Litigation funder’s undertaking provides adequate security for costs, Singapore Court rules

Key takeaways

The Singapore Court has recently held that funded plaintiffs could provide security for costs in the form of a costs undertaking from their litigation funder: Hyflux Ltd (in compulsory liquidation) v Lum Ooi Lin [2023] SGHC 113.  Karas So LLP advised the plaintiffs.

This is the first written judgment of the Singapore courts considering this issue.  This judgment may point the way for a similar ruling in the Hong Kong courts.  This decision is important for funded parties and litigation funders as the ability to provide security by way of a costs undertaking, rather than an upfront payment of funds, reduces the costs of litigation funding.

Background

The plaintiffs were companies in liquidation or under receivership who had obtained litigation funding.  The defendant sought security for their costs.  The parties had agreed on the quantum of security but disagreed as to the form of security.  The plaintiffs’ position was that security could be adequately provided by way of undertaking from their litigation funder.  The defendant’s position was that this undertaking was inadequate and that security should be provided in one of the “usual” forms (i.e., payment into Court, a banker’s guarantee or a solicitor’s undertaking).

Court’s judgment

Drawing on Australian and English authorities, the Court held that the applicable principles in determining the appropriate form of security for costs are as follows (at [12]):

1. the plaintiff is not restricted to any fixed form of security; and
2. the plaintiff bears the burden of showing that the proposed form of security is “adequate”, i.e., whether it provides a fund or asset against which a successful defendant can readily enforce an order for costs against the plaintiff.

Applying the above principles, the Court found that the costs undertaking from the plaintiffs’ litigation funder provided adequate security including for the reasons below (at [40]-[49]):

1. the undertaking is irrevocable and unconditional, which makes it akin to a bank guarantee, provided that it could be shown that the litigation funder had the means to pay and would in all likelihood make payment without the need for enforcement;
2. based on its public financial information, the court was satisfied the funder had sufficient assets to satisfy the security sought by the defendant;
3. while there are commercial risks in the business of litigation funding, it is not realistic to eliminate all commercial risks;
4. there is little to no risk of the funder not honouring the undertaking because of the substantial reputational damage they would suffer if they failed to do so; and
5. the defendant could enforce the undertaking easily against the funder, and the costs undertaking contained provisions that narrowed the scope of problems the funder could create in resisting enforcement.