Funders May Be Liable in Failed Excalibur Case

, The Litigation Daily

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Things have gone from bad to worse for tiny Excalibur Ventures, and for the litigation funders that backed its failed $1.65 billion lawsuit against a group of U.S. oil companies.

On Friday a judge in London ruled that Excalibur must pay an additional £5.5 million ($9 million) in security to cover the legal costs of defendants Gulf Keystone Petroleum Ltd. and Texas Keystone Inc. under Britain's "loser pays" rule, according to the defendants' lawyers. The judge on Friday also ordered the release of £17.5 million ($27 million) that Excalibur had previously posted as security for the defendants' legal costs, and he ruled that the defendants can go after Excalibur's third-party litigation funders if the company doesn't pay up. In total, Excalibur has been ordered to put up $36 million to cover its opponents' legal costs.

Texas Keystone is represented by Jones Day. Gulf Keystone has London's Memery Crystal. Clifford Chance represents Excalibur.

As chronicled by The American Lawyer in September, the Excalibur case appears to be one of the largest and costliest matters backed by outside litigation funding. The lawsuit was brought by brothers Rex and Eric Wempen, who claimed that the defendants cheated them out of an oil exploration deal in the Kurdistan region of Iraq. In September, Justice Christopher Clarke of London's High Court ruled for the defendants in a summary order. On Friday he issued a lengthy expanded ruling in which he concluded that Excalibur had no interest in the disputed oil fields.

In addition, the judge ruled from the bench that Excalibur must pay the additional £5.5 million as security for "indemnity costs" by Dec. 31, according to the defendants' lawyers. (A transcript is not yet available.) The judge also said that if this sum isn't paid by the end of the year, the defendants can seek payment from Excalibur's funders.

Those funders include the now defunct BlackRobe Capital Partners, which disbanded earlier this year. BlackRobe was led by John "Sean" Coffey Jr. (who last month joined Kramer Levin Naftalis & Frankel, Timothy Scrantom (who recently formed investment advisory firm Scrantom Dulles International), and Michael Chepiga, a former top partner at Simpson Thacher & Bartlett. Excalibur's funding group also included New York hedge fund Platinum Partners and two Greek shipping maganates, Adonis and Filippos Lemos.

"The court agreed with us that Excalibur had no prospects of success, [its] claim was without legal foundation and was pursued aggressively to force Gulf to settle," said Memery Crystal partner Harvey Rands, who represents Gulf Keystone. Jones Day partner Roy Powell, who represents Texas Keystone, said his client was pleased with the outcome: "We're happy that this litigation, which never should have been brought, is behind us." Both lawyers said that if this amount isn't paid by the deadline, then their clients will pursue the funders for the money.

Clifford Chance partner Alex Panayides, who represents Excalibur, declined to comment. Scrantom also declined to comment, and we did not hear back from Coffey.

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