In the recent case of Excalibur Ventures LLC v. Texas Keystone Inc., the Commercial Court has held that third party litigation funders were jointly and severally liable to pay the defendants’ costs on an indemnity basis in an unsuccessful claim relating to interests in oil fields in Kurdistan.
The judge stated that, although the funders were not personally responsible for the matters which caused him to order indemnity costs against the claimant funded party, justice required them to bear the defendants’ costs. The funders had agreed to fund litigation which was objectively hopeless and had failed comprehensively.
However, the Arkin cap applied. In the 2005 case of Arkin v. Borchard Lines Limited, it was held that a professional funder who financed part of the costs of litigation should be liable to pay the other side’s costs to the same extent as if it had funded the costs of the losing litigant. Therefore, each funder was liable only up to an amount of funding that it had provided towards the claimant’s own costs and towards the security for costs, and only in respect of costs that the defendants had incurred after the particular funder had paid its contribution. The parent companies of two of the funders which had made funds available under the funding agreements were also held jointly and severally liable for the defendants’ indemnity costs.
The judge doubted that his decision would send an “unacceptable chill” through the funding industry whose aim is not to finance hopeless cases but those with strong merits. Rather, it should cause funders to take rigorous steps (short of champerty) to analyse the law, facts and witnesses in each case and to review the case at appropriate intervals (rather than relying too heavily on the advice of the claimant’s solicitors, as here). It was in the public interest for funders to take steps to reduce the occurrence of the sort of circumstances that arose in this case.
Chris Harper is a partner and head of the dispute resolution team in Exeter. He specialises in commercial litigation and is named as a leader in his field by independent guides to the legal profession Legal 500 and Chambers. To contact Chris please call 01392 210700 or email drx@stephens-scown.co.uk.