Court orders security for costs against litigation funders
The earlier decision in this case stated that information about the claimants' two commercial funders should be ordered in advance of a threatened application for security for costs against them. That information now having been supplied, the defendants sought security for costs against the funders. There was no dispute that the court could make such an order, even though the funders are not parties to the proceedings, because of section 51 of the Senior Courts Act 1981 and CPR r24.14(2)(b). However, various factors should be taken into account when deciding whether the order should be made. These were listed by the judge as follows:
(1) Whether it is sufficiently clear that the non-party is to be treated as having in effect become in all but name a real party motivated to participate by its commercial interest in the litigation. "Pure funders" ie those acting altruistically to enable access to justice, will be treated differently;
(2) Whether there is a real risk of non-payment such that security against the contingent liability should be granted. The court may draw inferences from "deliberate reticence". That was the case here for one of the funders (Hunnewell BVI);
(3) Whether there is a sufficient link between the funding and the costs for which recovery is sought to make it just for an order to be made. Strict causation is not required;
(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 said that this is unlikely to be a significant factor for commercial litigation funders who are assumed to know their business and its inherent risks; and
(5) Whether there are factors, including for example, delay in the making of an application for security, such as to tip the overall balance against making an order. There are no hard and fast rules, though, and an application may be made at any stage of the proceedings. Here, there had been "extreme" delay, but the judge found that that was explainable on the facts and not fatal to the application for security.
On the facts of the case, it was held to be particularly relevant that there was a lack of, or shortfall, in ATE cover: "As a commercial litigation funder, Hunnewell BVI (and its parent) should have been fully aware of the position in relation to ATE cover; if there was uncertainty it was their business to get to the bottom of it, or incur the risks if they chose not to do so". Accordingly, Hunnewell BVI was ordered to provide security for costs.
However, no security was ordered against the other funder because litigation funding was not its line of business. That was not necessarily a decisive factor "But the fact that it is not part of the usual business of the particular funder does bear on the question of whether that funder should be taken to be funding for commercial gain and accordingly, in the way of things, to have assumed the risks ordinarily inherent in that line of business". In short, this funder had not supported the litigation as a business opportunity.
The judge also held that "Though not common-place or inevitable, I do not think it should be considered particularly exceptional for the court to require a cross-undertaking as the price of an order for security for costs to be provided by a non-party funder before the incidence of costs has been determined".