In the 25 February 2020 case of Chapelgate Credit Opportunity Master Fund Ltd v Money & Ors, the Court of Appeal dismissed Chapelgate’s appeal on the costs order handed down by the High Court.
Chapelgate’s appeal argued that the funder should only be liable to pay the successful defendant’s legal costs up to the amount that Chapelgate had funded its own client (£1.25m).
Lord Justice Newey dismissed the appeal and upheld the previous costs order which required Chapelgate to pay the successful defendants’ uncapped legal costs on the full indemnity basis.
This judgment further strengthens the notion that the so-called “Arkin cap” is no longer a fixed binding rule and judges have discretion to apply whatever costs order they see fit.
The “Arkin cap”
As a reminder, the “Arkin” cap originates from a 2005 case of Arkin v Borchard Lines Ltd & Ors.
In that case, a funder that agreed to provide funding for an unsuccessful claimant’s expert evidence, was ordered to pay the unsuccessful claimant’s costs, but the order was limited to the amount of funding provided (and not in excess of that amount).
The rationale for applying the cap, in that case, was that the funding provided was only in respect of a discrete part of the claim (the expert evidence) and if the funder was made liable for the successful party’s entire legal costs (well in excess of the funding it had provided), it could have a detrimental effect on the growth of the nascent litigation funding market and more broadly access to justice.
Lord Justice Newey’s judgment in the Chapelgate case has shed light on the application of the “Arkin cap” and the circumstances in which it may or may not be relevant.
In this case, important factors for not applying the cap, were that Chapelgate stood to obtain a very significant profit share (the greater of 500% of the amount funded or 25% of the net winnings from the claim).
It was therefore a wholly lucrative commercial venture and it stood to gain considerably on a successful outcome. It also had priority on the proceeds of the litigation so would recover its share first in the compensation before any other party.
In view of how much the funder stood to gain from the funding arrangement, it was deemed just not to cap Chapelgate’s adverse costs liability.
Other factors in the case were that Chapel had funded the entire litigation (rather than a discrete part of it, as in Arkin) and the claimant had not taken out any ATE cover to protect itself (and Chapelgate) against the defendant’s adverse legal costs on the indemnity basis.
Despite the Arkin cap being disapplied in the Chapelgate case, that is not to say, that in cases where a funder provides funding for only a discrete element of the claim and/or arranges an ATE insurance policy for its client, the Arkin cap may still be applied. It will depend on the circumstances of each case and the nature and extend of funding.
The Arkin cap is therefore not redundant but it is no longer a binding rule to be applied in every costs order – it is clear that judges retain full discretion to make costs awards as they see see appropriate, and that may still involve the application of the Arkin cap.
2019 was a momentous year for British politics and more broadly, constitutional law in the UK.
Aficionadas of British politics watched with amazement and incredulity as the Westminster political drama played out over the summer and autumn months of 2019. At times, the House of Commons resembled a Shakespearian tragi-comedy with the leading politicians playing a whole host of rogue roles; at other times, it felt more Kafkaesque in the way parliamentary proceedings became unnecessarily complicated and fiendishly bureaucratic.
Politicians, lawyers, judges, academics and businesswomen all entered the Brexit show and regaled the British public, tuning in for the day, with a drama of intrigue, deceit, ingenuity and distrust.
We gasped, huffed and galled in equal measure as the events leading to the UK’s exit from the EU on 31 January 2020 drew to an almighty crescendo.
The political machinations of failed early general election attempts by the prime minster, Members of Parliament (Benn and Letwin) engineering last-minute legislation to thwart a no-deal Brexit and a general election which culminated in the Conservative party winning with a landslide majority, kept the British public on the edge of their sofas throughout the period.
The two significant landmark events of 2019, however, that preoccupied the main attention of constitutional law commentators were:
(1) the 28 August 2019 announcement by Boris Johnson of his decision to “prorogue” Parliament for 5 weeks; and
(2) the consequent Supreme Court ruling in which that decision to suspend Parliament was judged unlawful by the Supreme Court.
What is so remarkable about these two events?
Well, they represented a fundamental examination of, and challenge to, our constitution and the legal principles and precedents that underpin it.
The sacred constitutional doctrines of: (1) the rule of law; (2) the separation of powers; and (3) Parliamentary sovereignty, each of which, play a critical role in the fluid operation of our constitutional system, were severely tested.
Boris Johnson’s decision, announced on 28 August 2019, to prorogue, or suspend Parliament for 5 weeks between 9 September 2019 and 14 October 2019 caused an almighty storm within Westminster because it sought to remove Parliament’s participation in the determination of the terms on which the UK exited the European Union.
It was extremely controversial both because of the “exceptional length” of the suspension (5 weeks as opposed to 1-2 weeks max in normal circumstances) and because Parliament, the supreme law making body, would be “silenced” in the crucial period up until the Brexit deadline of 31 October 2019.
Despite Boris Johnson’s proposition that, despite the suspension, there was still “ample time at the end of October” for MPs to deliberate over Brexit and that the prorogation was justified to outline the government’s legislative proposals for the year head, in reality, even the most staunch tory voters would tacitly recognise Johnson’s ulterior motive at play.
They would have quietly recognised that the shut-down of Parliament severely undermined Parliament’s ability to properly scrutinise the government’s Brexit position in those final critical months.
In fact, in the words of Lady Hale, president of the Supreme Court, the decision was unlawful because:
“it had the effect of frustrating or preventing the ability of Parliament to carry out its constitutional functions without reasonable justification”.
Without Parliament’s active involvement in the period up to the 31 October deadline, it enabled the government to effectively steer the country towards the destination of a no-deal Brexit, which may have become the reality, if it were not for the Supreme Court judgement together with the interventions of Messrs Benn and Letwin in the House of Commons.
The two MPs managed to engineer legislation within a tight legislative window in the days leading up to and after the prorogation, to enable Parliament to take back direct control of the Brexit proceedings.
The prorogation case came before the Supreme Court in September, following the application of judicial review, brought by campaigner and businesswoman Gina Miller who was appealing the High Court’s decision to throw out her judicial review challenge to prorogation on the basis that it was a political rather than legal issue.
The government decided to throw their own appeal, on the ruling from Scotland’s Court of Session that the prorogation was unlawful, in with Miller’s judicial review case.
It is clear to see that the events that took place over the summer months of 2019 shone a critical light on a number of fundamental questions about our constitution and the interplay between our three organs of state – the executive (government), the legislature (Parliament) and the judiciary and the concentration of power between those state agencies.
They helped to raised questions about the constitutional principle of the rule of law and its importance in operating as a check on the executive power of government by requiring that the government acts only on the basis of lawful authority, ultimately granted by Parliament.
They forced us to look more closely at the notion of royal prerogative, the residue of discretionary or arbitrary authority held by the Crown (and exercised on the advice of the Prime Minister) which was the political basis upon which Boris Johnson managed to suspend Parliament in August 2019.
The events served to stress test the doctrine of Parliamentary sovereignty in terms of the position of Parliament as the supreme law making body and the important role it plays in calling the executive to account for its policies and exercising checks and balances on it.
We were reminded that government is collectively responsible to Parliament for its conduct of national affairs and it cannot rule without regard to parliamentary scrutiny.
It is hard to argue that Parliament’s constitutional duty to scrutinise the government would, at any time in the past, present or future, be more important, than in the run-up to Brexit and the seismic constitutional, political and legal repercussions that shall follow from the final Brexit outcome.
Those historic events served to champion our democracy by emphasising and strengthening the independence of the judiciary and its central role in adjudicating on abuses of executive power, as in this judicial review case, where it ultimately quashed the actions of the government through the key mechanism of judicial review.
It is in many ways, an extraordinary proud feeling , when the highest judicial court in the UK has the self-assurance and authority to hand down a unanimous verdict against the government of the day, to identify such an abuse of executive power and to say, simply stop!
Despite already being enshrined in law, it reinforces the importance of the rule of law and independence of the judiciary and reminds us that our democratic system, despite not being perfect, is the envy of many nations. Without an independent judiciary, there can be no real separation of power because the government cannot be held properly to account in the legal sense. This case demonstrated just that.
Whatever your political stance on Brexit is, we should all feel reassured that our constitution stood up to serious challenge when it needed to.
Funding Action is proud to continue to offer litigation and arbitration funding options for all parties, knowing that cases that are adjudicated under English law, are protected by one of most well respected legal systems throughout the world, enabling parties to obtain justice in front of an independent judiciary.