Kerry Underwood dissects two recent judgments that could have significant implications for third party funders.

In Bailey & others v GlaxoSmithkline (UK) Ltd and Managed Legal Solutions Ltd [2017] EWHC 3195 (QB), the High Court ordered security for costs against a litigation funder in excess of the Arkin cap, which generally restricts a professional funder’s liability for adverse costs to the extent of its own funding, a principle established in Arkin v Borchard Lines Ltd & others [2005] EWCA Civ 655

Here, the court considered that the Arkin cap was simply a factor to be considered under CPR 25.14, was not absolute and should not fetter the court’s general discretion as to costs at the end of the day. As the cap might not be applied at the end of this case, the court thought it should order security in excess of the cap. 

There would be no injustice if the cap was ultimately applied, as if the security had been paid into court, then the surplus could be returned to the funder. 

In a separate finding, the court reduced the amount of security it would have ordered by two-thirds of the value of the ATE insurance cover to reflect the low risk of avoidance of the ATE policy by the insurers in this matter. 

This was in contrast to the finding of the Court of Appeal, which took the view that the policy could easily be avoided and thus should not be taken into account in relation to the issue of security for costs. 

Disclosure of identity of funders 

In Re Hellas Telecommunications (Luxembourg) [2017] EWHC 3465 (Ch), the High Court has ordered the respondent liquidators to disclose the identity of the funders of the litigation and the terms on which the funding was provided. 

The defendants had applied for the relevant disclosure order to consider whether to apply for security for costs against the relevant funders under CPR 25.14, which provides that the court may make an order for security for costs against non-parties where, for example, the non-party has contributed, or agreed to contribute, to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings (CPR 25.14(2)(b)). 

The judge referred to various authorities, including Wall v Royal Bank of Scotland plc [2016] EWHC 2460 (Comm), and held that the court has the power, whether inherent or implicit in CPR 25.14, to make orders so as to enable a party to make an effective application under CPR 25.14. This jurisdiction exists notwithstanding that there is no pre-existing costs order against any party in the proceedings.

The judge also held that, on the facts of the case, there were grounds upon which an application under CPR 25.14 might properly be brought with a realistic prospect of success. 

It is particularly interesting that, in order to protect the interests of the liquidators (as there was a possibility that some of the funders were creditors of the relevant company), the judge limited the relevant disclosure to a narrow group of individuals who would be required to give court undertakings that the information would not be disclosed to third parties or used otherwise than for the purpose of determining whether to make an application for security for costs. 

Comment

The Hellas decision provides an example of the court limiting the disclosure of a party’s funding arrangements to (in the words of the judgment) a ‘confidentiality club’ (ie those individuals or organisations or lawyers who will have confidential access to certain information) and requiring the recipients of the information to give the necessary undertakings. 

It also adds to the emerging jurisprudence in this area which confirms that the court is willing to make the necessary orders in order to avoid unfairly depriving a party of an opportunity to pursue an application under CPR 25.14. 

In the Wall case, the court dismissed the notion that the funders’ liability to pay adverse costs was secondary, in the sense that they would not be ordered to pay costs unless the claimants did not pay, or were unlikely to pay. 

The court said that in group litigation, such as this, there was good reason to assume enforcement might be directed first against the funders as, in the judge’s words, they ‘stand in the front-line’. 

The whole concept of the Arkin cap may now be under threat.