Third Parties Who Funded 'Opportunistic' Claim Liable For Indemnity Costs

The Court of Appeal has upheld a judge's order imposing indemnity costs on third-party funders.

In Excalibur Ventures LLC v Texas Keystone Inc & Others [2016] EWCA Civ 1144, the claimant used commercial third-party funding to pursue a claim of US$1.65 billion, including claims for breach of contract, business torts, breach of fiduciary duty, and fraud. The latter claims included allegations of personal dishonesty against a representative of one defendant. The claim was not only unsuccessful, but was characterised by the first-instance judge as "speculative and opportunistic", "objectively hopeless" and "based on no sound foundation in fact or law". The judge found that to a large extent, the facts and matters which led to the defeat of the action were known to the claimant before commencing the proceedings, which he said were an "elaborate and artificial construct" rooted in misrepresentations. He ordered the claimant to pay indemnity costs and, when the claimant failed to do so, gave permission for the defendants to join the funders to the action with a view to recovering costs from them. At the costs hearing, he ordered the funders to pay indemnity costs from the date of their first contribution to the claimant's costs. The funders appealed.

The Court of Appeal rejected the appeal. Under the funding agreements, the funders stood to gain up to seven times the value of their funding if the claimant had been successful. The judge had been...