UK: Third Party Funding Update: Can Third Party Funders Remain Anonymous?

Last Updated: 19 December 2016
Article by Stefanie Day

Summary and implications

Third party funding is an arrangement between a funder and client (usually a claimant) involved in litigation or arbitration, where the funder agrees to finance some or all of the client's legal fees in exchange for a share of the case proceeds (the recovered damages). Third party funding is discussed in more detail in Jonathan Scrine's article.

In the recent case of Wall v The Royal Bank of Scotland plc [2016] EWHC 2460 (Comm), which concerned a security for costs application by RBS, Mr Andrew Baker QC ruled that in order for such an application to be effective against a third party funder, there is an inherent power under CPR 25.14(2)(b) requiring the claimant to identify that third party.

Wall v The Royal Bank of Scotland plc [2016] EWHC 2460 (Comm)

Background

The claimant, Mr Wall, is currently bringing claims against RBS in relation to RBS's former dealings with the Opal Property Group, the parent company of which (OPG) was owned and controlled by Mr Wall. OPG is now in insolvent liquidation. Mr Wall is now suing RBS as an assignee of OPG's rights and/or beneficiary of a trust declared by OPG's liquidators.

The claims, which are said to be worth £700m, involve allegations of mis-selling by RBS, breach of a mandatory early termination clause in relation to an interest rate swap and LIBOR manipulation. RBS has estimated that its costs will run to over £9m in defending the various allegations.

RBS was understandably concerned that Mr Wall, a private individual, would be unable to fund such a large, complex and expensive litigation and that he would not be able to meet the costs if RBS successfully defends the litigation (i.e. if Mr Wall "loses"). Whilst RBS believed that Mr Wall had third party funding, it did not know who the third party funders were and so could not bring an application for security for costs under CPR 25.14.

In December 2015, RBS applied for Mr Wall to:

  1. provide the name and address of any third party funders who were funding the litigation; and
  2. confirm whether any such parties fell within CPR 25.14(2)(b), which empowers the court to order security for costs against a third party who funds a claim in return for a stake of it.

The judgment on 7 October 2016 determined RBS's application.

Decision

In deciding whether the court had the power to make the order sought by RBS (subject to the impact of Article 8 of the ECHR, which was not relevant in this business context), Mr Andrew Baker QC concluded, in line with previous authority (Reeves v Sprecher [2007] EWHC 3226 (Ch)) that:

  1. where there is good reason to believe that a claimant has funding falling within CPR 25.14(2)(b), the court thereby has power to grant a remedy by way of security for costs against the funder(s) in question;
  2. for an application to be made for the court to exercise that power, it is necessary to identify the funder(s) in question against whom the application will be made;
  3. where the defendant does not know that identity, but the claimant does, ordering the claimant to reveal it to the defendant is doing no more than making an order that is necessary to make effective the primary power (to grant a security for costs remedy under CPR 25.14); and
  4. the court therefore has the power to grant RBS's application.

There was therefore found to be an inherent power in CPR 25.14(2)(b) to order a claimant to identify a third party who was funding the litigation.

Mr Andrew Baker QC also found that it would be prejudicial to RBS if Mr Wall was not required to identify his funders, but it would not be prejudicial to Mr Wall.

Conclusion

Third party funders can no longer count on remaining anonymous to avoid security for costs applications.

Where there is a reasonable belief that a claimant has a funder falling within CPR 25.14(2)(b) and a serious basis for inferring that security will be granted (i.e. it is likely that the claimant would not be able to pay the costs if the defendant successfully defended the claim), then the court may order disclosure of the funder's identity to facilitate the security application.

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.

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