Claimant ordered to reveal funder's identity so defendant could apply for security for costs against funder

The High Court has ordered a claimant to reveal the identity of his litigation funder so that the defendant could apply for security for costs against the funder: Wall v The Royal Bank of Scotland [2016] EWHC 2460 (Comm).

The decision illustrates that where there is good reason to believe that a third party is funding litigation in return for a share of the proceeds, but the defendant does not know the identity of the funder, the court has power to order disclosure so that an application for security for costs can be pursued. It also highlights that the court may grant an application for security for costs against a funder in circumstances where the funded party could not be ordered to provide security. This may be helpful for defendants who are facing funded claims and who would not otherwise be able to obtain security.

Background

Under CPR 25.14(2)(b), the court may order security for costs against a third party if:

• it is satisfied that in all the circumstances it is just to make such an order; and
• the third party has contributed or agreed to contribute to the claimant's costs in return for a share of the proceeds of the litigation.

In the present case, the claimant brought proceedings as assignee of mis-selling claims against the defendant bank by a company he had owned and controlled ("OPG") which was in insolvent liquidation. The claims were said to be worth £700 million, if well founded.

The defendant applied for an order that the claimant (a) provide the name and address of any third party or parties who were funding the litigation on his side and (b) confirm whether they fell within CPR 25.14(2)(b), ie whether they were contributing to the claimant's costs in return for a share of the proceeds.

Decision

The court (Mr Andrew Baker QC sitting as a High Court judge) granted the defendant's application.

The court referred to previous authority which established, as a matter of principle, that:

• where the court has power to grant a remedy, there must also be inherent in that power the power to make ancillary orders to make that remedy effective; and
• an order requiring a claimant to reveal the identity of a third party known to the claimant but not to the defendant, where the power exists within the litigation to grant a remedy against that third party, is such an ancillary order.

Accordingly, where there is good reason to believe that a claimant has third party funding falling within CPR 25.14(2)(b), the court has power under that rule to order the claimant to identify the funder so that an application can be made.

Neither the existence nor the exercise of that power was affected by Article 8 of the European Convention on Human Rights (respect for private and family life, home and correspondence). If article 8 was engaged at all, the interference was in accordance with the law and was no more than was necessary to protect the defendant's right to make an application for security for costs under the rule. In any event, the court did not accept that Article 8 was engaged, as the claimant had no reasonable or legitimate expectation of privacy in the identity of his funder. It was accepted that, if the defendant was already in possession of a costs order, the identify of the funder would be apt to come out for the purposes of section 51(1) of the Senior Courts Act 1981 which allows costs orders to be made against third parties.

The court concluded that it was appropriate to exercise the power in the present case for a number of reasons including:

• This was large and complex litigation where the defendant's estimated costs were more than £9 million. The claimant appeared to be an individual without the means to fund litigation of that magnitude, complexity or expense, and the court inferred that he must be litigating with the benefit of third party funding. There was no evidence to suggest that anyone would be willing to fund the litigation altruistically, so the probability was that it must be in return for a share in any proceeds.
• There was every reason to think the claimant would not be in a position to meet the large costs liability he would incur if the defendant succeeded at trial.
• There had been no suggestion that merely identifying the funder might stifle the claim.
• The claimant's ATE insurance arrangements did not affect the court's conclusion. Even if those arrangements would have been sufficient to defeat a security for costs application by a corporate claimant, which was not necessarily the case here, that did not mean they must be sufficient to defeat an application against third party funders. On an application against a claimant, the court must balance the defendant's desire to be paid its costs if it succeeds in the litigation against the fact that an impecunious claimant may be deprived of access to the court if security is required. The position was arguably different in an application against a third party funder buying a stake in the claim or its proceeds. That was a "serious and important argument" and the defendant should have a proper opportunity to pursue it.

Note: According to the Court of Appeal case tracker, the appeal hearing was vacated and the appeal dismissed on 27 February 2017.