Tag: litigation funding

Joint and Several Liability and Litigation Funding Agreements

Joanne ChaseLeave a comment

In ECU Group Plc v HSBC Bank Plc [2022] EWHC 1616 (Comm) Moulder J addressed the issue of joint and several liability in a case involving multiple litigation funders.

Background

The matter involved fraud proceedings, where the Defendant having successfully defended the matter, applied under the Senior Courts Act 1981 s51 for an order requiring a specific litigation funder to pay the Defendant’s costs. The funder in question had the dominant financial interest in the litigation and had effectively controlled the proceedings. Whilst the funder was one of several commercial funders its contribution amounted to 66%. After providing judgment for the Defendant, the court ordered the Claimant to pay the Defendant’s costs to be assessed on the indemnity basis. In addition, the funder was added as a party for the purpose of costs.

In response the funder submitted that it should only be liable for costs in the same percentage as its contribution, and only for costs incurred after the date of the litigation funding agreement.

It was held that the funder should bear joint and several liability with the Claimant for the Defendant’s costs irrespective of the other litigation funders. It was emphasised that the funder in question had the dominant financial interest and had controlled the litigation. The court held that the Defendant, who had no choice but to incur costs of defending the claim, should not be in a position where recovery of the costs should be reliant on its pursuit on numerous individuals/entities, with potentially an uncertain outcome. The funder was subsequently jointly and severally liable (with the Claimant) to pay the Defendant’s costs.

Summary

The matter can perhaps be seen as a warning shot to litigation funders who have a dominant financial interest and who seek to control the direction of the litigation. Whilst these funders stand to gain the most if a case is successful, they may also be held to be liable for the full amount of costs if a case is unsuccessful. The matter emphasises the courts wide discretion in relation to costs and a funder with a dominant interest may not be able to rely on the existence of other funders to reduce their liability.  The court considered that it would not be reasonable for the Defendant to have to pursue numerous funders where one dominant financial funder exists.

Richard Platts is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact the team at civilandcommercialcosts@clarionsolicitors.com

Avoiding Challenges to your Costs I: Invoicing Clients

Joanne Chase3 Comments

Recently we have seen a steady rise in cases brought by former clients against firms seeking refunds of their legal fees. These claims often stemmed from problems with the invoice sent to the client at the end of the case. In some cases invoices had never even been sent. This blog deals with the requirement to send an invoice, and the consequences for not doing so.

This is the first blog in a series covering various aspects of solicitor / own client relationships. You can find the other blogs here:-

Avoiding Challenges to your Costs II: What is an Invoice

Avoiding Challenges to your Costs III: Talking about Money

Avoiding Challenges to your Costs IV: Time Recording

Section 69 of the Solicitors Act 1974 states that a solicitor may not bring any action to recover any costs due until after one month from the delivery of a bill of costs. These are often called a “statute bill” or “statute invoice”. The requirements for a statute invoice are set out at section 69(2) and are deceptively simple – the invoice must be signed and delivered. The meaning of “signed” and “delivered” are set out at s69(2A).

Until an invoice is delivered in accordance with the Act, a solicitor does not have any right to take client money. Doing so could (and probably would) be a breach of Rule 5.1 of the Solicitors Accounts Rules.

Unfortunately there is no further explanation within the Act as to what a statute invoice is or what information it must contain. Whether or not an invoice is a statute invoice is therefore regulated by case law. This is a large topic and is explored further in the second blog in this series Avoiding Challenges to your Costs II: What is an Invoice?

It is not uncommon to see solicitors fall foul of the Rules, particularly where the claim has been conducted on a CFA and / or is subject to fixed costs. In those cases invoices are often either not sent, or are not compliant.

The danger of not sending a compliant invoice are significant. Not only is it likely to be a breach of the Accounts Rules, but it creates a serious risk that former clients could seek repayment of costs paid years ago. Section 70 of the Solicitors Act sets time limits for a client to seek an assessment of their own solicitor’s bill. In short, where a bill was paid more than 1 year ago, the Court has no jurisdiction to assess costs at all. However, if a compliant bill was never sent, then that time limit never begins to run. Therefore, the client could at any time request a compliant bill (and can apply under section 68 of the Solicitors Act to compel the solicitor to deliver one) and then seek assessment.

The dangers of a failure to raise a compliant bill should therefore be obvious: it creates an open-ended liability where any client could seek delivery of a bill years after the conclusion of the case. Those costs also become at risk of changes in the law. For example, the case of Belsner -v- Cam Legal Services Ltd [2020] EWHC 2755 (QB) shook the personal injury world by creating a requirement for a client to give “informed consent” to paying more than was recovered from the opponent in costs. It would be bad enough for such a judgment to create a risk on every live case in a solicitor’s caseload, but far worse if it were to a create a risk on every case they had ever worked on.

In summary, solicitors must always invoice their client before taking money. This applies whether the case is privately funded, on a CFA, DBA, subject to fixed costs or any other funding structure. Failure to do so creates significant risks to the firm of future challenge.

You can find out more about our services here or you can contact the Costs Team at CivilCosts@clarionsolicitors.com

Will 2021 be the year for Damages Based Agreements (DBA)?

Andrew McAulayLeave a comment

The case of Zuberi v Lexlaw Ltd provides much needed clarity in respect of the termination of a DBA by a client.

Background

  • Lexlaw Limited acted for Miss Zuberi in a financial mis-selling claim against her bank.  
  • The claim was funded by way of a Damages Based Agreement, entered into in 2014.
  • Lexlaw Limited helped to obtain a settlement for Miss Zuberi of over £1 million.
  • Miss Zuberi terminated the DBA and argued that no fees were due to Lexlaw Limited because the DBA was unenforceable. This was on the basis that the agreement contained a termination payment clause which was not allowed under the Damages Based Agreements Regulations 2013.

Costs Litigation

  • Lexlaw Limited issued Proceedings for the recovery of their unpaid fees.
  • In July 2020, HHJ Parfitt ruled in favour of Lexlaw Limited i.e. the termination provision in the DBA did not render the agreement unenforceable.
  • Miss Zuberi appealed and, on 15 January 2021, the Court of Appeal handed down its Judgment and confirmed the decision of HHJ Parfitt: The inclusion of a termination clause is permissible and does not render a DBA unenforceable.

2021 and beyond

The decision is sensible and will help to encourage litigators, particularly commercial litigators, to use a DBA as a source of funding. LJ Jackson introduced DBAs in order to improve access to justice, but they have been rarely used due to the concerns around termination. The Court of Appeal decision will certainly make DBAs more attractive to litigators.

What would really make DBAs attractive to litigators, and again, commercial litigators, would be hybrid DBAs i.e. the ability to charge an hourly rate whether the case is won or lost and a percentage charge if the case is won – similar to a discounted Conditional Fee Agreement. Lord Justice Lewison was supportive of this in the Judgment, but Lord Justice Newey was not. Many legal experts and commentators think that the Court of Appeal’s decision has opened the door for Hybrid DBAs, however, there is no clear authority on that point and the writer suspects that this point will make its way to the Court of Appeal.

So, will 2021 be the year for DBAs? The writer thinks that there will be a growth in the use of this funding option due to the Court of Appeal’s decision on termination clauses. The writer also thinks DBAs will increase as law firms will test the waters and engage with clients under hybrid arrangements. So, the writer’s answer to the question is Yes BUT law firms should proceed with caution as the “Door has been partly opened, but the stairs are slippery” which is what Dominic Regan (adviser to the Costs and Litigation Funding team) recently stated to the writer during a discussion about the case.


This blog was written by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. Andrew can be contacted on 07764501252 or at andrew.mcaulay@clarionsolicitors.com  

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21ST CENTURY LITIGATION (Part 3)

Joanne ChaseLeave a comment

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The third part of this series will explore the liability of third party funders in the matter of Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055.

Background

This matter related to an unsuccessful action in respect of anti-competitive practices which resulted in the collapse of the Claimant’s company, and which severely affected his finances. The Claimant entered into an agreement with a professional litigation funding company (MPC) to provide funding for the expert evidence and litigation support services for the expert. MPC did not agree to pay any of the Defendants’ costs or to provide finances for an ATE premium due to the significant amount of the premiums available.

The claim was unsuccessful at Trial and the Claimant was ordered to pay the Defendants’ costs. The Defendants’ then sought a non-party cost order against MPC for the entirety of the Defendants’ entitlement to costs. However, this was refused at first instance.

The Defendants subsequently appealed the decision.

Decision

The Court of Appeal considered the balance that needed to be struck between the access to justice provided by third party funding and the general rule that costs should follow the event. It was considered that a funder who purchased a stake in an action should then be protected from all liability of the opposing party’s costs in the event the claim fails.

The Court of Appeal commended the following approach:

‘a professional funder, who finances part of a Claimant’s costs of litigation, should be potentially liable for the costs of the opposing party to the extent of the funding provided’

This has become known as the Arkin cap. This approach has provided clarity and transparency to funders as they can now quantify their liability should the matter fail.

Whilst the cap has been readily adopted by the funding industry, it has also not been without criticism. The main criticism being that the cap creates an uneven playing field in favour of the third party funder as they will only ever be liable for the amount of their investment, whilst the opposing party would be liable for all of the costs of the funded party.

In the next part of the series…

The next blog in this series will take a look at the recent decision which has built upon the ‘Arkin cap’ in the matter of Davey v Money [2019] EWHC 997 (Ch).


This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21ST CENTURY LITIGATION (Part 2)

Joanne ChaseLeave a comment

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The second part of this series will explore the Court’s first acceptance of third party funding in the matter of Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

Background

This matter related to a challenge brought by Spanish fisherman who sought to claim damages against the Secretary of State for the unlawful prohibition of fishing in UK territorial waters. A firm of accountants agreed with the Claimants to prepare and submit claims for loss or damage as a result of any losses suffered. The Accountants agreed to act in return for 8% of any damages recovered.

The Claimant’s succeeded in their challenge and were awarded damages and costs. On a preliminary issue the agreement was held to be not champertous and could be enforced against the Secretary of State.

The Defendant’s Challenge

The Defendant claimed that such an agreement was champertous and unlawful. It was argued that for an expert to act on a contingency fee basis would give the expert a significant financial interest in the case which is highly undesirable.

Decision

As stated in my previous blog, the tort of champerty had been abolished and the starting point for considering any arrangement was that it would be presumed enforceable unless there was a valid reason as a matter of public policy.

The Accountants had not acted as experts directly in this matter but had instead funded independent experts. Furthermore, by the time that they were instructed the issue of liability had already been decided.

Therefore, the Court held that such an agreement was not in the circumstances champertous or against public policy.

In the next part of the series…

The next blog will take a look at the liability of third party funders in litigation in the matter of Arkin v Borchard Lines Ltd (nos 2 and 3) [2005] 1 WLR 3055.


This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21st CENTURY LITIGATION (Part 1)

Joanne Chase1 Comment

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The first part of this series will explore how the Court’s attitude to third party funding has changed significantly from the 19th through to the 21st Century.

Champerty and Maintenance

The historic position taken by the Court in respect of third party funding was that it was illegal and tortious. Two offences had developed through the common law: champerty and maintenance.

Champerty referred to when a person who did not have a legal interest in the matter provided financial assistance to litigation in order to receive a share of the profits.

Maintenance was the procurement of direct or indirect financial assistance from another in order to carry on, or defend, proceedings without lawful justification (British Cash & Parcel Conveyors v Lamson Store Service Co [1908]).

Therefore, the default position was that such agreements, which would be considered third party funding arrangements today, would be considered illegal, tortious and unenforceable. However, even at the turn of the 20th Century, the courts were willing to find such arrangements enforceable as a matter of public policy. For instance, in insolvency proceedings, which by their very nature meant that one party would need financial assistance in order to carry on or defend proceedings (Seear v Lawson (1880)), the Court found that a third party funding agreement was enforceable.

Abolition

The default position changed with the enactment of the Criminal Law Act 1967 (CLA 1967). S.13 CLA 1967 abolished the offences and torts of champerty and maintenance. S.14 CLA 1967 changed the approach of the test, which now started from the presumption that such agreements were enforceable, unless there was a valid reason as a matter of public policy.

Comment

Statutory intervention was important to provide additional certainty and security to parties wishing to enter into third party funding arrangements. However, such an approach cannot be taken for granted outside of the jurisdiction of England and Wales.

Recently, the Supreme Court in Ireland, in the matter of Persona Digital Telephony Ltd v The Minister for Public Enterprise (2017), found a third party funding agreement to be unlawful. This is because the offences of Champerty and Maintenance have not been abolished by statute In Ireland. The Court felt that it is consequentially bound to find such agreements unlawful and that any change of approach was within the remit of the Legislator, not the Judiciary.

In the next part of the series…

The next blog will take a look at how the Court has begun to develop the law in respect of third party funding, with a look at the decision in Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

When a CFA describes the claim rather than the work it covers

Joanne ChaseLeave a comment

The recent Court of Appeal decision of Malone v Birmingham Community NHS Trust [2018] EWCA Civ 1376 reinforced the importance of a clearly drafted funding document.

The case involved a prisoner at HMP Birmingham who pursued a claim for failure to diagnose testicular cancer between August 2010 and January 2011. The prison was operated by the Ministry of Justice, and health care services were provided by Birmingham Community NHS Trust, and Birmingham and Solihull Mental Health Foundation Trust.

The Claimant initially instructed Ross Aldridge Solicitors, who had difficulty in identifying the correct Defendant, and in March 2012 the Claimant transferred instructions to New Law Solicitors. They, too, encountered uncertainty when trying to identify the correct negligent Defendant.

The Claimant entered into a CFA with New Law Solicitors on 16 January 2013, which stated that the agreement covered “All work conducted on your behalf following your instructions provided on [sic] regarding your claim against Home Office for damages for personal injury suffered in 2010.”

On 04 October 2013, after proceedings were issued but yet to be served, Birmingham Community NHS Trust admitted responsibility for the Claimant’s treatment, and on 20 March 2014 damages were agreed in the sum of £10,000 plus costs.

A detailed assessment of costs commenced, and the Defendant challenged the enforceability of the CFA on the basis that it was limited to a claim against the Home Office/Ministry of Justice only. DJ Phillips, regional costs judge for Walker, found on 27 April 2015 that the CFA excluded a claim against the Defendant and therefore costs were not recoverable under the agreement as the Claimant had no contractual liability to pay his Solicitor for the work done in suing the Defendant.

The Claimant applied for permission to appeal, which was initially dismissed by HHJ Curman QC in a judgment dated 25 September 2015, but was later granted by Brigg LJ by way of order dated 28 July 2017.

On appeal, Patten LJ and Hamblen LJ considered whether the critical wording of the CFA (highlighted in bold above) merely identified the claim to which it related, or whether it limited the scope of the CFA to a claim against the Home Office only. It was necessary to consider the principles established in paragraphs 11-13 of Wood v Capita Insurance Services [2017] UKSC 24 to ascertain whether a textual analysis of the agreement was required or whether greater emphasis should be given to the factual matrix (contextualism).

[A textual analysis is typically used for agreements that have been negotiated and prepared with the assistance of skilled professionals. Alternatively, consideration of a factual matrix can also lead to the correct interpretation of an agreement, particularly if a contract had been made without skilled input].

Hamblen LJ stated that the “insertions made to the CFA demonstrate it as poor quality drafting and little attention to detail. The critical wording consists of only one sentence and yet it contains three manifest mistakes: (i) the omission of the date of the instructions and (ii) the omission of the definite article before “Home Office” and (iii) the description of the claim being against “Home Office”. The Home Office had not been responsible for operating prisons for some years”. The poor drafting led to a greater emphasis being placed on the factual matrix of the agreement rather than a close textual analysis.

Hamblen LJ considered the most natural reading of the critical wording as being a CFA that covered “all work conducted” on the Claimant’s behalf following “instructions provided” in respect of his claim “against Home Office” and he concluded that the wording was descriptive of the instructions received rather than of the work to be done. Further, he suggested that if the CFA had meant to provide only a limited coverage, greater care and precision would have been expected, but that in any event it would have been in neither party’s interest to seek to impose a strict definitional limit on the agreement so early in the claim.

Therefore, taking into account both textualism and contextualism, it was found that the CFA was not limited to a claim against the Home Office/Ministry of Justice only and the Claimants appeal was allowed.

Whilst in this case the judgment goes in favour of the receiving party, it highlights the importance of giving careful consideration to exactly what a retainer provides for, both at the outset and during the life of a claim, to ensure there are no pitfalls on assessment. It is crucial that time is invested into the creation of a retainer at the outset of a matter, and that it is regularly reviewed throughout the life of a case.

If you have any questions or queries in relation this blog please contact Joanne Chase (joanne.chase@clarionsolicitors.com and 0113 336 3327) or the Clarion Costs Team on 0113 2460622.

Calling trumps: how the court has laid its cards on the table over costs management.The interaction between costs budgeting and costs assessment – Merrix v Heart of England NHS, the appeal of the first instance ruling.

Anna LockyerLeave a comment

The interaction between costs budgeting and costs assessment has been considered again in Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB) – the appeal of a first Merrix v Heart of England NHS instance ruling.

Mrs Justice Carr found that the court will have ‘regard to the receiving party’s last approved or agreed budget by respecting it or finding that there is a good reason to depart from it. So, the question to be answered is – will a receiving party’s costs
be allowed in full if they are less than the budget? Yes – for now! The Merrix decision confirms that any departure from the budget applies to both downward and upward revisions, hence parties have to show a good reason to depart from the budget.

Does Mrs Justice Carr’s finding in Merrix deny the paying parties an opportunity to challenge potentially unreasonable costs, despite it being their responsibility for the costs of challenging those costs? At the moment – yes.

Is it ‘just’ for the receiving party to request their costs in full simply because they have been incurred and fall within the parameters of the budget? What safety mechanism is in place to ensure that any receiving party does not include unreasonable and disproportionate costs in their claim for costs, simply justified on the basis that they ‘fall within budget’?

Mrs Justice Carr felt that the indemnity principle was sufficient, though perhaps it is not – unreasonable costs can be claimed from the client, hence the need for Solicitors Act assessments. Or alternatively, the client may have little regard to the constraints of the budget and request that ‘out of scope’ or disproportionate and unreasonable costs are incurred in any event.

How can restraints be imposed on a spendthrift client with deep pockets, and at the same time discourage a paying party from being overzealous in their requests for detailed assessment? Perhaps the introduction of the ‘one-fifth rule’ to costs budgeted cases could be the answer. This shares the burden of the costs consequences, rather than the traditional costs shifting rule. If the bill is reduced by more than 20%, then the receiving party is responsible for those costs rather than the paying party, but if the paying party secures less than a 20% reduction to the bill, then they become responsible for those costs.

This should encourage all parties to think seriously about committing to detailed assessment, rather than the onus being on the paying party. Not only does this tie in nicely with the rules for Solicitors Act assessments, but it is also in line with the rules surrounding provisional assessment relating to the recoverability of costs for an oral
hearing (see article, page 10). Further, it embraces Jackson’s intention to reduce the number of detailed assessments, and at the same time does not deprive parties the opportunity to challenge the costs. Just a thought.

Is this the end? Perhaps only for now. Mrs Justice Carr requested that if this decision were to be appealed, then it should be heard together with any existing listings covering the same point of principle.

In her decision, she referred to Harrison, which was soon to be heard in the Court of Appeal. The Harrison decision is listed for May, and so the paying party in Merrix may be running out of time to get this listed together with Harrison – but we await with interest.

Please click here to read the full article which was published in the April edition of the Litigation Funding magazine.

Anna Lockyer is an Associate at Clarion. You can contact her at anna.lockyer@clarionsolicitors.com or on 0113 288 5619.