The Risks for Professional Funders in Litigation

More cases now involve third party funders, who share in the financial burden of funding a case, but also in the reward in the event of success.

In what is already being quoted as a landmark case, the recent High Court decision in Excalibur Ventures -v- Texas Keystone et al. [2014] EWHC 3436 (Comm) has highlighted the potential risks for funders in backing claims which turn out to be unsuccessful.

In Excalibur Ventures, the Claimant’s litigation funders were ordered to pay the Defendant’s legal costs after their client’s claim had been turned down by the High Court, and the failed Claimant had not paid the entirety of the costs which were ordered against it.

The facts
The Claimant had claimed an interest in some profitable oil fields in Iraq, and had brought proceedings against the Defendant using funding from two initial funders, with other further groups of funders and their parent companies adding to the funding at later stages of the litigation.

The claim was ultimately unsuccessful, and the Claimant was subsequently ordered to pay the Defendant’s legal costs of the case on an indemnity basis, with the court citing the Claimant’s conduct in pursuing the matter as a contributing factor.

Some of the funders had provided security for costs during the proceedings, but the security was insufficient to cover the costs and so all nine of the funders were joined into the proceedings so that the Defendant could seek to recover the costs which it had been awarded.

The initial funders accepted liability for costs but only on the standard basis.  The funders argued that they should not be ordered to pay indemnity costs unless the Defendant made out grounds against a specific funder independently.  Some funders also argued that they should not be held liable for further costs if the security for costs was equal to or greater than the funding provided.

The court held that the absence of morally reprehensible behaviour and impropriety did not preclude an order for indemnity costs.  Further, the time, effort and expense associated with pursuing (what the court itself called) objectively hopeless claims meant that the pursuit of this type of claim was grounds alone for an order for both the litigant and funder to pay indemnity costs.

Potential impact
The litigation funding market for cases in England and Wales is still relatively young, and it is difficult to predict with certainty the ramifications which this decision will have.

Certainly, it is fair to assume that funders will want to undertake the fullest evaluation possible before committing their financial backing to a case, and may wish to keep a close eye on the conduct of litigation to ensure that they are sufficiently protected from the potential of an adverse costs order.

At Ward Hadaway, we have extensive experience in arranging insurance packages for clients in litigation, and have also secured funding on behalf of clients since the recent reforms.  We only use specialist brokers in the litigation funding and insurance markets to obtain the broadest possible scope of options for our clients when it comes to insuring and funding cases.

If you wish to discuss this article, please contact Joe Kelley.