Court of Appeal clarifies that cross-undertakings should rarely be required as a condition of security for costs

In a marked shift from previous first instance decisions, the Court of Appeal has provided guidance on the circumstances in which a defendant seeking security for costs may be required to provide a cross-undertaking in damages: Mr Nigel Rowe & Ors v Ingenious Media Holdings & Ors [2021] EWCA Civ 29.

The court held that cross-undertakings should only be required as a condition of security for costs in “rare and exceptional cases” and, where the claimants are funded by a commercial litigation funder, “even rarer and more exceptional cases”. A number of first instance decisions which had indicated an emerging practice of cross-undertakings being generally required (including a decision in the RBS Rights Issue Litigation, considered here) should no longer be followed.

The court commented that it is critical to the business of litigation funders that they are adequately capitalised such that they can meet any potential liabilities arising from the litigation they choose to fund. It follows that there should rarely be any need for security from a “properly run” litigation funder, and disallowing cross-undertakings where security is required from a litigation funder “can be expected to incentivise improvements in the way in which the commercial litigation funding market operates”.

The court also suggested that, if there were to be a new practice in this area, it would be best developed by primary or delegated legislation, particularly in light of the likely effects on the litigation funding market and the potential engagement of considerations of access to justice.

For a more detailed analysis of the decision, see our litigation blog post.