£7.5 million security for costs awarded against foreign litigation funder

Banking Disputes Quarterly

Litigation Alert


In a judgment handed down on 23 May 2017 in The RBS Rights Issue Litigation [2017] EWHC 1217 (Ch), the court ordered a BVI registered litigation funder to pay £7.5 million security for costs, conditional on the Applicant/Defendant, RBS, providing a cross-undertaking in damages.

The court has the power under s. 51 of the Senior Courts Act 1981 and CPR 24.14 to make an order for security for costs where there is evidence that there will be real difficulty enforcing any costs order, and can also make such orders against third parties where it is clear that the non-party has effectively become a "real party" to the litigation by reason of its financial interest in the outcome. RBS (whose total costs in the RBS Rights Issue Litigation are estimated at £129 million) had sought orders against two of the funders who sit behind the remaining group of Claimants in the long-running case: Hunnewell BVI and LNCP (a Manx company) for a total of £11.6 million. The amount of security sought was less than the total funding provided to the Claimants by each of the funders.

There was a Group Litigation Order in place which provided for each of the individual Claimants (numbering several thousand) to be severally liable for their own proportion of the costs. Many of them lived abroad and did not have substantial assets, meaning that there was a risk of non-recovery should a substantial costs order be made against the Claimants. Security was sought for costs incurred following settlement of many of the claims in December 2016 (the December Settlements), following which the remaining Claimants would be liable for all of the substantial costs of the remaining stages of the litigation, seemingly without any After the Event (ATE) Insurance remaining in place to cover any adverse costs award made against them.

It is unusual for security for costs to be sought at such a late stage in proceedings (effectively a few months before trial when the case had been running for years) and both of the funders argued that the application should not be allowed on the grounds of exceptional delay. However, the court considered that there had been a "watershed" moment when the December Settlements occurred, and it became clear that the ATE insurance which had been understood to be in place up until March 2017 would not cover the further costs incurred.

The court separately considered the position of each of the two litigation funders to decide whether they were a "real party" to the litigation, against which an order for security for costs could be made, and whether there was a risk that any adverse costs order against them would not be satisfied. In respect of Hunnewell BVI, the court found that it was clearly operating as a litigation funder for a profit (and had already received at least the amount sought from earlier settlements with other Claimants), and had accepted the risk of liability for adverse costs by taking that role in the litigation, and where sufficient ATE cover was not in place. Hunnewell BVI continually refused to provide financial information in response to the application on the grounds that it was "sensitive and commercial", which the court found supported an inference that it may not have sufficient funds to satisfy an adverse costs order against it. However, the court did not consider that the Manx company, LNCP, was in the business of litigation funding and considered that, on balance, and in contrast to Hunnewell BVI, it could not be considered to have accepted the risks of an adverse costs order as inherent in its business.

The court left it to the parties to consider further the mechanics of the security, with the funds potentially to be held by the Claimants' solicitors, subject to an undertaking. However, the court also decided, of its own motion, to impose a condition on the order for security, which was that RBS would have to provide a cross-undertaking in damages to Hunnewell BVI should the Claimants not have any costs order made against them, thereby showing that the provision of the security was unnecessary. In that case, RBS could be liable to pay compensation to Hunnewell BVI for monies it would have made using the security funds to further its business, rather than having them held in escrow pending a costs order being made.

The court made clear that this decision was made in unusual circumstances. Whilst it illustrates that an order for security for costs may be made against third party funders in certain circumstances, the facts before the court were somewhat unusual, including the potential difficulty in enforcing against the Claimants , the fact that the costs incurred had significantly outstripped the available ATE cover, and that the funder was unwilling or unable to show that it had sufficient funds available to satisfy any order made. The court also created a potential risk for RBS in deciding whether to proceed with the order, by imposing the cross-undertaking, which carried with it significant potential liability should RBS not be successful in the main litigation.