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When the Cap Fits and When it Doesn’t

Image of rope pulling in different directions

By Matthew Pascall, Senior Underwriting Manager

(Estimated reading time: 3 minutes, 54 seconds)

In a judgment delivered by Newey LJ given in February of this year, the Court of Appeal clarified the nature and extent of the Arkin Cap. For some years funders had come to regard their maximum liability to pay a successful party’s costs under Section 51 of the Senior Courts Act 1981 as the amount of their funding. The question in Chapelgate Credit was whether or not this was an absolute rule or did the courts have a far wider discretion?

In the course of its decision, Court of Appeal in Chapelgate Credit Opportunity Master Fund Limited and James Money, Jim Stewart-Koster (Joint Administrators of Angel House Developments Limited) and Dunbar Assets Plc [2020] EWCA Civ 246 commented that “…, a funder should now be able to protect its position by ensuring that either it or the claimant has ATE cover.”

Chapelgate had funded part of the costs of the former owner of Angelhouse Developments Ltd, who brought a claim, alleging, a conspiracy by the administrators of the company and others to dispose of the company at an undervalue and otherwise act to her disadvantage and cost. The claim, which had been assessed by leading counsel as having good prospects of success, was dismissed.

The trial judge, Snowden J, concluded that what could have been an arguable case of negligence on the part of the administrators had been run as a complex conspiracy which, in effect, amounted to a series of allegations of dishonesty directed against the administrators.

As a consequence, he ordered that their costs be paid on an indemnity basis. In time, the administrators joined Chapelgate and sought an order that they pay all of the administrators’ costs without limiting the amount to the extent of Chapelgate’s actual funding – in other words, dis-applying the “Arkin Cap.”

The argument came down to this: Does a judge have a wide discretion in which the amount of the funding is a factor or is that amount the cap. Put another way, did Arkin lay down an absolute rule?

Newey LJ had no doubt that the discretion under section 51 is wide and that the original decision in Arkin does not impose a rigid cap on a funder’s liability. In the key passage in the judgment (paragraph 38) he said: –

“38.  On the other hand, 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. In the case of a funder who funded only a distinct part of a claimant’s costs, a judge might well decide that it should pay no larger sum towards the defendant’s costs. A judge could also, however, consider the funder’s potential return significant. The more a funder had stood to gain, the closer he might be thought to be to the “real party” ordinarily ordered to pay the successful party’s costs… In the case of a funder who had funded the lion’s share of a claimant’s costs in return for the lion’s share of the potential fruits of litigation against multiple parties, it would not be surprising if the judge ordered the funder to bear at least the lion’s share of the winners’ costs, regardless of whether the funder’s outlay on the claimant’s costs had been a lesser figure.”

As pointed out above, Newey J emphasised that the funder could easily protect its position by ensuring that ATE insurance protection was in place.

The Temple Perspective – lessons to be learned.

Funders must ensure that suitable and adequate litigation insurance (ATE) is in place to cover all of the opponent’s likely costs and disbursements from the point in time that they commit to finding any case. Funders need to work with insurers, solicitors and their mutual clients to agree how costs, up-lifts, the funder’s return and the insurance premium are to be paid in the event that the claim succeeds.

The overriding priority has to be to ensure the client understands and is content with these arrangements, and that the litigation remains the right option for them and offers them a realistic return. It is they, after all, who have suffered the loss.

Here at Temple, we have experience of working alongside funders to ensure that adequate protection is provided for funded cases and is always more than ready to be part of a package of funding and insurance to enable good claims to progress.

 

If you would like more information on our litigation insurance and disbursement funding products please email matthew.pascall@temple-legal.co.uk or call me on 01483 514428. We look forward to hearing from you.

Matthew Pascall

Matthew Pascall

Senior Underwriting Manager
Read articles by Matthew Pascall

Matthew Pascall

Barrister Matthew Pascall is the latest addition to the expanding commercial team at Temple Legal Protection, joining as Senior Underwriting Manager from November 2017.

Matthew was called to the Bar in 1984 and joined Guildford Chambers two years later. Spending more than 30 years in practice there, he has comprehensive knowledge and experience of the commercial legal sector and he is listed in the current Legal 500 as a Tier 1 barrister.

Matthew has been providing ongoing consultancy services to Temple Legal Protection for some time and therefore has prior insight into the company and has already established productive relationships with our clients. His knowledge of the commercial legal sector and litigation practice will be invaluable to the business, providing specialist experience to lead the commercial litigation insurance team.

 

Read articles by Matthew Pascall