Dismissing the appeals of the commercial litigation funders on all grounds, the Court of Appeal has held that the first instance judge exercised the court’s discretion under section 51(3) of the Senior Courts Act 1981, as to whether to make a costs order against a non-party, and its discretion under CPR 44, as to the basis on which a costs order should be made, entirely correctly. He had been right to hold that the nature and character of the claim, and its size and effect on the defendants, alone justified ordering indemnity costs against the funders.

It also held that there was no basis for treating a funder who advances money to enable a litigant to pay court-ordered security for costs any differently from a funder who advances money to enable a litigant to pay its own lawyer’s fees. Therefore, the potential costs liability is the same and there is no reason why funds advanced to provide security should not be included in the Arkin cap.

The judgment emphasises several noteworthy points, including that:

  • Since a funder chooses which claims to back, it cannot dissociate itself from the conduct of those it funds. As a result, if the latter are found liable for costs on an indemnity basis, the funder will ordinarily be required to contribute to those costs on the same basis.
  • To minimise the risk of orders for indemnity costs against the funded party, funders should carry out extensive due diligence involving “rigorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals”. In addition, an ongoing review by independent lawyers will often be essential. This will not render the funding agreement champertous.
  • A costs order can be made against a person who has provided funding and who, in reality, will receive the benefit of the litigation, even if they are not a party to the funding agreement (here, the funder’s parent company).

(Excalibur Ventures LLC v Texas Keystone Inc and others [2016] EWCA Civ 1144.)