Security For Costs - Bailey V Glaxosmithkline

Court orders security for costs against litigation funders, taking into account an ATE policy taken out by the defendant

The court can order security for costs against litigation funders, and various issues arose in this case in relation to a funder who is "balance sheet insolvent" and would need to borrow capital in order to provide security:

1. Could the funder be ordered to provide security above the level of the "Arkin cap"?
   
   The Arkin cap restricts the level of a costs order against a funder to the amount of funding which the funder has provided.
   
   In Arkin, the court was considering whether to make a costs order against a non-party pursuant to section 51 of the Senior Courts Act 1981 at the end of a case. Here, the funder was in effect seeking an order that the Arkin cap will apply when the case is eventually concluded. Foskett J rejected that argument: the discretion to order security for costs is very wide and the possibility of the Arkin cap applying was only one factor to be taken into account when ordering security for costs. Security above the level of the cap could be ordered. It was held that there would be no injustice if security was ordered above the cap and then the cap is applied at the end of the case, because the excess would then be repaid to the funder. The judge also noted that "Whilst, of course, any trial judge would be obliged to consider with care the impact of Arkin in the situation that existed at the end of the trial, there would be various options open to a party who wanted to argue that the cap was not applicable in the particular case" (including a wholesale attack on the reasoning in Arkin, which may have to be resolved by the Court of Appeal).
2. Could the court taken into account an ATE insurance policy taken out by the claimant in this case?
   
   Reference was made to the recent case of Premier Motorauctions v PWC LLP (see Weekly Update 42/17), where the court took into account an ATE policy taken out by the claimant when deciding whether the claimant would be unable to pay an adverse costs order. Here, the issue was instead whether the security ordered against the claimant should be reduced to reflect the fact that it had the benefit of a policy. The judge refused to deduct the whole amount covered by the policy. Even though the insurers had not yet claimed to be entitled to avoid the policy, there was no anti-avoidance clause in the policy and there were various conditions precedent affording insurers a defence. The judge held that the risk of the policy being avoided could be reflected here by deducting two-thirds of the policy limit from the amount of security ordered.
   
   Accordingly, security of £1.75 million (£550,000 more than the Arkin cap) was ordered.
3. Should the defendant be ordered to provide a cross-undertaking in damages, in order to compensate the funder if no costs order is ultimately made in the defendant's favour? Foskett J held that the defendant should provide a cross-undertaking, on the basis that the funder will have to borrow the funds to provide the security and thereby incur borrowing costs and/or will not be able to use those funds to pursue other funding opportunities.

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