Security for costs against a funded claimant

The gateway is the easy part

The condition most applications run on, that the claimant is a company and there is reason to believe it will be unable to pay the defendant’s costs if ordered to do so, is not a demanding test. Reason to believe is well short of proof, and a claimant company with no trading history and no assets on its filed accounts satisfies it without much argument.

Applications are not usually lost at the gateway. They are lost on the discretion, because satisfying a condition opens the door and nothing more: the court still has to be satisfied that it is just to make the order having regard to all the circumstances. Two of those circumstances do most of the work.

The first is stifling. A claimant who can show that an order would prevent a genuine claim from being pursued at all is in a strong position, but the evidence required is more than an assertion about the company’s own balance sheet. The court will ask what those standing behind the company could provide if they chose to, and a claimant who declines to answer that question tends to be treated as having answered it.

The second is causation. Where the claimant says its impecuniosity was caused by the very conduct it is suing about, the application takes on a circularity that courts are alive to. Ordering security in that situation risks letting a defendant benefit from the loss it is alleged to have inflicted.

What an ATE policy actually has to do

Offering an after the event policy in answer to the application is standard, and it is frequently offered in a form that does not do the job. The question is not whether cover exists. It is whether the defendant can be confident of being paid out of it, which is a question about the policy wording and not about the limit on the schedule.

Four things determine that. Whether the level of cover is realistically matched to the defendant’s costs to the end of trial rather than to some earlier stage. Whether the insurer can cancel or avoid the policy, and on what grounds, since a policy that evaporates on the claimant’s own non-disclosure protects nobody. Whether the defendant has any direct right against the insurer or is relying on the claimant to pass money on. And whether the policy responds to an adverse costs order at all, or only in narrower circumstances.

Look past the claimant

Where the claim is commercially funded, the funder is not merely a fact about the claimant’s solvency. It is a potential respondent in its own right. CPR 25.28 reaches a person who has contributed or agreed to contribute to the claimant’s costs in return for a share of what the claim recovers, and who has taken steps that make them a real party to the litigation rather than a lender at arm’s length.

That reframes the application. Rather than asking whether a shell claimant can pay, the question becomes whether the entity that stands to take a percentage of the proceeds should carry a share of the downside. Funders generally expect to face adverse costs exposure and price for it, so the application is often less contentious in substance than it looks, and the negotiation moves quickly to quantum and the form the security takes.

The same thinking applies to assignees. A claim that has been assigned to a vehicle set up to hold it is the standard fact pattern for this rule, and the assignor is frequently a better target than the entity now on the record.