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Third Party Litigation Funder’s £1.94 Million Success Fee Recoverable

An extremely important decision below and also a great one for litigation funders. Litigation funding is a growth industry and in the majority of cases, provides claimants with access to justice which they may not otherwise be able to afford.

I am uncertain if such costs would have been allowed in a multi track claim in the county court due to costs budgets and proportionality however, this was a decision in arbitration.

Had Company B’s conduct not forced Company A into litigation, then they would not be in this position now. The moral of the story really is to act reasonable and ensure your conduct cannot be criticised by the courts. Unreasonable conduct is frowned upon by the courts and in the case below, apparently now punished by the courts.

Litigation is expensive and there is sometimes no option but for those involved to rely on third party funding that is available in the marketplace. In a test case concerning such an arrangement, the High Court ruled that a 300 per cent success fee charged by one such funder was recoverable in the context of a commercial arbitration.

An arbitrator had found company A liable to compensate company B in respect of a repudiatory breach of contract. The total award to company B came to about $12 million, including around $4 million in costs. The arbitrator was highly critical of company A in his decision, finding that its conduct had been reprehensible.

In order to contest the arbitration, company B had obtained third party funding from a company that specialised in such arrangements. £647,000 had been advanced and, following the successful outcome, the funder became entitled to a 300 per cent success fee of over £1.94 million. The arbitrator directed company A to pay that sum.

In rejecting company A’s challenge to that decision, the Court found that, on a true construction of Section 59(1)(c) of the Arbitration Act 1996, the arbitrator did have power to award the funder’s success fee. The arbitrator was entitled to take into account company A’s conduct, which had effectively forced company B into the litigation. Company B had had no choice but to purchase third party litigation funding and the arbitrator’s approach revealed no serious irregularity or error of law.

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MLA 2017 18 Shortlisted 2