Last month, Snowden J handed down judgment in the case of Davey v Money & Others . The judgment provides a timely reminder to funders of the discretionary nature of the ‘Arkin cap’ and ought to give funders pause for thought as to how they further protect their investments.
The case concerned, among other things, claims involving serious allegations of breach of duty against Administrators and of improper conduct tantamount to dishonesty against officers of a loan company. Ultimately, the claims failed and the Claimant was ordered to pay each of the Defendants’ costs, assessed on the indemnity basis, totalling c.£7.5 million.
The Defendants made applications under section 51 of the Senior Courts Act 1981, asking that the Court exercises its discretion and award non-party costs orders (“NPCO”) against the Claimant’s commercial funder (the “Funder”).
In considering what order to make under s.51, the Court will consider what is just in all the circumstances of the specific case. Whilst the Funder did not resist a NPCO being made against it, on the indemnity basis, it argued that the Arkin cap meant that its total adverse costs liability should be limited to the overall maximum of the funding that it provided to the Claimant, c.£1,3 million.
Snowden J, however, rejected the Funder’s submission and found that the Court of Appeal in Arkin did not intend to prescribe a rule to be applied automatically in every subsequent case involving commercial funders. Rather, such a cap on liability was intended to be considered for application as a means of achieving a just result.
In Davey, some of the factors militating against the application of the Arkin cap included the following:
There are, of course, ways that funders can seek to protect themselves from adverse costs liability, including, by way of example, a requirement for funded parties to obtain after-the-event insurance cover. In fact the Funder’s original funding agreement in this case did require the Claimant to obtain an ATE policy but it subsequently relieved the Claimant of that obligation in return for a reduction in its funding commitment whilst maintaining the same level of recoveries.
Ultimately, however, funders should be aware that the imposition of the Arkin cap is left to the discretion of the Court, and is not an automatic right.
 EW HC 997 (Ch).
 The ‘Arkin cap’ derives from the case of Arkin v Borchard Lines (No 2)  1 WLR 3055.