Christopher Richards
PSL Principal Associate
Article
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:
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.
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 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:
For more information on how we may be able to assist with your dispute and its funding, please don't hesitate to contact the authors using the details above.
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