‘Arkin cap’: Update on commercial litigation funding

 

A long standing “principle”, or believed to be a long standing principle of funded cases, is what an approach commonly referred to as the “’Arkin cap”, from the case of the same name[1].  The ‘Arkin cap’ refers to a Court of Appeal decision during 2005 which for a long time interpreted as limiting a commercial litigation funder’s liability for adverse costs to the amount of funding contributed. The Arkin decision had been welcomed by commercial litigation funders who saw it as providing certainty to limit or cap their potential liability for adverse costs exposure.

An approach rather than a cap?

The Arkin decision has been considered in a number of cases since 2005, seemingly eroding the protection which funders believed they had, to payment of adverse costs exceeding the sum invested. The 2019 decision in Davey v Money and others[2] suggested that litigation funders could not depend on Arkin to limit their adverse costs exposure. In that case, Mr Justice Snowden held that:

“what has become known as the Arkin cap is, in my judgment, best understood as an approach which the Court of Appeal in Arkin intended should be considered for application in cases involving a commercial funder as a means of achieving a just result in all the circumstances of the particular case. But I do not think that it is a rule to be applied automatically in all cases involving commercial funders, whatever the facts, and however unjust the result of doing so might be.”

s.51 Senior Courts Act 1981 provides that the costs of all civil proceedings shall be in the discretion of the court. In Davey, the court held that the ‘Arkin cap’ represented an approach which the judge could take in appropriate cases but it did not limit the judge’s discretion in relation to determining arguments around the liability of a litigation funder for costs pursuant to s.51 SCA. The court noted that, in Arkin, the Court of Appeal provided an approach in cases involving a commercial funder which may be taken by other judges in exercising their discretion but that discretion remained and could be exercised. The approach in Arkin was not a rule or principle that must always be followed in cases involving a commercial litigation funder.

The Davey decision went to the Court of Appeal in 2020 in the guise of Chapelgate Master Fund Opportunity Ltd v Money[3] where the court further considered the approach to cap. The commercial litigation funder Chapelgate appealed unsuccessfully against the adverse costs award made in Davey. The decision reflected the fact that the funding market had developed significantly since 2005 and the court would not apply the ‘Arkin cap’ to limit a funder’s liability for adverse costs where this would lead to an unjust outcome. There may be cases where the Arkin approach is taken but it does not operate as an inflexible rule.  

Laser Trust v CFL Finance Ltd

During May 2021, the High Court considered this issue further in Laser Trust v CFL Finance Ltd[4]. A third party costs order was given against the litigation funder, Colosseum, and a cap was not applied.

The court noted that the terms of the funding arrangement meant that “the control that Colosseum had was massive”. It was held that the nature of the funder’s interest in the proceedings “was so great that the so-called Arkin cap … should not apply”.

The Laser Trust decision is of interest because it is one of the first cases on the ‘Arkin cap’ following the Court of Appeal decision of Chapelgate. The Laser Trust judgment is relatively brief and it is unclear whether the court was referred to Chapelgate. A suggestion that a high degree of litigation funder interest may be required for the ‘Arkin cap’ not to be applied would not accord with the focus on the court’s discretion in Chapelgate. The Chapelgate judgment determined that the court has a broad discretion to determine the litigation funder’s liability for adverse costs and the ‘Arkin cap’ does not operate as a binding rule to limit a funder’s liability.

Taking the cap off

It is clear that the ‘Arkin cap’ will not operate as a strict cap and that the court retains a discretion on the determination of applications for third party costs orders against a funder.

Litigants and funders will continue to ‘watch this space’ with interest as further caselaw may continue to develop in this area and as the courts exercise their discretion on the extent of funder liability for adverse costs. 

Eversheds Sutherland’s litigation funding specialists can provide advice on all potential litigation funding options, and assist clients who have queries in relation to funding agreements or even offers.

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[1]  Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] EWCA Civ 655 [2005] 1 WLR 3055

[2]  Davey v Money and others [2019] EWHC 997

[3]  Chapelgate Master Fund Opportunity Ltd v Money  [2020] EWCA Civ 246

[4]  Laser Trust v CFL Finance Ltd [2021] EWHC 1404 (Ch)