to ensure the trustee is complying with its duties and is properly insulated from any liability connected with the claim).

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