Clifford Chance and client Excalibur receive further blows from High Court

Clifford Chance has been criticised for producing “voluminous and interminable” correspondence which was “in some circumstances highly aggressive and in others unacceptable” in the failed $1.6bn oil case for client Excalibur.

Excalibur was slammed in the judgment for pursuing its case against oil rights “as if it was an act of war” and High Court judge Mr Justice Christopher Clarke has ordered it to pay a further £5.6m in indemnified costs on top of the £17.5m already handed over in December (13 December 2013).

It is a particularly sour turn for the third-party funders who put up the cash for Excalibur’s battle over oil blocks in Iraqi Kurdistan. They have now been landed with the additional £3.2m for defendant Gulf Keystone and £2.4m for Texas Keystone and face being added to the litigation if they fail to come up with the money by 7 January.

But only Psari Ltd and Platinum Partners remain solvent and with BlackRobe Capital having collapsed it is unclear who will come up with the extra funds by the deadline.

It is believed that Clifford Chance partner Alex Panayides was forced to work for free on elements of the trial after the pot of third-party cash ran dry.

Both Excalibur and Clifford Chance came in for heavy criticism in the full judgment. Clarke J said: “Excalibur put forward a range of bad, artificial or misconceived claims which required a great deal of expense, labour and time to refute.”

He criticised the size of its claim as wildly distorted, saying $3.3m would have been more realistic than the $1.6bn claimed. Clarke J added: “All these spurious claims were pursued relentlessly to the bitter end.”

About Clifford Chance, the judge said: “It is not suggested that Clifford Chance did not act in accordance with their instructions and I infer that Excalibur was perfectly content with the belligerent tone, volume, content and repetition of the correspondence and the war of attrition of which it formed part and with the zeal of Mr Panayides in pursuing it.”

The case is an important development for third-party funding as a test case for who should pay the other sides’ costs when a case is lost.

In the past the claimant would have been liable for the extra £5.6m but following Lord Justice Jackson’s civil justice reforms, third-party funders should now be on the hook for full adverse costs as well as paying their own costs.

That changes the precedent set in the 2005 Court of Appeal case of Arkin v Borchard Lines & Ors, which said that funders would not have to supply adverse costs above the amount already set.

Clarke J’s decision brings a new challenge to an already hard road trodden by the funders and magic circle firm. When the case started Excalibur and Clifford Chance had entered an agreement with Psari Holdings, which agreed to advance a certain amount of money plus security for costs to see the case through.

Five days before the 14 March 2012 security for costs hearing Psari agreed to increase that amount as long as Excalibur found two other funders to join the proceedings. It ended up handing £17.5m to the court rather than waiting for a detailed assessment of both sides’ costs.

The issue is now who will foot the bill for the added £5.6m and whether the funders will meet the two-week deadline. 

The outcome of the case was a triumph for Jones Day and Memery Crystal which were instructed for the defendants. Jones Day partner Stephen Pearson instructed Fountain Court’s Michael Crane QC for Texas Keystone, while Memery Crystal partners Harvey Rands and Nicholas Scott instructed 7KBW’s Jonathan Gaisman QC for Gulf Keystone (10 September 2013).

Panayides led the case for Excalibur instructing 7KBW’s Simon Picken QC.

Clifford Chance declined to comment.