Cross-Undertakings and Security for Costs: Establishing Precedent for Commercial Litigation Funders

Introduction

The case of Rowe & Ors v. Ingenious Media Holdings PLC & Ors ([2021] EWCA Civ 29) before the England and Wales Court of Appeal (Civil Division) represents a significant development in the realm of civil litigation, particularly concerning the interplay between security for costs and cross-undertakings in damages. This comprehensive commentary examines the nuances of the judgment, the legal principles it establishes, and its broader implications for future cases and the field of commercial litigation funding.

Summary of the Judgment

Rowe & Ors v. Ingenious Media Holdings PLC & Ors involves appeals against decisions made by Nugee J, who ordered security for costs against Therium Litigation Finance, a commercial litigation funder. The central issue revolves around when a defendant seeking security for costs may be required to provide a cross-undertaking in damages. The Court of Appeal ultimately held that cross-undertakings should be exceptional and not routinely required, especially for well-capitalized commercial litigation funders. Consequently, the appeal by the Funded Stewarts Claimants was dismissed, and the cross-appeal by the Security Defendants was allowed.

Analysis

Precedents Cited

The judgment extensively references prior cases and guidelines to contextualize its findings:

• Stokors SA v IG Markets Ltd [2012] EWHC 1684 (Comm): Highlighted the potential appropriateness of cross-undertakings in specific circumstances.
• In re RBS Rights Issue Litigation [2017] 1 WLR 4635: The first reported case requiring a cross-undertaking for a litigation funder.
• Bailey v. GlaxoSmithKline UK Ltd [2018] 4 WLR 7: Affirmed the necessity of cross-undertakings in certain funding-related security orders.
• Hotel Portfolio II v Ruhan [2020] EWHC 233: Demonstrated the conditions under which cross-undertakings might be appropriate.
• TBD (Owen Holland) Ltd v. Simons [2020] EWHC 2681 (Ch): Expressed skepticism about the routine requirement of cross-undertakings.
• Pisante v Logothetis [2020] EWHC 233: Reinforced the conditions justifying cross-undertakings.
• Additional references include seminal works and guidelines, such as the Commercial Court Guide and authoritative opinions from judges like Sir George Jessel MR and Lord Diplock.

These precedents collectively indicate a cautious approach towards imposing cross-undertakings, emphasizing their exceptional nature and the necessity of compelling justification.

Legal Reasoning

The Court of Appeal dissected the legal framework governing security for costs and cross-undertakings. Key points in their reasoning include:

• Jurisdiction to Require Cross-Undertakings: Affirmed that courts possess the inherent and statutory authority to impose cross-undertakings as conditions for granting security for costs, drawing parallels with interim injunctions and freezing orders.
• Exceptional Nature of Cross-Undertakings: Emphasized that, beyond specific exceptions, the general principle is that costs related to litigation funding remain with the party incurring them, unless specific conditions justify a reallocation via cross-undertakings.
• Impact of Commercial Litigation Funding: Highlighted that well-capitalized funders like Therium are expected to bear their own costs, negating the need for defendants to underwrite those costs through cross-undertakings.
• Policy Considerations: Addressed potential adverse effects of mandating cross-undertakings, such as increased litigation costs and disincentivizing funders from seeking security for costs.
• Analogy with Interim Injunctions: Clarified that, unlike interim injunctions aimed at preventing asset dissipation, security for costs is a procedural measure focused solely on litigation costs, making the analogy only partially applicable.

This structured legal reasoning underscores the court's intent to balance the rights and interests of both claimants and defendants while maintaining the integrity of commercial litigation funding practices.

Impact

The judgment has profound implications for future litigation involving commercial funders:

• Setting a Precedent: Establishes that cross-undertakings in the context of security for costs, especially against well-capitalized funders, should remain exceptional rather than routine.
• Encouraging Proper Capitalization: Motivates litigation funders to ensure robust capitalization and transparency, aligning with industry self-regulation standards.
• Mitigating Additional Litigation Costs: Prevents the potential surge in satellite litigation arising from disputes over cross-undertakings, thereby streamlining litigation processes.
• Promoting Access to Justice: Balances the access to justice rights of claimants with the legitimate interests of defendants to secure recoverable costs without undue burden.

Overall, the judgment fosters a more predictable and fair environment for commercial litigation funding, discouraging practices that could undermine the business models of properly regulated funders.

Complex Concepts Simplified

Security for Costs

Security for costs is a court-ordered provision ensuring that a party (typically the claimant) can cover the legal costs of the opposing party if they lose the case. It's a protective measure for defendants against financially vulnerable claimants.

Cross-Undertaking in Damages

A cross-undertaking in damages is a promise made by the defendant to compensate the claimant for specific losses if certain conditions arise, such as the failure of the claimant to recover costs they might be entitled to.

Litigation Funding

Litigation funding involves third-party funders providing financial resources to claimants to pursue legal claims. In exchange, funders receive a portion of any financial recovery from successful claims.

Article 6 of the European Convention on Human Rights

Article 6 guarantees fair trial rights and access to justice. The court balances these rights against the need for defendants to secure costs to ensure that litigation remains fair and balanced.

Conclusion