Disclosure of the identity of funders and existence of ATE insurance
26 April 2017
In The RBS Rights Issue Litigation  EWHC 463 (Ch), 9 March 2017, the High Court set out important principles with respect to the circumstances in which disclosure of the identity of third-party funders and details of any ATE insurance may be ordered in advance of a threatened application for security for costs when trial is imminent.
In December 2016, the defendants in the RBS Rights Issue Litigation settled with all the claimants apart from the SG Group. This reduced the scope of the first trial on liability considerably, but left a complex 12 week proceeding. By December 2016, the defendants’ costs - for which all the claimants remain severally liable if an award of costs is made against them – had exceeded GBP 100 million. An additional GBP 25 million is estimated to be incurred by the defendants by the end of the first trial, for which the SG Group alone would be liable.
The SG Group is financed by third-party funders with some control over and/or prospect of benefit from the proceedings. However, the SG Group had provided limited and opaque information on funding and made contradictory statements regarding ATE cover. In light of the changed risk profile caused by the settlements and the SG Group’s increased exposure (a potential costs liability of approximately GBP 50 million), the defendants were increasingly concerned as to how any order for costs against the SG Group could be met.
The defendants applied for orders that the SG Group:
− provide the names and addresses of any third-party funders, under the court’s inherent jurisdiction ancillary to CPR 25.14 (orders for security for costs against non-parties to proceedings); and
− provide a copy of any ATE insurance policy or confirmation that it (or any funder) would not seek to rely upon such policy in opposition to any application for security for costs, under CPR 3.1(2)(m) (the court’s case management powers).
This information was necessary, argued the defendants, for a meaningful assessment of whether to issue an application for security for costs, and justified by efficient case management: “the ‘cards on the table’ approach to modern litigation”.
The SG Group argued it was most unlikely that the defendants would proceed with an application for security, which was almost certain to fail. Further, there had been no fundamental change in circumstances to merit the defendants’ delay, which was fatal to the applications. Accordingly, both applications were objectionable tactics to distract and destabilise them in their preparations for trial, which was only ten weeks away.
Findings: disclosure of identity of funders
Hildyard J held that, when exercising the court’s discretionary jurisdiction to order disclosure of the identity of funders:
− the applicant should be allowed to properly consider the merits of an application for security for costs against the funder, having regard to its “position, whereabouts and substance”;
− the court need not be satisfied that the applicant had unequivocally determined to bring an application for security – that was neither a sensible nor an easy test to apply;
− the applicant must at least demonstrate that the application for security is a real possibility on realistic grounds with a realistic prospect of success;
− delay is relevant because the order for security is intended to give a claimant a choice as to whether to put up security and continue with the action, or withdraw the claim. The later the application, the less real and fair the choice (and the less likely it can be accommodated in the hearing timetable);
− in the context of a group litigation order, enforcement may be directed against the funders first. Where sophisticated funders substantially control or fund the litigation, acting in their own commercial interests, they have no legitimate expectation to be treated differently to real parties and should be fully aware of the risks. In reality, their choice is made when they agree the funding; and
− the ultimate question is whether, in all the circumstances, it is just to make the order.
The defendant’s application was granted on the basis that Hildyard J, sharing the defendants’ concerns about the SG Group, held it was neither “improper or fanciful”, nor “so unrealistic or hopeless”. The application was limited to the funders so as to minimise the potential distraction to the SG Group.
Findings: disclosure of ATE insurance
Refusing the defendants’ application for disclosure of ATE insurance, Hildyard J held that:
− an adequate ATE policy is likely to be treated as a complete answer to a security for costs application against a corporate claimant; and
− the court’s case management powers under CPR 3.1 can extend to requiring disclosure, where necessary, to enable the court to exercise its case management functions proportionately and efficiently. However, CPR 3.1 does not extend to any “cards on the table” mantra.
The defendant’s application was denied on the basis that the primary rationale was not case management but enforcement – namely, efficiencies in making the SG Group determine, at an early stage, their defence to an uncertain application which may not be pursued. Such distractions would not facilitate the first trial. Nonetheless, the SG Group were cautioned that an order for costs may be used as a sanction if the potential “torpedo” of an ATE policy was not revealed at an early stage.
The judgment makes clear that the court has discretion to order disclosure of the identity of third-party funders and details of any ATE insurance in respect of a threatened application for security for costs, even when trial is imminent. However, in the interests of justice, the court will consider carefully the real reasons the applicant seeks the disclosure and will not allow third-party funders to hide behind individual claimants (or vice versa).
The ability of the claimant to make a real choice whether to pursue the claim, and efficient case management, are the primary considerations when deciding upon whether jurisdiction should be exercised. Tactical ploys by both parties are unlikely to succeed.
This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Amy Edwards at firstname.lastname@example.org.