The High Court has determined that a Claimant may be required to identify its litigation funders, in an application that Mr Andrew Baker QC, sitting as a High Court Judge, termed “something of a test case.”

The application was made by the Royal Bank of Scotland in the course of proceedings against it by Mr Wall as assignee for Opal Property Group.  Mr Wall’s claim involves allegations of interest rate hedging product mis-selling and LIBOR manipulation by RBS, as well as the artificial distressing of Opal by the bank’s Global Restructuring Group (known as the GRG).  RBS estimates its costs in defending Mr Wall’s claim to trial will be in the region of £9 million. 

In bringing its application, RBS noted that it believed Mr Wall would not himself be able to meet an adverse costs award, and that it was reasonable to believe that Mr Wall had engaged a third party professional litigation funder.  RBS argued that it was considering whether to bring an application for security for costs from the third party funder, but was unable to do so, or in fact to consider the merits of doing so, without knowledge of the funder’s identity.  Notably, RBS could not bring any such application against Mr Wall himself, who as a private individual fell outside the criteria for bringing such application under CPR 25.13 (subject to certain conditions, which were not applicable on the facts of the case).

Although Mr Wall had not admitted the existence of a funder, the Court accepted that:

“With no evidence to the contrary to weigh in the balance, which is the position today, the inference I draw is that Mr Wall must be litigating with the benefit of third party funding … There is no evidence from which to suppose that anyone would be willing to fund the litigation altruistically. The probability must be – absent, again, contrary evidence to put in the balance – that whoever is funding the litigation is doing so in return for a share in any proceeds”.

That conclusion brought the application, in Mr Baker QC’s judgment, squarely within CPR 25.14, which empowers a party to seek an order for costs from someone other than the Claimant in certain circumstances, including where that third party has contributed to the costs of the Claim in return for a share of any profits. The question for the Court was therefore whether CPR 25.14 contained an inherent power for the court to order that the Claimant disclose the identity of that third party. 

In determining that issue, the Court considered that it had the power ancillary to CPR 25.14 to make the order requested, and concluded that RBS could not sensibly make an application under CPR 25.14 without knowing the identity of the litigation funder.  The Court considered there was no prejudice to Mr Wall in unmasking the identity of any funder(s), and Mr Wall was unsuccessful in his submission that forcing him to disclose the information requested would be a breach of Article 8 of the European Convention of Human Rights.

The decision is significant because it marks a further attempt by a bank to target funders and insurers as a means to block litigation against them.  We have seen a series of these types of applications, particularly where the litigation has been brought by insolvent litigants, or in this case, simply where the litigation is so large that an individual claimant may be unlikely to meet an adverse costs order.  It is worth noting that Claimants in these situations have available the option of ATE insurance, the very purpose of which is to provide parties to litigation with the comfort that an adverse costs order can be met.

In reality, this decision may not have any practical impact on the parties – Mr Wall has ATE insurance, so any application for security for costs would likely succeed only in the event that RBS could first show that the ATE insurance would not respond to an adverse costs order. 

It is worth noting that the decision also came with a warning by the courts that these types of applications (including security for costs applications) should be made “the sooner the better” and parties cannot expect the courts to provide relief when such applications are made after the first CMC.

Decision available: http://www.bailii.org/ew/cases/EWHC/Comm/2016/2460.html [2016] EWHC 2460 (Comm)