Arkin v Borchard Lines Ltd and Others (Nos 2 and 3)

Lord Phillips, MR

This is the judgment of the court to which all members have contributed.

Introduction

The court is concerned with the considerable fall-out of a disastrous piece of litigation. The claimant, Mr Arkin, is and was a man without means. His lawyers were acting for him under conditional fee agreements. He was, however, only able to pursue his claim to judgment because of the financial support provided by a professional funder, Managers and Processors of Claim Ltd ('MPC'). Mr Arkin's claim failed. His lawyers have recovered nothing. MPC's support has cost them in excess of £1.3 million, for no return. Very substantial costs have been incurred by the defendants and the Part 20 defendants. Together these amount to nearly £6 million. This appeal is about those costs.

The four defendants, whom we shall call respectively Borchard, Camomile, Furness and Manchester, and the active Part 20 defendants, namely the third, whom we shall call DNOL, the fifth whom we shall call KNSM and the first and sixth, whom we shall Zim, sought to persuade Colman J that MPC should be ordered to pay their costs. In a judgment delivered on 27 November 2003 [2003] EWHC 2844 (Comm); [2004] 10 Lloyd's Rep 88 the judge declined to make the order sought. They appeal against that judgment, pursuant to permission granted by the judge himself.

Pursuant to a judgment dated 16 December 2003 Colman J ordered that Borchard should pay 90% of Zim's costs and 80% of each of DNOL and KNSM's costs. Borchard appeals against that order, pursuant to permission granted by Dyson LJ.

The facts

At this point we shall set out the facts in outline. In due course we shall have to elaborate some of them in a little more detail. Mr Arkin and his wife founded and owned a company called BCL Shipping Line Ltd ('BCL'). It traded between 1988 and 1992. Its trade was the operation of liner services on varied routes to and from Haifa and Ashdod in Israel. In January 1989 BCL complained to the European Commission that two shipping Conferences were infringing Articles of the Treaty of Rome, which are now Article 81 or 82. We shall refer to them as such. The Conferences in question were CONISCON and UKISCON. The defendants and the Part 20 defendants were members of one or both of these Conferences, as were a number of other companies.

In November 1991 the European Commission issued a 'Statement of Objections' indicating an intention to fine the Conferences for breach of Article 81. The members of the Conferences other than Borchard joined together to defend themselves, instructing a single firm of solicitors to represent them and sharing the costs of so doing. There was a hearing in April 1992. In September 1993 the Commission determined that there was an insufficiently strong Community interest to justify proceeding to a decision because the Conferences' agreements had been amended in a material respect in early 1991.

Meanwhile, in May 1992, BCL had ceased trading. In September 1993 BCL was struck off the Companies Register for failing to file accounts. The company was insolvent and was dissolved. Mr Arkin contended that the company's business had been destroyed by the unlawful activities of the two shipping Conferences.

It was not until 1996 that Mr Arkin took the first steps that led to the litigation with which we are concerned. He got BCL restored to the Register and placed in liquidation. He then took an assignment from the liquidator of claims against the members of the Conferences for breaches of Articles 81 and 82 on terms that he would share any recoveries with BCL's creditors on a 50/50 basis. He obtained legal aid and, on 18 April 1997, served the writ in these proceedings. For reasons which have always been unclear, he impleaded only four UK-based members of the UNISCON Conference, Borchard, Camomile, Furness and Manchester (in fact the latter did not trade in the relevant market and played no effective role in the events complained of in the litigation with which we are concerned).

The Statement of Claim was served on 2 May 1997. It alleged that the four defendants acted collectively with the other members of the two Conferences to abuse a dominant position by predatory pricing and other activities that infringed Article 82 and that they were guilty of price fixing that infringed Article 81.

No sooner had Mr Arkin commenced proceedings than his legal aid was withdrawn. He had no resources to fund the litigation. He persuaded solicitors, and later counsel, to act for him on a conditional fee basis. The same course was not open to him in relation to expert evidence. However, under an agreement concluded on 2 August 2000, he persuaded MPC to agree to fund the expert evidence and the cost of organising documents on a contingent fee basis. MPC would only be paid if the claim succeeded. If it did, they would receive a share of the damages recovered.

On 27 July 2001 Borchard were granted permission to issue Part 20 notices against DNOL, KNSM and Zim.

The trial began on 20 February 2002 and, on 26 April 2002, it was adjourned part heard. On 23 May 2002 an application was made by the defendants and part 20 defendants that MPC should provide security for their costs. The application was refused. On 10 April 2003 judgment was given in favour of the defendants and the Part 20 defendants. Mr Arkin was comprehensively defeated. On breach of duty the judge found that Mr Arkin had failed to prove infringement of Article 81 or 82. On causation the judge found that BCL's cessation of trading had not been proved to be attributable to events on the relevant market.

The MPC appeal

MPC's role

MPC was founded in 1996 by the amalgamation of three firms that specialised in work relating to claims for compensation and, in particular, the quantification of loss. Its business was described by its Managing Director as "the managing and processing of compensation claims and providing assistance in claims assessment and litigation". As part of its business MPC responded to requests for assistance in funding litigation in circumstances where legal aid was not an option. In such circumstances, the funding was provided on terms that MPC would receive a percentage of the recovery if the claim succeeded and nothing if it did not.

Under their agreement with Mr Arkin, MPC undertook to instruct, engage and pay for one or more expert forensic accountant in the firm of Ernst & Young to provide a report on the quantum of BCL's loss attributable to the actions of the defendants. They also agreed to provide various services ancillary to this accountancy exercise, including secretarial services. Their agreed remuneration was 25% of recoveries from the litigation up to £5 million and 23% thereafter. In addition they were to receive any payments in respect of costs of witnesses in relation to quantum recovered from the defendants. If the initial expert's report suggested that the damages recovered would be inadequate to enable MPC to cover their costs, they had an option to withdraw from the agreement. Thereafter, they were locked in. The agreement provided that Mr Arkin should have the conduct of the proceedings, but would need the consent of MPC to any settlement or compromise. In the event of dispute, the decision of leading counsel acting for Mr Arkin was to prevail.

The judge found that MPC took no part in the taking of decisions as to the conduct of Mr Arkin's case. Although MPC were kept well informed at all times, they did not attempt to control the litigation.

The judge accepted that, when MPC entered into the agreement, they estimated that their total outlay up to the end of the trial might amount to some £600,000. He also referred to evidence that suggested that MPC viewed the probable settlement range as being between US$ 5 million and US$ 10 million. While in argument counsel suggested that MPC may have had their sights on a very much larger recovery, we have seen nothing that invalidates the judge's assessment of the position.

The judge's approach

Although Mr Arkin's claim failed on every front, the judge observed that counsel had advised that Mr Arkin had a very strong claim and that he was not persuaded that it should have been blindingly obvious that, however strong the case might be on liability, it was doomed on causation of loss. He also observed that, if Mr Arkin had not entered into the MPC agreement, or an agreement with another professional funder on substantially similar terms, he could not have...