As litigation funding grows in popularity, the court’s ability to make heftier costs orders against commercial litigation funders has come into focus. Whether the so-called ‘Arkin cap’ will apply to limit funders’ exposure to costs (to the amount of funding contributed) is now established as a discretionary rather than binding rule; and a decision in a recent high court case shows that the degree of control exercised over proceedings can have a significant bearing on third party costs liability in litigation.
In a High Court decision of 21 May 2021, a third party costs order has been made against litigation funder, Colosseum Consulting Limited (Colosseum). The successful court application was made by Laser Trust who has the benefit of three separate costs orders against CFL Finance Limited (CFL). CFL’s participation in the underlying litigation had been funded by Colosseum Consulting Limited. From CFL’s statutory accounts – as well as from its stated position in correspondence and evidence served previously – it was clear that it lacked the funds to satisfy the balance of more than £330,000 of costs, plus interest.
On reviewing the funding agreement and various correspondence, Mr Justice Marcus Smith found that Colosseum had held a “massive” degree of control over the litigation. In those circumstances it was deemed appropriate to make a third party costs order, without limiting the costs to those that had actually been paid by Colosseum, a non-party.
Under the Senior Courts Act 1981 Pt II s.51(3), the court has full power to determine by whom, and to what extent, costs should be paid. Orders against non-parties are exceptional and not usual, but it is a fact-specific jurisdiction. The discretion to order a non-party to pay costs will not generally be exercised against “pure funders”. However, the jurisdiction could be exercised against those who exceed the mere funding of litigation; and in this case, Smith J felt that this had occurred. He observed that the funding agreement and other documents showed that Colosseum had “absolute control” over the litigation between Laser and CFL. The judge also considered that the costs order should be made without reference to the ‘Arkin cap’ (see our previous article on the ‘Arkin cap’ for more background), which could be said to apply.
The Arkin cap essentially limits a third party costs order to those costs that have actually been paid by the funder. The judge in this case decided that the nature of Colosseum’s interest in the proceedings was so great that the cap should not apply. Smith J also felt that the costs did not need to be re-assessed and Colosseum would pay the costs already incurred by CFL that were assessed in the prior proceedings. It is clear from this decision that the Arkin cap will not always apply to every third party funding arrangement. Litigation funders may wish to review precedent litigation funding documentation to assess whether terms are appropriate. Any terms invoking extreme levels of litigation control should be reviewed to protect against uncapped third party costs orders. In addition to this, it may be beneficial to review behaviours surrounding funder file management and also case monitoring practices to ensure the levels of control are proportionate.