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Litigation Funders and Non-Party Cost Orders

It has long been understood in court proceedings that the loser pays the winners costs. However, under section 51 Senior Courts Act 1951, the court can decide what costs are payable in court proceedings and by which party.

This principle extends to a ‘non-party’ such as a litigation funder. Relevant case law (Excalibur Ventures LLC v Texas Keystone Inc) has confirmed that litigation funders should “follow the fortunes” of those they fund. In this case, the court decided that the claimant had no sound foundation in fact or law and ordered the claimant to pay. In addition, the court made the claimants funders joint and severally liable on the same basis.


“Arkin Cap”

In another case (Arkin v Borchard Lines Ltd & Ors), the court decided that a litigation funder, which had provided funding to an unsuccessful claimant, would be liable to pay the successful party’s costs (as in the Excalibur case above). However, the amount payable would be capped at the amount of funding received by the claimant (now known as the “Arkin Cap”).


Chapelgate Credit Opportunity Master Fund Ltd v Money & Ors

In this recent case, the court decided that capping the costs payable by a non-party who had provided funding did not represent a binding rule.


Background to the case

Chapelgate committed to providing £2.5 million of funding to the claimant. The funding was conditional on the claimant obtaining a satisfactory barristers opinion, conditional fee agreement and after the event (ATE) insurance.

However, the claimant failed to take out any ATE insurance and so, Chapelgate reduced its funding to £1.25 million. Even with a reduced commitment to its funding of the claim, Chapelgate maintained the same profit share of the winnings.

On review of the merits of the claim, the judge found that the claimant had made “serious allegations which were wholly unfounded,” and ordered the claimant to pay the defendants’ costs.
As a result, the defendants asked for a non-party cost order to be made against Chapelgate as the litigation funder. Chapelgate sought for the Arkin Cap to be applied which would limit their liability to £1.25 million.

The judge took the view that there was no correlation between the amount Chapelgate invested and the defendants’ costs, refusing the application of the Arkin Cap. The matter went to the Court of Appeal which upheld the decision, allowing a judge to have discretion on when the Arkin Cap should be applied.


The impact on litigation funders

Chapelgate attempted to argue that removing the Arkin Cap could have a negative impact on access to justice. They argued that an uncapped third party costs order would make litigation funders excessively cautious when considering to fund a claim.

The court disagreed and viewed the decision as a means for keeping litigation funders more vigilant towards cases (to keep cases under review) and to ensure they avoid funding unfounded claims.


Please note that the judgment date of the Chapelgate case was 25 February 2020 and is currently awaiting judicial consideration as case law.


For more information on this or find yourself in need of legal advice please contact a member of our dispute resolution team on 0115 9 100 200 or click here to send an email.

Posted on March 13, 2020

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