THIRD PARTY FUNDING – A VIABLE OPTION FOR 21ST CENTURY LITIGATION (Part 3)

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The third part of this series will explore the liability of third party funders in the matter of Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055.

Background

This matter related to an unsuccessful action in respect of anti-competitive practices which resulted in the collapse of the Claimant’s company, and which severely affected his finances. The Claimant entered into an agreement with a professional litigation funding company (MPC) to provide funding for the expert evidence and litigation support services for the expert. MPC did not agree to pay any of the Defendants’ costs or to provide finances for an ATE premium due to the significant amount of the premiums available.

The claim was unsuccessful at Trial and the Claimant was ordered to pay the Defendants’ costs. The Defendants’ then sought a non-party cost order against MPC for the entirety of the Defendants’ entitlement to costs. However, this was refused at first instance.

The Defendants subsequently appealed the decision.

Decision

The Court of Appeal considered the balance that needed to be struck between the access to justice provided by third party funding and the general rule that costs should follow the event. It was considered that a funder who purchased a stake in an action should then be protected from all liability of the opposing party’s costs in the event the claim fails.

The Court of Appeal commended the following approach:

‘a professional funder, who finances part of a Claimant’s costs of litigation, should be potentially liable for the costs of the opposing party to the extent of the funding provided’

This has become known as the Arkin cap. This approach has provided clarity and transparency to funders as they can now quantify their liability should the matter fail.

Whilst the cap has been readily adopted by the funding industry, it has also not been without criticism. The main criticism being that the cap creates an uneven playing field in favour of the third party funder as they will only ever be liable for the amount of their investment, whilst the opposing party would be liable for all of the costs of the funded party.

In the next part of the series…

The next blog in this series will take a look at the recent decision which has built upon the ‘Arkin cap’ in the matter of Davey v Money [2019] EWHC 997 (Ch).


This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

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