Costs blow for Third Party Funders

21st November 2016

The Court of Appeal has recently delivered a Judgment which has serious potential consequences for third party funders.

Excalibur Ventures LLC v Texas Keystone Inc and Ors [2016] EWCA CIV 1144 is a case involving a complex commercial dispute in which Excalibur (which was described as “nothing more than a brass plate”) brought substantial claims against the Defendants in the Commercial Court which were all dismissed at trial in what were found to be hopeless claims.

It is somewhat surprising to find that Excalibur had pursued such claims with the benefit of third party funding of some £31.75M and that they had been represented in this case by Clifford Chance along with Leading and Junior Counsel.

The Court was very critical of the way in which the claims had been pursued and, for example, found Clifford Chance’s correspondence to have been “aggressive and unacceptable”.

Because of the way in which Excalibur had conducted the matter, the Court concluded that it should not only pay the Defendants’ costs but they should be assessed on what is known as the “indemnity” basis.

The indemnity basis means that, when the Court comes to assess the costs that are payable, it would not reduce any costs payable on the grounds they were disproportionate (which would be the case on a standard basis) and further, any doubt that it might have about allowing an item for costs would be decided in favour of the receiving party, rather than the paying party as would be the case on a standard basis assessment.

In practice, a party awarded costs on the standard basis would usually expect to recover somewhere in the region of 65 – 70% of its actual costs.  On an indemnity basis, it could realistically expect to recover something in the region of 80 – 85%.

In the Appeal, the question was whether the third party funders, who the Court had found were not responsible for the conduct which merited an award on the indemnity basis, should only be liable for costs on the standard basis or whether they would have to bear the additional costs.

The matter was argued at length with the Association of Third Party Funders being allowed to intervene on behalf of the industry.

Having heard the arguments, the Court of Appeal unanimously gave short shrift to the funders objections and held that this was a risk that those who choose to fund litigation for commercial reasons have to bear.

What impact, if any, this will have on third party funders remains to be seen.  It may mean that they will need to be even more selective in deciding whether or not to fund claims, particularly bearing in mind that, once they have agreed to do so, their ability to influence the conduct of a claim is very limited.

What is clear from a number of cases is the Courts are recognising the importance of and growing reliance upon third party funding as a means of providing access to justice but there are likely to be many grey areas in relation to this type of funding which will come before the Courts over the next few years.

Howard Colman