Excalibur Ventures LLC v Texas Keystone Inc & Ors

Indemnity costs may be ordered where the conduct of proceedings or the surrounding circumstances, assessed cumulatively, take the case outside the norm. Dishonesty or moral blame is unnecessary. Relevant matters include pursuing speculative or opportunistic claims, grossly exaggerating quantum, maintaining unfounded allegations of dishonesty, changing the case, presenting seriously flawed expert evidence, and conducting litigation disproportionately or aggressively.

Further security for costs requires a material change of circumstances, though the change need not have been unforeseeable. The court must then decide whether security is just. Security may cover an expected shortfall and the costs of detailed assessment, including where the unsuccessful party has no assets and third-party funders may later face a non-party costs application.

Following the comprehensive dismissal of Excalibur's claims against Texas Keystone Inc and the Gulf Keystone defendants, Excalibur accepted liability for the defendants' costs. No permission was sought to appeal the merits judgment. The principal outstanding question was whether the costs should be assessed on the standard or indemnity basis.

The defendants also sought payment out of existing security and further security for the anticipated shortfall and the costs of detailed assessment. Excalibur had no assets, and the funders had not indicated that they would meet the costs order. The court therefore had to determine whether the litigation was outside the norm for costs purposes and whether circumstances had materially changed since the earlier security orders.

1. Indemnity costs ordered. The claim was far outside the norm when the relevant circumstances were considered together. It was speculative and opportunistic, lacked a sound foundation in fact or law, and was pursued on an extravagant scale through numerous artificial or misconceived causes of action. The claimant lost every material issue after a five-month trial involving 373 trial bundles.

2. The claim for US$1.65 billion was grossly exaggerated. Even on the most favourable alternative basis contemplated by the court, the claim was worth no more than US$3.3 million. The claimant also maintained unpromising allegations of dishonesty, changed important parts of its case, relied upon materially flawed expert evidence, made disproportionate disclosure demands, and pursued voluminous and sometimes unacceptable correspondence. These matters caused substantial additional expense and disruption.

3. An indemnity costs order does not require dishonesty or moral blame. The court applies a wide discretion and asks whether the conduct of the proceedings or the circumstances of the case take it outside the norm. A failed claim of great value does not by itself justify indemnity costs, but the aggregation of the circumstances did so here. The essential effect of the order was not penal: it altered the burden concerning the reasonableness of the costs claimed.

4. Interest and interim payments ordered. The defendants' costs were to carry interest at 1.5 per cent per annum from payment of the relevant invoices to 13 December 2013. The existing security of £6.8 million for Texas and £10.7 million for Gulf, together with accrued interest, was to be paid out as interim payments.

5. Further security ordered. Judgment on the merits, the indemnity basis, the award of interest, the greater-than-expected work, and the probable costs of detailed assessment amounted to a material change of circumstances. Such a change need not have been unforeseeable. It was just to require further security of £2,402,800 for Texas and £3,209,210 for Gulf, including security for assessment costs.

6. The absence of assets in Excalibur did not prevent the order. The defendants were prima facie entitled to protection while the proceedings remained pending, and postponement would impede assessment. Unless security was provided within 14 days, the defendants were to be at liberty to join the funders for the purpose of seeking non-party costs orders and, so far as necessary, to serve outside the jurisdiction.

1. High Court (Commercial Court), consequential judgment: The court ordered indemnity costs, interest, interim payments from existing security, and further security. No permission was sought to appeal the merits judgment.

2. High Court (Commercial Court), merits stage: The concluding paragraph of the merits judgment was made public on 10 September 2013, and its full terms were made public on 13 December 2013. Excalibur had lost every material issue.

3. Earlier security proceedings: Security for costs had previously been ordered by Popplewell J on 14 March 2012 and by Christopher Clarke LJ on 15 February 2013.