In a decision that will be of interest to claimants with third party funders, and those funders themselves, the High Court has recently ordered the Claimant in a £700m swap mis-selling claim to reveal the identity of its litigation funder.
Background to the litigation
The facts of the underlying case are not directly relevant to this interim decision, but in summary the claim involves alleged mis-selling by RBS of an interest rate swap, breach of contract, what has been described as "artificial distressing" by RBS's Global Restructuring Group, and LIBOR manipulation. The Claimant in the action is Stuart Wall, owner and controller of the parent company of the Opal Property Group, now in insolvent liquidation.
Background to the application
RBS believes that the claim is being funded by a third party funder or funders who have taken a stake in the claim in return for funding. The Court is empowered under the Civil Procedure Rules to order such funders to provide security for costs to Defendants. Security for costs is, in simple terms, protection afforded to Defendants by way of a payment on account by Claimants to cover the Defendants' legal costs in the event the claim is discontinued or lost and an adverse costs order is made against the Claimants. Mr Hall contended at an earlier hearing that since his possible costs liability to RBS was covered by after-the-event insurance, no security for costs order against him or any funders could or would ever be made.
The Court decided in RBS's favour and ordered Mr Hall to reveal the identity of any litigation funder/s. The Court reached its conclusion on the bases that:
Where there is reason to believe a Claimant has funding, the Court has the power to order security for costs against the funder in question;
In order for the Court to grant an application for security for costs against a funder, it is first necessary to identify that funder against whom any such application would be made;
In ordering the Defendant to reveal that identity, the Court is doing no more than making an order that is necessary to make effective the Court's primary power, namely to grant security for costs against a funder.
Human Rights Act 1998
Mr Hall additionally sought to rely on the provisions of the Human Rights Act 1998 ("HRA") in resisting the application. The HRA provides that the Court must exercise its powers under the Civil Procedure Rules in such a way as to be compatible with the fundamental rights and freedoms provided by the European Convention on Human Rights ("the Convention"). Article 8 of the Convention provides that "Everyone has the right to respect for his private and family life, his home and his correspondence." Mr Hall argued that being required to reveal the identity of any litigation funder would constitute an invasion of his private life under Article 8.
The Court rejected this argument. It held:
That in this instance the Court enjoyed the benefit exception contained in Article 8.2 of the Convention which provides that there is no impermissible interference in private life such as in accordance with the law.
Further, that Mr Hall's private life was not engaged by the application in any event. Mr Hall has embarked upon large scale public litigation under a system of law which allows the identity of litigation funders to become public knowledge. The identity of his funders is not therefore an aspect of his private life; it is a necessary aspect of the claim that this identity might become public knowledge as a result of the ordinary function of the Courts and the procedural rules.
This decision is a preliminary victory for RBS which will allow them to make an application against Mr Wall's funders for security for costs. The Court was not at this stage deciding that application, but did comment that the existence of Mr Hall's ATE insurance would not of itself defeat any such application.
Third party funders have, in general, reacted with equanimity to this decision. Funders are aware that their involvement in a claim may become known in the ordinary course of litigation, though this is the first time that a Court has ordered a funder's identity to be revealed at such an early stage in the proceedings. The decision to fight the application has been viewed by the funding community and lawyers as puzzling. Many third party funders in a similar scenario are unlikely to have objected to being identified, and indeed many funders are as a rule keen for their involvement in claims to be known. This leads to the conclusion, which is perhaps unfair, that there was some collateral purpose in the Claimant objecting so strenuously (and at such cost) to the application. What effect, if any, this decision will have on the litigation funding market remains to be seen.