Third Party Funders – Exposure to Legal Costs

The Court of Appeal has recently handed down its Judgment in the case of Chapelgate Credit Opportunity Master Fund Limited -v- Money and Others [2019], which was an eagerly awaited decision for litigation funders. The outcome of the case is as follows:

The Arkin Cap should be considered when determining costs, but it is not binding on the Courts.

Paragraph 38:

“……..I do not consider that the Arkin approach represents a binding rule. Judges, as it seems to me, retain a discretion and, depending on the facts, may consider it appropriate to take into account matters other than the extent of the funder’s funding and not to limit the funder’s liability to the amount of that funding”

For those unfamiliar with litigation funding and the Arkin Cap, this arises out of the Court of Appeal decision in Arkin -v- Borchard Lines Limited 2005. In that case, a company which had provided third party funding for an unsuccessful claim was ordered to pay the costs of the winning party, but only to the extent of the funding provided. The Arkin Cap has been a principle which has been regularly applied by the Courts since. The decision in Chapelgate will cause uncertainty for litigation funders, in a world which has significantly evolved since 2005.

The Judgment increases the requirement for litigation funders to properly engage costs lawyers. Funders should be engaging costs lawyers to scrutinise a law firm’s legal budget when they are applying for funding. Costs lawyers should also be retained to monitor costs versus budget (including the opponent’s costs) and to advise on costs management orders.

Costs management orders provide more certainty on detailed assessment (unless the order for costs is made on the indemnity basis). Such measures will ensure that the funder has the maximum control possible on both the costs of the firm they are funding and the opponent’s legal costs; the latter being important in the event that an adverse order for costs is made.


This blog was written by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding Team. Andrew can be contacted on 0113 336 3334 or at mcaulay@clarionsolicitors.com

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.

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21ST CENTURY LITIGATION (Part 2)

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 second part of this series will explore the Court’s first acceptance of third party funding in the matter of Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

Background

This matter related to a challenge brought by Spanish fisherman who sought to claim damages against the Secretary of State for the unlawful prohibition of fishing in UK territorial waters. A firm of accountants agreed with the Claimants to prepare and submit claims for loss or damage as a result of any losses suffered. The Accountants agreed to act in return for 8% of any damages recovered.

The Claimant’s succeeded in their challenge and were awarded damages and costs. On a preliminary issue the agreement was held to be not champertous and could be enforced against the Secretary of State.

The Defendant’s Challenge

The Defendant claimed that such an agreement was champertous and unlawful. It was argued that for an expert to act on a contingency fee basis would give the expert a significant financial interest in the case which is highly undesirable.

Decision

As stated in my previous blog, the tort of champerty had been abolished and the starting point for considering any arrangement was that it would be presumed enforceable unless there was a valid reason as a matter of public policy.

The Accountants had not acted as experts directly in this matter but had instead funded independent experts. Furthermore, by the time that they were instructed the issue of liability had already been decided.

Therefore, the Court held that such an agreement was not in the circumstances champertous or against public policy.

In the next part of the series…

The next blog will take a look at the liability of third party funders in litigation in the matter of Arkin v Borchard Lines Ltd (nos 2 and 3) [2005] 1 WLR 3055.


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.

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21st CENTURY LITIGATION (Part 1)

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 first part of this series will explore how the Court’s attitude to third party funding has changed significantly from the 19th through to the 21st Century.

Champerty and Maintenance

The historic position taken by the Court in respect of third party funding was that it was illegal and tortious. Two offences had developed through the common law: champerty and maintenance.

Champerty referred to when a person who did not have a legal interest in the matter provided financial assistance to litigation in order to receive a share of the profits.

Maintenance was the procurement of direct or indirect financial assistance from another in order to carry on, or defend, proceedings without lawful justification (British Cash & Parcel Conveyors v Lamson Store Service Co [1908]).

Therefore, the default position was that such agreements, which would be considered third party funding arrangements today, would be considered illegal, tortious and unenforceable. However, even at the turn of the 20th Century, the courts were willing to find such arrangements enforceable as a matter of public policy. For instance, in insolvency proceedings, which by their very nature meant that one party would need financial assistance in order to carry on or defend proceedings (Seear v Lawson (1880)), the Court found that a third party funding agreement was enforceable.

Abolition

The default position changed with the enactment of the Criminal Law Act 1967 (CLA 1967). S.13 CLA 1967 abolished the offences and torts of champerty and maintenance. S.14 CLA 1967 changed the approach of the test, which now started from the presumption that such agreements were enforceable, unless there was a valid reason as a matter of public policy.

Comment

Statutory intervention was important to provide additional certainty and security to parties wishing to enter into third party funding arrangements. However, such an approach cannot be taken for granted outside of the jurisdiction of England and Wales.

Recently, the Supreme Court in Ireland, in the matter of Persona Digital Telephony Ltd v The Minister for Public Enterprise (2017), found a third party funding agreement to be unlawful. This is because the offences of Champerty and Maintenance have not been abolished by statute In Ireland. The Court felt that it is consequentially bound to find such agreements unlawful and that any change of approach was within the remit of the Legislator, not the Judiciary.

In the next part of the series…

The next blog will take a look at how the Court has begun to develop the law in respect of third party funding, with a look at the decision in Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

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.

Third Party Funding – Regulation or Not?

John Hyde of the Law Society Gazette recently gave a useful update on the issue of statutory regulation in relation to third party litigation funding. You can access his short article by following this link.

I personally think that this is a very interesting topic/debate. As I understand the position, the government is wary of imposing statutory regulation at this moment in time as it is concerned that it could stifle the funders who are currently in the litigation funding marketplace and deter any new entrants. In light of the substantial funding changes post LASPO, it is important not to make any changes which could impact on access to justice. There is currently a voluntary code of conduct in place and optional membership of the Association of Litigation Funders (http://associationoflitigationfunders.com/), but is this enough?

Third party funders can earn substantial amounts from successful cases and therefore surely some form of regulation should be introduced to ensure that both individual and corporate purchasers of third party funding are protected.

What are your thoughts in relation to this topic? Would you regulate the area now or would you give the area time to develop and then look to regulate in due course? My view is the latter.

I await your comments with interest.

 

This blog was prepared by Andrew McAulay is who a Partner and the Head of the Costs and Litigation Funding Team at Clarion. Andrew can be contacted on 0113 336 3334 or at andrew.mcaulay@clarionsolicitors.com