Judgment considered a ‘test case’ for whether third-party funders can remain anonymous.

Last month, the High Court made an interesting decision on the issue of how much a party must reveal about whether it is being backed by a third-party funder.

In Wall v Royal Bank of Scotland, Andrew Baker QC, sitting as a High Court judge, ordered the claimant to disclose the identity of its litigation funder – because otherwise, the defendant would not be able to apply for security for costs against that funder.

It sounds simple enough logic, but what are the wider implications? Baker acknowledged that the judgment was considered a ‘test case’ for ‘whether third-party funders can remain anonymous (to defendants and the court)’.

Baker had no time for arguments that being forced to disclose the funder’s details infringed the claimant’s rights to privacy. 

But are wider public policy arguments at stake here?

For defendants, knowing whether a claimant has third-party funding is useful for more than just security for costs applications. For, if a funder is involved, the defendant can infer two things:

First, the case has been independently judged to have good prospects of success by someone who is prepared to put their cash into it.

Secondly, the war chest available to the claimant to fight the case is a lot bigger than it would be without funding; and indeed many larger clients now choose to use funding even though they could finance the case themselves, because they want to take the risk out of the litigation. 

Both are good reasons why the claimant might be more than happy to make defendant aware of the fact that they are supported by funding - and they often do so. It can make the opposition more likely to settle.

So what’s the problem?

Well, there is a clear difference between a claimant choosing to let a defendant know that it has a funder's backing and being compelled to do so.

We are not just talking about the presence of funding, but revealing the actual identity of the funder. 

Now while there are many large, cash-rich funders out there, there are also smaller players and non-professional funders who are less well-capitalised.

And it is possible that some funders could be known in the market for funding only up to a certain investment level in some types of case.

So a danger emerges that knowing precisely where the claimant’s money is coming from could translate into a tactical advantage for the defendant, for example incentivising them to stretch out the litigation process, to exhaust the claimant’s funding limit.

It is fair to say that the bigger funders are pretty relaxed about the outcome of the judgment. But with claimants with strong cases facing an uphill struggle against huge court fees and high legal costs, it would be a shame if this had a detrimental effect on clients who need to access funding from smaller players in the funding market. 

Rachel Rothwell is editor of Litigation Funding magazine

Follow Rachel on Twitter: @LawJourno