JEB Recoveries LLP v Binstock [2015] EWHC 1063
One of the challenges for a litigation funder has been the extent to which it can step into a litigant’s shoes. The law on third parties’ involvement in litigation – which is of course what litigation funding is all about – is complex. The law has found against many attempts to assign a cause of action to a non-party. The case concerns claims for breach of contract and for a debt that were actionable at the suit of a Mr Wilson against Mr Binstock. However, Mr Wilson assigned his claim to a limited partnership, JEB, that he owned together with two other individuals. The immediate reason for the assignment to a separate legal entity was given as an attempt to protect the assignors from the threats of Mr Binstock. Mr Binstock sought to strike out the claim as an abuse of process on the grounds that it was champertous.
Champerty is the support of litigation by a stranger to the litigation for a financial interest in the outcome – precisely what a litigation funder does and what it looked as though JEB was doing in this case. However, previous case law had shown that in fact the vice underlying the prohibition of champerty was that the allegedly champertous maintainer might be tempted to corrupt or undermine the legal process. It is important that the focus is on protection of the party confronted with the maintained litigation and not the claimant.
So the challenge progressed in this case that the assignment was of a bare cause of action and was a form of litigation trafficking. The effect was for Mr Wilson to “cost-proof” his litigation. His two fellow owners were potentially going to receive a windfall. Previous case law stated that an assignee who could demonstrate that he had a genuine commercial interest in enforcement of the assigned claim of another is entitled to enforce the assignment unless its own terms offend the public policy. The Court had previously held that not having a sufficient interest in the outcome of a claim to justify taking an assignment was “wanton and officious intermeddling in the disputes of others”.
The argument against this salvo was that the key question was whether the assignment in question tended to corrupt public justice, and so the nature and surrounding circumstances of the particular arrangement had to be examined. The Court held that indeed the starting point was access to justice. The Court observed that the phrase “trafficking in litigation” was used in relation to a cause of action which was expected to be traded commercially between unconnected third parties as a commodity – not to an entity like JEB where the partners had a direct or indirect interest. Far from making himself “cost-proof”, Mr Wilson had if anything made it more likely that an application for security for costs could be successfully made against him. The Court was left with the question as to whether there was anything about the arrangement that would or might be likely to undermine the ends of justice. The Court did not find that there was any concern that documentary evidence would or may be suppressed. The witnesses would be made available. The nature of the assignment meant that it was improbable that evidence would be suppressed or exaggerated. The Court held that in an environment where legal representatives can both share in the fruits of the claim they advance and underwrite their client’s costs risk of the claim, why should the Court decline to hear, on the grounds of public policy, the claim of an impercunious litigant which has been assigned to an entity in which he has an interest? On that basis, the claim did not offend the public policy aimed at protecting the integrity of the legal process.
It turned out, however, that this victory was Pyrrhic and the Court of Appeal allowed the appeal of Mr Binstock on the much more substantive issue of jurisdiction and in consequence did not need to trouble themselves with the allegation of champerty. This belated victory for Mr Binstock provides another important lesson for a funder – attention must always be on the actual merits of the claim itself, rather than the procedural steps that proceed its determination. This lesson is continuing to be a key one – particularly in the fields of securities litigation and antitrust litigation where decisions of the Courts in the early procedural phase are generally in the claimants’ favour, but we are yet to see a trial on the merits.
Nonetheless, the case is a good example of how the Court is increasingly less concerned about the dangers of third parties becoming involved in litigation – the attention needs to be focused on how such involvement can damage the legal system. It is still an open question as to whether a litigation funder could take an assignment of a cause of action (outside the field of insolvency) and pursue it successfully. Of course a funder will know that a defendant is likely to mount a strong challenge on champerty grounds, and an application of security for costs will necessarily follow. Potentially the more difficult area if a litigation funder were in the driving seat would be in relation to the availability of evidence – both documentary and oral. It is likely that provisions in a litigation funding agreement would provide for both, but particular care would need to be given to the continuing ability of the key witnesses to provide evidence. At the end of the day, a litigation funder would not support a case if there was any uncertainty as to whether the necessary evidence would be provided at trial and so this is a knee-jerk concern that is likely to prove illusory.