Professional third-party litigation funder ordered to pay security for costs
27 June 2017
The High Court ordered security for costs against a commercial litigation funder but declined to do so in respect of a third-party funder who was not involved in litigation funding as a business. The case is interesting for its comparison of ‘commercial’ litigation funders and ‘pure’ litigation funders, and the factors the court takes into account when deciding which category a funder falls into: The RBS Rights Issue Litigation  EWHC 1217 (Ch)
The defendants sought security for costs from two foreign third-party funders at a late stage in the proceedings, following settlement of nearly all claims, on the basis that they could be liable in respect of an adverse costs order against the remaining claimants. One was a commercial litigation funder; the other claimed it only provided funds to assist associated entities, who were claimants. Both argued the defendants had not shown a real risk that any costs order would not be satisfied, the applications were too late, and that the security sought was excessive. The Court drew a clear distinction between ‘pure funders’ and commercial litigation funders, and ordered the commercial litigation funder to provide security for costs in a reduced sum, contingent on a cross-undertaking from the defendants. However, the Court determined it would not be just or appropriate to require the other third-party funder to provide security for costs.
The reasons and motivations of the funder are important considerations. Courts will favour facilitating a ‘pure funder’ acting altruistically to enable access to justice, but will likely subject a commercial litigation funder to the costs and consequences of a commercial venture. However, many funders will fall somewhere in between that spectrum, and each case must be considered on its facts.
While Hunnewell Partners (BVI) Limited (H) was a commercial litigation funder, London and Northern Capital Partners Limited (L) asserted that it had never been involved in litigation funding as a business. Seven other entities associated with L (the AEs) were claimants in the proceedings, seeking over GBP 100 million. L argued that it provided funds to facilitate access to justice for the AEs.
Although troubled by L’s reluctance to disclose the terms of its arrangements, the Court concluded (on “admittedly sparse evidence”) that the positions of H and L were “materially and relevantly different”, and they should be treated differently for the purposes of the application. While L’s line of business was not decisive, it did bear on the question of whether the funding was provided for commercial gain, and therefore the risks assumed by L. The Court resolved that L was closer to a ‘pure funder’ than a professional litigation funder. This was supported by the terms on which another of the AEs had provided funding: for no uplift, interest or other return, to be repaid only after a substantial threshold recovery.
- ATE insurance was not sufficient to cover a potential adverse costs order; and
- a proportion of liability would fall on individual retail claimants of limited means (most of which were either deceased, pensioners, overseas, or blind trusts).
While an application for security can be made at any stage, the Court will be concerned not to allow this to act as an instrument of oppression, particularly where the defendant’s failure to meet a claim may have materially caused the claimant’s impecuniosity. The Court must carefully balance the reasons for making the order, and the considerations of overall justice. The Court considered that lateness does not necessarily connote unjustified delay: it is important to assess the reason and its prejudicial effect.
Here, there was extreme delay. However, this was not fatal to the application for security. The settlements had changed the risk profile of the claimants. It had also become apparent that the claimants’ ATE cover was materially inadequate (contrary to the public impression created by SG at all times until December 2016). As a commercial litigation funder H should have been fully aware of the position regarding ATE cover, and either get to the bottom of any uncertainty, or incur the risks of not doing so.
The Court expressed its concerns about the disparity and magnitude of the Defendant’s costs and the risk that they might have made it impossible for the claimants to obtain ATE cover (which in turn triggered the application for security). However, it appreciated the complexity and size of the case, and that security was only sought in relation to costs post-December 2016. It stressed that costs must be proportionate to be recoverable and that parties “are free to pay for a Rolls-Royce service but not to charge it all to the other side”.
While the Court declined to order L to provide security, it did not consider it just for what might equitably be considered ‘L’s share’ of the costs to fall on H. It calculated an appropriate figure, concluding H should be required to pay approximately 38% of the sums sought. Finally, the Court required a cross-undertaking from the Defendants, as a means of ensuring compensation in case it became apparent the order should not have been made.
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