The Court has the power to make costs orders against non- parties under s 51 Senior Courts Act 1981 (“SCA”) as long as it is just to do so. As funding litigation becomes ever more complex the body of case law is developing rapidly in this area. Only last year the Court of Appeal handed down two decisions permitting the exercise of that discretion in relation to a sole director and sole shareholder of the defendant1 and also public liability insurers2, holding that they should being liable for costs even as non-parties to the respective actions.
Applications for security for costs can be made against non-parties under the ancillary provisions to s.51 SCA in CPR 25.14. Now the position has been considered where no actual costs order has been made previously in the action but where a party seeks security for costs. In the matter of Hellas Telecommunications (Luxembourg) 2017 3 the High Court has used its inherent or implied powers to require the disclosure of the identity of funders to litigation thereby enabling an application for security for costs under CPR 25.14 to be made and that adequate protection of the funders could be given by way of a confidentiality club.
The claimant was the liquidator of a company. The defendant sought an order for disclosure of the identities of any non-party funders of the litigation in order for it to make an application for security for costs. CPR 25.14 (2)(b)provides that a security for costs order can be sought against a person who has contributed or agreed to contribute to the claimant's costs in return for a share of money or property which may be recovered in the proceedings. The claimant argued that liquidators of a company do not fall within this class of persons. It further argued that the CPR does not contain either an express or implied power to disclose the identity of a non-party funder and details of the associated financial arrangement. The evidence was that some of the third party funders could be company creditors and therefore there was concern of material prejudice to the liquidators.
Snowden J held that there was an inherent or implied power in CPR 25.14 to enable the court to ensure an effective application could be made where litigation was funded by a non-party4. This jurisdiction existed even though there had not been any prior costs orders against anyone in the proceedings. It was also inherent in any implied power that it could be used to protect the identities of those funders and the funding arrangement where this was considered to be a cause of concern, thus allowing the application to be made.
The court had to consider, prior to ordering disclosure of the identities whether an application for security for costs could be made and whether such an application had a realistic chance of success. The Court held that as there were third party funders, who could be company creditors, there could be an application under CPR 25.14 and it had a realistic prospect of success. However, only once the identity of the funders was known could an assessment be made of whether an application was actually suitable, or whether an application maybe required in a different format instead.
The court held that to protect the identities of the third party funders, a confidentiality club was to be used to receive the details of the non-party funders together with the terms of the financing so that the risk of material prejudice to the liquidators would be minimized. The Court therefore required, subject to various redactions, the identities of the funders to be disclosed to named individuals, subject to those named individuals giving confidentiality undertakings.
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Deutsche Bank AG v Sebastian Holdings Inc and another  EWCA Civ 23
Legg and others v Sterte Garage Ltd and another  EWCA Civ 97
ChD (Snowden J) 20/7/2017
RBS Rights Issue Litigation, Re  EWHC 463 (Ch)