Case law: Commercial funder that funds losing litigation can be ordered to pay all the legal costs awarded to the winning side, even if the costs exceed the amount provided as funding
Parties contemplating litigation funded by a commercial third party funder should consider whether, if they lose, the funder may be required to pay all the legal costs awarded to the winning side or not. If not, they may have a liability to make up the balance themselves.
This update was published in Legal Alert - April 2020
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A party to a legal dispute obtained funding from a third party funder, whose business was funding litigation. When it lost the case the winning side applied to the court for an order that the third party funder pay its legal costs.
Previously, the courts had applied a legal principle saying that a third party funder’s liability to contribute to a winning party’s costs could never be more than the amount the third party had agreed to provide to fund the case (referred to as the ‘Arkin cap’). This meant that, if the other side’s costs exceeded the amount the funder had agreed to provide to fund the case, the losing party was liable to pay the balance.
The Court of Appeal has now ruled that courts have a discretion to order a third party funder to pay all of the winning side’s costs, irrespective of the amount the third party had agreed to provide by way of funding – ie that the Arkin cap will not necessarily be applied in every case.
- Parties contemplating litigation funded by a commercial third party funder should consider whether, if they lose, the funder may be required to pay all the legal costs awarded to the winning side, so that they have no liability themselves.
Case ref: Chapelgate Master Fund Opportunity Ltd v Money  EWCA Civ 246
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