UK Court of Appeal Decision May Increase Costs of Litigation Funding

A decision handed down on 15 January 2021 by the UK Court of Appeal may lead to increased costs of litigation funding.

The judgment in Rowe & Ors v Ingenious Media Holdings & Ors [2021] EWCA Civ 29 effectively overruled previous decisions in which cross-undertakings in damages relating to the additional cost of providing security were required as a condition of ordering security for costs. This ruling restricts the circumstances in which a defendant seeking security for costs may be ordered to meet the additional cost to the claimant of the provision of security.

The appeal court held that cross-undertakings should only be required as a condition of security for costs in “rare and exceptional circumstances” and in “even rarer and more exceptional cases” when the party providing the security is a commercial litigation funder.

In litigation funding, a third-party funder provides all or part of the costs of prosecuting the claim (e.g., legal fees, expert expenses) in exchange for an interest in the proceeds. If the claim fails, the funder loses the investment, but the litigant is not out of pocket for the legal fees that they otherwise would have had to cover absent the funding.

Litigation funding plays a particularly crucial role in group actions. It allows individuals who may have little in the way of assets other than their claim (which in and of itself may not be very large) to prosecute that claim in the courts; funding thereby serves the important social cause of access to justice (although in Ingenious the appeal court expressed a view to the contrary).

While this does provide funders with an incentive to back strong claims, if a funded group claim fails, the defendant will be faced with the prospect of seeking to collect its costs from a potentially large number of also potentially impecunious claimants. As a result, an increasing number of defendants in funded claims are seeking security for their costs.

To learn more about the appeal court’s decision and its potential effects on the cost of litigation, click here for the full blogpost by David Greene and Fred Sheppard of Ally Law member firm Edwin Coe LLP