On 18 November 2016, the Court of Appeal provided some helpful clarity with regard to the potential costs liability funders may face in circumstances where their funded party is unable to meet a costs order. The decision emphasises that the derivative nature of a commercial funder's involvement should ordinarily lead to the funder being required to contribute to the costs on the same basis as those which it funds. A funder cannot dissociate itself from the conduct of those it has enabled to conduct the litigation and upon whom it relies to make a return on its investment.
Whilst noting that litigation funding "is an accepted and judicially sanctioned activity perceived to be in the public interest", the Court of Appeal dismissed an appeal by various litigation funders who had been held jointly and severally liable for an indemnity costs order made against their funded client following the dismissal of its substantive claim. The judgment also clarified that sums advanced to enable funded parties to meet orders for security for costs should not be treated any differently to funding for legal fees and should equally count towards the Arkin Cap, in assessing a funder's potential exposure to adverse costs.