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The Expense of Litigation Funding

Andy Moroz, Deputy Costs Manager at PIC, notes the Court of Appeal’s recent decision on Litigation Funding.

Litigation funding is an increasingly important issue following the near-total demise of legal aid and the savage emasculation of the CFA regime that replaced it. If, as expected, fixed costs are applied to all civil cases up to a truly Himalayan £250,000.00 (without any steps being taken to reduce the amount it actually costs to deliver legal services), it will become ever more important as litigants will have no option but to mortgage their future damages – money that was intended to put them back in the position they would have been in, but for the other side’s transgression, in order to have any prospect of righting a civil wrong.

That comment about mortgaging damages is not intended to in any way denigrate those providing litigation funding, they are at least putting their money where their mouth is to allow claims to be brought (admittedly towards the upper end of the financial scale at present, in damages terms) and, if they do move towards financing the sort of litigation brought by ordinary people, it should be remembered that such funders are not responsible for the medieval nastiness of LASPO.

 So why write about litigation funding now? It isn’t generally used at the moment to fund the sort of claim that the general public might bring. Well, it might end up being used in that manner in future and, following a recent Court of Appeal decision, litigation funding could potentially have become that little bit more expensive.

 The liability of a litigation funder to meet costs in unsuccessful cases is limited to the equivalent of the amount they have ploughed into the litigation, following the approach set out at paragraph 41 (onwards) of Arkin -v- Borchard Lines Ltd [2005] EWCA Civ 655. What has now occurred is that the Arkin principle has been clarified in Excalibur Ventures -v- Texas Keystone & Ors [2016] EWCA Civ 1144  to confirm that the liability limit includes any sum advanced as security for costs and to confirm that any indemnity costs order against the funded party also impacts on the funder, regardless of whether or not the funder’s conduct is blameless.

In terms of indemnity costs, the funder in Excalibur was considered to be in a position analogous with any litigant, who could find themselves liable to pay indemnity costs on account of the conduct of those whom they chose to engage, such as experts or witnesses. Money advanced as security for costs was found to be the same as any other investment in the claim.

 While Excalibur provides greater certainty as to risk for litigation funders (and clears up some concerns raised in respect of potential champerty); greater risk for funders could well mean that they seek greater reward, potentially adding to the difficulties of those wishing to bring claims valued at up to the price of the average house once fixed costs have been summarily imposed on an inter partes basis.