Excalibur Ventures v Texas Keystone & Ors.

Richard Waller QC

[2016] EWCA Civ 1144

The Court of Appeal has dismissed the costs appeal by the litigation funders in Excalibur Ventures v Texas Keystone & Ors.

The Claimant, Excalibur, was a shell company with no assets that pursued the Respondents for a share in a oil exploration block in Kurdistan, which Excalibur valued at US$1.6 billion. A number of professional funders (the “Funders”) provided £31.75 million to Excalibur so that it could pursue its claim in return for a working interest in the block, or a substantial financial return.

The trial Judge, Christopher Clarke LJ, dismissed the claim and awarded the Defendants their costs on an indemnity basis. He was highly critical of the way that the case had been conducted by Excalibur.

Excalibur (through the Funders) had previously put up security for the Defendants’ standard costs. However, once indemnity costs were ordered, a shortfall was likely to arise. The Defendants sought a non-party costs order against the Funders to make up the shortfall, which the Judge granted. He held that, absent special circumstances, a professional funder should “follow the fortunes of those from whom he himself hoped to derive a small fortune”. The Judge also held that a funder who invested in litigation for a return by solely funding a security for costs order was not immune from an adverse costs order in the event the case failed.

The Funders appealed. The Association of Litigation Funders also intervened, on the basis that the judgment raised a number of issues of public policy concerning the provision of litigation funding.  

The Court of Appeal agreed with the trial Judge and  upheld the ‘follow the fortunes’ approach and emphasised that the derivative nature of a commercial funder’s involvement in a claim should ordinarily lead to the funder being required to contribute to costs on the basis upon which they have been assessed against the party whom the funder chooses to fund.

The Court also rejected the argument that a consequence of the Judge’s approach was that a funder would have to exercise greater control over the conduct of the underlying litigation such as to run the risk of maintenance or champerty. The Court said that an on-going review of the progress of litigation by a funder’s lawyers would often be essential to reduce the risk of indemnity costs orders, but when conducted responsibly there was no danger of such a review being characterised as improper.

The Court of Appeal also upheld the Judge’s decision and rejected the appellants’ argument that funding a security for costs order should not expose a funder to an adverse costs order.

To view the judgment please click here.

Date added: November 18th, 2016


Area of Expertise

Energy & Natural Resources