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‘A warning to third-party funders’: Litigation funders found liable for indemnity costs in $1.6bn Excalibur dispute

In what was a keenly awaited judgment for the third party funding profession, the Commercial Court has yesterday (23 October) handed down judgment on the costs liability of litigation funders in the high profile Excalibur Ventures v Texas Keystone & Ors battle, a $1.6bn energy dispute over oil rights in Iraqi Kurdistan and one of the biggest cases of 2013, and has ordered the funders to pay the defendants’ costs of the action.

Tried in the Commercial Court over five months, the claimant, Excalibur, alleged it was entitled to a 30% share in the rights of four oil fields in Kurdistan. Lord Justice Christopher Clarke dismissed the claim and awarded the defendants their costs on an indemnity basis, stating the claim had met a ‘resounding, indeed catastrophic effect’ and had been ‘an elaborate and artificial construct… replete with defects, illogicalities and inherent improbabilities’.

The litigation funders, namely Greek shipping magnate Andonis Lemos, and New York-based hedge funds Platinum Partners and Blackrobe, were ordered to pay indemnity costs up to the total amount that it had funded Excalibur in respect of the costs incurred by the defendant during the periods of time that each had provided funding. 

Lemos funded Excalibur to the tune of £13.75m, and Platinum Partners’ three vehicles provided funding of £7m, £6m and £1m respectively, while Blackrobe paid £4m. Gulf’s unrecovered costs are estimated to be between £4m and £5m. 

Brick Court Chambers’ Richard Eschwege and 7KBW’s Richard Waller QC appeared for the defendants, Texas Keystone and the Gulf Keystone, and were instructed by Jones Day and Memery Crystal. The heavyweight battle in 2013 saw the duo named dispute resolution team of the year at the 2014 Legal Business Awards. Wilberforce Chambers’ John Wardell QC and Hailsham Chambers’ Jamie Carpenter were instructed by Withers for Lemos, one of the funding parties.

Meanwhile, Wilberforce Chambers duo Ian Croxford QC and Nicholas Medcroft were instructed by Orrick, Herrington & Sutcliffe for the costs defendants.

Memery Crystal partner Harvey Rands said: ‘This judgment will send a serious message to the funding community that it must pick very carefully the cases to back as Funders now risk paying for costs twice if they lose’.

Jones Day partner Stephen Pearson, legal adviser to Texas Keystone, said: ‘We are extremely pleased with the Court’s judgment. We always considered it fair and just that those who funded a claim that could never otherwise have been brought, and who stood to benefit tremendously had it succeeded, be held accountable to pay indemnity costs on the same basis as the unsuccessful Claimant. The judgment ought to serve as a warning to third-party funders of the potential perils of financing expensive international litigation without carrying out rigorous analysis of the claim, the party to be funded and the witnesses who will support the claim.’   

For more on third party funding, see How to win cases and influence people – litigation funding strives to go mainstream