The Excalibur case revealed that litigation funding is high risk but it changes nothing for UK funders, says Nick Rowles-Davies of Vannin Capital.
The high-profile end of the long-running High Court case commonly referred to as ‘Excalibur’ has created a renewed wave of interest in the litigation funding arena. It is true to say much of this interest has come from those with a keen eye on funding failures – the funding world is an industry which sometimes attracts a bad press.
Excalibur – a $1.6bn dispute between Excalibur Ventures and Gulf Keystone Petroleum and two subsidiaries over exploration rights in Kurdistan - has been described as a Sword of Damocles for the UK’s litigation funders. Others refer to it as a crushing blow for the industry, and a lesson to those already in or preparing to enter the sector of investing in commercial litigation.
A positive for the wider field
Two months since the case was thrown out in its entirety by Mr Justice Christopher Clarke, it is still being talked about, and is being cast as a key moment for funders. In truth, Excalibur is far from being a huge issue for funders. In fact, for the wider field of litigation funding and litigation itself, it is a positive.
The reason for that statement is this: it highlights that litigation funding is a high risk industry and should not be seen as a get-rich-quick scheme. It requires significant skill and experience, plus a range of cases to ensure no single case ruins the viability of a funder.
The loss for the funders behind Excalibur is understood to run to £30m including a significant security for costs order and large amounts of counsel's fees. It was, after all, the longest running case at the High Court in the 2012 judicial year.
Indeed, the funding behind the case was revealed when the defendants, during the 57 day trial, became curious as to how Excalibur had funded their case. The Claimant was asked to provide certain documents, and all was revealed.
The Excalibur case will certainly not be a one off. There will be other significant losses for funders.Litigation funders expect losses – they may not like them, but it is a fact of life. No investments are guaranteed, and certainly not in this market. Excalibur highlights the need for a portfolio approach to funding, so that the wins cover the losses and, of course, more.
No funding from UK market
The case, with its various newsworthy elements, has been talked about because of the amount of funding taken. But it must be underlined; none of the funders in this case was drawn from the traditional UK market.Of course, that is not to say traditional funders are immune to defeat, but in terms of this case, it is a significant element.
When a case goes to trial, the parties lose the ability to control the outcome of the case - that is always the position, and that is why settling cases is preferable to a costly trial. Sometimes that does not or can't happen. In some cases, such as this one, whilst the legal fees are high, they pale into insignificance when compared to the amount in dispute.In those cases it is more likely that the case will go all the way to trial.
The bottom line is this - Excalibur changes little or nothing in the funding market.It is simply that in a sector which is historically extremely confidential, this case has hit the headlines, firstly because it is a big loss, and secondly because it is known to have been funded.There are few examples of this sort of transparency in the market.There are also many cases which have the backing of funders, that win - it’s just those outside the circle of those cases do not get to hear about them.
But like the losses, the wins will keep happening and the funders will take each case on its own merit, probably thinking little about Excalibur when they make the decision over whether to invest, or not.
Nick Rowles-Davies is a consultant to litigation funder Vannin Capital