Jacobs: No firm offer from potential co-funder
A company in dispute with its litigation funders has failed in its bid to fortify their cross-undertakings in damages after arguing it wanted to use the contested funds to back litigation itself.
Mr Justice Jacobs said it was likely that any litigant would be especially cautious about taking money from Bugsby Property in light of the case.
Last month, the judge rejected Bugsby’s bid to use the Supreme Court’s PACCAR ruling to invalidate the litigation funding agreement (LFA) it had signed up to with Therium Litigation Funding.
He said there was a serious issue to be tried over whether the LFA survived PACCAR and so he granted it an injunction to preserve the £27m in proceeds of the case which it backed pending an arbitration over the issue. Omni Bridgeway, a second funder, was granted an injunction by agreement.
Bugsby subsequently applied for fortification of the funders’ cross-undertakings to the extent of its claimed interest in the settlement proceeds: £4.1m from Therium and £3.3m from Omni.
Together these exceeded Bugsby’s estimate that it would lose £5.14m from the grant of injunctive relief but the company contended that each funder should provide the sums in case one or other cross-undertakings fell away.
The £5.14m figure came from preventing Bugsby from deploying the £20.6m of settlement proceeds currently frozen in the bank account of its solicitors, Candey, into litigation funding itself and achieving a return of 25% over the year until the arbitration decision was likely.
Omni and Therium submitted there was insufficient evidence to justify the figure of £ 5.14m or to say that any eventual judgment in Bugsby’s favour, pursuant to the cross-undertaking, would go unsatisfied.
Bugsby has never funded litigation before but Jacobs J said the evidence indicated that it did wish to enter the market.
“This is understandable in circumstances where [Bugsby has] acquired some knowledge of this business as a result of the various contracts concluded with Omni and Therium over the years, and as a result of looking at available information as to the returns that can be made.”
The company supported this with emails exhibiting some “indicative terms” of a co-funding arrangement with another funder, Bench Walk Advisers, to back cases on which Candey itself would act.
But Jacobs J noted that Bench Walk had not made a “firm offer” to Bugsby. He said: “The indicative terms refer to a possibility for participation, but this is: ‘All subject to DD [due diligence], final docs and internal approvals’.
“There is no evidence that Bench Walk has in fact carried out its due diligence exercise, or obtained any internal approvals. In those circumstances, I consider that it is no more than speculative as to whether the possible deal involving Bench Walk could in fact be concluded.
“There is no suggestion that, if the Bench Walk transaction did not eventuate, Bugsby could nevertheless enter into this market on its own as a new entrant with no track record.”
The judge said it was also “improbable” that a funder – even in the absence of an injunction – would take the risk of participating in a transaction where the funds to be advanced by its partner “were alleged by other reputable litigation funders to be trust funds, and where there was therefore a possibility of a tracing remedy”.
The same would apply “with equal, if not more, force to the third-party litigant who would be in receipt of such monies”.
It was also “not difficult to see” that such a litigant may have “additional reasons for being cautious” given Bugsby’s dispute with its funders.
“In these circumstances, I consider that Bugsby has failed to establish a good arguable case that the claimed loss will be suffered in consequence of the injunctions sought. In my view, the loss for which fortification is sought is speculative.”
This disposed of the application but Jacobs J went on to reject the suggestion that neither Therium nor Omni were “good” for the money anyway.
While neither has significant assets within the jurisdiction of the English court, “it is also clear from the evidence that both of them have access to substantial funds, such that there can in my view be no real doubt as to their ability to meet a liability for £ 5.14m between them, and indeed to meet the higher figures sought by Bugsby”.
That meant Bugsby’s exposure to potential loss, if the cross-undertaking was not fortified, would only arise if the funders decided not to pay, and the judge found “no real risk” that this would happen because of the reputational damage it would do.
A failure to meet the cross-undertaking would amount to a contempt of court and “would have such serious ramifications for both funders, including their wider groups, as to make it improbable in the extreme that it would happen”, Jacobs J concluded.
Neil Purslow, chief investment officer of Therium, said: “We are pleased that, in addition to the asset preservation order, the High Court has again found against Bugsby, who failed to establish that there was a realistic prospect of them entering the litigation funding market, and that as the judgment says, any claimants relying on funds provided by Bugsby might have ‘additional reasons for being cautious’ in light of Bugsby not paying Therium and another funder what it owes them.”
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