Julian Chamberlayne (Head of KM & Compliance and Partner), Angela Milner (Senior Associate, Knowledge Development Lawyer for Commercial Disputes) and Vikram Khasriya (Trainee Solicitor) examine the recent Court of Appeal decision in Chapelgate Credit Opportunity Master Fund Ltd v Money [2020] EWCA Civ 246. A detailed overview of the decision of the court at first instance is also provided.



The Court of Appeal (the “Court”) has upheld the decision taken by Mr Justice Snowden in Davey v Money & Anor [2019] EWHC 997 (Ch). In doing so, it has made it clear that the Arkin cap (which serves to limit the liability of third-party commercial funders to the level of funds that they have invested in the claim) is not a hard and fast rule.


Factual background

A third party litigation funder (Chapelgate Credit Opportunity Masterfund Limited (“Chapelgate”) offered financial assistance to an individual claimant bringing claims against administrators for breach of various duties and in relation to the sale of a key asset at an undervalue. The claimant joined Dunbar Assets PLC (“Dunbar”) (a creditor of the claimant) to the proceedings, alleging conspiracy and interference with the administration process. The administrators and Dunbar successfully defended the claims, and the claimant was ordered to pay the defendants’ costs on the indemnity basis. This was because, in the view of the court, the allegations were accompanied by an element of “speculation and exaggeration” and should have been limited from the outset. When the claimant did not pay the defendants’ costs (which were estimated to be just short of £7.5m), the defendants applied for an order under Section 51 of the Senior Courts Act against Chapelgate. This application was heavily resisted by the funder, who argued that the Arkin cap (first outlined in Arkin v Borchard Lines Ltd [2005] EWCA Civ 655 (“Arkin”)) should apply, thereby limiting the liability of Chapelgate to the £1.25m that it had invested in the case.


The decision at first instance (in Davey v Money & Anor [2019] EWHC 997 (Ch))

Mr Justice Snowden analysed the authorities on the Arkin cap closely. He concluded that in Arkin the court was “simply setting out an approach that it envisaged might commend itself to other judges exercising their discretion”. As such, the Arkin cap was not a hard and fast rule that had to apply in every case involving a commercial funder. The key was whether applying the cap would lead to a “just result in all the circumstances of the particular case”.

In declining to apply the cap in this case, Mr Justice Snowden considered that the following factors were relevant:

  • Chapelgate approached its involvement as a commercial investment;
  • the conduct of the claimant (including the elements of speculation and exaggeration) was “significantly out of the norm”. This meant that the costs that the defendants were forced to incur to defend their professional reputations were increased;
  • Chapelgate had every opportunity to investigate and form a view as to the nature and strength of the claim before choosing to fund it. In the circumstances, there was no principled basis on which the funder could disassociate itself from the conduct of the claimant;
  • to apply the Arkin cap in this case would “insulate” Chapelgate from the order in relation to indemnity costs;
  • it must have been apparent to Chapelgate that the claimant would most likely be unable to pay any substantial costs awarded against her and that the defendants’ costs were likely to be substantial (and well in excess of the amount that Chapelgate proposed to invest in the litigation);
  • Chapelgate had halved the amount of its funding commitment from £2.5m to £1.25m, while retaining the same potential share of the recoveries (i.e. the greater of 5 times the commitment amount or 25 % of net winnings, whichever the greater). It was clear that Chapelgate was closely focused on its own self-interest in funding the litigation as a commercial venture;
  • there was no correlation between the amount that Chapelgate chose to invest in the litigation and the costs to which the defendants were exposed; and
  • Chapelgate negotiated to receive a substantial commercial profit, which would have taken priority over any compensation payable to the claimant.

In the circumstances, he considered that there would be an “obvious risk of injustice if defendants are forced to incur significant costs in defending themselves, but are limited to recovering only a proportion of those costs because of entirely different funding arrangements over which they have no control”.

In response to concerns cited by Chapelgate regarding access to justice, Mr Justice Snowden noted that the potential disapplication of the Arkin cap could incentivise funders to “keep a closer watch on the costs being incurred” and could well encourage “employing the mechanisms in the CPR to limit exposure to adverse costs”, neither of which would be contrary to access to justice.


The Court of Appeal decision (Chapelgate Credit Opportunity Master Fund Ltd v Money [2020] EWCA Civ 246)

Chapelgate appealed the decision above.

However, the Court agreed with the Mr Justice Snowden’s analysis of Arkin, noting that the court in that case had spoken of “commending” an “approach” and of “suggesting” and “proposing” a “solution”. Arguably, , those words implied that ”judges dealing with similar situations in the future would not strictly be obliged to adopt [this] approach…”.

In the view of the Court, although the Arkin cap was by no means “redundant”, it was not a “binding rule”. Rather, the decision as to what (if any) costs order to make against a commercial funder is, ultimately, discretionary.

In terms of how Mr Justice Snowden exercised his discretion, the Court considered that this “[could not] be impugned”. In reaching this conclusion, the Court noted that:

  • unlike Arkin, this was not a case in which the funder provided only a distinct part of a claimant’s costs. From the date of the funding agreement, all payments in respect of the claimant’s costs were made with money provided by Chapelgate;
  • Arkin was decided when third party funding of litigation was just coming into existence, and when conditional fee agreements and after-the-event (ATE) insurance were relatively new. The lack of a cap, at that time, could have deterred commercial funders from getting involved in litigation and had adverse consequences for access to justice. However, with the development and maturation of these markets, this risk has diminished. A funder can now protect its position by ensuring that either it or the claimant has ATE cover (although on the facts of this case, Chapelgate had waived the need for any ATE cover, something that had “greatly increased the exposure” for the defendants);
  • in the event of a win, Chapelgate stood to receive a lucrative return. Indeed, the claimant had to recover from the respondents more than five times Chapelgate’s expenditure in order to have any prospect of keeping anything for herself. In the circumstances, it was legitimate for a judge to attach importance to the “funder’s prospective gains”, as well as to its outlay; and
  • the Arkin cap, if applied, would leave the defendants significantly out of pocket.


Significance of the Court of Appeal decision

This judgment leaves no room for doubt that the issue of whether a commercial funder will find itself on the hook for more than the amount of its investment is something that will be looked at on a case by case basis.

This case also provides some insight into the circumstances in which the cap is “particularly likely” to apply: namely, in cases with a similar fact pattern to Arkin itself. For example, where the funder has covered the costs associated with a discrete element of the case only, such as instructing expert witnesses.

As for the factors the court will take into account when weighing up how best to exercise its discretion, the Court, unsurprisingly, did not provide a prescriptive list. However, the judgment from the Court lends support to the idea that the following factors could be taken into account in future cases:

  • whether the funder funded all costs associated with the claim (as opposed to the costs associated with a distinct element of the claim);
  •  the funder’s potential return on their investment. The more a funder stands to gain, the closer he might be to being thought of as the “real party” and ordered to pay the successful party’s costs;
  • the scope of any ATE cover; and
  • the extent to which the application of the Arkin cap would leave any defendants out of pocket.



This case is the latest in a line of case law (including the Ingenious litigation, our article on which can be found here) in which we see the courts adopt a robust approach to the issue of funder liability.

Julian Chamberlayne, Head of KM & Compliance and Partner, Stewarts, notes that:  As a consequence of this case and the recent Ingenious judgement it is likely that we will see an increased desire on the part of funders to ensure that there is adequate ATE protection in place at an early stage in the litigation process. Given the relatively limited capacity for ATE insurance in a commercial context, this may be easier said than done. A compounding factor is the uncertainty of the amount of ATE required, which ought to be addressed by the court’s more commonly ordering cost budgeting in high value commercial disputes.  In combination these issues could stifle meritorious but high cost claims, with significant implications for access to justice.

It has been suggested by some that this case heralds the end of the Arkin cap. However, it may be that what we will see in the future is the evolution of a new form of discretionary cap where the overall liability of funders (including to their funded client) is limited by reference to the targeted return on their investment, rather than the amount of the investment itself. So, a funder who invests £1 million to fund litigation costs, in return for 5x this amount in the event of a win, could potentially (under any new cap focusing on return) be on the hook for up to £4 million of adverse costs in the event of a loss (i.e. their £5 million targeted return minus the sum invested). In contrast, if the funder pitched their return at a more reasonable 2.5x the £1 million investment, in a loss scenario they would potentially be on the hook for £1.5 million worth of adverse costs (i.e. the £2.5 million targeted return minus the £1 million investment). This potential form of discretionary cap arguably would provide a better balance of risk and reward, coupled with a degree of certainty over the funder’s potential exposure (which they can then seek to hedge by ATE) absent which funders may be reluctant to invest at all.”




You can find further information regarding our expertise, experience and team on our Commercial Litigation and Insurance Disputes pages.

If you require assistance from our team, please contact us or alternatively request a call back from one of our lawyers by submitting this form.



Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.

Key Contacts

See all people