Third Party Costs Orders
Third Party Costs Orders, or non-party costs orders as they are technically referred to, can be made in favour of or against any individual or company who is not a party to the specified set of proceedings or dispute/negotiations.
When it comes to legal funding, Third Party Costs Orders have historically been sought against Third party funders for sponsoring or encouraging a claim to be brought (which may have subsequently been unsuccessful), by way of champerty and maintenance.
This is particularly the case where proceedings may be issued on the basis of such Third party funding by an individual or company who cannot meet any order to pay the Defendant’s legal costs upon conclusion of the proceedings (and this is the reason a Third Party Funder will normally insist on After the Event Insurance).
In recent years the laws against champerty and maintenance have been considerably limited, with the initial steps commencing from the early 1990s permitting solicitors to be rewarded by way of higher levels of fees for successful outcomes where the client had entered into a Conditional Fee Agreement (often referred to as “no win no fee” agreements).
From 2013 Damages Based Agreements were introduced and following which there has been a growth in Third Party Funding of litigation claims and an assortment of funding models to assist individuals and companies with strong claims or an unwillingness to risk the costs of litigation proceedings.
Whilst this has led to an access to justice for Claimants, it has also converted a majority of substantial legal claims into commercial assets which can be subject to a commercial finance arrangement.
The growth and endorsement of this practice has led to a considerable reduction in the risk to solicitors and financiers that they could be personally drawn into such proceedings and made accountable for such legal costs.
Exceptions to the rule
There remain however exceptional circumstances where a Third party funder or financier can still be held liable for an order for costs in litigation proceedings for which it has an interest.
Whilst the Courts have held that such an order will not be made to “mere funders” it has found that where funders take a more active role and substantially control such proceedings, perhaps by reason of instructions to solicitors or guiding vital decisions made in a case, then they can be liable for such costs.
These comprise circumstances where the Court determine that the funder is a “real party” rather than a “mere funder” and it is the level of involvement which may determine any potential direct liability for costs incurred by an opponent (particularly where the named party is unable to pay such legal costs).
There is recent case law which also confirms that funders of defended proceedings can similarly be liable for Third Party Costs Orders where they are found to have acted other than as a mere funder or was the “real party”.
Solicitors can similarly be held liable where they are shown to be the “real party” to a claim or defence. This can have grave implications for solicitor funding arrangements.
There are also concerns as to whether a solicitor can be liable where a client instructs him or her to embark on a claim where it is known that they would not be able to meet any legal costs liability. Accordingly, it is vital that your solicitor properly conducts a risk assessment before entering into any such funding arrangement.
However, that aside, other protections exist against such risks that a funding arrangement is being used as an abuse of process, including applications for security for costs.
A solicitor may be subject to a Third Party Costs Order in very limited circumstance, particularly where they fail to act in accordance with their instructions and this causes their client or their client’s opponent losses.
How can these risks be mitigated?
The funder and a solicitor can mitigate its risk of being made subject to a Third Party Costs Order by ensuring that they act solely in their professional capacity, do not seek to take ownership of the client’s rights and, for the solicitor, act in accordance with and upon instructions received.
From experience it is almost always the case that a Third Party Funder will have very limited involvement in a case for this very reason and only require updates that may affect the risk perceived as part of their ongoing monitoring of the claim. Similarly, a solicitor will always provide advice but will never normally make decisions on a client’s behalf, but instead seek instructions following their delivery of advice.
At Francis Wilks & Jones we are familiar with these type of arrangements and will always ensure there is a barrier between the Third party funding the proceedings and the client, who is usually the party to the proceedings.
Please call any member of our commercial litigation team for your consultation now on 020 7841 0390. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.