A great deal of insolvency litigation is funded by non-parties to a claim – for example, by a creditor or an “after the event” (ATE)  insurer. Ordinarily such arrangements and their precise terms are confidential and are not required to be fully disclosed to a counterparty in litigation. In the recent case of Re Hellas Telecommunications (Luxembourg) [2017] EWHC 3465 (ch) (“Hellas”),the court considered the extent to which the underlying details of the litigation funders should be disclosed for the purposes of a security for costs application.

ATE and litigation funders

Adverse costs insurance is frequently used to fund insolvency litigation which more often than not takes the form of ATE insurance policies. ATE policies ordinarily cover adverse costs being awarded in favour of the policy holder’s opponent if the policy holder loses in litigation. Due to privity of contract, the terms of the policy are usually confidential between the contracting parties and not disclosable to a counterparty in litigation – the terms which are usually disclosed are the amount of cover and the trigger points at which certain cover is paid. In many cases, the identity of the funders is not disclosed at all.

Civil Procedure Rule (“CPR”) 25.14 – Security for Costs

CPR 25.14 permits a defendant to seek a security for costs order against a party other than the claimant to litigation. The court may make an order for security for costs under Rule 25.14 if:

(a) it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and

(b) one or more of the following conditions applies.

(2) The conditions are that the person:

(a) has assigned the right to the claim to the claimant with a view to avoiding the possibility of a costs order being made against him; or

(b) has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover in the proceedings; and

(c) is a person against whom a costs order may be made.

In Hellas, the liquidators of Hellas Telecommunications (Luxembourg) had brought claims against a number of respondents. One of the respondents issued an application for disclosure of the identity of the non-party funders to the claim and the funding arrangements underpinning the litigation. The liquidators argued that there was no jurisdiction for such disclosure in legislation or under the CPR and that such jurisdiction could not be implied from the power to award security for costs against a non-party set out in CPR 25.14.

The Court disagreed with the liquidators, stating that it possessed an inherent power to order disclosure of the identity of non-party funders, including the details of the funding arrangements, in order to allow an effective application for security for costs to be made against that non-party funder. The jurisdiction existed even in the absence of a contemporaneous costs order awarded against the non-party funder.

The Court additionally held that it had the power to craft a disclosure order in such a way as to ensure that the identity of funders was preserved. This was important in circumstances where, whilst an order could be made under Part 25.14 for security for costs, it had not been made at that relevant time and ultimately might never be made at all.

Summary

This case demonstrates that any party using third party litigation funding must be alive to the risk that disclosure of the identity of funders and the terms of the funding arrangements may be ordered, even though no security for costs order has been made. Whilst the disclosure can be restricted and the party’s identity protected by the court, it is still a form of disclosure against a party who would not ordinarily expect to have to comply with a disclosure order.