27 October 2014Print This Post

Funders stay calm in wake of Excalibur decision

Rowles-Davies: business as usual

Third-party litigation funders have moved to quell fears that last week’s Excalibur ruling could damage the funding market, highlighting the exceptional nature of the case.

In making the funders involved liable for the indemnity costs ordered against the claimants, Lord Justice Christopher Clarke cast doubt on the suggestion that his decision would “chill” the market.

Nick Rowles-Davies, UK managing director of Burford Capital, pointed out that none of the funders involved were members of the Association of Litigation Funders (ALF).

He said that while “opponents of litigation finance will leap onto the ruling for their own purposes”, the reality was that the judge found a senior partner at Clifford Chance had given “confident advice” about a case he characterised as the best case he had ever seen, which was backed up by opinions potential founders commissioned from two other leading firms, Allen & Overy and Orrick.

“Orrick and the two magic circle firms turn out to be wrong,” he said. “The case fails. It is not the first time confident lawyers got it wrong, and it will not be the last.

“The trial judge makes it clear that there was “no impropriety” by the backers, who were relying on ‘top rank solicitors’, and that this was an ‘exceptional case’ that was ‘well outside the norm’.

“What then happens? Nothing very extraordinary. The trial judge applies existing law – the Arkin cap. He does not – as was speculated he might – disagree with Arkin or suggest that some higher number is appropriate. He also takes pains to say that nothing in his decision ‘will send an unacceptable chill through the litigation funding industry, whose aim is not to finance hopeless cases but those with strong merits’.

“This case garnered attention because of its size and the trial judge’s earlier caustic remarks about its prosecution. This decision about costs and funding was nothing unusual and tomorrow will be business as usual for the ALF membership in the UK.”

Jeremy Marshall, chief investment officer at Bentham Europe, suggested that the really novel finding was that the funders were found not just liable for indemnity costs, but also for the funds put up as security of costs.

“By analogy, that would also include adverse costs cover that is offered by a small number of professional funders, of which Bentham Europe is one. In other words, the cap on funders’ overall liability actually includes the entirety of the funders’ exposure – be it for claimants’ or defendants’ costs.

“Excalibur remains a case very much on its own facts. It is something of a mystery as to how funders agreed to finance the case to the extent that they did and I suspect we have not yet seen the funders’ final word on the subject.

“What the case does indicate is that funders are very much tied in to the claimants’ fortunes – both good and bad – and they are unlikely to be able to wriggle or garner any sympathy from a judge when seeking to distance themselves at a later date.

“Indeed, a funder’s attempt to backtrack from the claimant in itself reveals a telling point – namely that the funder had not satisfactorily performed its own due diligence. For that reason alone, it is unlikely that we will have Excalibur II any time soon.”

Jason Smart, CEO of Elite Insurance, said the ruling was “inevitable at some point in view of Arkin”.

He continued: “Whilst I do not like the order, I can see why the court took the view in this situation, which is distinguished from many run-of-the-mill cases. I do hope this does not cause the funding market to flounder as this is an exceptional situation.”

Costs lawyer Andy Ellis, managing director of Practico, described the ruling as an important refinement of Arkin. “It establishes that sums provided to fund security for costs should be added to the amount advanced to fund the costs of prosecuting the claim to calculate the cap on third party funders’ potential liability for adverse costs.

“The stinging judgment both as to the merits of the claims and the conduct of the claimants and their lawyers will, I expect, have more of a chilling effect on funding than the technical aspects of the calculation of potential exposure – but it should be remembered that this case was found to be outside the norm on numerous levels.”

By Neil Rose


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