UK: Court Orders Litigation Funder To Give Security For Costs

In a recent decision the High Court has confirmed that a defendant is able to obtain security for its costs from a claimant's litigation funder.

The issue arose in the context of the RBS Rights Issue Litigation; long-running proceedings involving multiple claimants and managed under a Group Litigation Order. By April 2017, many of the claimants had settled their claims against the defendant, RBS, leaving one remaining group of claimants, the SG claimants still in active litigation.

RBS applied for security for costs in the sum of £11.6m against the SG claimants' litigation funders Hunnewell Partners (BVI) Limited ("Hunnewell") and London and Northern Capital Partners Limited, ("LNCP"). The application was brought on the basis that, although not parties to the litigation, the claimants' funders were persons who may be liable in respect of any adverse costs order which may be made against the claimants at trial. Both Hunnewell and LNCP opposed the application.

Hildyard J said there was no real dispute as to whether the Court had jurisdiction to make an order for security for costs against the funders. Under CPR 25.14, the court may make an order for security for costs against someone who has contributed to the claimant's costs in return for a share of any recovery in the proceedings, where the court is satisfied that it is just to do so. He then turned to look at the factors the Court would consider in exercising its discretion as to whether or not to order security be given:

  1. Was the non-party motivated by a commercial interest in the litigation?
  2. Hildyard J distinguished between 'pure funders' (who make an essentially altruistic contribution to fund a case which could not otherwise be brought) and professional litigation funders who engage in funding as a commercial enterprise. Hunnewell accepted that it had contributed to the SG claimants' costs in return for a share of any recovery, and as such that it could be ordered to pay costs, and to provide security for any such costs.

    Hildyard J accepted that LNCP was not in the business of litigation funding and had provided funding only to a group of claimants related to it. Although it was therefore closer to a pure funder than a professional litigation funder, it had nonetheless made arrangements by which it would profit from the claimants' success, and so the court had jurisdiction to make an order against it.

    Both Hunnewell and LNCP contended that although the court had jurisdiction to make an order against them, other factors militated against the court exercising its discretion to do so.

  1. Was there a risk of non-payment of any costs order, to justify ordering security?
  2. Hunnewell contended that it was able to meet any award for costs - not least because the settlements which had already been reached between other claimants and the defendant would trigger payments to Hunnewell which exceeded both the amount of security being sought in this application and indeed the amount of funding which Hunnewell had provided. However, Hildyard J found that this was no guarantee that those funds would remain available to meet any costs award which may be made at trial. The fact that Hunnewell had provided no accounts and instead had only given a general assertion of its means, gave the judge an impression of "deliberate reticence", and Hunnewell had not dispelled the inference that this reticence was because they could not demonstrate an ability to meet any order for costs. He added that the possibility that the defendants could recover any costs from the multiple individual claimants did not militate against an order for security against the funder. He further found that the defendants had sufficiently demonstrated a risk of non-recovery because it was now clear that the SG claimants had insufficient after the event (ATE) insurance cover, meaning any adverse costs would in all likelihood have to be met by the SG claimants themselves. He therefore found that the defendants had demonstrated there was a real risk that Hunnewell would not pay any costs awarded.

    As to LNCP, while there was likewise some uncertainty about its financial position and ability to meet any costs order, Hildyard J found its position less opaque than Hunnewell's because it was related to some of the SG claimants. Any reticence by LNCP about its financial position was also more justifiable when considering it was closer in nature to a pure funder than a commercial one.

  1. Was the non-party aware and / or had they been warned of the risk of a liability for costs?
  2. As litigation funding has grown as a business, the suggestion in earlier cases that a party must expressly warn a non-party that he may seek a costs order against it has been diluted. As Hunnewell was engaged in the business of litigation funding, Hildyard J found that it should have been fully aware of the inherent risk of an adverse costs order being made against it.

    As to LNCP, as it was more akin to a pure funder and was not engaged in the business of funding, the judge was satisfied that LNCP may not have contemplated the possibility of an order for security for costs being made against it, let alone provided for it.

  1. Other factors, e.g. any delay in making the application for security
  2. Both Hunnewell and LNCP contended that security should not be ordered because of the lateness of RBS's application. Hildyard J clarified that "lateness does not necessarily connote unjustified delay". He accepted that whilst a security application could have been made earlier, it had ultimately been prompted by two recent developments. First, the recent settlements with many claimants meant that the profile of the remaining SG claimants (who would be liable on a several basis for any costs order) was much altered. Many of the SG claimants were individual retail clients of limited means. This was compounded by the recent revelation that the SG claimants did not have adequate ATE insurance to meet the potential adverse costs liability, such that the SG claimants themselves would be forced to put their hands in their pockets to meet any costs liability. As such, lateness was not in itself a bar to the application for security.

Although Hildyard J said there was a further consideration whether there was a causal connection between the non-party's conduct and the costs incurred, he said it was not necessary to establish strict causation, and this consideration was not specifically addressed in the judgment.

Drawing those various strands together, Hildyard J concluded that, in all the circumstances, it was just to order Hunnewell to provide security for costs, but not LNCP. The latter was not funding the litigation as a commercial venture and was therefore unlikely to have considered or provided for the risk of an adverse costs order.However, in the judge's view, there was less risk of it failing to pay any such order due to its connection to the claimants.

Hildyard J then went on to consider the amount of security to be given. He said he was concerned by the 'extraordinary' and, in his experience, 'unparalleled' amount of costs incurred in the litigation by the defendants, and appeared perturbed that it may have been precisely the extent of this potential adverse costs liability which had made it difficult for the claimants to obtain ATE insurance. He was therefore wary to make the claimants or their funders pay for a problem which may have been caused by disproportionate expenditure by the defendants. "[L]itigants are free to pay for a Rolls-Royce service", he said, "but not to charge it all to the other side". In the event, he determined that £10 million was a proportionate amount of costs, and ordered security be given for 75% of that sum.

Comment

Whilst litigation funding serves an important purpose of a means of parties obtaining access to justice, cases like this show the courts are taking pragmatic decisions that recognise funders are sophisticated commercial players who stand to make significant returns on successful cases, and so in certain circumstances it is just for them to be exposed to risk of costs orders. Other recent decisions are in the same vein. In November last year, in Excalibur Ventures LLC v Texas Keystone Keystone Inc & Others, the Court of Appeal confirmed that funders will generally follow the fortunes of those they fund. In that case it led to the successful party recovering indemnity costs from his opponent's litigation funder (albeit capped at the same amount as the funds he advanced). And in October last year, in Essar Oilfields Services Limited v Norscot Rig Management Pvt Limited [2016] EWHC 2361 (Comm), the High Court upheld an arbitrator's award ruling that the successful defendant could recover £2 million of arbitration funding costs from the claimant.

Our experience

Our dispute resolution team has a wealth of experience in dealing with the funding of disputes, and are well placed to advise both litigants and funders, including:

  • Reviewing and advising on the feasibility of complex litigation or arbitration funding packages for both potential parties and funders;
  • Advising on the suitability or otherwise of alternative funding arrangements (conditional fee agreements, partial conditional fee arrangements, damages based agreements and ATE); and
  • Finding and advising on suitable funding solutions for litigation and arbitration disputes using our wide-ranging contacts in both the funding and insurance markets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
14 Sep 2017, Seminar, Birmingham, UK

Has Cloud replaced traditional outsourcing models? We will compare cloud to outsourcing, consider whether they have effectively become the same thing for many solutions and assess some of the advantages and disadvantages of each model.

18 Sep 2017, Seminar, London, UK

Our annual event as part of the London Design Festival is now in its fifth year. We would be delighted if you are able to join us again.

21 Sep 2017, Seminar, London, UK

Has Cloud replaced traditional outsourcing models? We will compare cloud to outsourcing, consider whether they have effectively become the same thing for many solutions and assess some of the advantages and disadvantages of each model.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.