Excalibur Ventures LLC v Texas Keystone Inc & Ors

A commercial litigation funder which funds proceedings for its own financial return will ordinarily be liable, under the court’s discretionary costs jurisdiction, on the same basis as the funded litigant. That result is not automatic. The court must consider all the circumstances, including the nature and effect of the funded claim. A funder may be fixed with indemnity costs where the claim was objectively hopeless or conducted so as to justify that basis of assessment.

Funding supplied solely to furnish security for costs is also an investment in the litigation. It counts towards the Arkin cap. The court may look to economic reality when deciding whether a non-party funder, including a parent or associated entity, should bear costs.

Excalibur Ventures LLC, an assetless claimant, brought a large commercial claim concerning oil-field interests. Its commercial funders advanced £31.75 million, including £17.5 million to provide security for the defendants’ costs. The claim failed comprehensively and Excalibur was ordered to pay indemnity costs.

The Commercial Court subsequently made non-party costs orders against the funders under section 51(3) of the Senior Courts Act 1981. It held them jointly and severally liable for indemnity costs, subject to the Arkin cap, and included security-for-costs funding within that cap: [2014] EWHC 3436 (Comm). The funders appealed the indemnity basis, the treatment of security funding, and the liability of associated entities not directly contracted with Excalibur.

1. Appeals dismissed. The judge had separately addressed whether a non-party costs order was justified and the basis on which costs should be assessed. His decision to order indemnity costs was a proper exercise of discretion under section 51(3) of the Senior Courts Act 1981 and CPR 44.

2. A commercial funder invests for its own prospective return and has a derivative involvement in the litigation. Subject to the Arkin cap and any special circumstances, justice will ordinarily require it to contribute on the same basis as the funded litigant. The relevant assessment is not confined to the funder’s personal conduct. It includes the character of the funded claim, its effect on the successful defendants, and the conduct of those deployed to pursue it.

3. Here the claim was objectively hopeless, extravagant and pursued in a manner which justified indemnity costs. The funders could not dissociate themselves from the conduct of the litigant, lawyers, experts and witnesses on whose work their investment depended. The court rejected any irrebuttable presumption, but held that a funder would ordinarily bear indemnity costs in circumstances of this kind.

4. Money advanced solely to provide court-ordered security for costs was funding of the common litigation enterprise. It enabled the action to continue and was advanced for the funders’ prospective return. It therefore both attracted the section 51(3) jurisdiction and counted towards the Arkin cap, just as funding of the claimant’s own legal costs did. The court left open how exposure should be measured where security is provided through a bond, guarantee or insurance instrument rather than payment into court.

5. The judge was entitled to look to economic reality. A parent or associated entity that supplied the money and stood to obtain the economic benefit of the claim could be treated as a funder despite lacking a direct contract with the claimant. This did not pierce the corporate veil.

• Court of Appeal (Civil Division): dismissed all funders’ appeals and upheld the non-party indemnity costs orders: [2016] EWCA Civ 1144.
• High Court, Commercial Court: held the commercial funders liable under section 51(3) of the Senior Courts Act 1981, subject to the Arkin cap, and included security-for-costs funding within the cap: [2014] EWHC 3436 (Comm).
• High Court, Commercial Court: dismissed Excalibur Ventures LLC’s substantive claim: [2013] EWHC 2767 (Comm); it later ordered Excalibur to pay indemnity costs: [2013] EWHC 4278 (Comm).