One of the largest and costliest matters backed by outside litigation funding — an ambitious $1.65 billion lawsuit brought by two American brothers — has failed. On Tuesday, Justice Christopher Clarke of London's High Court ruled that the brothers' company, Excalibur Ventures, didn't have a financial interest in four Kurdistan oil fields. The ruling is a big win for Jones Day, which represents defendant Texas Keystone Inc., and for London's Memery Crystal, which represents defendant Gulf Keystone Petroleum Limited. Clifford Chance represents plaintiff Excalibur.

As detailed in a feature article in the September issue of The American Lawyer, third-party financiers put up at least $43 million for the lawsuit. The funding group includes the short-lived litigation finance firm BlackRobe Capital Partners, which announced it was disbanding in May. BlackRobe was formed in 2011 by John "Sean" Coffey Jr., formerly of Bernstein Litowitz Berger & Grossmann, and Timothy Scrantom, who had co-founded another litigation financing firm, Juridica Investments Limited. Michael Chepiga, a former top partner at Simpson Thacher & Bartlett, joined the two as a principal in 2012. The other funders were New York hedge fund Platinum Partners and two Greek shipping maganates, Adonis and Filippos Lemos. It's not clear how much each invested in the case.

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. Rex is a former Army Green Beret and Eric is a lawyer who had worked at Baker & McKenzie and UBS AG. Through Excalibur they signed a 2006 collaboration agreement with Texas Keystone to develop oil fields in Kurdistan. Two years later Texas Keystone and a related entity, Gulf Keystone, secured drilling rights in Kurdistan that didn't include Excalibur, prompting the Wempens to sue in 2010 for breach of contract.

The Excalibur-Texas Keystone contract required the parties to settle disputes through arbitration under New York law. But due to a series of tactics by Excalibur that backfired, Excalibur had to try its case in the public courts of London. The trial in London lasted 57 days and ended March 1. The prolonged proceedings generated huge legal bills, which became very costly for Excalibur's funders. London courts require the losing party to pay its opponents' legal fees, and before the trial ended the court ordered Excalibur to pay $27 million as security for the defendants' costs in case it lost. In addition, Excalibur's lawyers at Clifford Chance billed at least $17 million, according to court documents.

Tuesday's summary decision will be followed by a more detailed ruling from the court in London. The court will also hold hearings this fall to decide if Excalibur and its funders owe more for the defendants' legal fees.

The winning Jones Day team was led by London partner Stephen Pearson and Pittsburgh partners Roy Powell, Peter Laun, and Leon DeJulius Jr. Pearson said the firm is "extremely pleased" with the ruling. Texas Keystone director Robert Kozel issued this statement: "We are extraordinarily happy with the outcome….In truth this is a claim that should never have been brought and we were determined to fight it."

Harvey Rand led the Memery Crystal team defending the Gulf Keystone entities. "We are pleased that justice has been done after two and a half years of litigation and 57 days in court. Commercial common sense has prevailed," he said in a statement.

Clifford Chance London partner Alex Panayides, who represents Excalibur, declined to comment.