Last Friday (18 November) the Court of Appeal dismissed an appeal brought by various third parties who funded the claims in the high profile Excalibur case. The decision gives important guidance on the extent to which commercial litigation funders will be liable for the costs of defendants who successfully defend funded claims: Excalibur Ventures LLC v Texas Keystone Inc and others [2016] EWCA Civ 1144.

In particular, the decision confirms that a commercial funder will ordinarily be required to contribute to the defendant's costs on the same basis as the funded party – so that where, as here, the claimant has been ordered to pay costs on the (more onerous) indemnity basis, the funder will normally also be liable on that basis. That is the case regardless of whether there is any reason to criticise the funder's own conduct.

The decision also confirms that a costs order may be made not only against the funder named in the funding agreement but a third party that provided the funds and stood to benefit (here, the funder's parent company). The Court of Appeal dismissed an argument that by exercising its discretion in this way the court was impermissibly disregarding separate corporate personality or in some way "piercing the corporate veil".

The court noted that it was not, on this appeal, asked to revisit the appropriateness of the so-called "Arkin cap", ie the principle which limits a funder's costs liability to the amount it has contributed in funding the claimant's claim, and which (the court recognised) some consider to be over-generous to commercial funders. However, it upheld the lower court's decision that, in applying the Arkin cap, funds provided for security for costs should be taken into account in the same way as funds provided to pay the claimant's own legal costs. 


The background to the decision is set out in our blog post on the High Court's decision. In brief summary, Excalibur brought a claim for some US1.6 billion with the benefit of third party litigation funding. The claim failed spectacularly and Excalibur was ordered to pay indemnity costs following stringent judicial criticism of its conduct of the action.

Various funders had provided funding on commercial terms, in return for a share of any proceeds of the litigation. The funding provided was, in aggregate, £14.25 million to fund Excalibur's own costs and £17.5 million towards the payment of security for the defendants' costs. The fact that the defendants were awarded costs on the indemnity, rather than the standard, basis meant there was a shortfall of some £4.8 million in the security provided,

The High Court made an order that the funders were jointly and severally liable to pay the defendants' costs on the indemnity basis. However, applying the Arkin cap, each funder was liable only up to the amount of funding that it had provided, including both toward Excalibur's own costs and as security for costs. In respect of two of the funders, the court ordered that their parent companies, which had produced the money provided under the funding agreements, should be jointly and severally liable with their subsidiary companies.


The Court of Appeal dismissed the appeal brought by various of the funders against the orders that: they should pay costs on the indemnity (rather than the standard) basis; the amount provided in respect of security for costs should be taken into account in applying the Arkin cap; and the order should be made against certain funders' parent companies, rather than limited to those named in the funding agreement. Tomlinson LJ gave the lead judgment, with which Gloster and David Richards LJJ agreed.

Indemnity costs

The court rejected the funders' argument that it was inappropriate to order them to pay indemnity costs if their own conduct was not subject to criticism. That argument was flawed for a number of reasons, including that it assumed the funder was responsible only for his own conduct. A litigating party may find himself liable to pay indemnity costs because of the conduct of others (eg lawyers, experts, or witnesses) even though he is not personally responsible for it. The position of the funder is, the court said, directly analogous. As Tomlinson LJ said:

"…I particularly agree with and wish to associate myself with the judge's general approach, which is to emphasise that the derivative nature of a commercial funder's involvement should ordinarily lead to his being required to contribute to the costs on the basis upon which they have been assessed against those whom he chose to fund. That is not to say that there is an irrebuttable presumption that that will be the outcome, but rather that that is the outcome which will ordinarily, in the nature of things, be just and equitable."

Tomlinson LJ went on to say that it would seldom be relevant to consider whether the funder knew or ought to have known of the "egregious features of the case" which rendered an award of indemnity costs appropriate. The funder takes a risk in funding the case, and has the opportunity to inform himself of the nature of that risk both before offering funding and during the course of the litigation which he funds. An enquiry into the adequacy of the funder's due diligence would be difficult, and often impossible if the funded party was not willing to waive privilege in relevant communications, and could give rise to undesirable satellite litigation.

Tomlinson LJ dismissed as unrealistic the suggestion put forward by the Association of Litigation Funders of England and Wales (who intervened in the appeal) that, to avoid being fixed with the conduct of the funded party, the funder would have to exercise greater control over the conduct of the litigation and thereby run the risk that the funding agreement would be champertous. He said:

"As the judge pointed out, champerty involves behaviour likely to interfere with the due administration of justice. Litigation funding is an accepted and judicially sanctioned activity perceived to be in the public interest. What the judge characterised as 'rigorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals' is what is to be expected of a responsible funder … and cannot of itself be champertous. I agree … that, rather than interfering with the due administration of justice, if anything such activities promote the due administration of justice."

Calculation of Arkin cap

Tomlinson LJ noted that the court was not, in this appeal, asked to revisit the decision in Arkin v Borchard Lines Ltd [2005] 1 WLR 3055 which established the Arkin cap. He added, "I understand that some consider the solution thus adopted to be over-generous to commercial funders, but that is a debate for another day upon which I express no view."

As to whether funds provided for security for costs should be taken into account in calculating the Arkin cap, the court reached the firm conclusion that it should. Tomlinson LJ said he could see no basis on which a funder who advances money to enable a litigant to provide security for costs should be treated any differently from a funder who advances money to enable that litigant to meet its own legal fees. Both were costs of pursuing the litigation which, if not met, would mean the litigation could not be pursued.

Orders against parent companies

There was no reason to limit an order for non-party costs to only those funders who had entered into a contractual relationship with the funded litigant. If that were the case, funders would be able to insulate themselves from exposure to costs by use of a special purpose vehicle.

The exercise of the discretion to make a non-party costs order does not, Tomlinson LJ said, amount to an enforcement of legal rights and obligations to which the doctrine of corporate personality is relevant. The only question is whether in the circumstances it is just to make a discretionary order requiring the non-party to pay costs because of the nature of its involvement in the litigation. That does not amount to piercing the corporate veil. It is simply to give effect to the proposition that it is just and appropriate to make an order for costs against a person who has provided funding and who in reality will obtain the benefit of the litigation.