Rumbling on

Welcome to 2024. A new year, new horizons, new issues and the costs wars continue to rage. There are imminent battles on the horizon, dealing with the implementation of the expanded fixed recoverable costs regime, a new war being waged in relation to costs in housing disrepair claims and the solicitor-own client front is about to resurge. In the meantime the aftermath of the decision of the Supreme Court in Paccar and Others v Road Haulage Association and Others [2021] EWCA Civ 299 R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28 continues to rumble on.

In the case of Therium Litigation Funding v Bugsby Property [2023] EWHC 2627 (Comm) two litigation funders, Therium and Omni made various applications under section 44 of the Arbitration Act 1996 for asset preservation or freezing orders, in respect of settlement monies that had been received by Bugsby and which had made a litigation funding agreement with each of the litigation funders. 

A central issue on the applications was whether due to the Paccar decision, Bugsby had a good defence to the proprietary claims which had been asserted by the litigation funders, or rather where there was a serious issue to be tried concerning whether that was so. However any such “trial” would not take place in court, but rather by way of arbitration pursuant to arbitration clauses contained in the litigation funding agreements.

The application brought by Omni was essentially compromised, on the basis that undertakings would be given to preserve the sum of £13, 133,596.56 and the hearing then proceeded with Therium making its submissions that there was a serious issue to be tried and Bugsby responding. The principles that the court had to apply in determining whether orders should be made were summarised in paragraphs 34 to 37 of the judgment of Jacobs J:

34. It was therefore not disputed that the Court has jurisdiction to grant the relief sought by Therium pursuant to section 44 of the Arbitration Act 1996, which provides that the Court may grant an order for the preservation of property or for an interim injunction if the matter is urgent and if the arbitral tribunal has no power or is unable for the time being to act effectively. Bugsby did not argue that these conditions for relief were not fulfilled.

35. It was also common ground that the well-known American Cyanamid test applies to asset preservation orders in support of proprietary claims: Madoff Securities International Ltd v Raven and others [2011] EWHC 3012 (Comm). It is necessary to show that: (a) There is a serious issue to be tried; (b) The balance of convenience is in favour of an injunction (including consideration of whether damages are an adequate remedy); (c) It is just and convenient to make the order sought.

36. The Court will be more ready to grant interim remedies in order to preserve trust assets (i.e. where the applicant has a proprietary claim) than where the claim is a personal one: Republic of Haiti v Duvalier [1990] 1 QB 202 per Staughton LJ at p213-4. Gee on Commercial Injunctions (7th Edition) at 7-011 states that: “A court has never hesitated to exercise its strongest powers to preserve a trust fund in interlocutory proceedings”.

37. As will already be apparent, the critical question in the present case is whether there is a serious issue to be tried, and it was on this issue that the argument focused. If there was such a serious issue, then Bugsby did not, except in relation to arguments as to the quantum of Therium’s injunction (see Section H below), suggest that the balance of convenience favoured refusing an injunction, or that it was not just and convenient to grant it. The essential reason why the balance of convenience favours an injunction is that there is evidence that Bugsby is insolvent, and therefore the release of the settlement monies to Bugsby (if no injunction were granted) would in practice mean that any award by the arbitrators in favour of Therium might well be of no practical utility.

Turning to the issues, the first one concerned the enforceability of the DBA: but a DBA as viewed through the lens of the majority judgment in Zuberi v Lexlaw Ltd [2021] EWCA Civ 16 and that the litigation funding agrement in this case was wider than the part of it which might constitute an unenforceable DBA. Thus as Jacob J noted:

44. Mr Carpenter accepted that the effect of Zuberi was that a DBA, for the purposes of Section 58AA(3), was not the whole of the agreement, but only certain parts of it. He also did not dispute the proposition that if the Therium LFA had indeed been confined to payment of the funds advanced and the multiple, it would not have been unenforceable. He was thus inclined to accept (at least for present purposes) the correctness of Professor Mulheron’s view. As he said: if the funder was only charging a multiple, that would not be a DBA; it’s the percentage that makes it a DBA.

45. Against that background, I consider that there is a realistic argument, applying the language of the judgment of Lewison LJ, that the relevant provisions (i.e. those providing for recovery of amounts spent, and the multiple) are “other provisions which provide for payment on a different basis” to those which entitled a lawyer to a share of recoveries. Or, applying the narrow approach of Coulson LJ, there is a realistic argument that the parts of the agreement relied upon by Therium are “not part of the DBA itself”.

46. Thus, Mr Sullivan submitted that a DBA can be understood as an agreement within an agreement, in a similar way to an arbitration agreement. Whether or not that analogy is appropriate is not something which it is necessary to explore. However, the substance of his argument was that in the Therium LFA, only the provisions concerning payment of a percentage of the Claim Proceeds would amount to a damages based agreement. The remaining provisions, including those concerning the trust, the repayment of the funded sums, and the contingency fee insofar as it concerns a multiple return on those funded sums, are not damages based agreements and so do not fall foul of the decision in PACCAR. I agree with his submission that this point gives rise to a serious issue to be tried.

47. In reaching that conclusion, I also bear in mind that I was not referred to any authority which gives any further guidance as to how this aspect of the decision in Zuberi is to be applied in the context of an agreement such as the present. Thus, there is no binding authority which is contrary to Therium’s submission, and in fact it is Bugsby whose argument posits that the decision has no application in the present context and can be distinguished. (Zuberi was considered in Diag Human (discussed in Section G below), but that case did not concern a DBA but rather a conditional fee agreement (“CFA”)). 

The court then went onto consider whether there was a serious issue in relation to an argument that the offending provision might be severed: although strictly obiter, it concluded that there was an argument, in passages which may yet bear fruit in further cases:

60. These passages indicate that the decision on severance in Diag Human cannot simply be read across and applied by analogy to the issue of severance in the DBA in issue here. As Mr Sullivan pointed out, there are some significant differences between the legal regime concerning CFAs when compared to DBAs. They are governed by different sections of the 1990 Act. There is also a different common law and statutory background. A CFA is illegal at common law, because of the prohibition on champertous agreements. A CFA is illegal unless it satisfies the requirements of the CFA regime in the 1990 Act; see Diag Human at para [20]. It can be argued that there is no equivalent public policy in relation to LFAs: there was no dispute that in principle these are lawful and do not offend policy (see e.g. Chapelgate Credit Opportunity Master Fund v Money [2020] EWCA Civ 246, referring to prior authority). Accordingly, the effect of section 58AA is not to authorise what would otherwise be illegal agreements, but rather to render unenforceable legal agreements which do not satisfy its requirements. It can be argued, reasonably, that there is no public policy objection to a severance which removes those provisions in a litigation funding agreement which place the agreement within the regime, leaving behind an entirely lawful agreement to which the regime does not apply.

61. Accordingly, a non-compliant CFA may well present a more difficult case for severance than a LFA which includes a DBA. Whether or not that is so is a serious issue, with which the arbitrators will need to grapple. That will include the central question of whether the character of the agreement would be changed by severance. Mr Sullivan submitted that removal of offending provisions would not change its character: following severance, there would be an agreement for funding and obligation to repay in return. Mr Carpenter of course submitted to the contrary. There is no direct authority on the point, and in my view the court cannot and should not try give an answer to this issue now, when the only question is whether there is a serious issue to be tried. In my view, there clearly is.

62. In view of these conclusions, Therium has established that there is a serious issue to be tried in relation to its argument in support of the existence of a proprietary claim and which would potentially defeat Bugsby’s unenforceability case. It is not therefore necessary to consider the arguments as to whether, in the event that there was no serious issue to be tried on its proprietary claim, there would be a sufficient “good arguable” restitutionary claim so as to justify a freezing injunction.

The arguments then developed on the issue of the quantum of the funds to be frozen, and in particular interesting arguments were developed on the nature of Therium’s claim, and how it was founded on a “trust” and how this might affect Theriums rights to the settlement sums. In the end the judge neatly sidestepped resolution of these points, by deciding there was a serious issue to be tried and ordering all the trust funds to be preserved, which went beyond the sums then held by Bugsby’s solicitors.

As an interesting coda, a further hearing took place on the issue of “fortification” of the cross undertakings that had been provided by the litigation funders: Omni Bridgeway v Bugsby Property [2023] EWHC 2755 (Comm). Jacob J summarised the principles that he had to apply in these terms, citing earlier authority and in particular an ennunciation of the principles summarised by Calver J:

5. Bugsby submitted, in its written submissions, that the exercise of the court’s discretion involved considering whether the applicant for fortification has a good arguable case that it will suffer loss that it would not have suffered but for the injunction that is capable of intelligent estimation. In my view, that is a fair summary of the principles established in the decision of the Court of Appeal in Energy Venture Partners Ltd v Malabu Oil & Gas Ltd [2014] EWCA Civ 1295.

A more complete summary of the principles is contained in the judgment of Calver J in PJSC National Bank Trust v Mints [2021] EWHC 1089 (Comm), paragraph [26]:

“It was common ground between the parties that it is a matter for the Court’s discretion as to whether or not to order fortification of an undertaking given by a claimant as the price for it obtaining freezing injunctive relief. In exercising that discretion, the Court will have regard to the principles set out in Energy Venture Partners Ltd v Malabu Oil & Gas Ltd [2015] 1 WLR 2309 (CA) at [52]-[54] (“Malabu Oil”) as follows: i. The applicant for fortification must show a good arguable case for it, and does not have to prove the need for fortification on a balance of probabilities (Malabu Oil at [52]-[53]).

ii. In considering whether to exercise its discretion to order fortification, the Court will take the three criteria – which are inextricably linked factors – into account (Malabu Oil at [53], applied in Phoenix Group Foundation v Cochrane [2018] EWHC 2179 (Comm) at [14] … :

(a) Can the applicant show a sufficient level of risk of loss to require (further) fortification, which involves showing a good arguable case to that effect?

(b) Can the applicant show, to the standard of a good arguable case, that the loss has been or is likely to be caused by the granting of the injunction?

(c) Is there sufficient evidence to allow an intelligent estimate of the quantum of the losses to be made?”

6. Calver J went on to analyse each of these criteria in more detail. In relation to the requirement that the applicant show a sufficient level of risk of loss: there must be a solid credible evidential foundation that the claimed loss has been or will be suffered (see paragraph [27 (i)]). In relation to the requirement that the loss is caused by the grant of the injunction: it is only loss which is caused or would have been caused by the preventative or coercive effect of the injunction that is recoverable under the cross-undertaking (see paragraph [27 (ii)]). In relation to the requirement that there should be sufficient evidence to allow an intelligent estimate of the quantum of loses: there must again be solid, credible evidence of future losses, and this ought ordinarily to be supported by some underlying material and ought not to be speculative (see paragraph [27 (iii)]).

On the evidence, Bugsby failed to establish that there was either a good arguable case, that Bugsby would suffer loss, or that the funders were not “good for the money” in respect of the cross undertakings that were given.

The dispute (if not settled) will doubtless go forth to arbitration. Although such proceedings are private, it would be interesting to know what an arbitrator makes of the unenforceability arguments: and in particular the extent to which the decision in Zuberi, can be applied to a litigation funding agreement with its interlinked clauses on remuneration. The severability argument may yet find fertile ground, given that the essence of the point is whether a court or arbitrator, as a matter of public policy can effectively excuse non-compliance with an all-or-nothing regime of unenforceability.

Looking to the future, the Paccar decision seems likely to be reversed by primary legislation probably contained in the Digital Markets, Competition and Consumers Bill, currently proceeding through Parliament. As things stand, the government seems to be proposing a narrow reversal, which would simply deal with the immediate mischief in relation to competition law proceedings.

But at least one amendment has been put forward which would overturn Paccar, root and branch, and as the Bill progresses, it may be amended to have this effect. An account of the recent debate on this point can be found here:


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.