Arkin v Borchard Lines Ltd (No 2)

JurisdictionEngland & Wales
JudgeColman J,Mr Justice Colman
Judgment Date27 November 2003
Neutral Citation[2003] EWHC 2844 (Comm)
Docket NumberCase No: 1997 Folio No. 956
CourtQueen's Bench Division (Commercial Court)
Date27 November 2003
Yeshekel Arkin
Borchard Lines Limited And Zim Israel Navigation Company Ltd & Ors
1st, 2nd to 4th Defendants and 3rd and 5th Part 20 Defendants
Managers And Processors Of Claims
11th Part 20 Defendants


[2003] EWHC 2844 (Comm)



Case No: 1997 Folio No. 956




Royal Courts of Justice

Strand, London, WC2A 2LL

Peter Irvin and Sarah Lee (instructed by Messrs Constant and Constant) for the 1 st Defendant

Steven Gee QC and Hugh Mercer (instructed by Messrs Davies Arnold Cooper) for the 2 nd, 3 rd and 4 th Defendants and the 3 rd, 5 th, 8 th and 10 th Part 20 Defendants

Vasanti Selvaratnam QC and Fergus Randolph (instructed by Messrs Berwin Leighton Paisner)

For the 1 st and 6 th Part 20 Defendant

Mr Guy Mansfield QC and Ms Sarah Lambert ( instructed by Messrs Gordon Dadds) for the 11 th Part 20 Defendants

Hearing dates: 16 May 2003, 25 July 2003, 1–2 October 2003

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Colman J Mr Justice Colman



This is an application by the 1 st and 2 nd to 4 th defendants and the 3 rd and 5 th Part 20 defendants by which they ask for orders for costs against the 11 th Part 20 defendants, Managers and Processors of Claims ("MPC"). Zim claims such an order is necessary contingently upon any decision on the issues as to the incidence of costs as between the 1 st defendants and the Part 20 defendants other than MPC. The application is based on the fact that MPC, a professional funding company, entered into a funding agreement with the Claimant, Mr Arkin, whereby it funded the employment of expert witnesses, the preparation of their evidence and the organisation of the enormous quantities of documents which became necessary to investigate before the trial.


In advancing this application, the defendants have laid stress on the very substantial proportion of any recoverable damages or settlement payments (25% of the first £5 million and 23% of any excess) which MPC was to receive under its funding agreement. They have also drawn attention to the absence of any undertaking by MPC to pay the defendants' recoverable costs or to take out after the event (ATE) insurance cover in respect of such costs. They submit that, in principle, professional funders as distinct from pure funders who are maintaining litigation for their profit, should be liable for the costs of the defendants if their claim fails, which in this case it did: see my judgment of 10 April 2003.


In resisting this application MPC submits that conditional fee agreements with professional funders which have the purpose of enabling impecunious claimants to pursue claims of real substance which, but for such funding, they could not have done, should not be visited with costs orders against the funders if the claim fails. MPC submits that recent decisions of the Court of Appeal in Hamilton v. AL Fayed (No.2) [2003] 3 All ER 641 and R (Factortame Ltd) v. Transport Secretary (No.8) [2003] QB 381 have clarified the main principles relevant to the exercise of the court's discretion to make a costs order against a non-party funder. In particular, the objective of providing access to the courts to impecunious claimants has now been given much greater weight than previously relative to other countervailing aspects of public policy. On the facts of the present case that objective should prevail so rendering a costs order inappropriate.


Before setting out the facts in the present case, I propose to consider the decisions in Factortame and Hamilton to see how far against the background of earlier authorities they provide relevant principles in a case such as this.

The Relevance of R (Factortame Ltd and others) v. Secretary of State for Transport


The issue was whether the claimants were entitled to recover as part of their costs a fee paid to the accountants, Grant Thornton (GT), which was to be calculated on the basis of 8 per cent of the amount of damages recovered from the Department. It was argued on behalf of the Department that the conditional fee agreement entered into between the claimants and GT was champertous and, because it was contrary to public policy, the claimant should not recover the contingent fee paid to GT. At the time when the agreement was entered into the latter were owed a substantial amount of fees by the claimants. The claimants could not have paid for the services to be provided by GT out of any other resources than damages recovered in the action. Expert evidence involving forensic accountancy and expertise in the fishing industry was necessary, as advised by the claimants' legal advisers. GT therefore provided and paid the two experts on an ordinary fee basis and not on a contingency fee basis. GT also agreed to provide services ancillary to those provided by the claimants' solicitors, such as the accumulation and organisation of documentary evidence, liaising with the claimant in Spain and advising on offers to settle.


In identifying the relevant public policy considerations the Court of Appeal relied heavily on the judgments of Steyn LJ. in the Court of Appeal and Lord Mustill in the House of Lords in Giles v. Thompson [1993] 3 All ER 321 CA and [1994], AC 142, HL. The policy identified which rendered champertous agreements illegal rested "on the perceived need to protect the integrity of public justice". With reference to section 58 of the Courts and Legal Services Act 1990 by which solicitors were first permitted in specified circumstances to enter into conditional fee agreements with their clients, Steyn LJ. at page 331, explained that conditional fee agreements were, but for that Act, illegal "because such agreements allowed the duty and interest of solicitors to conflict with a resultant risk of abuse of legal procedure". He continued at p333:

"Ultimately, it is necessary to consider the questions posed in this case in the light of contemporary public policy. The correct approach is not to ask whether, in accordance with contemporary public policy, the agreement has in fact caused the corruption of public justice. The court must consider the tendency of the agreement. The question is whether the agreement has the tendency to corrupt public justice. And this question requires the closest attention to the nature and surrounding circumstances of a particular agreement."


The Court of Appeal in Factortame at p401 made reference to Lord Mustill's consideration of the degree to which the contract between the hire contract gave to the hire companies, which were the funders, control of the litigation. There being two hire contracts, under the first one the hire company was not entitled to and did not control whereas under the second contract the hire company had the right to appoint its own solicitor to bring an action for damages in the hirer's name and did so. However, as the Court of Appeal in Factortame observed, at p402, Lord Mustill concluded that if there were any conflict between the hire company and the plaintiff, the wishes of the plaintiff were likely to prevail. Having directed himself by reference to the description of the policy underlying maintenance given by Fletcher Moulton LJ. in British Cash and Parcel Conveyors Ltd v. Lanson Store Services Co Ltd [1908] 1 KB 1006 @ 1014, Lord Mustill addressed the following question at p165:

"Returning to the company, is it wantonly or officiously interfering in the litigation; is it doing so in order to share in the profits? I think not. The company makes its profits from the hiring, not from the litigation. It does not divide the spoils, but relies upon the fruits of the litigation as a source from which the motorist can satisfy his or her liability for the provision of a genuine service, external to the litigation. I can see no convincing reason for saying that, as between the parties to the hiring agreement, the whole transaction is so unbalanced, or so fraught with risk, that it ought to be stamped out. The agreement is one which in my opinion the law should recognise and enforce."


The Court of Appeal in Factortame at p402 then observed:

"This decision abundantly supports the proposition that, in any individual case, it is necessary to look at the agreement under attack in order to see whether it tends to conflict with existing public policy that is directed to protecting the due administration of justice with particular regard to the interests of the defendant. This is a question that we have to address."


Having concluded that section 58 of the 1990 Act, originally and as amended by section 27 of the Access to Justice Act 1999, applied only to agreements concluded by those conducting litigation or providing advocacy services, the Court of Appeal observed at p407–408.

"These then, are the reasons that have led us to conclude that section 58 of the 1990 Act, both as originally enacted and as amended by the 1999 Act, applies only to agreements concluded by those conducting litigation or providing advocacy services. The effect of the section extends more widely, however, for it reflects Parliament's assessment of the present state of public policy in this area. Thus, in Awwad v. Geraghty & Co [2001] QB 570, 600, the Court of Appeal held that there was no scope for the court to hold that the common law permitted conditional fee agreements that did not conform to the requirements imposed by section 58 and in Bevan Ashford v. Geoff Yeandle (Contractors) Ltd [1999] Ch 239 Sir Richard Scott VC held that the provisions of section 58, which applied only to litigation, should be applied by analogy to solicitors who were conducting arbitration.

More generally, however, ...

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