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Third party funders are set to be liable for indemnity costs awarded against the party they have funded following the judgment of Lord Justice Christopher Clarke in Excalibur Ventures last week.
The court considered that the defendants, who had had a defend a case which failed comprehensively on both the facts and the law, should clearly be recompensed for the costs they had incurred in defending the action. The funders had contributed monies to the claimant both for costs and for security for costs applications. The 2013 costs judgment ordered that the claimant pay the defendant’s costs on an indemnity basis but there was a shortfall of some £4.8 million. The matter came back before the court following the funders being joined as costs defendants to determine whether they should be ordered to pay the shortfall in costs given that it was essentially only due as a consequence of the indemnity costs order. The question for the court was should funders have to pay indemnity costs when they have been hands off in the litigation and they had no involvement with any of the factors listed in the costs judgment which had resulted in the indemnity costs order?
Lord Justice Christopher Clarke made it very clear that they should be liable for the indemnity costs but that his decision to make the third party costs order was not an attempt to penalize the funders but to recompensate the defendant. In making the order he noted:
There is little comfort for third party funders in this judgment and the message to be taken must be that when funding a case, a funder cannot simply bury their head in the sand. Reliance on comments made by the solicitor of the party they are funding will not enable a funder to escape the costs liability. As the judge said in this case, ‘ it is Mr Lemos’s misfortune that the advice he was so confidently given was the polar opposite of what I have decided’.
For those cases in which there is more than funder, it is also important to remember that when determining whether to make a non-party costs order the court will have to determine whether in all the circumstances it is just to make the order. It does not have to be on the basis of joint and several liability as the court has a discretion as to the form of order, the proportion of costs to be made and the quantum of any award (Nelson v Greening  EWCA Civ 1358).
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Janna is a dispute resolution lawyer with a Masters in Construction Law and Dispute Resolution. During her time in private practice at both Herbert Smith and Denton Wilde Sapte (now Dentons) she worked on complex international disputes, both litigation and LMAA arbitrations, dealing with technical cross border issues.
Janna deals primarily with cross border issues and is active in the work being undertaken in relation to the implications of Brexit for Dispute Resolutions lawyers. She also heads up a LexisNexis costs team bringing together expertise from across the company to deal with the costs issues facing the profession and was a contributing author for the Cook on Costs supplement dealing with the Jackson reforms. Janna is a frequent contributor to the legal and professional press, including the New Law Journal and Counsel magazine.
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