Litigation Funding: security for costs against third party funders

When can the court make an order for security for costs against a litigation funder who is not party to the proceedings? This much depends on whether it is a ‘pure’ litigation funder, or commercial funder.

The High Court has given useful clarification in the RBS Rights Issue Litigation [2017] EWHC 1217 where it ruled that a third party funder can have a security for costs orders made against them because it was a professional commercial funder.

This was complex litigation against RBS following the collapse of its share price in 2009, and involved vast numbers of claimants. Some of the claimants were funded by two third parties who would take a share of the compensation should they win. RBS applied for security for costs in the sum of £11.6m against the funders, but the funders objected because they were not direct parties in the litigation.

RBS succeeded in part: the High Court had the discretion to make such an order against anyone who had contributed to the claimant's costs in return for a share of any compensation recovered in the proceedings, if it was just to do so. Notably, the Court distinguished between ‘pure’ funders (eg. because of a family relationship with the claimant) and professional commercial litigation funders whose line of business was funding litigation for profit.

In this case, one of the two funders were ordered to give security for costs because it was a commercial funder – and had failed to produce sufficient evidence that it could be relied upon to pay those costs if they became due. The court said that, as a commercial litigation funder, “it should have been fully aware of the position in relation to ATE cover”.

The second funder (a company owned by or associated with the family interests of Trevor Hemmings, a well-known businessman and philanthropist) was not in the line of litigation funding and was a ‘pure’ funder. The court noted that this second funder was inexperienced and may not have been aware of its potential liability to contribute to RBS’s legal costs if the claimants lost.

However, the fact that a litigation funder may not be in the business of litigation funding is not a decisive factor. Other relevant factors include whether there was a risk of non-payment of costs by the third-party funder if the claimants lost; whether the relevant party had delayed in applying for security for costs, or likely adverse effects that would “tip the overall balance against making an order”. Each case must be assessed on its own facts



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