In what he referred to as “something of a test case for whether third party funders can remain anonymous”, Mr Andrew Baker QC, sitting as a High Court judge, found last week that there was an inherent power in CPR 25.14 (the rule empowering the court to order security for costs other than from the claimant) to order a claimant to identify his third party funders.
The judgment enables the defendant to pursue applications for security for costs against those third party funders, something that previously it could not do because it did not know their identities. Those applications will bring into play the question of whether security should be ordered when a claimant benefits from ATE insurance, a question that we are watching closely.
Mr Wall advances claims against RBS arising from RBS’ dealings with a property group which he owned and controlled. The group is now in insolvent liquidation, and Mr Wall claims to be the assignee of its rights against RBS. The bank has estimated that it will face costs of over £9m in defending the various allegations.
RBS was evidently concerned that Mr Wall (a private individual) would not be able to meet the normal order that the “loser” pays the “winner’s” costs if RBS is successful in defending the litigation. RBS faced certain practical difficulties in dealing with this concern: it could not seek security for costs against Mr Wall and, whilst it believed that Mr Wall had third party funders, it did not know who they were and so could not bring an application for an order that they should provide security for the bank’s costs pursuant to CPR 25.14.
Accordingly, last December, RBS applied for Mr Wall to (a) provide the name and address of any third party funders who were funding the litigation on his side, and (b) confirm whether any such third parties fell within CPR 25.14(2)(b), i.e. have “contributed or agreed to contribute to [his] costs in return for a share of any money or property which [he] may recover in the proceedings”. This application culminated in last week’s judgment.
The main legal issue for the court was whether it had the power to make the order RBS sought. In line with previous authority (particularly Reeves v Sprecher  EWHC 3226 (Ch)), the Judge found that:
- Where there is a good reason to believe that a claimant has funding falling within CPR 25.14(2)(b), the court has the power to grant a remedy by way of security for costs against the funders in question.
- Where the court has the power to grant a remedy, there must be inherent in that power the power to make that remedy effective.
- An order requiring a claimant to give a defendant the identity of a third party, where the power exists within the litigation to grant a remedy against that third party, is such an ancillary order.
- And thus, there is a power inherent in CPR 25.14 for the court to order a claimant to identify his third party funder; doing so is nothing more than making an order that is necessary to make effective the primary power to grant security for costs.
Applying this, the Judge considered there was good reason to believe that Mr Wall had funding falling within CPR 25.14(2)(b): he was an individual, he did not have the means to fund the litigation, and there was no evidence to believe that anyone would fund the litigation altruistically. It would be of prejudice to RBS if Mr Wall was not required to identify his funders, but it would be of no prejudice to Mr Wall if he was required to identify them (and, contrary to the assertions made for Mr Wall, the application did not involve an invasion of Mr Wall’s private life within the meaning of Article 8 of the European Convention on Human Rights – or engage that Article at all). He was content to find for RBS.
The judgment is helpful to defendants in confirming that a claimant’s third party funders cannot hope to avoid a security for costs application under CPR 25.14 simply by remaining anonymous. However, perhaps more interesting than this judgment will be the outcome of RBS’ intended security for costs application. This is because Mr Wall benefits from ATE insurance and the intended application will raise the question of whether such insurance can defeat an application for security for costs.
It was submitted for Mr Wall in the present application that RBS could not hope to be awarded security for costs in circumstances where Mr Wall has ATE insurance. The Judge did not agree: he considered that there was a “serious argument” to be had on this subject and that “there appears to be a real prospect of success for RBS”.
The courts have typically found and observed that ATE insurance policies are not equivalent to security for costs: unlike security, such policies are voidable, subject to cancellation and not within the control of defendants. For example, The Honourable Mr Justice Akenhead observed in Michael Phillips Architects Ltd v Riklin  EWHC 834 (TCC) that “it will be a rare case where the ATE insurance policy can provide as good security as a payment into court or a bank bond or guarantee”, accepted forms of security. This observation is supported by recent cases in which the courts have rejected attempts by original defendants to claim on insurers under ATE insurance policies (e.g. Persimmon Homes Ltd v Great Lakes Reinsurance (UK) plc  Lloyd’s Rep. I.R. 101 and IHC v Amtrust Europe Ltd  EWHC 257 (QB)).
There are, however, two cases which may indicate that a properly drafted ATE insurance policy can provide security sufficient to defeat a security for costs application: Geophysical Service Centre v Dowell Schlumberger (ME) Inc  EWHC 147 (TCC) and NGM Sustainable Developments Ltd v Wallis  EWHC 461 (Ch). Whether these cases represent the start of a new line of authorities or whether they are cases confined to their narrow facts is an important question for the future of ATE insurance and security for costs. We anticipate that this question will be answered quite shortly in another case which we are monitoring closely and will provide a further update when possible.