Since the implementation of the Jackson reforms in April 2013, claimants do not have to notify defendants of the existence of conditional fee agreements or details of any after the event (ATE) insurance policies.
As a result, defendants have less visibility than they used to of any protection claimants may have against adverse costs and the extent to which defendants would be able to enforce any costs award in their favour.
Following the line of cases after Dymocks Franchise Systems (NSW) Ltd v Todd  1 WLR 2807, applied by the Court of Appeal in Arkin v Borchard Lines Ltd and others  EWCA 655 it has been settled law for some years that the court has jurisdiction to award costs against commercial third party funders who back a claimant’s litigation. Until recently, though, it has been considered premature to seek disclosure of a funder’s identity before a costs order has been made.
However, two recent cases confirm the court’s jurisdiction to order the disclosure of the identity of commercial third party litigation funders, before a costs order has been made, where the defendant needs the information to consider a security for costs application. ‘Security for costs’ applications are sought by the defendant against a claimant if the defendant has reason to believe that the claimant will be unable to pay any adverse costs award made against them.
Civil Procedure Rule (CPR) 25.14(2)(b) gives courts the power to make an order for security for costs against someone other than the claimant if that person is contributing to the claimant’s costs in return for a share of any money or property that the claimant may recover in the proceedings. In Wall v The Royal Bank of Scotland plc  EWHC 2460 (Comm), the court found that inherent in the power to grant this remedy is the power to make ancillary orders to make it effective. In this case, the claimant was ordered to reveal to the defendant the identity of any third party who was funding the litigation in return for a share of the proceeds. The point was confirmed recently in the RBS Rights Issue Litigation  EWHC 463 (Ch).
A couple of key points emerge from these judgments. First, the application for disclosure of the identity of a claimant’s third party funder should be made “the sooner the better”. Second, whilst the applicants need not have unequivocally determined to bring an application for security for costs once the details are revealed, the application should not be a fishing expedition. It will only be granted in circumstances where, if the defendant knew who to make the security for costs application against, it would be pursued on proper grounds and have a serious prospect of success (as opposed to being speculative or fanciful).
As pointed out by the claimants in the RBS Rights Issue Litigation and acknowledged by Mr Justice Hildyard in those proceedings, there is a risk that defendants may use such an application for tactical reasons. Nonetheless, Mr Justice Hildyard remarked that it should come as no real surprise to commercial funders that their exposure may occasion an application for security for costs. This is especially so in the circumstances of a group litigation order (GLO), where enforcement against multiple claimants would be difficult (or even uneconomic).
Conversely, however, Mr Justice Hildyard did not agree to the second limb of the defendants’ application that the claimants also provide a copy of any ATE insurance policy held by them or confirm that neither they nor any third party funder falling within CPR 25.14(2)(b) would seek to rely on such a policy in opposition to any application for security for costs. In refusing this request, the court held that despite an ATE insurance policy not being in its nature privileged it was not right to force the claimants to determine now their defence to an uncertain application for security which may not be pursued or may be demonstrated to be unwarranted.
The recent cases act as a timely reminder to claimants and third party funders that the courts have jurisdiction to order the disclosure of the identity of commercial third party litigation funders in the context of a security for costs application. With the rise of third party funding in litigation we would expect to see such applications occurring more frequently, especially in the circumstances of claims subject to a GLO.
You can find further information regarding our expertise, experience and team on our Commercial Litigation pages.