Kerry Underwood

NON-PARTY COSTS ORDERED AGAINST LIQUIDATOR’S FIRM THAT FUNDED UNSUCCESSFUL LITIGATION

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

In

Burnden Holdings (UK) Ltd & Anor v Fielding & Anor [2019] EWHC 2995 (Ch)

the Chancery Division of the High Court made a non-party costs order under section 51 of the Senior Courts Act 1981 against a firm which funded unsuccessful proceedings brought by one of its partners as liquidator of a company, the individual partner having already agreed to pay 15% of the costs.

The judge distinguished between the liquidator on the one hand, who was working on the basis of a 50% share of net recoveries, and his firm on the other hand which funded the litigation to the extent of £478,256.

The judge found that the liquidator’s firm did not exert any control over the litigation, but nevertheless had a sufficient interest in the litigation to characterise the firm as a real party for the purposes of a non-party costs order, and it was not a pure funder simply facilitating access to justice, even though its funding had that effect.

The provision of the partner of his services in return for 50% of the net recoveries was not third party funding sufficient to warrant a section 51 order.

While a distinction needed to be drawn between the firm, and one of its partners, nevertheless the firm stood to gain financially from that partner’s remuneration, and in terms of its funding the firm would recover 2.25 times its funding if the case was successful.

The only asset in the liquidation was the claim against the defendants.

The court held that it was just, in all the circumstances, to apply the Arkin cap, that is to limit the firm’s liability under the section 51 non-party costs order to the extent of its own funding.

The imposition of the Arkin cap is discretionary.

Here, the court took the view that the Arkin cap struck a fair balance between the successful defendants’ entitlement to costs and the risk of discouraging funding that facilitated access to justice, as the funding here had done.

The court also observed that the funding here had initially assisted successful appeals when other funding was not available and, while the firm should be treated as a real party in relation to the application, it did not stand to gain an enormous return on its investment, and its funding also stood to benefit creditors of the claimant.

Much of the funding was in relation to satisfying interim orders for costs in favour of the defendant and security for costs, and the additional funding amounted to only £100,000 and the defendants’ costs were a great deal more.

The case has potential significance for liquidators and the court said this about the individual liquidator’s work in return for 50% of net recoveries, as opposed to the specific cash funding by the firm:

 “While in a loose sense, it might be said that Mr Hunt was “funding” his own work as liquidator by agreeing to be paid only from recoveries in the event that there were any, Mr Potts did not suggest that this would justify a liquidator being made liable for the costs of another party in litigation brought by the company in liquidation. It was common ground among Counsel that there is no reported case of such an order being made. There was no evidence as to what an appropriate percentage share of recoveries might be, so far as a liquidator’s remuneration in an equivalent liquidation is concerned. Mr Potts did not suggest that the level of recovery was per se objectionable in that sense.

The court therefore refused to place a value on the work of Mr Hunt for inclusion in the Arkin cap.

The court also held that as the appointment of a liquidator is personal to that individual liquidator, it is wrong to characterise that individual’s firm as ascertaining control over the liquidation merely by reason of the fact that the individual is a partner in the firm.

There was no criticism of the rate of 2.25 times the funding as the reward if the case was successful, and indeed the court specifically accepted that it was justified.

 

Limitation by Reference to the Period of Funding

The court limited the order in relation to the defendants’ costs to the period during which the firm provided funding.

The fact that after the period of funding the firm maintained its potential benefit of 2.25 times the amount of the funding did not cause the continuation of the proceedings and nor did it cause the defendants to incur further costs.

Although the firm’s funding ensured that the proceedings were in existence and could therefore continue, the court did not accept that a “but for” test of causation was sufficient to impose liability as a funder when the funding ceased, and indeed others were providing funding.

Consequently, the firm’s liability was limited both to the amount of its funding as the Arkin cap, and to the costs incurred by the defendants during its actual period of funding.

The court here held that there should be no distinction between funds provided to satisfy costs orders and funds provided actually to fund the litigation. All should come into the reckoning for the purposes of the Arkin cap.

This follows the decision in

Excalibur Ventures LLC v Texas Keystone Inc (No.2) [2017] 1 WLR 2221 .

In that case the issue was whether money provided for security for costs should be included in the amount of the Arkin cap, and the court said that it should and found that:

“…no basis upon which a funder who advances money to enable security for costs to be provided by a litigant should be treated any differently from a funder who advances money to enable that litigant to meet the fees of its own lawyers or expert witnesses. Both the provision of security for costs, if ordered by the court, and the payment of the litigant’s own lawyers and experts, are costs of pursuing the litigation which, if not met, will result in the litigation being unable to proceed. I do not understand why contribution to different categories of the costs of pursuing the litigation should attract different regimes. All the sums advanced are used in pursuit of the common enterprise and for the benefit of all of the funders.”

Comment

This is an important decision concerning the potential liability of liquidators and their firms for non-party costs orders.

The judgment contains a detailed analysis of the relevant case law.

Underwoods Solicitors are the solicitors for Crowe UK LLP, the Joint Liquidators of the Cambridge Analytica Group of Companies

Written by kerryunderwood

November 22, 2019 at 8:30 am

Posted in Uncategorized

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