ERA Legal has successfully obtained an order for security for costs against a company in liquidation in circumstances where the plaintiff had obtained litigation funding which funding was in turn secured by an insurance policy that would only respond in the event an adverse cost order was made in the proceedings.

The litigation funder in these proceedings had agreed to indemnify the plaintiff company (which was in liquidation) for an adverse costs up to a capped amount, but that indemnity was subject to an insurance policy responding which would only cover those adverse costs in the event of a cost order being made against the plaintiff. There was no requirement for the litigation funder or the insurer to pay any money into court or to provide some other form of security such as a bank guarantee in the meantime.

The Supreme Court viewed the funding arrangement as problematic due to the terms and conditions of the insurance policy which provided various provisions for the termination of the insurance policy by the insurer at any given time during the proceedings.  In effect, the insurer could have cut off the ability of the funder to meet an adverse costs order prior to one being made.  In the circumstances the Court ordered the plaintiff pay an amount of security for costs into Court by way of bank guarantee to secure the defendant’s position.

Although it is becoming common practice for litigation funding to support legal proceedings, particularly in relation to companies in liquidation, the existence of a litigation funding agreement does not automatically offer protection from a plaintiff being ordered to pay  security for costs.

For more information please contact ERA Legal.