The high-profile Excalibur dispute continues to haunt Clifford Chance (CC) as London’s Court of Appeal has handed down a critical ruling, saying the Magic Circle firm had an ‘an acute conflict of interest’ on the case.
The court has also held that the third party funders who bankrolled the case are liable for the defendants’ £20m costs.
The original litigation was a $1.6bn energy battle over oil rights in Iraqi Kurdistan and one of the biggest cases of 2013. Heard in the High Court, it was taken against Gulf Keystone Petroleum by Excalibur Ventures where the claimant alleged it was entitled to a 30% share in the rights of four oil fields in Kurdistan.
Lord Justice Clarke dismissed the claim and awarded the defendants their costs on an indemnity basis, stating the claim had been ‘an elaborate and artificial construct… replete with defects, illogicalities and inherent improbabilities’. The decision said the case was worth about $3.3m ‘at the very best’, not $1.6bn as claimed.
Following this, CC partner Alex Panayides, who represented the claimants, found himself on the wrong end of a professional negligence suit by the case’s funders and Greek shipping tycoons, the Lemos family. CC later settled for an undisclosed sum.
Now, following the Commercial Court’s landmark decision in 2014 that the third-party funders who bankrolled the dispute should be jointly and severally liable to pay the defendants’ costs of the action (which amount to more than £20 million) on the indemnity basis, the Court of Appeal has now dismissed the appeals of the funders on all grounds.
The funders’ appeal was heard over two days in the Court of Appeal in July 2016 before Tomlinson LJ, Gloster LJ and Richards LJ. The appellants were joined by the Association of Litigation Funders in arguing the decision should be should be overturned.
Justice Tomlinson said that whilst CC’s Panayides claimed that this was the ‘best case he had ever seen in his career’ and gave an estimated likelihood of success of 90%, it was because of its own agreement to conduct the case for Excalibur on a partial contingency that ‘Clifford Chance themselves had from the outset an acute conflict of interest the extent of which worsened as their own investment in the case increased over time. It should have been obvious to any astute businessman.’
The judge added that the earlier cost judgment showed: ‘Many more examples of the egregious manner in which this litigation was pursued, including, it is surprising and depressing to have to report, aggressive and unacceptable correspondence from Clifford Chance, the product of misplaced zeal, with which the partner responsible, Alex Panayides, pursued what the judge aptly termed the war of attribution of which it formed part.’
The judgment also said CC had agreed to accept a conditional fee agreement with the understanding at trial (the conditional fee agreement was not disclosed) that its fees had been discounted by 40% in return for an uplift in the event of success.
That uplift was said to be equivalent to 40% of their undiscounted fees, a further 100% of that 40% and a success fee to be determined by Excalibur in its sole discretion. That would indicate that in the event of success CC would recover 140% of its usual fees plus a discretionary success fee.
Of this amount £14.25m was provided in order to meet CC’s fees and disbursements, including the fees of counsel and of expert witnesses deployed at trial and £17.5m was advanced for the purpose of enabling Excalibur to comply with orders requiring it to furnish security for the defendants’ costs.
The role of litigation funders
The court further held it expects a responsible funder to conduct a rigorous analysis of the law, facts, witnesses and proportionality issues at appropriate intervals.
Had the funders done so in this case then they could have identified that the claim had no sound foundation in fact or law notwithstanding CC’s positive assessment as the firm with conduct of the litigation. 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.
Jones Day disputes partner Stephen Pearson, who co-led the litigation against Excalibur on behalf of Texas Keystone alongside partner Roy Powell, said: ‘The Court of Appeal’s ruling should serve as a warning to third-party funders of the potential perils of financing expensive international litigation without carrying out a rigorous analysis of the claim, the party to be funded and the witnesses who will support the claim.
‘That analysis needs to continue throughout the proceedings and be conducted by independent lawyers who cannot simply rely on an analysis by the lawyers with conduct of the case. The English Courts will expect a responsible funder to conduct its own rigorous assessment of the law, facts, witnesses and proportionality issues at appropriate intervals as in the ordinary course they will be assuming the same risks as litigants for adverse costs.’
The Association of Litigation Funders was advised by Olswang with a team led by Louise Bell, who instructed PJ Kirby of Hardwicke Chambers.
Brick Court Chambers’ Richard Eschwege and 7KBW’s Richard Waller QC appeared for 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.
Wilberforce Chambers duo Ian Croxford QC and Nicholas Medcroft were instructed by Orrick, Herrington & Sutcliffe for the costs defendants.