Kerry Underwood


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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.


Davey v Money and others [2019] EWHC 997 (Ch) (17 April 2019)

the High Court declined to apply the Arkin cap, which potentially limits a funder’s liability for adverse costs to the amount of the funding provided,  in relation to a costs order against commercial funders, who provided litigation funding to the claimant.

The Arkin cap gets its name from the Court of Appeal case of

Arkin v Borchard Lines (No 2) [2005] 1 WLR 3055.

The High Court held that the making of a third party costs order under section 51 of the Senior Courts Act 1981 is a matter of discretion, to be exercised on the basis of what is just in the circumstances of each case.

The Arkin cap should be considered in cases involving a commercial funder as the means of achieving a just result in all the circumstances, and not a rule.

Here the High Court held the commercial funders liable for all of the successful parties’ costs on an indemnity basis that were incurred after the date of the funding agreement.

The funders accepted that a non-party costs order should be made against them, but contended that it should be limited to the total amount of the funding to the unsuccessful claimant, that is that the Arkin approach should be adopted.

The funders also accepted that they should be liable on the indemnity basis as the unsuccessful funded claimant had been ordered to pay costs on that basis.

This follows the decision in

Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144

In relation to the period of liability, the receiving party argued that as the funders stood to benefit from all of the work done since the start of the litigation, they should be liable for all of the adverse costs, in the same way as an assignee of a claim who became the litigating party by substitution would be liable for all of the costs from the commencement of the action if it failed.

The High Court disagreed and said that previous authorities held that there had to be some causal connection between the involvement of the non-party and the incurring of costs.

In the Excalibur case the court had said:

“While I see the force of these considerations I do not think it appropriate to make an order the effect of which is that the Platinum funders or Blackrobe will be liable for costs which they have played no part in causing the defendants to incur. The fact that they are, in a sense, inheritors of the work of others is not sufficient reason.”


The Arkin Cap 


Bailey and others v GlaxoSmithKline UK Limited [2017] EWHC 3195 (Qb)

the High Court ordered a litigation funder to pay security for costs greater than its investment in the proceedings as it did not accept that the Arkin cap would necessarily apply at the end of the proceedings – see my blog – SECURITY FOR COSTS, 4 DECEMBER 2018.

The court here held that the funding arrangement was not champertous, and therefore its decision not to apply the Arkin cap was not made on that ground and Arkin was not distinguished on that basis.

Here the court concluded:

“In short, 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.”

It then considered the particular facts in this case:

the funders approached their involvement as a commercial investment upon which they intended to make a return;

there was a lack of discrimination in the allegations made, which included speculation and exaggeration and these significantly increased the defence costs.

Although the funders did not direct the case, they had every opportunity to investigate and form a view on the claim before choosing to fund it, and could not dissociate themselves from the claimant’s conduct – see Excalibur. Here the indemnity costs order against the claimant would be rendered in effective if the Arkin cap was applied;

the funders must have known that the claimant was most unlikely to be able to meet any substantial adverse costs award, and halved their investment from £2.5 million to £1.25 million while retaining the same projected share of recoveries;

there was no correlation between the amount that the funders chose to invest in the litigation and the costs to which the defendants were exposed, and the funders removed the requirement that the claimant take out After The Event insurance, which would have protected the defendant;

the funders negotiated to receive a substantial commercial profit which would have taken priority over any compensation payable to the claimant;

Litigation Funding in the United Kingdom has moved on significantly since the decision in Arkin.

The court ordered the litigation funders to pay all of the costs of the defendants on the indemnity basis from the date of the funding agreement.



Whatever the High Court says in this case, the reality is that it has changed the law and turned what everyone thought was a rule into guidance.

Lord Justice Jackson in his report, while arguing that the liability of third party funders should be open ended, as decided in this case, nevertheless said:

“4.7. I recommend that either by rule change or by legislation third party funders should be exposed to liability for adverse costs in respect of litigation which they fund. The extent of the funder’s liability should be a matter for the discretion of the judge in the individual case. The funder’s potential liability should not be limited by the extent of its investment in the case.”

That was 10 years ago and there has been no rule change or legislation, and therefore funders were, in my view, entitled to assume that the Arkin cap still applied.

I know that we do not really have a Parliament at the moment, but something as important as this should be decided by Parliament, and not on the whim of an individual judge.

Written by kerryunderwood

May 2, 2019 at 7:52 am

Posted in Uncategorized

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