Are The Days Of The Arkin Cap Numbered?

The Arkin cap has come to be seen as increasingly unfashionable, and a forthcoming hearing may provide some indication of the prospects of it being consigned to the back of the wardrobe of history, according to Stephen Innes of 4 New Square (https://verycivilbarrister.co.uk).

Where a claim backed by litigation funding fails, the funder may be susceptible to a non-party costs order in favour of the successful party. In Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055 the Court of Appeal limited the extent of the funder's liability to the extent of the funding provided. The Court was concerned to strike a balance between not depriving a successful party of all of his costs and not deterring commercial funders by the fear of disproportionate costs consequences:

"If a professional funder, who is contemplating funding a discrete part of an impecunious claimant's expenses, such as the cost of expert evidence, is to be potentially liable for the entirety of the defendant's costs should the claim fail, no professional funder will be likely to be prepared to provide the necessary funding...Access to justice will be denied."

In Excalibur Ventures LLC v Texas Keystone Inc [2017] 1 WLR 2221 the Court of Appeal upheld an order for indemnity costs against commercial funders. Tomlinson LJ noted that the court on that appeal was not being asked to revisit the Arkin decision:

"I understand that some consider the solution thus adopted to be over-generous to commercial funders, but that is a debate for another day upon which I express no view."

It was however notable that he was "sceptical" about the funders' argument that if they were required to pay indemnity costs that would have an adverse effect on access to justice, as he did not think that commercial funders would, or indeed should, be greatly motivated by the need to promote access to justice.

In Bailey v GlaxoSmithKline UK Ltd [2017] EWHC 3195 (QB), Foskett J heard an application for security for costs against the Claimants' funder. The funder relied on an ATE insurance policy obtained by the Claimants and on the fact that its own liability as a funder would be subject to the Arkin "cap" and therefore limited to the amount of the funding it had provided.

In that case the judge held that the funder could not rely on the Arkin cap at the security for costs stage: the judge noted that there had been criticism of the decision in Arkin and postulated that a successful challenge might be made in...