Despite the ever-growing popularity of litigation funding, court judgments dealing directly with issues relating to funders are pretty rare. But in February, like proverbial buses, two came along at once.

Rachel rothwell

Rachel Rothwell

The one that caught most attention was ChapelGate Credit Opportunity Master Fund Limited v Money and others [2020] EWCA Civ 246, a case concerning the so-called ‘Arkin cap’. This is the rather favourable principle that a funder’s liability for a successful party’s costs should be limited to the amount they invested in the case.

Given the vast sums that funders can potentially make when they back a winner, the notion that they should benefit from such a generous protection against their opponent’s costs has seemed increasingly wrong. The mood music coming from the judiciary has suggested that it would not last long. Now, the Court of Appeal has given a decisive ruling on the issue.

At first instance in the ChapelGate case, Snowden J decided (see that he was not obliged to apply the Arkin cap in favour of the funders. He considered that while it would sometimes be appropriate to apply the cap, it was not ‘a rule to be applied automatically’.

The Arkin cap is now likely to be limited to cases where a funder has provided finance for just a limited aspect of the case, such as expert witness costs

But the Court of Appeal went even further in weakening the cap. It decided that is was not only necessary to look at how much a funder had invested in a case, but also how much it had to gain. And what about the potential impact on the funding market – should that deter it from disapplying the cap? Not at all. The court was not convinced that there would be any negative effect on the availability of funding. It noted that, unlike in 2005 when Arkin was decided, commercial funding, conditional fee agreements and after-the-event insurance are now ‘much more established’. This point is hard to argue with.

So, following the court’s decision, the Arkin cap is now likely to be limited to cases where a funder has provided finance for just a limited aspect of the case, such as expert witness costs. It has not been removed entirely, but its remit is severely curtailed. Will this be a blow to the funding industry? More in theory than in practice. The Arkin cap was already on shaky ground, to the point where it could not be confidently relied on. But the Court of Appeal’s ruling will certainly make the availability of ATE insurance even more important for funders.

The second funding-related case handed down in February was Hall v Saunders Law Ltd & Ors [2020] EWHC 404 (Comm). In a funded arbitration, the solicitors acting for the claimant had failed to let the litigation funders know when they received pessimistic advice from counsel regarding the prospects of the claim. Now while funders are not permitted to control proceedings, they do quite rightly expect to be kept informed of key developments. So one would have expected the funders to succeed in their action against the lawyers. But in a ruling that might come as a surprise to many in the industry, the funder’s claim was dismissed. Why? The problem lay with a poorly drafted contract, which meant that while the client owed a duty to the funder, the solicitors did not. The case will no doubt have a few funders nervously reaching into the filing cabinet marked ‘funding agreements’ to check their contract wording.

But while litigation funders have seen two court decisions go against them in the past few weeks, the sector as a whole looks as strong as ever. On 17 March, Litigation Capital Management announced a first close of a new fund at $140m. Despite the global crisis over the coronavirus pandemic and a highly volatile financial environment, just two weeks later it revealed that it had secured a further $10m at final close – from the asset management division of a large global investment bank that was also one of the cornerstone investors in the initial closure. Then, on 26 March, London-based funder Balance Legal Capital LLP announced it had raised a further $100m from eight institutional investors in a new UK fund, for deployment in the UK, Australia and other common law jurisdictions. It is clear that investors still have a strong appetite for the litigation funding sector.

The funding industry has always been keen to highlight its status as an uncorrelated asset class, with counter-cyclical characteristics. Sadly, greater economic turmoil often means more litigation – and more litigants who need financial help in bringing or defending claims. So in these uncertain times, the third-party funding sector is looking like a very good investment.


Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs ( For subscription details, tel: 020 8049 3890