Chapelgate Credit Opportunity Master Fund Ltd v Money & Ors

The liability of a commercial litigation funder for an opposing party’s costs is not automatically capped at the amount of funding provided. Under section 51 of the Senior Courts Act 1981, the court retains a broad discretion to make the order that is just in all the circumstances.

The approach in Arkin remains relevant, particularly where a funder finances only a discrete part of the claimant’s costs. The court may nevertheless consider other matters, including the funder’s prospective return, its share of the funding, its practical interest in the litigation, the availability of adverse-costs insurance and the extent to which a cap would leave successful parties out of pocket.

A commercial litigation funder financed claims brought against company administrators and a secured creditor. The claims failed, and the claimant was ordered to pay the respondents’ costs on the indemnity basis. The funder accepted liability for costs incurred after its funding agreement but argued that liability should be capped at approximately £1.275 million, the amount it had provided.

Snowden J rejected the proposed cap and ordered payment without limit: [2019] EWHC 997 (Ch). The funder appealed. The central questions were whether the approach in Arkin v Borchard Lines Ltd (Nos 2 and 3) established a binding cap and, if not, whether the judge had properly exercised his discretion by declining to apply it.

1. Appeal dismissed. The approach in Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] EWCA Civ 655 did not establish a rule requiring every commercial funder’s liability to be limited to the amount of its funding. The language used in Arkin commended a possible solution and contemplated its becoming generally accepted. It did not remove the discretion conferred by section 51 of the Senior Courts Act 1981. The immutable principle was that the discretion must be exercised justly.

2. The Arkin approach remains available and is particularly relevant where, as in that case, the funder financed only a discrete part of the claimant’s expenditure, such as expert evidence. Depending on the circumstances, however, the court may consider matters beyond the funder’s outlay. A funder’s prospective return can be significant because a funder standing to receive a large part of the fruits of litigation may resemble the real party to the proceedings.

3. Snowden J was entitled to decline to impose the cap. The funder had effectively financed all payments towards the claimant’s costs after the funding agreement and stood to receive a multiple of its expenditure before the claimant received anything. The claims involved serious allegations against separately represented respondents, whose costs would inevitably exceed the funding. The funder had also waived the requirement that the claimant obtain after-the-event insurance, thereby increasing the respondents’ exposure.

4. The judge’s order fell within the generous ambit of reasonable discretionary decisions. A different judge might have reached another result, but that did not justify appellate intervention.

5. The respondents’ failure to pursue security for costs did not invalidate the order. They were entitled to rely on the claimant’s solicitors’ representation that she had become resident in England. Further, any security based on her foreign residence would apparently have extended only to additional enforcement costs, of which there was no evidence.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the uncapped non-party costs order against the commercial litigation funder: [2020] EWCA Civ 246.
2. High Court, Chancery Division: Snowden J ordered the funder to pay the respondents’ costs on the indemnity basis from 23 December 2015 without limiting liability to the amount funded: [2019] EWHC 997 (Ch).