Arkin v Borchard Lines Ltd

A professional funder’s agreement to receive a share of recoveries does not, by itself, justify a non-party costs order. The court must balance three objectives: deterring weak claims, facilitating access to justice, and protecting the due administration of justice from funder interference.

The central inquiry is whether the funder’s contractual rights or actual conduct created a material risk of adverse influence over the litigation. Where independent legal advisers retain effective control, the funder does not interfere, and funding was essential to an impecunious claimant’s access to a fair trial, access to justice may outweigh deterrence and the protection of defendants’ costs interests.

The defendants applied for costs against Managers and Processors of Claims, a professional litigation funder. The funder had paid for expert witnesses, expert evidence, document organisation and related litigation support in return for 25 per cent of the first £5 million recovered and 23 per cent of any excess.

The claimant was impecunious and could not have pursued the complex claim to trial, or achieved equality of arms, without such funding. The defendants relied on the funder’s substantial contingent interest, its failure to provide after-the-event insurance, and the absence of an undertaking to pay their costs. The central issue was whether a costs order under the court’s non-party costs jurisdiction was just and appropriate.

1. The application was refused. The court declined to make a costs order against MPC.
2. The relevant public policies were:
   1. deterring ill-founded claims and compensating successful parties through the general rule that costs follow the event;
   2. facilitating access to justice and equality of arms for impecunious claimants; and
   3. protecting the due administration of justice from adverse funder interference.
3. The funding agreement must be assessed both when made and during performance. Relevant considerations include the size of the contingent fee, the funder’s contractual control over decisions, and whether the funder in fact exaggerated the claim, procured unreliable evidence or influenced settlement adversely to objective legal advice.
4. A professional funder is not automatically liable merely because it contracts for a share of the proceeds. Nor does the absence of an undertaking to pay the defendants’ costs necessarily require an order. The court must consider whether requiring such provision would deter funding and thereby deprive impecunious claimants of access to justice, particularly where the potential costs exposure is very large and insurance is unavailable or commercially prohibitive.
5. MPC’s agreement permitted consultation but did not give it control over the proceedings. Leading counsel’s advice prevailed in any disagreement, and counsel’s duty was exclusively to the claimant in accordance with professional obligations. MPC did not influence the conduct of the case or the experts.
6. The risk of interference with the administration of justice was therefore removed or reduced to insignificance by the claimant’s independent legal advisers. Since the claim could not otherwise have been tried with equality of arms, access to justice outweighed deterrence and the protection of defendants from unrecovered costs.