Security for Costs Against Funded Claimants

Security for costs is a procedural protection requiring a claimant, or in appropriate circumstances a third-party funder, to provide security for the defendant’s potential legal costs if the claim ultimately fails. In England and Wales, this is particularly important where a claimant’s litigation is financed by a third-party litigation funder.

Since April 2025, the relevant provisions were renumbered. Under the current CPR Part 25, CPR 25.28 deals with security for costs against a person other than the claimant, including a person who contributes to the claimant’s costs in return for a share of the recovery.

1. Meaning of a Funded Claimant

A funded claimant is a claimant whose litigation expenses are paid wholly or partly by another person or entity.

Common arrangements include:

• commercial litigation funding;
• a funder paying solicitors' and barristers' fees;
• funding in return for a percentage of the recovery;
• funding combined with after-the-event (ATE) insurance;
• group litigation where only some claimants are commercially funded.

The existence of funding does not automatically mean that security must be ordered. The court considers the statutory/rule-based requirements and whether, having regard to all the circumstances, it is just to make the order. Under current CPR 25.28, the court may order security against a person other than the claimant where that person has contributed or agreed to contribute to the claimant's costs in return for a share of the recovery and is someone against whom a costs order may be made.

2. Why Defendants Seek Security

The defendant normally seeks security because it faces a risk that:

1. the claimant may lose the proceedings;
2. the defendant obtains a costs order;
3. the claimant cannot pay those costs; and
4. the defendant therefore cannot recover the costs awarded.

Third-party funding can increase the importance of this issue because the funder may have sufficient resources to finance the claim but may not automatically be responsible for the defendant's costs.

The court therefore has to balance:

Claimant's access to justice
against
Defendant's protection against an unrecoverable costs order.

3. Security Can Be Ordered Against the Funder

An important feature of English procedure is that the court's power is not necessarily limited to requiring the claimant personally to provide security.

Under current CPR 25.28, security can potentially be ordered against a third party who:

• has contributed or agreed to contribute to the claimant's costs;
• does so in return for a share of the litigation recovery; and
• is a person against whom a costs order may be made.

The court must also be satisfied that making the order is just in all the circumstances.

4. Important Case Laws

1. Wall v Royal Bank of Scotland plc [2016] EWHC 2460 (Comm)

This is an important authority concerning identification of litigation funders.

RBS believed that Mr Wall's claim was being funded by a third party in return for a share of the proceeds. RBS sought disclosure of the funder's identity so that it could consider an application for security.

The court held that where there was good reason to believe that a claimant had funding falling within the relevant rule, the court had power to require identification of the funder so that an application for security could properly be made.

Principle:
A defendant should not necessarily be prevented from pursuing security merely because the claimant has not identified the relevant funder.

2. RBS Rights Issue Litigation [2017] EWHC 463 (Ch)

The court reaffirmed the approach in Wall.

It recognised that where the claimant knows the identity of the funder but the defendant does not, disclosure of that identity may be necessary to make the security-for-costs jurisdiction effective.

The court explained that the existence of the power to order security against funders changes the position that had existed under earlier authorities.

Principle:
Where a funder potentially falls within the security jurisdiction, identification of that funder may be ordered as a procedural step necessary to enable the defendant to seek security.

3. Rowe v Ingenious Media Holdings plc [2020] EWHC 235 (Ch)

This is particularly important for large group litigation involving funded claimants.

The proceedings involved hundreds of claimants and commercial funding. The court considered security against the funder, Therium.

Security was ordered in relation to the funded claimants, while the funder was not treated as responsible for costs attributable to claimants whom it did not fund. The court also considered the adequacy of ATE insurance when determining the protection available to defendants.

Principle:
A security order against a funder should be connected to the claims and costs for which that funder actually bears responsibility. The court may also examine whether ATE insurance genuinely provides adequate protection.

4. Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144

Excalibur is a leading authority on the potential costs liability of litigation funders.

The Court of Appeal considered the position of commercial funders and emphasised that a funder cannot necessarily distance itself from the litigation it finances. A funder may face a non-party costs order where the circumstances justify it.

The case is also important in understanding the relationship between funding, control, benefit and costs liability.

Principle:
A commercial litigation funder may face significant costs consequences because of its involvement in funded litigation.

5. Arkin v Borchard Lines Ltd (Nos 2 & 3) [2005] 1 WLR 3055

Arkin is one of the foundational cases concerning the costs exposure of third-party litigation funders.

The court developed what became known as the “Arkin cap”, under which a professional funder's potential liability for adverse costs was, subject to later developments and exceptions, linked to the amount of funding provided.

The case is important because it demonstrates that funding arrangements can have consequences extending beyond simply paying the claimant's lawyers.

Principle:
A third-party funder's financial exposure to adverse costs may be relevant when considering the overall costs protection available to the defendant.

6. Premier Motorauctions Ltd v PricewaterhouseCoopers LLP [2017] EWCA Civ 1872

This case is important concerning ATE insurance and security for costs.

The existence of an ATE policy does not automatically mean that a defendant has adequate security. The court may consider whether the insurance is sufficiently reliable and whether there are circumstances in which the policy might not respond to the defendant's costs.

This issue became particularly important in funded litigation, because claimants often rely upon ATE insurance as protection against adverse costs. Rowe subsequently considered similar concerns about the practical reliability of ATE cover.

Principle:
The court examines the real value and reliability of ATE insurance rather than merely its nominal policy limit.

7. Abraham v Thompson [1997] 4 All ER 362

This is an earlier authority concerning third-party litigation funding and disclosure.

The case is important historically because, at that time, the procedural framework did not contain the same express mechanism for ordering security against third-party funders that exists today.

Later cases such as Wall distinguished the earlier position because the modern CPR provides a specific route for seeking security against qualifying funders.

Principle:
The development of express procedural powers concerning third-party funders has materially changed the legal position since Abraham.

5. Factors Considered by the Court

When determining whether security should be ordered, the court can consider matters such as:

A. Nature of the funding

The court will examine whether the funder is:

• commercially funding the litigation;
• funding in return for a percentage of recovery;
• merely providing financial assistance;
• an insurer;
• a related company; or
• a person with another interest in the proceedings.

Not every person who helps a claimant financially will necessarily fall within the same category.

B. Ability to pay

The court can consider whether the claimant or relevant funder is capable of satisfying an eventual costs order.

C. Risk of non-payment

The central practical concern is whether the defendant faces a real risk that an eventual costs order will not be recoverable.

D. ATE insurance

The court may consider whether ATE insurance provides adequate protection.

Relevant questions include:

• Is the policy actually in force?
• What is the policy limit?
• Does it cover the defendant's relevant costs?
• Are there avoidance or cancellation provisions?
• Are there competing claims on the policy?
• Is the insurer financially reliable?

E. Amount of security

The amount is not necessarily identical to the defendant's entire estimated costs.

The court can consider:

• costs already incurred;
• estimated future costs;
• the stage of proceedings;
• the likelihood of recovery;
• the nature of the claims;
• the potential basis of assessment of costs; and
• the proportion attributable to funded claimants.

6. Security Does Not Automatically Mean the Claimant Must Stop

An important distinction should be made between:

ordering security, and
staying/dismissing the claim for failure to provide security.

If security is ordered and the claimant fails to comply with the order, procedural consequences may follow. Depending on the circumstances, the court may impose a stay or other appropriate consequence.

However, the court will consider the circumstances and the effect of the order on the litigation.

7. Access to Justice and “Stifling” the Claim

A claimant may argue that an order for substantial security would effectively prevent the claim from continuing.

This is often described as stifling the claim.

The court therefore needs to consider whether the security order would make continuation of the litigation practically impossible.

The claimant should generally provide clear evidence about:

• its financial resources;
• the availability of funding;
• whether additional funding can be obtained;
• the availability of ATE insurance; and
• why the proposed security cannot realistically be provided.

A mere assertion that the claimant cannot afford security is generally less persuasive than properly supported financial evidence.

8. Funded Claimant vs Funded Funder: Important Distinction

The terminology can sometimes become confusing.

Funded claimant

The claimant receives funding to pursue the litigation.

Third-party funder

The person or company financing the litigation may itself become the subject of an application for security.

Therefore, the court may effectively examine two related questions:

(1) Should the claimant provide security?
(2) Should the funder provide security?

The second question is particularly important under the modern CPR framework.

9. Relationship Between Security and Non-Party Costs Orders

Security for costs and a non-party costs order are related but distinct.

A security order is generally made during the proceedings, before the final costs liability has been determined.

A non-party costs order under section 51 of the Senior Courts Act 1981 is generally considered when the court determines costs at the conclusion of proceedings.

This distinction was emphasised in the RBS Rights Issue Litigation. The court noted that a future section 51 costs liability involves further contingencies: there must first be an adverse costs position and then a decision that it is just to impose liability on the non-party funder.

10. Practical Example

Suppose:

• Claimant A brings a £10 million commercial claim.
• A has limited assets.
• A's solicitors are being paid by FundCo.
• FundCo will receive 25% of any recovery.
• The defendant estimates its recoverable costs at £2 million.
• ATE insurance provides only limited protection.

The defendant may argue that:

1. FundCo is financing the claim;
2. FundCo has a financial interest in the outcome;
3. there is a risk that the defendant will be unable to recover its costs if successful; and
4. security should therefore be provided.

The court would not simply order £2 million automatically. It would examine the relevant rules, funding agreement, financial circumstances, ATE cover, stage of proceedings and overall justice of the case.

11. Key Legal Principles — Summary

Conclusion

Security for costs against funded claimants is designed to protect defendants against the risk that an unsuccessful funded claimant will be unable to satisfy an adverse costs order. Modern English procedure allows the court, in appropriate circumstances, to look beyond the claimant and seek security from a qualifying third-party funder. The principal considerations include the nature of the funding arrangement, the funder's interest in the recovery, the claimant's ability to meet costs, the reliability of ATE insurance, the amount of potential costs, and whether security would unfairly prevent the claim from being pursued.

The leading authorities—including Wall, RBS Rights Issue Litigation, Rowe, Excalibur, Arkin, Premier Motorauctions and Abraham—show the development of the law from the earlier position concerning third-party funding to the modern express procedural framework.