Insurers more and more often face the prospect of defending legal proceedings, which are commenced by an insolvent plaintiff, but are financed by litigation funders. Litigation funding presents legal and strategic challenges for insurers.The Supreme Court of Queensland has recently made decision in favor of defendants seeking security for costs in proceedings which are financed by litigation funders.
There is a longstanding controversy about existence of a legal principle according to which an application for security for costs should be dismissed, if those who stand to benefit from the insolvent plaintiff’s success offer to be personally liable for the plaintiff’s costs. In contrast to the approach preferred in other jurisdictions, the Court found that no such principle exists. Still, the existence of a litigation funding agreement should be taken into account. The Court considered that presence of a commercial litigation funder that shares in the proceeds but not in the risk of an adverse costs order is a powerful factor in favor of making an order for security for costs.
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Summarized by Natalia Tsar.