If You Help Fund a Claim You May Be Liable if it Fails

It is not unusual for the cost of litigation – especially where a group of companies is involved – to be paid for in whole or in part by a person or organisation that is not directly involved in the dispute.

It should be remembered, however, that in these circumstances, the person or organisation providing the funding can stand in the firing line if the party they are supporting ends up having to pay the legal costs of the other side.

This is just what happened when a claim was brought by a dormant company in a group of companies against another company. The dormant company was funded by way of a loan from another group company. When the claim did not succeed, the victorious company sought to recover its costs against the now insolvent group company that took the action. When that path was unsuccessful, it sought an order from the High Court that the group company that funded the claim and another group company that had stood to benefit in the event that the claim had been successful should be liable for its legal costs.

The Court did not accept the claim against the second group company but concluded that the company that funded the claim was the real claimant and should bear the costs.