Commercial funders beware! Court of Appeal upholds decision not to apply the Arkin cap

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2 min read

The Appellants (“Chapelgate”) had provided funding to a Ms Davey in proceedings against the Respondents, arising from the administration of Angel House Developments Limited.

At trial Mr Justice Snowdon dismissed the claims in their entirety, and ordered that Ms Davey pay the Respondents’ costs on the indemnity basis.

Chapelgate were joined as a party for the purpose of findings as to costs. Chapelgate asked the judge to apply the Arkin cap (the approach of the Court of Appeal in Arkin v Bourchard Lines Limited [2005] EWCA Civ 655), which limits the adverse costs liability of a funder to a sum equivalent to the funding provided.   

On the facts of the case the judge decided that “the balance between the principle that the successful party should have its costs, and enabling commercial funders to continue to provide the finance to facilitate access to justice, should be struck differently than it was in Arkin” and found that the cap should not be applied. 

Chapelgate appealed.

Decision

Counsel for Chapelgate submitted that Arkin was binding authority providing a “solution” to the tension between the funding as a way of facilitating access to justice and the principle that that winning party should be paid its costs. 

Counsel for the Respondents submitted that the decision simply commended an approach, but that it was not binding. The Court identified circumstances where applying the cap would not be just, for example where a funder was providing a relatively limited amount of funding, but would be entitled to receive an overwhelmingly large proportion of any recoveries.

The Court of Appeal decided that the Arkin cap was by no means redundant, but that it was not binding and that a judge retained discretion in each case.

In the circumstances of this particular case, the Court upheld the decision of Snowden J. He was right to have regard to the fact that Chapelgate was funding all (not a proportion) of Ms Davey’s costs from a particular date, that it was entitled to very significant prospective gains, that applying the cap would leave the Respondents seriously out of pocket, and that the case involved serious allegations against the Respondents which would inevitably mean they would incur significant costs.

The appeal was dismissed.

Chapelgate Credit Opportunity Master Fund Limited v Money and others [2020] EWCA Civ 246

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