High Court Orders Security for Costs Against a Third-Party Funder In RBS Rights Issue Case

A security for costs issue has been granted against a commercial litigation funder in The RBS Rights Issue Litigation [2017] EWHC 1217 (Ch). Notably the costs order was granted against the professional funder and not against another third party who is not in litigation funding as a business. The rationale being their participation in the case is not purely motivated by profit.

Although every case will hinge on the specific facts if the case it does suggest that the courts may be disposed to ordering security for costs against funders. It seems particularly apparent that this could be more common in group litigation order (GLO) where there is a provision stating that if the claim fails the group is only liable for a proportion of the defendant’s costs on a several rather than joint basis.

 The judge identified five criteria as being of particular relevance in assessing whether an interlocutory order against a non-party should be granted under CPR 25.14(2), namely:

1. Whether it is sufficiently clear that the non-party is to be treated as having in effect become a real party motivated to participate by its commercial interest in the litigation. In this regard, the judge said the reasons and motivation for the funder’s involvement will be an important consideration – in particular, whether the funder is acting purely for profit or whether it is acting altruistically to enable access to justice (a “pure funder”), or whether it falls somewhere within that spectrum.
2. Whether there is a real risk of non-payment. The judge rejected the Respondents’ suggestion that the defendants must first prove a real risk of non-payment by the claimants before they could seek security from a third-party funder. The question of whether there was a real risk of non-payment had to be considered in the round.
3. Whether there is a sufficient link between the funding and the costs for which recovery is sought. Although it was not necessary to establish strict causation, there had to be at least some causal link between the non-party’s conduct and the costs incurred.
4. Whether a risk of liability for costs has sufficiently been brought home to the non- party, either by express warning, or by reference to what a person in its position should be taken to appreciate as to the inherent risks. The judge noted that with the growth of litigation funding as a business in which funders may be assumed to know the inherent risks, the requirement for express warning had gradually been diluted; in the case of a commercial litigation funder, the lack of an express warning was unlikely to be a particularly weighty consideration.
5. Whether there are factors, including for example delay in the making of an application for security or likely adverse effects, such as to tip the overall balance against making an order. The judge commented, in this context, that there are no hard and fast rules.

Applying these five considerations to the applications against the Respondents, the judge concluded that it was indeed appropriate to order security to be provided by Hunnewell BVI but not LNCP.