The RBS Rights Issue Litigation

Security for costs may be ordered against a non-party funder under section 51 of the Senior Courts Act 1981 and CPR 25.14(2)(b) where it is just to do so. The court must assess the funder’s role, the realistic risk of non-payment, the causal connection between funding and the costs, the funder’s appreciation of the risk, delay, prejudice and proportionality. Commercial litigation funders are ordinarily expected to understand the risks inherent in their business. A one-off funder supporting associated claimants for their benefit may stand differently from a professional funder seeking profit from litigation. Security is an interlocutory protection for a contingent liability and may require a cross-undertaking. The order must be fashioned proportionately and must not operate oppressively.

The defendants in long-running group litigation concerning the 2008 RBS rights issue applied for security for costs against two non-party funders, Hunnewell Partners (BVI) Limited and London and Northern Capital Partners Limited. The applications were made under section 51 of the Senior Courts Act 1981 and CPR 25.14(2)(b), shortly before trial and after settlements had substantially altered the composition and costs exposure of the remaining claimant group.

The defendants sought security of £11.6 million in total. Hunnewell BVI was a professional litigation funder. LNCP was associated with claimants whose own substantial investment in the rights issue was the subject of the proceedings. The central issues were whether security was just and necessary against either funder, the appropriate amount, and whether a cross-undertaking should be required.

1. Jurisdiction and governing approach. The court had jurisdiction under the combined effect of section 51 of the Senior Courts Act 1981 and CPR 25.14(2)(b), even though the respondents were not substantive parties. The discretion was fact-specific and had to be exercised justly. The authorities provided guidance, not a rigid rule-book.

2. Relevant considerations. In deciding whether security was just, the court considered whether the funder had become in substance a real party motivated by commercial interest; whether there was a real risk of non-payment; whether there was a sufficient causal link between the funding and the costs; whether the risk of costs liability had been brought home to the funder; and whether delay, oppression, prejudice or other circumstances outweighed the case for security.

3. The defendants did not first have to prove that the remaining claimants themselves could not meet an adverse costs order. That issue was nevertheless relevant to the overall assessment. The court had to consider whether there was a real risk that costs awarded to the defendants would remain unpaid, including the practical difficulties of enforcement against numerous individual claimants.

4. A strict “but for” causal test was unnecessary. The applicant had to establish at least some causal link between the non-party’s conduct and the costs incurred. Funding which enabled the litigation to continue could satisfy that requirement.

5. Commercial funders could ordinarily be expected to understand the risks of adverse costs and security applications. Lack of an express warning was therefore unlikely to be decisive. Delay remained relevant, particularly where an order made shortly before trial deprived the funded party of a genuine choice or threatened oppressive consequences.

6. Hunnewell BVI was a professional funder, funding a commercial venture in which it had no other interest. Its deliberate reticence about its finances did not dispel the inference that it might lack sufficient resources. The anticipated settlement receipts did not establish that an available fund would remain to meet a costs order. Security was therefore just.

7. LNCP was materially different. It was not in the business of litigation funding and the evidence indicated that its principal purpose was to assist associated claimants to vindicate their own rights, although it expected a return. It was closer to a pure funder than a professional funder. The evidence did not establish a sufficient likelihood that a section 51 order would ultimately be made against it, or a sufficient risk of non-payment to justify security at that late stage. The application against LNCP was refused.

8. The security sought against Hunnewell BVI was reduced to £7.5 million, reflecting proportionality, the exclusion of LNCP’s proposed share, and concern that the defendants’ unusually high costs might themselves have contributed to the absence of comprehensive ATE cover. Security could be provided by retention from settlement proceeds, subject to agreement on the mechanism.

9. A cross-undertaking was required. The doubly contingent nature of the liability made it appropriate to preserve a means of compensating the funder if hindsight showed that the interlocutory order should not have been made.

The judgment was a first-instance decision on applications for security for costs. It refers to an earlier procedural judgment of the same court dated 9 March 2017, reported at [2017] EWHC 463 (Ch).