On 18th November the Court of Appeal handed down their much anticipated judgment in Excalibur.

The case itself has become the example for participants within the industry to demonstrate how not to approach litigation funding as well as the glaring paradigm for those who believe the litigation funding industry should be curtailed. However, stepping away for those headline narratives, there was a technical issue for the COA to consider, surrounding the application of the Arkin cap upon which much hinged – not just for those funders behind Excalibur but for the wider litigation funding market. A technical point left unresolved that leaves funders with much uncertainty.


The claim by Excalibur was for specific performance of a collaboration agreement (which Excalibur claimed existed) for interests in an oil field in Kurdistan or damages. The claim value was estimated to be substantial at $1.6bn. Ultimately the High Court found for the Defendants on all heads prompting Christopher Clarke LJ to describe the result as “a resounding, indeed catastrophic, defeat”.

The claim was funded by a combination of funding arrangements and a partial CFA. What made this situation particularly unusual is the participants seeking to make a commercial return from success in the litigation were almost entirely entities that would not be described as ‘professional’ industry funders. The first lesson any funder learns from this case is that the wisdom of crowds is not a good barometer for success in litigation funding.

The participating funders lost over GBP 14m in funded own costs but how they must wish that was the end of the story. They had also provided a program of over GBP 17m for security for costs (by way of cash into court) so their total investment was nearly GBP 32m. But it gets worse. The judge, in the costs judgment, ordered that the funders should be jointly and severally liable to pay the Defendant’s costs on an indemnity basis by virtue of his powers to issue orders against funders under 51(3) of the Senior Courts Act 1981. Unsurprisingly, the security was not enough to cover all of the defendant’s costs on an indemnity basis.

At this point, there is a glimmer of good news for the battered funders, the High Court upheld the decision in Arkin v Borchard Lines that said funders should only be liable to pick up the shortfall for adverse costs up to the level of their financial investment in the failed litigation. Although that good news was quickly snuffed out by the judge when he went onto rule that money provided to Excalibur to specifically enable it to provide security for costs was just as much of an investment for this purpose as funding own costs, effectively lifting the Arkin cap to a much higher level.

The Appeals.

Some of the funders appealed the original costs decision on the basis that they as funders should not “follow the fortunes” of their funded party and suffer an indemnity costs liability (albeit they accepted liability on a standard basis). They argued the Claimants conduct giving rise to an indemnity costs order was not their conduct.

The Court of Appeal dismissed this appeal saying:

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.” [para 24]

The funders also appealed the notion that providing security for costs should lead to an Arkin liability in the same way as funding own costs. It was this aspect that had serious implications for the professional funding market and led to the intervention of the Association of Litigation Funders (ALF) in the proceedings.

The COA dismissed the appeals and the additional arguments made by the Association of Litigation Funders (ALF), confirming that a funder will be liable to a pay a non-party costs order to meet any shortfall in adverse costs pursuant to indemnity costs order.

Moreover, the COA perceived no difference between the provision of funding for own costs versus the advancement of funds for security for costs. Regardless of what the funding is advanced for, own costs or security, the Arkin cap increases to reflect the level of the investment made by the funder (i.e. the funder’s exposure to adverse costs is increased accordingly). Lord Justice Tomlinson said:

I see no basis upon which a funder who advances money to enable security for costs to be provided by a litigant should be treated any differently from a funder who advances money to enable that litigant to meet the fees of its own lawyers or expert witnesses.” [para 39]


The judgment is wholly unsurprising and the appeal judges followed the logic applied in the original costs judgment. It is perhaps even less surprising give the costs judgment was delivered in Dec 2013 and the COA have had the benefit of watching the litigation funding market rapidly expand in the period since then. The court perceived little danger that these rulings would destabilise the litigation funding market and the judgment refers on several occasions to an acceptance by the market of the risks in contemplation. Three months on, the market is still growing.

However, the judgment did not clarify everything. Para 42 and Para 48 of the judgment raise some interesting questions for the future about both the effect of the funder’s return and the also the definition of “advancement” of funds for security.

Turning first to Para 42:

Furthermore, when looking at the overall justice of the case as required by section 51(3), it is highly relevant to note that the terms on which the Platinum funders advanced money to enable Excalibur to provide security for costs were exactly the same as the terms on which they advanced money to meet Excalibur’s costs of paying their own lawyers.  The return in the event of success was exactly the same.”  [Para 42]

Does this any way imply that had the Platinum funder’s terms for the advancement of security been substantially or materially cheaper than the terms agreed with the funders for own costs, that they would not have been subject to the same exposure to adverse costs? The return is described as being “highly relevant” and that is itself important because we see instances in the market where funders provide for a different rate of return for adverse costs related funding compared to the price of the main funding facility for own costs.

I specifically say “adverse costs related” though because sometimes a funder is providing an adverse costs indemnity to the claimant which is not necessarily the same as advancing money pursuant to an order for security for costs – through cash into court for instance.

Does a funder get caught by this judgment if they are simply providing an indemnity where there has been no advancement of funds to satisfy an order for security and secondly, if so, how much difference does it make if the funder charges a lower rate of return for the indemnity? I know cases where this question is relevant, but it is not the most relevant question….

…The bigger question, that was acknowledged by the COA and expressly left hanging (as it was not relevant to the parties before them) is whether the practice of a funder paying for a separate instrument to satisfy security for costs would lead to a funder being liable for the amount they funded (or advanced) in order to put that instrument in place or is their liability the full amount of the instrument itself?

In the present case security was provided by paying the required sums into court.  Obviously security is sometimes given by way of some financial instrument, whether an insurance policy, bond or guarantee.  Whether in such circumstances the funder’s exposure is to be measured by reference to the cost of providing the security or by reference to the extent of the security thereby afforded is a question which can be decided when it arises.  We did not hear argument on the point.” [Para 48]

This is important as it represents the vast majority of situations where a funder is involved in the process of ‘advancing’ money for security for costs.

The normal practice, seemingly not adopted in Excalibur, is for the Claimant (not the funder) to arrange an ATE insurance policy for the adverse costs in their name. Most of the time an ATE insurer can, if required, provide a Deed of Indemnity alongside the policy, to strengthen the prospect of the adverse costs insurance being accepted by the court. Moreover, because most ATE insurance premiums are deferred and contingent, there is no need for the funder to ‘advance’ any money for the premium. Accordingly, this whole mechanism can simply occur without any direct involvement of the funder which protects the funder from the effect of the Excalibur judgment.

However, there are times (not infrequent) when the funder is required by their counter-party to include provision within the funding facility for an upfront ATE premium and/or the costs of executing a Deed of Indemnity.

So the question lingers… would they be liable to the extent of the upfront premium/Deed fee or would they be liable for full amount of the indemnity? That question still has practical significance because the amount of an upfront premium or a Deed Fee is generally a small fraction of the amount of the indemnity. For instance, a Deposit Premium (the upfront part of a hybrid upfront-deferred ATE premium) may only be circa 5%-15% of the full indemnity. A funder may accept being responsible for 300k for their Arkin exposure on a Deposit Premium but may not be even capable of absorbing a 6m risk!

Excalibur teaches the litigation funding community some great lessons about the traps that lay in wait for funders but there are still more traps left out there.


Matthew Amey, Director