The Importance of being a Pure Funder
20/11/2017
At a glance
With the often high cost of litigation claimants (and defendants) occasionally seek to obtain third party litigation funding in order to pursue (or defend) litigation. While there are many options available in the market a party sometimes resorts to obtaining funding from private individuals such as family or friends. While this is a legitimate means of affording litigation the recent case of Twin Benefits v Barker & Baxendale-Walker (HC-2016-000053) provides a timely reminder of facts which those funding need to consider. This judgment is the latest in long running litigation, discussed in earlier articles, which can be read here and here.
The fact Twin Benefits’ claim was being funded by a third party, Mr Baxendale-Walker (who also later became a director), was disclosed in the particulars of claim and subsequently in evidence and correspondence. Various assignment agreements were also disclosed which showed the basis upon which he was funding the action.
As a result, and due to concerns about Twin Benefits’ ability to meet any adverse costs orders we put the claimant and funder on notice that in the event Twin Benefits failed to meet a costs order we would issue an application pursuant to CPR46 and section 51 of the Senior Courts Act 1981 to join him as a costs respondent and to make him liable for Twin Benefits’ costs (commonly referred to as a section 51 application). In this case, our client, Mr Barker, successfully set aside an order for service out of the jurisdiction obtained by Twin Benefits (HC-2015-0002593). Mr Barker was awarded his costs together with a payment on account of £174,524, which Twin Benefits failed to pay.
A section 51 application was duly issued and Birss J found the funder, Mr Baxendale-Walker liable to pay the costs of the proceedings. The factors which weighed against Mr Baxendale-Walker included as follows:
- Control – he was not a pure funder. He set up Twin Benefits, provided the majority of the instructions to the instructing solicitors, later became a director and exercised substantive control of the proceedings.
- Personal Benefit – he stood to benefit financially from the litigation (if successful). Pursuant to the terms of various assignments he was to receive not only a refund of legal costs paid by him but also 20% of the proceeds received.
- Twin Benefits was no more than a shell company with no assets which was used a vehicle to insulate him from costs liability.
Somewhat surprisingly, one of the grounds upon which Mr Baxendale-Walker sought to argue against liability was that the substance of the dispute issued by Twin Benefits was still alive and had latterly been raised again in separate proceedings. Thus, there was a possibility that that action would be successful and Mr Barker would be liable for costs. Birss J rejected that argument and held that it was irrelevant. The action, which was the subject of the section 51 application, was brought by Twin Benefits. It failed and so costs followed.
In addition, Mr Barker was awarded 90% of his costs of the s51 application.
Therefore, it is important to remember that if you are considering providing third party funding that you must not have any control and/or stand to benefit from the litigation ie be a pure funder. If you do, you could be held personally liable for the costs of the proceedings being funded in the event it is unsuccessful and the losing party fails to pay costs.
If you are on the other side of funded claims it is important to consider (a) the impecuniosity of the funded party; (b) whether there are or will likely be grounds to support a section 51 application; and (c) put that party on notice that such an application will be made if costs are not met as early as possible.
Memery Crystal has extensive experience in acting for and obtaining funding for clients. Please get in touch with Harvey Rands, Nikola Lowry-Lee and/or Eleanor Hassani if you would like to know more.