In Davey v Money (2019), the High Court declined to apply the "Arkin" cap to limit a third-party commercial litigation funder's liability for adverse costs to the amount of funding that it had provided. Instead, the Court held the funder liable for the whole of the defendants' costs, which were considerably in excess of the amount of the funder's investment. This decision is significant in confirming that defendants may be able to recover more of their legal costs from litigation funders backing claims. It also may lead to an increase in the cost of such funding for claimants, resulting from the increased risk faced by litigation funders.


The Court of Appeal decided in Arkin v Borchard (2005) that the adverse costs liability of a commercial funder that had funded only part of a claim (the cost of expert reports) was limited to the amount of the funder's investment (£1.3 million) such that the defendant could not recover the full amount of its costs of defending the claim (£6 million) from the commercial funder.

This "Arkin" cap has been applied in many cases generally to limit a commercial funder's costs liability to the amount of its investment, regardless of whether it was funding the whole or only part of the claim. However, this wide applicability of the Arkin cap has been called into question, including in Bailey v GlaxoSmithKline UK Ltd (2018). In Bailey, the High Court ordered an insolvent corporate claimant whose sole shareholder was providing funding for a claim to provide security for the defendant's costs in excess of the amount that the shareholder had agreed to fund.


In Davey v Money, the defendants succeeded in defending serious claims against them, including allegations of breaches of duty and improper conduct amounting to dishonesty. The claimant was ordered to pay the defendants' costs on the indemnity basis, with £3.9 million to be paid on account of the defendant's total costs of £7.5 million. The claimant did not make any payment. The defendants then applied for a non-party costs order against the claimant's litigation funder.

The funding agreement between the litigation funder and the claimant was entered into on 23 December 2015. By that point, the defendants had already incurred £3 million of their total costs of £7.5 million. The litigation funder committed to contributing £1.25 million toward the claimant's costs, and purchased after-the-event insurance to cover its own liability for an adverse costs order up to £650,000.

The litigation funder accepted that a non-party costs order should be made against it on the indemnity basis, but argued that the Arkin cap should apply to limit the amount of its liability to the amount that it had actually funded.


The High Court (Snowden J) held that the litigation funder should be liable for the defendants' costs incurred from the date that the funder had agreed to fund the claim (23 December 2015). This liability should not be limited by reference to the Arkin cap.

The Judge found that the general principle to be applied had been established in the Privy Council case of Dymocks v Todd (2004): a non-party costs order is a matter of discretion to be exercised on the basis of what is just in all the circumstances. This principle had been adopted and followed expressly in Arkin, as the basis for holding that it was unjust to make the litigation funder liable for all of the defendant's costs where it had only funded a discrete portion of the claim. The Judge also noted that there was no authority for treating the Arkin cap as a rule to be applied automatically in all cases involving a commercial litigation funder.

The following factors were relevant to the Judge's exercise of discretion in determining the extent of the litigation funder's liability for an adverse costs order:

1. The claimant had demonstrated a "lack of discrimination" in making very serious allegations against the defendants that had included elements of speculation and exaggeration. Although the litigation funder had not directed the conduct of the case, it was able to investigate the case and form a view on the extent of support for the allegations being made before agreeing to fund the claim.

2. It would have been obvious to the funder that the claimant would be unable to pay any costs ordered against her, such that the funder must have known that it would be liable for a third-party costs order if the claim was unsuccessful. It must also have been obvious to the funder that the defendants' costs would substantially exceed the amount of its funding. There was no correlation between the amount that the funder chose to invest and the defendants' exposure to costs. In this respect, the Judge considered that:

"there is an obvious risk of injustice in the other direction if a number of defendants are forced to incur significant costs in defending themselves, but are limited to recovering only a proportion of those costs because of entirely different funding arrangements over which they have no control between the claimant, his funder and his lawyers".

3. The funder had negotiated to receive a substantial commercial profit from the claim which would take priority over any recovery by the claimant. The extent to which third-party litigation funding provides a claimant with access to justice by allowing the claimant to retain a financial interest in recoveries, and the extent to which the funder seeks to obtain a profit, may be relevant factors in considering the justice of any costs order against a funder.


This decision will be welcomed by parties facing claims where the opposing side has obtained litigation funding. In the event that the opposing side fails to pay an adverse costs order, the potential recovery of costs from the funder will not be limited to the amount of the funder's investment. The extent of the funder's liability will depend on what is just in the circumstances of each specific case. The Judge rejected the funder's argument in this case that refusing to apply the Arkin cap would discourage commercial funders from financing claims. However, as the decision confirms that commercial funders' risk of adverse costs orders is not limited, this will no doubt factor into the assessments made by funders in deciding whether to invest in a claim and the terms on which any such investment is made.