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Funders foil rapier thrust of Excalibur


Following the outcome of the Excalibur litigation should Funders “fall on their swords” have they been “stabbed in the back” should they opt for “the sword over the scabbard” or is “the sword of Damocles (or Arthur) no more…?!

Backed by private and investment Funders the Claimants (“Excalibur”) sued the Defendants (“Keystone”) for 1.6 million dollars said to be the value of their interest in a few Iraqi/Kurdistan oilfields.

Though Excalibur’s lawyers thought it the best case they’d ever seen the Trial Judge (Clarke LJ) took a different view describing it variously as “artificial, defective, illogical, improbable, speculative and opportunistic!”

Set against that background it is not surprising perhaps that Excalibur’s claims were dismissed in their entirety and they were ordered to pay indemnity costs. As that order was not complied with Keystone applied for and were granted permission to proceed against the Funders for Non-Party costs orders. Ultimately the Funders were ordered to pay Keystone’s indemnity costs.

The main thrust of this decision is that Funders may be held liable for costs (including indemnity costs) even though they do not control the proceedings, relying as they do on input from the lawyers. However the Arkin cap remains i.e. save in the most exceptional circumstances the Funders liability for costs is limited to the amount of their investment.

What impact has this Judgment had on the “post-Jackson” litigation funding industry? Not as much as was once feared it would seem. There was some hesitation whilst this ruling was pending but it is now business as usual. There are good reasons for this.

First the facts of the Excalibur case were fairly unique – to say the least! Secondly the Judge himself expressed doubts that his decision would “send an unacceptable chill through the funding industry – whose aim is not to finance hopeless cases!” Thirdly the Jackson report never got a mention and all the cases relied on in the Judgment are pre-Jackson!

Nevertheless there are some practical lessons to be learned though to most experienced Funders these are self-evident and thus in many respects already in place. It is worthy of note that in the Excalibur case the Funders could not be described as typical litigation funders.

So what are the lessons to be learned…the Judge said ” if (this case) causes Funders to take steps in the form of rigorous analysis of the law, facts and witnesses (plus) consideration of proportionality (together with) review at appropriate intervals that will be in the public interest” – one cannot argue with that save to add that it is very much in Funders’ interests too – perhaps more so!

Steps to be taken:

i] Due diligence is vital obviously but adverse costs protection is a must with special conditions requiring good conduct from the client or else policy terms will be breached and the policy repudiated. In Excalibur the Judge said the client had pursued the litigation as if it were an act of war!

ii] Very early advice on the merits not just the primary case but the discrete issues as well, particularly those that may have costs ramifications later, with second opinions being sought at the outset and at significant stages in the litigation from in-house underwriters and independent counsel with regular updates.

iii] In Excalibur the Funders left it to the solicitors with catastrophic consequences, Funders need to be much more hands on.

But beware Arkin!