Germany v Flatman

Applications for information about litigation funding may properly be granted where there are reasonable grounds to suspect that a solicitor has acted outside the ordinary role of a solicitor and has become a funder in the course of business. The court must assess the particular facts and apply an intense, fact-sensitive discretion. A future third-party costs application need not already appear likely to succeed. The jurisdiction is exceptional in the sense that it falls outside the ordinary run of litigation, but it is not confined to cases involving a solicitor’s improper conduct or a non-party who is the sole real party. Public policy supporting conditional fee agreements must be balanced against the policy of enabling successful defendants to recover costs from funded litigation where justice requires it.

Two defendants appealed against refusals by His Honour Judge Moloney QC to order disclosure of information about the funding of unsuccessful personal injury claims. The claimants were represented under conditional fee agreements without after-the-event insurance and appeared unable to pay the defendants’ costs. The defendants suspected that their solicitors had paid disbursements and might therefore have acted as litigation funders. No application for a third-party costs order had yet been made because the necessary information was unavailable. The central issue was whether disclosure could be ordered to determine whether such an application might properly be brought.

1. Appeals allowed. The defendants were entitled to disclosure of the documents and information sought, subject to genuine claims to legal professional privilege.
2. Under section 51 of the Senior Courts Act 1981, the court may order a non-party, including a solicitor in an appropriate case, to pay litigation costs. The relevant question is whether, in all the circumstances, it is just to make the order. The jurisdiction is fact-specific and involves weighing competing considerations.
3. A pure funder will generally not be made liable where he or she has no personal interest, does not seek to profit and does not control the litigation. That is a usual approach rather than a rigid rule. A funder who controls the litigation, stands to benefit, or funds it as a business may be regarded as a real party and may be liable even though the claimant retains a beneficial interest.
4. A solicitor does not become a funder merely by advancing fees or disbursements temporarily on the expectation of reimbursement. The position is different where sums are paid on the basis that they will be recovered only if the claim succeeds, or otherwise will not be recovered. In that event the solicitor may have stepped outside the normal role and made a business investment in the litigation.
5. The court has an ancillary power to order disclosure relevant to the possible exercise of the third-party costs jurisdiction. The applicant need show a reasonable and non-speculative basis for seeking the information, not that a future costs order will certainly be made. The factors identified in Thomson v Berkhamsted School include the apparent strength of the application, the likely probative value of disclosure, legal professional privilege and proportionality.
6. The first-instance judge had overestimated the effect of disclosure on the conditional fee regime and had been unduly influenced by a policy concern that did not arise on these facts. The discretion was therefore exercised afresh. The disclosure orders were justified because the available evidence provided reasonable grounds for the defendants’ suspicions.

1. High Court (Queen’s Bench Division): appeals from rulings of His Honour Judge Moloney QC dated 20 and 25 January 2011 were allowed. Disclosure orders were granted.