The Court of Appeal Judgment in Excalibur
Woodsford Litigation Funding welcomes today’s Appeal Judgment in Excalibur
Further judicial approval for litigation funding
The Court of Appeal reaffirmed litigation funding as “an accepted and judicially sanctioned activity perceived to be in the public interest.” Tomlinson LJ
The funder’s ongoing role
The Court recognised the Association of Litigation Funders (the ALF) role as the voluntary regulator of “professional funders” and drew the important distinction between professional funders and “the funders [in the Excalibur case] [who] were inexperienced and did not adopt what the ALF membership would regard as a professional approach to the task of assessing the merits of the case.” As a founder member of the ALF, Woodsford welcomes the Court’s findings.
Perhaps the most interesting aspect of the judgment for the litigation funding market is the clarification of funders’ ongoing role in relation to review of the cases in which they have invested. Tomlinson LJ said [emphasis added]:
“By funding, the funder takes a risk, a risk as to the nature of which he has the opportunity to inform himself both before offering funding and during the course of the litigation which he funds.” and “When conducted responsibly, as by the members of the ALF I am sure it would be, there is no danger of such review being characterised as champertous [behaviour likely to interfere with the due administration of justice that may render the funding agreement unenforceable]”.
Professional funder members of the ALF, including Woodsford, have always known that claims evolve over time and recognise the legal and commercial importance of maintaining an active oversight of cases throughout. Their aim is to ensure, to the extent possible, that they are only ever funding meritorious claims being conducted properly by all concerned. No sensible, experienced funder has any interest in funding speculative claims that don’t have good chances of success.
Excalibur is a graphic illustration of the risks of litigation funding, particularly for the sources of capital that may be attracted to funding on an ad hoc basis. Excalibur’s various inexperienced funders were found to be jointly and severally liable for indemnity costs of nearly £32m. In Woodsford’s view the risks involved in litigation funding are not easily managed by anyone other than professional funders, staffed by experienced litigation and arbitration experts, who ‘live and breathe’ the asset class.
From both a claimant and defendant perspective it’s also important that a funder is well capitalised and able to shoulder any adverse costs risk it adopts. Unlike other litigation funders in the market, funder members of the ALF are subject to capital adequacy requirements, which are independently verified on an annual basis.
The Arkin cap
The Court also held that the ‘Arkin cap’, which delineates a funder’s liability for adverse costs, includes the amount of any security for costs provided by the funder. This aspect of the Judgment provides useful clarity on the point.