Wall v The Royal Bank of Scotland plc [2016] EWHC 2460 (Comm) (Wall) concerned the bank's application that the claimant reveal the name and address of any third party funder funding the litigation in circumstances where the claimant had refused to disclose the funder's identity. The application was for the purpose of aiding the bank's security for costs application.

Background

The English Courts have long had the power to order a party to disclose the name and address of a third party funder of a claim where funding has been admitted or proved (see Reeves v Sprecher and Others [2007] EWHC 3226 (Ch) (Reeves). The courts also have the power to order security for costs against a claimant's third party funder rather than the claimant (CPR 25.14(2)(b)).

The basic rationale for security for costs is that parties are entitled to some protection from the risk of their opponent not being able to pay the party's litigation costs if ordered to do so. In the case of a funded claimant, a third party is making available the funds to enable the claimant to conduct the litigation, thereby causing the defendant to incur costs in order to respond. Where a funded claimant is impecunious, if the claim fails and the funder does not foot the costs bill, a defendant has no practical way of receiving its compensation for legal costs. As a matter of policy, it is therefore judged fair for the funder to bear the burden of providing security for costs.

In order to make such an application, the defendant must know the funder's identity. But what happens when the claimant declines to disclose the funder's identity? Funders do occasionally prefer to remain anonymous to obscure their interest. This could be for a range of reasons; some of which might be tactical, but in this case the claimant (Mr Wall) argued that disclosure of the funder's identity would infringe his right to respect for his private life.

Here, the claimant alleged losses of around 700 million as a result of the alleged mis-selling of an interest rate swap by the defendant (RBS). RBS's estimated total costs of the litigation were over 9 million. RBS applied for an order that Mr Wall provide the names and addresses of any third parties funding the litigation. Further, RBS asked that Mr Wall confirm whether the funder had contributed or agreed to contribute to Mr Wall's costs in return for a share of any sum that Mr Wall may recover in the proceedings.

Mr Wall argued: (a) that the power to order disclosure of a funder's identity was not inherent in CPR 25.14, but went beyond it; (b) that RBS's application was a fishing expedition; and (c) that the order sought was an invasion of Mr Wall's private life under Article 8.1 of the European Convention on Human Rights.

Decision

The Court dismissed Mr Wall's arguments. It found that there was good reason to believe that Mr Wall was being funded, that an application for security for costs required the funder's identity, and that the power to order a claimant to reveal that identity was contained within CPR 25.14. Finally, Article 8.1 was not engaged because Mr Wall had decided to start litigation in public.

The High Court ordered that Mr Wall should provide the name and address of any funder within seven days. It is important to note that Reeves still applies. That case confirmed that it is not necessary for a court to order the disclosure of the funding agreement to enable a defendant to mount an application for security for costs.

Comment

Wall is the latest in a string of cases that recognise that funders are increasingly routine players in all types of commercial disputes. For instance, third party funding is now becoming common in disputes resolved through international arbitration. Recently, the High Court of England delivered a landmark decision in Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm) that the costs of third party funding in arbitrations were in principle recoverable (click here and here to see our earlier articles on this decision). There are also proposed legislative amendments in Hong Kong and Singapore (both popular destinations for businesses to resolve disputes) to allow third party funding in international arbitration.

One funder has observed that the transparency required in the Wall decision "could potentially have a chilling effect on access to justice" (see R Rothwell "Litigation Funding: Capital Gain", Law Gazette, 28 November 2016). However, sophisticated funders in making a commercial decision about whether to fund a claim now customarily assume that their involvement in the claim will become public and will price in the cost of after the event (ATE) insurance or the payment of security for costs. Indeed, for financial institutions and other potential defendants, the fact that funders have disclosed their involvement signals that the funders think the claim has sufficient merit to put their capital at risk, and there will often, therefore be a tactical advantage to such disclosure.

ATE Insurance

One issue the court did not decide was the effect of Mr Wall's ATE insurance policy. ATE policies can defeat applications for security for costs because they provide the defendant with alternative security.

The fact that the security offered by ATE policies may be less certain than a payment into court has been the subject of judicial scrutiny. For example, Michael Phillips Architects Limited v Riklin and Anor [2010] EWHC 834 (TCC) highlighted that an ATE policy may be voidable or subject to cancellation by the insurer. In Nasser v United Bank of Kuwait [2001] EWCA 556 the court considered that the proceeds of an ATE policy may be payable to a third party in preference to the defendant. More recently in NGM Sustainable Developments Ltd v Wallis [2015] EWHC 461 (Ch) an ATE policy was found to be an adequate substitute for security for costs. The judge held that a theoretical possibility that the insurer would avoid paying out is not a sufficient reason to ignore an ATE policy. Instead, there must be a genuine reason to believe that non-payment by the insurer is likely, for example, an express indication in the policy terms.

In contrast, Wall held there was a "serious argument" as to whether a different approach is appropriate for third party funders. The court said on an application against a claimant, it must balance the defendant's desire to be paid its costs if it succeeds in the litigation against the fact that an impecunious claimant may be deprived of access to the court if security is required. The court noted that a funder is a "professional entity seeking to profit from the litigation of others" and it is "likely to be well able to secure the defendant's costs". The court held RBS should have a proper opportunity to make this argument. Whether it is in fact afforded the opportunity to do so will depend on whether the claimant succeeds in its appeal of the first instance decision in Wall, which we understand is due to be heard by the Court of Appeal on 14 or 15 March 2017.