On 20 October 2023 Jacobs J handed down judgment in Therium Litigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm), the first decision to consider the practical implications of the ground-breaking decision of the Supreme Court in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28 (“PACCAR”).
In PACCAR, the Supreme Court decided – contrary to the views held by funders and the decisions below – that third party litigation funding agreements (“LFAs”) can be damages-based agreements (“DBAs”) that are unenforceable if they do not comply with the DBA Regulations 2013 (SI 2013/609). The Supreme Court was told in the course of argument that the likely consequence of its decision was that most third party LFAs would be unenforceable.
Since the PACCAR judgment, there have been extensive industry discussions about the arguments that funders can run to avoid or to mitigate unenforceability findings (see, for example, 4 New Square’s briefing).
Jacobs J’s judgment in Therium Litigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm) provides the first reaction of the Commercial Court to some of those arguments. The applications arose after two prominent litigation funders, Therium and Omni Bridgeway, applied for urgent asset preservation orders preventing the threatened dissipation of the £27m proceeds of a Commercial Court claim that they had each funded. The claimant in the underlying claim had argued that the consequence of PACCAR was that Omni Bridgeway and Therium’s LFAs were unenforceable and it owed the funders nothing.
Therium and Omni responded with a cascade of arguments:
- That its LFAs were not DBAs because they created proprietary interests in any future claims proceeds – meaning that there was no ‘payment’ at the successful conclusion of the underlying claim.
- That even if that was wrong, and the DBA regime was engaged, applying the Court of Appeal’s decision Zuberi v Lexlaw [2021] EWCA Civ 16 the part of the LFAs that were DBAs were the clauses granting rights to a top-up percentage return, but not those entitling the funders to multiples of the funded amounts.
- That, in any event, the percentage return element of the LFAs could be severed by application of the common law principles of severance set out in Egon Zehnder v Tillman [2019] UKSC 32.
- That if all other arguments failed, the funders had claims for restitution of the amounts funded on the grounds that there has been a mistake of law of failure of basis.
In the course of determining whether to make an asset preservation order, Jacobs J had to consider whether those arguments raised a serious issue to be tried.
Bugsby Property conceded during the hearing that there was a serious issue to be tried in relation to the enforceability of the LFA of Omni Bridgeway, who were represented by 4 New Square’s Robert Marven KC and Theo Barclay. In a closely reasoned judgment Jacobs J held that the points at (a) – (c) above clearly raise serious issues to be tried and that there was no need to consider the additional question of restitution. He therefore granted asset preservation orders pending arbitration of the substantive disputes.
The decision will be noted with interest by litigation funders and those who may be considering whether to take unenforceability points against them. The key message is that funders are likely to put forward credible defences to arguments made in light of PACCAR, and those seeking to advance them can expect a tough fight.
Robert Marven KC and Theo Barclay acted for Omni Bridgeway, instructed by Richard Viegas and Nick Maday at Taylor Wessing. George McDonald acted for an interested party.
