In Excalibur Ventures LLC -v- Texas Keystone LLC [2016] EWCA Civ 1144 the Court of Appeal confirmed that commercial funders are liable to indemnify on the indemnity costs basis.

“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.”


The claimant lost an action for damages. The trial judge described the claim as “essentially speculative and opportunistic”. The trial lasted five months, there were 373 trial bundles. The claimant’s action “was based on no sound foundation of law or fact and it has met with a resounding, indeed catastrophic defeat”.


The claimant had the support of third party funders. At a separate hearing the judge ordered that those funders were liable for the defendants’ costs on the indemnity basis.


  1. 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 paragraph 125, it ignores the character of the action which the funder has funded and its effect on the Defendants.
  2. 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 paragraph 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 paragraph 118, a litigant may find himself liable to pay indemnity costs on account of the conduct of those whom he has chosen to engage – e.g. lawyers, or experts, which experts may themselves have been chosen by the lawyers, or the conduct of those whom he has chosen to enlist, e.g. 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 paragraph 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.”


The Court of Appeal was sceptical about an argument that ordered commercial funders to pay costs on an indemnity basis would have an adverse impact upon access to justice.

  1. 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 insofar as the argument has any traction, it has I consider been resolved by the decision of this court in Arkin. In that case this court considered that:
“. . . Somehow or other a just solution must be devised whereby on the one hand a successful opponent is not denied all his costs while on the other hand commercial funders who provide help to those seeking access to justice which they could not otherwise afford are not deterred by the fear of disproportionate costs consequences if the litigation they are supporting does not succeed.”
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.”


The Court of Appeal also supported the judge’s finding that a funder that provided security for costs is not in any different position to a funder who provides funds for litigation.

  1. I can discern no principle whether of fairness, justice or otherwise pursuant to which the Platinum funders’ investments earmarked for the provision of security should be treated any differently from their or Psari’s and Mr Lemos’ investment earmarked for the payment of Excalibur’s own costs. To do so would subvert the funding model which appears to be accepted by the ALF in consequence of the Arkincompromise. No doubt that acceptance is informed in part by recognition that there are, as I have already remarked, those who consider that the Arkin cap is unduly generous to funders who, some think, should not have their exposure capped but rather left at large, or perhaps in the discretion of the court.
  2. 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.
  3. Finally, although I put no weight on these points analytically, it is comforting to note that the Platinum funders were advised that an advance to enable security for costs to be provided gave rise to the same potential exposure as did an advance to enable costs to be paid. Moreover their funding agreement with Excalibur expressly envisaged that they would be liable for costs assessed against them or Excalibur in connection with the litigation “to the extent of disbursements actually made”, language which may be thought consciously to echo that of the italicised passage in paragraph 41 of the judgment of Lord Philips in Arkin, where he expressed the pragmatic solution as being liability of the funder for the costs of the opposing party to the extent of the funding provided.


The principle of the “Arkin cap” is that a professional funder should normally be potentially liable to the opposing party to the extent of the funding provided.  This was explained in the judgment at first instance.

“The Arkin cap
  1. The position of a professional funder i.e. a funder who has a commercial interest in the outcome of the litigation, as opposed to a “pure funder”[4], was considered by the Court of Appeal in Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055. The Court recognised that there were two competing principles. The first was that costs should follow the event so that a funder who wholly or partly causes the defendant to incur costs should be liable for those costs. The second was the policy of ensuring access to justice. Exposure of funders to the risk of having to pay costs of the opposing party assessed on an indemnity basis might increase the risk and hence the price of funding litigation.
  2. The solution derived by the Court was to hold that a professional funder who financed part of a claimant’s costs of litigation (£ 1.3 million in respect of the cost of expert evidence), should be potentially liable for the costs of the opposing party to the extent of the funding provided. The Court said that it could see no reason in principle why the solution suggested should not also apply where the funder had contracted the greater part, or even all, of the expenses of the action. But it reached no decision on the point.
  3. It seems to me that it is appropriate to apply the Arkin cap in the present case. The position might be different if a funder had behaved dishonestly or improperly or if, as the Court put it in Arkin, “the funding agreement falls foul of the policy considerations which render an agreement champertous” e.g. if the funder has taken complete control over the litigation. In such a case it may be that there should be no cap at all.”