Costs—non-party costs against liquidator’s firm—Arkin cap (Burnden Holdings (UK) Ltd v Fielding)

Costs—non-party costs against liquidator’s firm—Arkin cap (Burnden Holdings (UK) Ltd v Fielding)

A liquidator’s firm was ordered to pay the successful defendants’ costs as a non-party because it had provided funding for the litigation as a commercial funder. On the facts, however, it was appropriate for the firm’s liability to be capped at the amount of the funding it had provided (the Arkin cap). The liquidator was also personally liable for 15% of the defendants’ costs from the time that he had joined the proceedings in order to pursue a claim under section 423 of the Insolvency Act 1986 (the original claimant being the company in liquidation which was held liable for all the costs). Written by James Potts QC and Matthew Parfitt, barristers, at Erskine Chambers (who appeared for the defendants).

Burnden Holdings (UK) Ltd (in liquidation) and another v Fielding and another [2019] EWHC 2995 (Ch)

What are the practical implications of this case?

Funders, whatever their background, may be required to pay costs as a non-party. While every case turns on its own facts, there is no exemption for supposedly ‘non-professional’ funders, such as an insolvency practitioner’s firm, in circumstances where the provision of funding makes the firm a real party to the proceedings.

Funders will be able to limit their costs exposure by reference to causation and may in an appropriate case have their liability capped at the amount of funding provided (the Arkin cap), although the court is not obliged to impose a cap. In relation to the cap, the court followed the recent decision of Snowden J in Davey v Money [2019] Costs LR 399, [2019] EWHC 997 (Ch), (although an appeal is pending against that judgment, so this is a developing area).

In calculating the Arkin cap, sums provided by the funder to meet adverse costs orders are taken into account in the same way as funding provided to the funded party.

Separately, the court determined that CPR 44.10 does not impose an absolute rule that where an order makes no mention of costs, there is to be no order as to costs. Although that is the general rule, it is capable of being displaced in an appropriate case.

What was the background?

Following the dismissal of claims brought by BHUK (a company in liquidation) and its liquidator in June 2019, the successful defendants sought non-party costs orders against the funders of the litigation, which included the liquidator’s firm, Griffins. A settlement was reached with the ‘professional’ funder which had provided significant funding of the proceedings between August 2017 and the trial in February and March 2019. The application proceeded against Griffins, which had provided funding of £478,265 during the two-year period prior to the professional funder coming on board. If the litigation succeeded, Griffins stood to receive £504,502 via the liquidator’s remuneration, as well as the return of its original funding. The liquidator, who was one of two equity partners in the firm, was to be remunerated at 50% of net realisations from the litigation.

What did the court decide?

The court made a non-party costs order against Griffins. It held that Griffins was a real party to the litigation rather than a pure funder. Relevant factors were that:

  • the liquidator had sought out his appointment and commenced the proceedings knowing that the claim against the defendants was the only asset in the liquidation  
  • when Griffins provided the funding, there was no further funding available from creditors  
  • the liquidator had a vested interest in the litigation succeeding because the only source for his own fees would be the recoveries in the litigation  
  • that vested interest was substantially increased by the liquidator’s remuneration (at 50% of net realisations)  
  • Griffins stood to gain financially from the liquidator’s remuneration  
  • Griffins negotiated a 2.25% uplift on the funding it provided

The court limited Griffins’ liability in two ways. First, it held that Griffins was only liable for costs it caused the defendants to incur. This meant that Griffins was not liable for costs incurred prior to Griffins providing funding. Second, it held that Griffins’ liability should be capped at the amount of funding provided (including funding provided to pay adverse costs orders to the defendants), in other words in line with the Arkin cap. The court followed Davey v Money in holding that there was no fixed rule for such a cap, but the question was what was just in all the circumstances. On the facts of this case, it was just for Griffins’ liability to be capped.

The court also held that CPR 44.10 does not impose an absolute rule that where an order makes no mention of costs, there is to be no order as to costs. The court had jurisdiction to determine the costs of an earlier consequential hearing in respect of which the order was silent on the issue of costs.

Case details

  • Court: High Court, Business and Property Courts  
  • Judge: Mr Justice Zacaroli  
  • Date of judgment: 07 November 2019

Matthew Parfitt and James Potts QC are barristers at Erskine Chambers. If you have any questions about membership of LexisPSL’s Case Analysis Expert Panels, please contact caseanalysis@lexisnexis.co.uk.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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About the author:

Zahra started working as a paralegal at Lexis Nexis in Banking and Insolvency teams in April 2019. Zahra graduated with a 2.1 honours in a BA French and Spanish, completed the GDL at BPP University and is seeking some experience before commencing the LPC. She has undertaken voluntary work for law firms in London, Argentina and Colombia.