Arkin v Borchard Lines Ltd & Ors

A commercial litigation funder which finances part of an impecunious claimant’s costs under a non-champertous agreement may be ordered to contribute to the successful opponent’s costs. The appropriate maximum is normally the amount of the funding provided. This approach balances access to justice against the ordinary rule that costs follow the event.

The court retains a broad discretion over non-party costs and over costs between Part 20 parties. The ordinary separate treatment of Part 20 costs may yield where the circumstances make it unjust, particularly where joined parties were necessary to a coherent defence. Costs incurred for jointly beneficial expert evidence may then be shared fairly.

Arkin v Borchard Lines Ltd & Ors arose from an unsuccessful competition claim brought by an impecunious claimant. Managers & Processors of Claims Ltd funded the claimant’s expert and associated work on terms that it would receive a share of any recovery. It spent more than £1.3 million and did not control the litigation.

After the claim failed, Colman J declined to order the funder to pay the defendants’ costs: [2003] EWHC 2844 (Comm). He also ordered Borchard to pay substantial costs of parties joined by its Part 20 claims: [2003] EWHC 3088 (Comm). The appeals concerned the proper limits of a commercial funder’s non-party costs liability and the just allocation of costs among the successful defendants and Part 20 defendants.

1. The appeals were allowed. The court set aside the refusal to make a non-party costs order against MPC and ordered it to contribute £1.3 million to the defence costs.
2. Section 51 of the Supreme Court Act 1981 confers a wide costs jurisdiction which extends beyond parties to the litigation. The court held that Colman J had given insufficient weight to the ordinary principle that costs follow the event. Access to justice remained important, but did not justify insulating from all adverse costs a professional funder which had purchased a commercial stake in the claim.
3. For a non-champertous agreement under which a professional funder finances part of a claimant’s litigation costs, the funder should be potentially liable for the successful opponent’s costs up to the amount of the funding supplied. That limit avoids deterring commercially viable funding of discrete expenses, while preventing a successful opponent from being left without recourse against a funder whose intervention enabled an unsuccessful claim to continue. A champertous funding agreement may instead expose the funder to unlimited adverse costs liability.
4. The court also set aside the order requiring Borchard to bear most of the Part 20 defendants’ costs. Although Part 20 costs ordinarily follow the event in the Part 20 proceedings, the discretion under the CPR must serve the overriding objective. The unusual collective allegations, the importance of Zim’s evidence, and the need for urgent joinder meant that the normal separability of the Part 20 proceedings would produce an unjust result.
5. Subject to expert-related costs, each of the six Conference participants was to bear its own main-action and Part 20 costs. The costs of instructing experts, including associated legal costs, were to be ascertained and borne in equal one-sixth shares. MPC’s £1.3 million contribution was to be divided among the six parties in proportion to their ultimately borne defence and Part 20 costs.

1. Court of Appeal (Civil Division): allowed the appeals from Colman J’s costs decisions. It made a non-party costs order against MPC and substituted a revised allocation of costs between the defendants and Part 20 defendants.
2. Commercial Court: Colman J dismissed the applications for a non-party costs order against MPC in [2003] EWHC 2844 (Comm).
3. Commercial Court: Colman J ordered Borchard to pay 90% of Zim’s costs and 80% of DNOL’s and KNSM’s costs in [2003] EWHC 3088 (Comm).
4. Commercial Court: the claimant’s substantive competition claims were dismissed in [2003] EWHC 698 (Comm).