Excalibur Ventures LLC v Texas Keystone Inc & Ors (Rev 2)

A non-party costs order is discretionary and turns on whether it is just in all the circumstances. A funder who substantially funds litigation for a commercial benefit will ordinarily be treated as a real party, particularly where the funded claim could not continue without the funding. Personal impropriety or control is not essential. Where the funded litigation was objectively speculative, hopeless, disproportionate or pursued in a manner warranting indemnity costs, the funder may be ordered to pay costs on that scale. The Arkin cap ordinarily limits liability by reference to all money supplied to finance the action, including money provided for security for costs. Liability remains subject to causation, so different funders may be liable only for costs incurred after their funding became effective.

The underlying claim by Excalibur Ventures LLC against the Gulf Keystone and Texas defendants failed in its entirety. The court had ordered Excalibur to pay the defendants’ costs on the indemnity basis and made substantial orders for security for costs. Excalibur was funded by Psari and Mr Lemos, Hamilton, Huron, JH, Blackrobe and related parent entities.

The defendants sought non-party costs orders against the funders and their parents. The issues included whether liability should be on the indemnity basis, how the Arkin cap should operate, whether security funding counted, the relevant starting dates, and whether parent companies should be included.

1. Non-party costs jurisdiction. Section 51 of the Senior Courts Act 1981 conferred a wide discretion to determine by whom and to what extent costs should be paid. The governing question was whether an order was just in all the circumstances. The principles in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807 applied. Commercial funders who funded litigation for their own substantial benefit were real parties, even without control or impropriety.
2. Indemnity basis. The funders had transformed an assetless claimant into a fully resourced litigant pursuing objectively speculative, legally hopeless and disproportionate litigation. It was unnecessary to establish personal misconduct by each funder. The funders accepted the risks of entrusting the litigation to Excalibur and its lawyers and should follow the fortunes of the funded claim. The factors justifying indemnity costs against Excalibur therefore justified indemnity costs against the funders.
3. Arkin cap. The cap applied by reference to all sums advanced to finance the action, including sums advanced to enable Excalibur to provide security for costs. Security funding was an investment in continuation of the litigation, not a payment of the defendants’ costs. The cap was therefore £13.75 million for Psari/Lemos, £7 million for Hamilton/PPCO, £4 million for Blackrobe/Blackrobe Capital, £6 million for Huron/PPVA and £1 million for JH.
4. Causation and timing. Each tranche of funding was a but-for and effective cause of the action continuing, but funders were not liable for costs incurred before their involvement. Liability was divided by funding dates. Parent companies were included because the economic reality was that they supplied the money and would receive the ultimate benefit.
5. Orders. The specified funders and parents were made jointly and severally liable for the defendants’ indemnity costs, subject to the stated caps and relevant dates. Liberty to apply was granted, and apportionment was left for later consideration.