Excalibur Judgment Changes Playing Field In Litigation Funding Market

Author:Mr Christopher Coffin and Lesley Timms
Profession:Withers LLP

Background to the underlying claim

The claim against the non-party funders is the tail end of an epic $1.6bn claim by Excalibur Ventures LLC against the US oil company, Texas Keystone Inc.  Excalibur contended that it had been unlawfully cut out of a deal with Texas which would have given it a 30% interest in four petroleum blocks in Kurdistan. After a 57 day trial the longest heard in the history of the Commercial Court, the judge handed down judgment in October 2013 in which he dismissed all of Excalibur's claims and ordered it to pay the defendants' costs on the indemnity basis. One of the reasons why Excalibur was ordered to pay costs on the indemnity, rather than standard, basis was the way in which Excalibur and its solicitors, Clifford Chance LLP, had conducted the case.

The funders

Excalibur funded the huge legal costs of its claim through third party funding and the funders also provided the £17.5m security for costs ordered by the Court. Psari Holdings Limited - and its sole shareholder and director Mr Lemos - was represented by Withers LLP in the costs' hearing, was one of the professional funders. Psari provided c. £13.5m of funding, the majority of which went towards paying legal fees. The funding which came from the other professional funders, referred to in the judgment as Hamilton, Platinum (or PPCO), Blackrobe and Blackrobe Capital, Huron and PPVA and JH, was provided for and applied mainly towards security for the defendants' costs. As Excalibur was a shell with no money or assets, the successful defendants applied for non-party costs order against not only the three professional funders who had directly provided funds to Excalibur (namely, Psari, Hamilton and Blackrobe) but also against those funders' holding companies and/or ultimate beneficial owners – in other words, the people who provided the funds to the funders who funded the claim.

The Defendants' Application

The defendants' application was made pursuant to Section 51 of the Supreme Courts Act which provides that the Court shall have "full power to determine by whom and to what extent the costs [of a party] are to be paid". As a result of this statutory provision, there have been a number of cases in which a funder of an unsuccessful claim has been ordered to pay the winning party's costs, notwithstanding the fact that the funder was not a party to the proceedings. 

Save where a funder has been champertous (i.e. exercised an element of control over the conduct of the litigation) the Courts have imposed a cap on a funders'...

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