Funding fare

The Excalibur case has prompted questions about third party funding. Nick Rowles-Davies argues that case funding is here to stay.

If the fallout from Excalibur (Excalibur Ventures LLC v Texas Keystone & Ors) is to be believed, litigation funders may as well pack up their bags, ship out and do something completely different. It’s all been washed away by this court room disaster, the opportunity is lost and Camelot has fallen.

People, it seems, are onto us. Such is the fear factor brought into the funding world by this one, albeit behemoth case, that no funder will ever dare put another pound, dollar or euro, into funding a case for a share of any eventual spoils.

Headlines from press around the world, analytical pieces and legal experts, suggest that funding has received a near fatal blow.

This is, of course, all complete and utter nonsense. But that is not to say Excalibur will not have an effect on the funding world.

My argument is that rather than eroding its infant foundations, Excalibur will in fact improve things.

The Excalibur case is not commonplace simply because of the amount claimed and the length of time that the trial took in the Commercial Court, some five months and therefore the very high level of costs incurred on both sides.

In his latest judgment on costs, Lord Justice Clark was significantly critical of the claimants, the merits of their case and the amount they claimed as against his assessment of what it might be worth, namely some $3.3m as opposed to $1.65bn.

The judge found Eric Wempen, a key witness for the claimant, “to be in some material respects an untruthful witness”.

He went on to say that the case was, “essentially speculative and opportunistic.” and that “it was based on no sound foundation in fact or law and it has met with a resounding, indeed catastrophic defeat.” It was a complete and utter disaster for Excalibur. It lost on every point.

Additionally, the lawyers [Clifford Chance] came in for some criticism also saying that in some circumstances its correspondence was “highly aggressive and in others unacceptable in content”.

The judge awarded indemnity costs against Excalibur. There had been security for costs provided in the sum of £17.5m, by supposed litigation funders. It is anticipated that the entire costs award will be approximately £22.5m.

Anecdotal evidence suggests that the funders so far have paid somewhere around £30m in a combination of security and own side’s costs.

So, whilst this is not yet a law changing decision, the decision in Arkin (Arkin v Borchard Lines Ltd & Ors) has not yet needed consideration, it may be that the time will come soon – of course we do not know the exact financial arrangements, but if the overall exposure to adverse costs is higher than the current level of funding provided, the court may have to consider the point.

There have been many of critics surfacing on the point that funders will pursue frivolous cases in the hope of bullying defendants. There has been comment that it is supposedly an “increasingly common feature of commercial litigation in London that very large speculative, opportunist and weak claims are brought by impecunious claimants, backed by litigation funders and After the Event (ATE) insurance, with the intention of bullying a defendant into settlement to avoid years of litigation and millions of pounds of costs”.

The critics go on to say that this judgment is unlikely to turn the tide, but might bring some moderation to the current appetite for excess.

If that is the case then the funders in question deserve all that flows from that. Mainstream and real funders do not do that. This was a case which was overstated, over played and run in an over-zealous manner according to the judge.  There have always been cases like this; to criticise the funders in this way is hyperbolic, misguided and misleading.

Why? Well, without taking the high-ground, they were not mainstream UK funders. That is a fact.

No mainstream funder would have gone near it without adequate ATE cover, given the potential size of the adverse costs. Indeed, they did not go near it. The bottom line is, no mainstream funder was involved in the funding of the case, which tells its own story.

It must be underlined that all funders carry out due diligence on cases and indeed clients, as do ATE providers. It seems there was no ATE policy in force in this case.

Amidst the doom and gloom, mainstream funders, and certainly those in the Association of Litigation Funders, are relaxed on Excalibur.

It has underlined that funding, although high-return, is also high-risk. Portfolios must be built and risks spread.

Funders will back winning cases as well as losing ones. That is the reality.

So in terms of the fallout, it is very much business as usual, and if this case highlights the need to work with ALF members, then that is a benefit to the funding world.

Nick Rowles-Davies is a consultant to litigation funding company, Vannin Capital.