Various Claimants v Mercedes-Benz Group AG [2024] EWHC 695 (KB)

In the Pan-NOx Emissions Group Litigation, the Managing Judges considered applications relating to the disclosure of litigation funding agreements and the potential for security for costs orders against a litigation funder. The claimants’ solicitors, Pogust Goodhead, had structured their funding arrangements so that the litigation funder provided finance to the law firm rather than directly to the individual claimants. This structuring raised the question whether the funder fell within the scope of CPR 25.14, which allows the court to order security for costs against a person who has contributed or agreed to contribute to a party’s costs in return for a share of any money or property recovered. The defendants argued that the funder was in substance a party providing litigation funding and should be subject to security for costs regardless of the formal structure of the arrangement. The court agreed with this analysis in principle, holding that CPR 25.14 cannot be circumvented by interposing a law firm between the funder and the claimants. The substance of the arrangement, not its legal form, is what matters for the purpose of determining whether a non-party has contributed to the costs of proceedings in return for a share of the recovery.

This was a significant ruling for the structuring of litigation funding arrangements, as it confirmed that indirect funding models do not insulate funders from security for costs exposure. However, the court exercised its discretion to defer the question of whether security should actually be ordered, directing that the matter be considered after a costs management hearing at which the adequacy of the claimants’ after-the-event insurance could be properly assessed. The decision was important for the broader litigation funding market because it signalled judicial willingness to look through the formal structure of funding arrangements and to treat substance over form when considering security for costs.