What Litigation Funders Need To Know In The Wake Of The Costs Judgment In Excalibur Ventures Vs. Texas Keystone Inc. And Ors

On October 23, 2014, in a decision that has major ramifications for the litigation funding market in the UK and overseas, the English Commercial Court ruled that the third parties that had funded the unsuccessful litigation brought by brass-plate Delaware corporation Excalibur Ventures LLC should be jointly and severally liable to pay the defendants' costs of the action on the indemnity basis.

Jones Day represented one of the defendants, Texas Keystone Inc., in both the underlying US$1.6+ billion litigation initiated by Excalibur in which all claims against the defendants were dismissed and in the ensuing costs litigation against Excalibur's funders.

Summary

The court found against each of Excalibur's funders and ordered that they were to be made jointly and severally liable with Excalibur to pay the defendants' costs of the action on a indemnity basis—which typically allows for recovery of around 85 percent of a party's incurred costs rather than the standard 65-70 percent. The funders—Psari Holdings Limited, a Cayman Island fund wholly owned by Mr. Andonis Lemos; Blackrobe AEO Investors I, LLC, part of the now defunct Blackrobe Capital Partners funding group; and various entities in the Platinum group of companies—who had already provided in excess of £31 million (US$50 million) to fund Excalibur's claim, now face further financial exposure, well in excess of that envisaged when they decided to support the litigation.

Key Points Arising from the Judgment and Issues for Funders to Consider When Deciding Whether to Fund Litigation and How to Manage Their Exposure

In light of the judgment, it is clear that third-party funders can be ordered to pay indemnity costs ordered against a claimant as a result of the behavior of the claimant and its lawyers, regardless of a lack of bad conduct on the funders' part. While indemnity costs awards remain relatively rare (where litigation or the conduct of it is "outside of the norm"), funders should ensure that they take steps to actively scrutinize the merits of a claim and those involved in presenting that claim (i.e., witnesses and experts) through independent due diligence. Funders must still be careful not to offend the rules of champerty and maintenance by controlling the conduct of litigation.

It is no defense if funders receive strong (but ultimately erroneous) legal advice on the merits of a claim ahead of making the decision to provide funding. Here, the court considered the case to be...