HSBC Headquarters in London. HSBC prevailed in the ECU Group v HSBC Bank trial, with the High Court ruling in its favor and ordering Therium to bear significant financial responsibility for the failed litigation (2022). Image Source: iStock

In the time since the ruling, the heyday of litigation funding has already passed and its decline in popularity is gaining momentum due to ethical concerns, and those similarly raised in the ECU v HSBC trial.

Challenging the Arkin Cap

In this case, Therium had financed the ECU Group’s unsuccessful legal battle against HSBC. The High Court found that Therium’s significant financial involvement and substantial control over litigation strategy made them “jointly and severally liable” for indemnity costs. In practice, this indicates that Therium could be required to pay the entire sum of the costs themselves, not just a portion. Indemnity costs are a particular category of legal costs awarded where the paying party’s conduct is deemed unreasonable or improper, resulting in an obligation to cover most, if not all, of the opposing party’s legal expenses. This clarification makes it clear that the court viewed Therium’s actions as going beyond acceptable boundaries.

The specifics of the case make the ruling even more impactful. HSBC incurred legal costs amounting to approximately £13.5 million, a sum that the court ordered Therium to contribute toward after determining the funder’s significant influence over proceedings. Therium had invested around £5 million, but the judgment indicated that their liability extended beyond this investment, as the Arkin cap no longer offered protection in light of the funder's direct involvement.

The “Arkin cap” refers to a principle established in the 2005 case Arkin v Borchard Lines Ltd, where the court limited a litigation funder’s liability for adverse costs to the amount of funding they had provided to the claimant. This rule was intended to encourage third-party funding by offering funders a predictable cap on potential losses. However, in recent years, cases including the ECU Group ruling, demonstrate that courts are now willing to set aside the Arkin cap where funders have exercised significant control over litigation strategy or conduct.

…the court viewed Therium’s actions as going beyond acceptable boundaries.

Long-Term Risks for Funders and Claimants

This decision was not made lightly; it followed evidence that Therium was not merely a passive financier but an active participant shaping the course of litigation. Litigation funding, which involves a third party financing a lawsuit in exchange for a share of any financial recovery, was once seen as a safe, regulated method of supporting legal battles. However, the ruling highlights that when funders cross from financial backers into strategic decision-makers, their exposure to financial risk becomes far greater.

This decision is part of a growing judicial trend to scrutinize and hold funders accountable. By adopting a joint and several liability approach, courts are signaling that funders cannot simply profit from successful outcomes without being prepared to shoulder the financial consequences of failure.

This shift raises serious questions about the sustainability and standing of litigation funding as an industry. Funders like Therium, who previously operated under the premise of manageable risk and capped exposure, now face potentially ruinous liabilities. It also introduces an uncomfortable reality for claimants who may find that the funder’s interests do not always align with their own, leading to strategic decisions made in the funder’s favor rather than in pursuit of justice.

Even more concerning is the evidence that Therium may have overstepped its role, blurring the line between financial support and direct legal involvement. This not only undermines the independence of legal counsel but also exposes all parties to risks that were once considered speculative.

As the funding market continues to change, these legal precedents force a reassessment of how litigation finance agreements are structured and the degree of control funders are allowed to exert. For investors and funders alike, the ECU case stands as a stark warning: involvement beyond passive support could result in catastrophic financial exposure.

Ultimately, while litigation funding has been hailed as a tool for access to justice at its start, the 2022 judgment scrutinizing Therium suggests it may also be a vehicle for unchecked interference and financial instability. The judgment leaves little doubt that unrestrained litigation funding practices can destabilize the legal system and impose severe financial consequences on those who fail to respect their boundaries, like Therium has shown.

Claimants may find that the funder’s interests do not always align with their own, leading to strategic decisions made in the funder’s favor rather than in pursuit of justice.

REFERENCES

Baker, S. (2022, June 24). Litigation funder jointly liable for indemnity costs, court rules. Law Gazette. https://www.lawgazette.co.uk/news/litigation-funder-jointly-liable-for-indemnity-costs-court-rules/5112925.article

CaseMine. (2022). The ECU Group Plc v HSBC Bank Plc & Ors. CaseMine. https://www.casemine.com/judgement/uk/62b606f1b50db955edec02ec

OEC Law. (2022, July 8). Commercial Court awards costs against commercial funder on joint and several basis. OEC Law. https://www.oeclaw.co.uk/news/view/commercial-court-awards-costs-against-commercial-funder-on-joint-and-several-basis

Winward, R. (2022, July 1). The ECU Group Plc v HSBC Bank Plc & Ors [2022]. Winward Chambers. https://www.winward.uk/updates/the-ecu-group-plc-v-hsbc-bank-plc-amp-ors-2022-ewhc-1616