Rowe & Ors v Ingenious Media Holdings PLC & Ors

A court may require a cross-undertaking in damages as the price of ordering security for costs. The power arises from the discretionary security jurisdiction and the court’s power to impose conditions on relief.

Such an undertaking is appropriate only in a rare and exceptional case. It reallocates funding losses which ordinarily lie where they fall. Article 6 does not justify a broader practice because access rights are balanced through the principle that security must not stifle the claim.

The threshold is still higher where security is ordered against a commercial litigation funder. Providing security is a foreseeable cost of its investment, and a properly run funder should be adequately capitalised to meet potential adverse costs.

More than 500 claimants brought claims arising from tax-efficient film and video-game investment schemes. Therium funded 250 claimants represented by Stewarts Law LLP. The Ingenious defendants and other defendants obtained orders under rule 25.14 of the Civil Procedure Rules 1998 requiring Therium to provide security for costs.

Nugee J refused to require a cross-undertaking covering an enhanced return payable to Therium under its funding arrangements. In a later ruling, however, he required the defendants to give cross-undertakings covering external costs of providing security, including the costs of bonding after-the-event insurance policies.

The funded claimants appealed the first ruling and the defendants appealed the second. The central issues were whether the court possessed jurisdiction to require a cross-undertaking, the circumstances in which one should protect a claimant or commercial funder, and whether the undertakings could cover the claimants’ own losses.

1. The funded claimants’ appeal was dismissed and the defendants’ appeal was allowed. Nugee J had correctly refused a cross-undertaking in his February order, although for different reasons, but had erred by requiring one in his July order. Henderson and Floyd LJJ agreed with Popplewell LJ.

2. The court had jurisdiction to make security conditional upon a cross-undertaking. Security under Part 25 of the Civil Procedure Rules 1998 is discretionary and may be ordered only where just in all the circumstances. Rule 3.1(3) also permits specific relief to be made subject to conditions. The undertaking remains voluntary, but its provision may be the price of obtaining security.

3. The ordinary rule is that each party bears its own costs or losses from funding litigation, subject to limited statutory exceptions. A cross-undertaking concerning the cost of providing security reallocates that risk and is therefore an exceptional departure from established principle. It should not become the normal accompaniment of a security order.

4. Article 6 did not support a broader approach. The claimant’s and defendant’s access rights are balanced by the stifling principle. Security must not be ordered where the claimant proves, on the balance of probabilities, that the required sum cannot be raised. Where the claim will not be stifled, article 6 supplies no basis for imposing the further economic burden of a cross-undertaking on the defendant.

5. The analogy with interim injunctions and freezing orders was rejected. Those remedies exceptionally restrain the use of assets pending determination of substantive rights. Security for costs is an ordinary incident of procedural case management directed solely to litigation costs. A general practice of requiring undertakings would also encourage costly inquiries, fortification disputes and satellite litigation, while exposing defendants to uncertain liabilities.

6. A cross-undertaking should consequently be required only in a rare and exceptional case. The threshold is even higher where the beneficiary would be a commercial litigation funder. Security is a normal and foreseeable component of the funder’s investment. A properly operated funder should be adequately capitalised and able to demonstrate its capacity to meet an adverse costs order.

7. No exceptional circumstances existed. The first-instance decisions requiring undertakings in In re RBS Rights Issue Litigation, Bailey, Hotel Portfolio II and Pisante should no longer be followed. It was unnecessary to determine whether an undertaking could cover the claimants’ losses or the enhanced return.

• Court of Appeal (Civil Division): By [2021] EWCA Civ 29, dismissed the funded claimants’ appeal against the refusal of a cross-undertaking covering the enhanced return and allowed the defendants’ appeal against the later requirement for cross-undertakings covering external costs.
• High Court, Business List (ChD): Nugee J’s February 2020 judgment ordered Therium to provide security but refused an undertaking covering the enhanced return. His June 2020 judgment made security conditional upon undertakings covering external costs. No neutral citations were stated.