ATE and litigation funding – impact of recent “Arkin cap” ruling

When seeking funding for a litigation case, you should be aware that funders more often than not require you to also take out after-the-event (ATE) insurance, at least up to the level that they are funding the case.

However, a recent High Court ruling means additional ATE may be required to protect the funder from being held liable for anything further than their initial contribution to financing the claim.

In Davey v Money v ChapelGate [2019] EWHC 997 (Ch) the Court made an order holding ChapelGate, the funder, liable for adverse costs in excess of the “Arkin cap”. The decision caused concern amongst funders about the additional risk they face in England & Wales if adverse cost orders are made against funded claimants. The decision was recently upheld by the Court of Appeal in Chapelgate Credit Opportunity Master Fund Ltd v Money & Ors [2020] EWCA Civ 246.

The 2005 Arkin cap ruling in 2005 was relied upon by funders to limit their liability to adverse costs to the amount of funding they contributed if the case went against them. For example, if a funder contributed £1million to the cost of unsuccessful litigation, it would not be called on to pay out anything above this in the event of a loss. 

On appeal, and upholding Snowdon J’s first instance decision, Newey LJ held:

“This was not a case, as Arkin was, of a funder funding only a distinct part of a claimant’s costs. From the date of the Funding Agreement, all payments in respect of Ms Davey’s costs appear to have been made with money provided by ChapelGate. Further, ChapelGate stood to receive in return a profit amounting to a multiple of what it had spent. In fact, Ms Davey had to recover from the respondents more than five times ChapelGate’s expenditure to have any prospect of keeping anything for herself. ChapelGate would, moreover, have derived far more than she would from an award of the £10 million projected in Mr Davies’ opinion. In the circumstances, this was a case in which it was legitimate for a judge to attach importance to the funder’s prospective gains as well as to its outlay.”

ATE insurance, depending on the level obtained, ensures both the claimant and funder can be confident that it won’t face ruinous costs if a ruling goes against it… or even any costs if it is fully covered. ATE can be costly, with a premium up to 40% of the sum insured, so often the funding request will cover paying for this too.

Whilst each case will turn on its own merits, claimants are likely to be now faced with higher ATE costs to provide additional protection to their external funder albeit the Arkin cap may still be available post Chapelgate but this will depend on the nature of the funding arrangement. 

It is important when seeking funding, particularly where the total cost has increased through a greater level of ATE being required, to ensure the best value is obtained for clients. This is where FINLEGAL.IO fits in.

We have created FINLEGAL.IO to help lawyers approach a range of funders simultaneously using one straight-forward form to get the best possible terms. We even provide plenty of online explainers to help those new to the process.

To sign up and receive further information about the new forum for securing external litigation funding from a range of providers, simply click here.