Funding disbursements
Arkin v Borchard

[2005] EWCA Civ 655


The 'reforms' of the Access to Justice Act 1999 have certainly made it easier for the middle-income litigant to afford to launch a claim. Provided that the case has sufficient merit, it should be possible to find both solicitors and counsel who will act under a conditional fee agreement (CFA).


However, funding disbursements, particularly experts' fees, remains a big problem in cases where they are too high for the client to afford.


If after-the-event insurance can be found, preferably with a self-insuring premium that does not have to be paid until the end of the case, then solicitors will often provide the cash for disbursements in the meantime.


Outside the personal injuries field, however, it can be very hard to get insurance for the more difficult cases, and even when it is available the premiums can be high and are not always deferred. Similarly, solicitors are naturally reluctant to bear a big cash-flow burden in a case that is heavy on disbursements.


One solution put forward by entrepreneurial souls has been to agree to fund disbursements in exchange for a percentage of any recoveries - a classic, US-style, contingency fee arrangement. The advantage for the client is obvious - if he does not win, he pays nothing; if he wins, he can afford to pay a part of what he recovers to the funder, albeit a larger part than he would have paid had he been able to afford the disbursements himself.


Such an arrangement raises different legal questions depending, at least in part, on whether the client is successful or not. If the client wins and seeks to recover costs, to what extent is his right to recover costs affected by a funding arrangement, which, to both the medieval and the modern lawyer, smacks of champerty? If the client loses, to what extent can the funder be made liable for the opponent's costs?


The first of these questions was considered by the Court of Appeal back in 2002 in R (Factortame) v Secretary of State (No.8) [2003] QB 381. Put shortly, it was decided that such an arrangement was not necessarily champertous and guidance was given on the criteria to apply in deciding whether it was. It is not the intention here to discuss that case in any detail.


The situation we will examine is the opposite - where the client loses and the opponents seek to recover costs from the funder under the broad jurisdiction of section 51 of the Supreme Court Act 1981. In Arkin v Borchard [2005] EWCA Civ 655, the Court of Appeal considered an appeal from the Commercial Court in just this situation.


Arkin had owned a shipping line which he said had been forced out of business by other shipping lines acting anti-competitively towards his company in breach of the Treaty of Rome. The claim required expensive expert evidence. Originally he had legal aid but this was withdrawn. Solicitors and counsel were prepared to act under CFAs, but he could not afford experts.


A company that specialised in claims management agreed to fund the necessary expert evidence and to provide services ancillary to the experts' work, in exchange for a fee of 25% of the recoveries up to £5 million and 23% thereafter. Proceedings were issued against a number of other shipping lines and they in turn issued part 20 proceedings against further lines. At trial the claim was dismissed and, necessarily, so were the part 20 proceedings. The claimant was impecunious. The trial judge refused the application of the defendants and part 20 defendants for an order that the funder pay their costs, and they appealed against that decision.


The appeal court held that, while the judge had correctly taken into account the importance of arrangements such as this being available to ensure access to justice, he had failed to have regard to the countervailing principle of English law that costs follow the event. It was 'unjust that a funder who purchases a stake in an action for a commercial motive should be protected from all liability for the costs of the opposing party if the funded party fails in the action'.


The court was concerned that there would be a denial of access to justice if this principle were taken too far. If a professional funder who had undertaken to fund a discrete part of litigation were potentially liable for all the costs of all the opponents, then no professional funder would be likely to undertake the risk.


The Court of Appeal's solution was that a professional funder who finances part of a claimant's costs of litigation should be potentially liable for the costs of the opposing party to the extent of the funding provided. In the present case, the funder had spent £1.3 million on experts and supporting services, and would be ordered to contribute the same sum to opponents' costs, the sum to be divided between them in accordance with a formula devised by the court to meet the perceived justice of this case.


The court stressed that if the funding arrangement were champertous, the funder 'will be likely to render himself liable for the opposing party's costs without limit should the claim fail'. It is clear from Factortame that a factor which might render such an arrangement champertous would be if the funder had an excessive degree of control over the running of the litigation.


In formulating its conclusion, the court was conscious that it would be influencing the future behaviour of funders, and to that extent its decision was intended to be of general application and can be relied on by those interested in funding litigation. What is not clear is whether these principles are intended to apply only where access to justice is in issue, that is, where the claimant could not afford to litigate without them, or more generally.


By Jeremy Morgan QC, 39 Essex Street, London