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The Claimant lost its claim. Indemnity costs were awarded. The Claimant’s funders were ordered to pay a proportion of the costs subject to the Arkin cap. They argued that they should not have to pay as they had not done anything discreditable.

Tomlinson LJ said.

23. The argument for the funders boiled down in essence to the proposition that it is not appropriate to direct them to pay costs on the indemnity basis if they have themselves been guilty of no discreditable conduct or conduct which can be criticised. Even on the assumption that the funders were guilty of no conduct which can properly be criticised, and I accept that they did nothing discreditable in the sense of being morally reprehensible or even improper, this argument suffers from two fatal defects, both of which were identified by the judge. First, it overlooks that the conduct of the parties is but one factor to be taken into account in the overall evaluation. Second, it looks at the question from only one point of view, that of the funder. As the judge pointed out at para 125, it ignores the character of the action which the funder has funded and its effect on the defendants.

24 . The argument is yet further flawed in that it assumes that the funder is responsible only for his own conduct. This too is incorrect. As the judge pointed out at para 60, where conduct comes into consideration in this context, the successful party is afforded a more generous basis for assessing which of his costs should be paid by his opponent because of the way in which the latter, or those in his camp, have acted. Thus as the judge pointed out at para 118, a litigant may find himself liable to pay indemnity costs on account of the conduct of those whom he has chosen to engage—eg lawyers, or experts, which experts may themselves have been chosen by the lawyers, or the conduct of those whom he has chosen to enlist, eg witnesses, even though he is not personally responsible for it.

The position of the funder is directly analogous. The funder is seeking to derive financial benefit from pursuit of the claim just as much as is the funded claimant litigant, and there can be no principled reason to draw a distinction between them in this regard. I also agree with Mr Waller that the analysis here is not dependent upon rules of agency—expert and factual witnesses are not agents of the party on whose behalf they give evidence any more than they are agents of the funder. The principle is a broader principle of justice.

Deployment of lawyers, experts and other witnesses is a necessary part of bringing the claim to a successful conclusion for the benefit of the litigant, and it is equally a necessary part of bringing it to a successful conclusion for the benefit of the funder. The funder chooses which claims to back, whereas, as the judge rightly observed at para 125, a defendant does not choose by whom to be sued, or in what manner. The judge continued: “If, then, the funder’s witnesses turn out to be liars or the litigation is conducted unreasonably, so that the court awards costs on an indemnity scale, it is just and equitable that the funder should pay on that scale.” I agree. I can see no principled basis upon which the funder can dissociate himself from the conduct of those whom he has enabled to conduct the litigation and upon whom he relies to make a return on his investment.   …

27.  However 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…

I also agree with the judge when he said, at para 129:

“I entertain some doubt that my decision will send an unacceptable chill through the litigation funding industry, whose aim is not to finance hopeless cases but those with strong merits. If it serves to cause funders and their advisors to take rigorous steps short of champerty, ie behaviour likely to interfere with the due administration of justice—particularly in the form of rigorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals—to reduce the occurrence of the sort of circumstances that caused me to order indemnity costs in this case, that is an advantage and in the public interest.”    …

28.  For my part I am sceptical about the argument deployed here by the funders that the imposition of a requirement to pay costs on an indemnity basis will have an adverse impact upon access to justice. I do not myself think that commercial funders are greatly motivated by the need to promote access to justice, and nor do I suggest that they should be. They are, as it seems to me, making an investment and are motivated by largely commercial considerations. Those whose money they invest would no doubt be aggrieved if it were otherwise. However in so far as the argument has any traction, it has I consider been resolved by the decision of this court in Arkin v Borchard Lines (No 2) [2005] 1 WLR 3055 . …

The solution fashioned by this court was the Arkin cap. We are not on this appeal asked to revisit that decision. 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.

[Edited and formatted for ease of reading]

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