High Court uncaps costs liability for litigation funders

For the first time, the High Court has declined to limit a litigation funder’s liability for post-litigation adverse costs to the amount of funding provided. This decision marks an increase in financial exposure for commercial funders, which now extends to the full amount of a successful party’s legal costs.

Substantial indemnity costs were awarded in Davey v Money [2019] EWHC 997 (Ch) against the claimant. She was unable to pay, so the defendants applied for an order for costs against the commercial funder that had funded her claim.

Justice Snowden refused to apply the “Arkin cap” which has until now been used to limit funders’ liability for adverse costs to the amount of funding provided – rejecting the submission that this cap had to be applied in all cases in which non-party costs are sought against commercial funders.

Accordingly, the funder was liable for all of the defendants’ costs incurred in successfully defending the claim. At £7.5 million, they far exceeded the £1.25 million funding commitment. Given this large discrepancy, an appeal is likely.

 

What does Davey mean for the funding market?

If this decision withstands appeal, it could entail that funders become more reluctant to back cases that make wide-ranging allegations, given they carry a higher risk of indemnity costs being awarded in the event of a total loss.

Funders may insist on ATE insurance to protect them against the increased financial exposure – the cost of which would likely trickle down to claimants.

In declining to apply the cap in Davey, the judge considered it relevant that the funder was motivated purely by profit, rather than access to justice. Accordingly, “pure funders” are unlikely to be affected as acutely as commercial funders by this decision.

It will become more important than ever for funders to keep a close watch on legal costs being incurred by parties on either side and to ensure that mechanisms in the Civil Procedure Rules are used to limit adverse costs.

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