Excalibur Ventures LLC v Texas Keystone Inc & Ors, Court of Appeal - Civil Division, November 18, 2016, [2016] EWCA Civ 1144,[2016] WLR(D) 614

Resolution Date:November 18, 2016
Issuing Organization:Civil Division
Actores:Excalibur Ventures LLC v Texas Keystone Inc & Ors

Case No: A3/2015/0443 & A3/2015/0476

Neutral Citation Number: [2016] EWCA Civ 1144





[2014] EWHC 3436 (Comm)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 18 November 2016

Before :





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Between :

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John Wardell QC and Jamie Carpenter (instructed by Withers LLP) for the First and Second Costs Defendants/Appellants

Ian Croxford QC and Nicholas Medcroft (instructed by Orrick LLP) for the Fifth to Eighth Costs Defendants/Appellants

Richard Waller QC and Richard Eschwege (instructed by Memery Crystal LLP and Jones Day) for the Costs Claimants/Respondents

Peter Kirby QC (instructed by Olswang Solicitors) for the Intervener by written submissions only

Hearing dates : 19 & 20 July 2016

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JudgmentLord Justice Tomlinson :

1. Third party funding is a feature of modern litigation. It takes at least two forms. The first is so-called "pure funding" of which Hamilton v Al Fayed (No.2) [2003] QB 1175 is a well-known example. In that case it was held that pure funders will not ordinarily be made the subject of an order under section 51(3) of the Senior Courts Act 1981 ("the SCA"), to pay the costs of the successful unfunded party. Section 51(3) of the SCA is, as is well-known, the provision which gives to the court a discretion to determine by whom and to what extent the costs of proceedings are to be paid. In Hamilton v Al Fayed the Court of Appeal decided that the successful unfunded party's ability to recover his costs had to yield to the funded party's right of access to the courts. The court held that the pure funding of litigation was in the public interest provided that its essential motivation was to enable the funded party to litigate what the funders perceived to be a genuine case. There the genuine dispute surrounded Mr Hamilton's assertion that he had been libelled by Mr Al Fayed. The second form of third party funding is so-called commercial funding. It is true that the facilitation of access to justice is an incidental by-product of commercial funding, but that is not the essential motivation of the commercial funder. The commercial funder is an investor who hopes to make a return on his investment. For that reason, justice will usually require that, if the funded proceedings fail, the funder or funders must pay the successful party's costs. As Lord Brown of Eaton-under-Heywood put it, giving the judgment of the Judicial Committee of the Privy Council in Dymocks Franchise Systems (NSW) Ltd v Todd [2004] 1 WLR 2807 at 2815:

"Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is "the real party" to the litigation, a concept repeatedly invoked throughout the jurisprudence . . ."

2. The present appeals are concerned with commercial funding, but the funding here was not typical of that which is routinely undertaken by members of The Association of Litigation Funders of England and Wales ("the ALF"), a company established in 2011 by the Civil Justice Council of England and Wales. The ALF was given permission to intervene in these proceedings, by way of written submissions only, and did so by way of submissions drafted by Mr Peter Kirby QC. There were here four groups of funders, none of them members of the ALF. Only one of the funders had any experience of funding litigation and this was its first foray into litigation in the UK.

3. The proceedings out of which these appeals spring began on 17 December 2010. On that day Excalibur Ventures LLC ("Excalibur"), a Delaware corporation, began this action against Texas Keystone Inc. ("Texas"), Gulf Keystone Petroleum Limited and other Gulf Keystone companies ("Gulf"), together "the Defendants". In it Excalibur claimed to be entitled to an interest in a number of oil fields in Kurdistan, which are potentially extremely profitable, and of which the Shaikan field is the most important. The claim was for specific performance of a "Collaboration Agreement" pursuant to which Excalibur claimed its entitlement to an interest in the fields or to damages which, as finally put, were said to be of the order of US $ 1.6 billion. On some unknown date Excalibur entered into some form of conditional fee agreement with Clifford Chance LLP ("Clifford Chance"), its solicitors.

4. Excalibur is nothing more than a brass plate. It has no assets and has never had any assets. This is said to have been the first occasion upon which Clifford Chance had agreed to accept a conditional fee agreement. The understanding at trial (the conditional fee agreement was not disclosed) was that Clifford Chance's fees had been discounted by 40% in return for an uplift in the event of success. That uplift was said to be equivalent to 40% of their undiscounted fees, a further 100% of that 40% and a success fee to be determined by Excalibur in its sole discretion. That would indicate that in the event of success Clifford Chance would recover 140% of its usual fees plus a discretionary success fee.

5. The action could not have been pursued without third party funding. Excalibur was in no position to borrow and the persons behind Excalibur were not wealthy. Between November 2010 and March 2013 the funders advanced £31.75 million to Excalibur (or to Clifford Chance) to enable the claim to be pursued to the conclusion of trial. Of this amount £14.25 million was provided in order to meet Clifford Chance's fees and disbursements, including the fees of counsel and of expert witnesses deployed at trial. £17.5 million was advanced for the purpose of enabling Excalibur to comply with orders requiring it to furnish security for the Defendants' costs of the action.

6. It will be appreciated from these figures that this was complex and expensive litigation. The trial occupied 60 days. Excalibur was represented by one leading and three junior counsel and, of course, by Clifford Chance. Texas was represented by one leading and two junior counsel, instructed by Messrs Jones Day. Gulf, against whom the claim was principally directed as its stake in the Shaikan field was 75% as compared with 5% for Texas, was represented by three leading counsel and two juniors, instructed by Messrs Memery Crystal.

7. The judge announced his conclusions on 10 September 2013. The reserved judgment of the trial judge, Christopher Clarke LJ as he had become by the date of formal hand-down, 13 December 2013, extends to 323 pages of single spaced type. It can be found at [2013] EWHC 2767 (Comm). The claim failed on every point, whether put in contract, which was the primary claim, or in tort, where five causes of action were pursued: interference with contract, interference with business relations, breach of fiduciary duty, fraud by misrepresentation and fraud by concealment. The claim did not fail narrowly or on the basis of abstruse legal doctrine upon which two views might be possible. It failed for rather more straightforward reasons, the first being that Excalibur had no contract with Gulf. This finding can have come as no surprise to anyone. In a reserved judgment of 28 June 2011 ([2011] EWHC 1624 (Comm)) giving her reasons for restraining Excalibur from pursuing a claim against Gulf in arbitration proceedings in New York Gloster J, as my Lady then was, found on the evidence then before her a strong arguable case that Gulf was not a party to the alleged contract with Excalibur ("the Collaboration Agreement") and described the grounds put forward by Excalibur to assert the contrary as not, at least at that stage, legally or evidentially convincing. An equally straightforward reason for the failure of the claim was that whereas Excalibur asserted that it had an entitlement to 30% of Gulf's 75% interest in the Shaikan field, it could not show that it had ever been able to perform the obligations which would have necessarily accompanied that entitlement. Gulf's costs of exploration and development were of the order of US$500-700 million. An entitlement to enjoy 30% of Gulf's interest would imply an obligation to contribute 30% of those costs of exploration and development. Whether looked at from the standpoint of New York law or of English law, this was fatal to any entitlement to specific performance or damages - either because under New York law Excalibur had never been able and willing to perform, or under English law because any alleged breach of contract had caused no loss. Yet other reasons for the failure of the claim were that large parts of the evidence of Excalibur's witnesses, both factual and expert, with the exception of Judge Bellacosa, its expert on New York law, were rejected, as was Excalibur's attempt to portray as dishonest Mr Todd Kozel, the principal figure involved for Gulf. It was for reasons such as these that the judge described the litigation as having met with "a resounding, indeed catastrophic, defeat".

8. In his costs judgment delivered on 13 December 2013, [2013] EWHC 4278 (Comm), the judge summarised the claim in this way:

"8. The claim was essentially speculative and opportunistic. It has been advanced at great length and by the assertion of a plethora of causes of action, all of which have been maintained to the last possible moment, no doubt upon instructions. Gulf, and to a lesser degree Texas, have been put to enormous expense in terms of legal costs...

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