Cross-Undertakings for Security for Costs and Litigation Funders: Court of Appeal issues guidance

Ingenious Litigation (Rowe & Ors v Ingenious & Ors)

The Court of Appeal has provided authoritative guidance as to the circumstances in which a defendant seeking security for costs may be required to give a cross-undertaking in damages as a condition of ordering security, including in circumstances in which security is ordered against third party commercial funders.

The Ingenious Litigation concerns claims brought by over 500 individuals in relation to a series of film finance investments promoted by the Ingenious group. Claims are brought against Ingenious and (in some instances) against certain financial advisers.  A cohort of 250 of these claims are funded by Therium, a professional litigation funder.

The defendants applied for an order for security for costs against Therium pursuant to CPR 25.14. However, relying on paragraph 5 of Appendix 10 to the Commercial Court Guide, Therium and the funded claimants sought cross-undertakings in damages from the defendants as a condition of that order. At first instance, the court required the defendants to give a cross-undertaking in respect of the external costs Therium may incur in arranging security, but not as to the cost that Therium would impose on the claimants under the terms of their funding arrangements for putting up that security. The claimants and the defendants appealed.

In rejecting the claimants’ appeal and upholding the defendants’ appeals, the Court of Appeal held, for reasons set out in the judgment, that “it should only be in a rare and exceptional case that the court should require a cross-undertaking in favour of a claimant as a condition of ordering security for costs, and only in even rarer and more exceptional cases that it should do so in favour of litigation funders”.  The Court also held that a number of first instance decisions in this area, including In Re RBS, should no longer be followed. In addition, the Court made certain observations about the manner in which commercial litigation funders should appropriately be operated and capitalised.

Richard Handyside QC and James Duffy represented UBS AG (one of the defendants), instructed by Herbert Smith Freehills LLP. Nick Daly is also instructed in the proceedings on behalf of UBS. A copy of the judgment can be found here.