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Update: Court of Appeal decision in Excalibur case

On 18 November 2016, the Court of Appeal dismissed an Appeal brought by third party funders in Excalibur Ventures LLC v Texas Keystone Inc and others [2016] EWCA Civ 1144, providing further guidance on the extent to which such funders may be required to pay the costs of defendants who have successfully defended a claim.

Indemnity Costs

The Court did not accept the funder’s argument that costs should be determined on the standard basis as the funders’ own conduct had not been improper. Lord Justice Tomlinson accepted that the funders’ conduct was not an issue but rejected the argument overall. The judge explained that the conduct of parties was only one of the factors that were to be taken into consideration when awarding costs on an indemnity basis. It would also not be appropriate for a funder to dissociate itself completely from the conduct of the funded party especially when a party to proceedings may sometimes be expected to pay such costs as a result of the conduct of their solicitors, witnesses or experts regardless of that party’s conduct.

Arkin cap calculation

The Arkin v Borchard Lines Ltd & Ors [2005] EWCA Civ 655, it was held that the liability of third party funders should be limited to the amount each funder provided in the proceedings, commonly referred to as the ‘Arkin cap’. As the Court of Appeal was not asked to revisit this decision, it was asked to consider whether the funding provided in relation to security for costs was to be taken into account in calculating the Arkin cap. Whilst the funders tried to argue that amounts paid towards security for costs should not be included in the Arkin cap as they were considered to be an actual contribution to the costs of a successful arty. The court rejected this argument, with Lord Justice Tomlinson confirming that there is no difference between money paid into court by third party funders and money advanced to fund the claim. The amounts advanced for security for costs were therefore included in the Arkin cap thus increasing the funder’s liability.

Corporate personality of group companies

Three of the funders had not entered into direct funding agreements with the Claimant but were in fact involved in providing funding. The Court dismissed the argument that a contractual relationship was required before the court could make an order pursuant to s. 51(3) of the Senior Courts Act 1981. The judge explained that if this argument was accepted it would lead to funders establishing special purpose vehicles to avoid liability. The court’s discretion to make non-party costs orders bears no significance on the enforcement of legal rights. The doctrine of corporate personality does not therefore apply especially since the parties in question provided funding and could benefit from the litigation if the Claimant had been successful.

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