The High Court has rejected the suggestion that the Arkin cap, which limits the extent of non-party costs orders against a commercial litigation funder, must be applied in every case.

Background

In Davey v Money & Anor [2019] EWHC 997 (Ch), the administrators of Dunbar Assets plc had successfully defended serious allegations of breach of duty and improper conduct tantamount to dishonesty made against officers of Dunbar. The claimant, Ms Davey, was ordered to pay the administrators’ costs on the indemnity basis.

The administrators claimed costs of just short of £7.5m in total and sought a non-party costs order against Ms Davey’s commercial litigation funder.

The funder accepted that a non-party costs order should be made against it on the same basis as against Ms Davey, but it argued that its total liability should be capped at the total funding that it provided to her, which was a little less than £1.3m. The basis for this argument was the application of the so-called Arkin cap, which derives from the decision in Arkin v Borchard Lines Ltd (Costs Order) [2005] EWCA Civ 655. In that case, the Court of Appeal limited a commercial third-party funder's liability for adverse costs to an amount equivalent to the funding provided.

Decision

The court ordered the funder to pay the administrators’ costs of the proceedings on the indemnity basis from the date of its funding agreement with Ms Davey, without applying the Arkin cap. Snowden J concluded that the Arkin cap was not a hard and fast rule to be applied in each and every case. Whether to apply the cap was a matter for the court’s discretion, bearing in mind the circumstances of the case in question. In this case, the circumstances of the case justified an order for indemnity costs and, weighing the principle that the successful party should have its costs against the desirability of encouraging funders to fund litigation and facilitate access to justice, Snowden J determined that the funder’s liability ought not to be capped as it was in Arkin. The court did, however, determine that the funder should not be liable for costs incurred prior to the date on which it started to fund the litigation.

This decision indicates that in appropriate cases, especially those involving an award of costs on the indemnity basis, the Arkin cap may not be applied. Whilst the judge did not accept that this decision would necessarily discourage litigation funders, whether it does in fact change funders’ attitudes, or the manner in which they approach their assessment of cases, remains to be seen. One area where we may see an immediate impact is in funders increasingly insisting on claimants taking out ATE insurance for their entire adverse costs risk.