Julie Anne Davey v James Money
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 17 April 2019 |
| Neutral Citation | [2019] EWHC 997 (Ch) |
| Docket Number | Case No: CR-2012-012276 |
| Court | Chancery Division |
| Date | 17 April 2019 |
and
and
[2019] EWHC 997 (Ch)
Mr Justice Snowden
Case No: CR-2012-012276
Case No. CR-2015-002261
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
Royal Courts of Justice
Business and Property Courts of England and Wales
Rolls Building, Fetter Lane
London, EC4A 1NL
Justin Fenwick QC and Ben Smiley (instructed by Clyde & Co. LLP) for the Joint Administrators
Nicholas Bacon QC and Joseph Curl (instructed by Freshfields Bruckhaus Deringer LLP) for Dunbar Assets PLC
Robert Marven QC (instructed by Collyer Bristow LLP) for Chapelgate Credit Opportunity Master Fund Limited
Hearing dates: 31 October and 6 November 2018
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.
This judgment principally concerns the potential application of the so-called “ Arkin cap” to limit the extent of non-party costs orders against a commercial litigation funder.
In a lengthy judgment which I handed down on 11 April 2018 ( [2018] EWHC 766 (Ch) (the “Judgment”)), Mr. Money and Mr. Stewart-Koster (the “Administrators”) and Dunbar Assets plc (“Dunbar”) (together “the Defendants”), were successful in defending substantial claims and counterclaims brought against them by Ms. Julie Anne Davey (“Ms. Davey”).
Ms. Davey had made serious allegations of breach of duty against the Administrators and of improper conduct tantamount to dishonesty against officers of Dunbar. Having failed, Ms. Davey was ordered to pay each of the Defendants' costs to be assessed on the indemnity basis. The Defendants claim that their costs amount in total to just short of £7.5 million. Ms. Davey was ordered to make payments on account in the combined amount of £3.9 million. She has not made any payment toward such costs.
By applications issued at the time that the costs orders were made against Ms. Davey, the Defendants each seek non-party costs orders under Section 51 of the Senior Courts Act 1981 (“Section 51”) against Ms. Davey's commercial funder, namely ChapelGate Credit Opportunity Master Fund Limited (“ChapelGate”).
ChapelGate accepts that a non-party costs order should be made against it under Section 51, on the same indemnity basis as the order made against Ms. Davey. However, it contends that its total liability to the Defendants should be limited to the overall maximum of the funding that it provided to Ms. Davey, namely £1,275,166.34, because of the application of the so-called “ Arkin cap” – a reference to the decision of the Court of Appeal in Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055 (“ Arkin”).
Background to the Case
The detailed background to the case is set out at length in the Judgment.
In brief, Dunbar appointed the Administrators to Ms. Davey's company, Angel House Developments Limited (“AHDL”) on 27 December 2012. AHDL's main asset was a commercial office property in Docklands (“Angel House”) which was charged to Dunbar to secure AHDL's borrowings. Angel House was sold by the Administrators on 9 December 2013 for a price of £17.05 million. After payment of expenses and part satisfaction of Dunbar's secured claim, this left nothing over for AHDL (or for Ms. Davey as its shareholder).
In July 2013, prior to the sale of Angel House, Dunbar had obtained summary judgment for £1.6 million plus interest and costs against Ms. Davey on a limited personal guarantee which she had given in relation to AHDL's borrowings. Whilst the judgment was still outstanding, in January 2014 Dunbar commenced further proceedings to recover under the guarantee the further substantial costs of enforcing the guarantee and the judgment against her which had not been recovered in the earlier claim (“the Dunbar Proceedings”).
Ms. Davey eventually paid the outstanding judgment debt to Dunbar in instalments ending on 18 July 2014. On that day she began proceedings on behalf of AHDL against the Administrators under paragraph 75 of Schedule B1 to the Insolvency Act 1986 (“the Insolvency Act Proceedings”). In these proceedings, Ms. Davey alleged that the Administrators had breached their fiduciary duties and failed to exercise independent judgment in the administration, and had sold Angel House at a substantial undervalue in reliance upon the advice of unsuitable agents (“APAM”) that Dunbar had selected for them to use. Ms. Davey also alleged that the Administrators had wrongly frustrated her attempt to mount a “funded rescue” of AHDL which she contended would have led to all AHDL's creditors being paid and the company being taken back out of administration.
In November 2014, and after having acquired AHDL's rights of action from liquidators who had been appointed to AHDL at the end of the administration, Ms. Davey served an Amended Defence and Counterclaim in the Dunbar Proceedings, alleging that Dunbar had so interfered with the conduct of the administration as to be vicariously liable for the breaches of duty by the Administrators. Ms. Davey also alleged that Dunbar had conspired with APAM to cause her harm (i) by procuring that Angel House should be sold at an undervalue, and (ii) by the rejection of her funded rescue in order to preserve Dunbar's claim against her under her personal guarantee.
In February 2015, the two sets of proceedings were ordered to be case-managed and tried together. Disclosure took place that month, witness statements were served in May 2015 and expert evidence was served on behalf of Ms. Davey in August 2015.
At a relatively early stage in the proceedings, the Administrators investigated the question of obtaining security for costs from Ms. Davey. Their solicitors wrote to Ms. Davey's solicitors in June 2014 but did not pursue the matter again until nearly a year later in May 2015, at which time they were told that Ms. Davey had become resident in England and so security for costs could not be sought from her. This assertion was not challenged and no application for security for costs was pursued. It was not until cross-examination of Ms. Davey at trial that it became apparent that she had, in fact, always been resident in Israel.
In September 2015, prior to the service of expert evidence on behalf of the Administrators and Dunbar, Ms. Davey received a lengthy written opinion from Stephen Davies QC advising that the Insolvency Act Proceedings had a 75% prospect of success, and that her prospects for success in the counterclaim in the Dunbar Proceedings ranged between 70% in respect of the vicarious liability claim, down to 55–60% for the claim in conspiracy.
In his opinion, Mr. Davies QC noted that a proper assessment of quantum could not be made until after receipt of expert evidence from Dunbar and the Administrators. However, Mr. Davies plainly regarded as credible the expert opinion of Ms. Davey's expert, Mr. Wolfenden, that the true value of Angel House at the time of its sale was between £31.6 million and £43.6 million (depending on the grant of planning permission). Mr. Wolfenden had also suggested that even allowing for the fact that in order to procure funding for her attempt to rescue AHDL, Ms. Davey had agreed to part with 50% of the shares in AHDL to her putative backer, a Mr. Bernard Eastwood, Ms. Davey's losses from the alleged rejection of her funded rescue could have been as high as £49 million.
On the basis of the more conservative of Mr. Wolfenden's valuations, given that Angel House had been sold for £17.05 million and that AHDL had about £2.5 million of external creditors, this meant that Ms. Davey stood to benefit through her sole shareholding in AHDL to the tune of between £12.1 million and £24.1 million if the Proceedings were successful. Mr. Davies QC therefore opined that, even on the basis of Mr. Wolfenden's lowest valuation for Angel House, Ms. Davey would be left with a claim in excess of £10 million.
The evidence of the separate experts instructed by the Administrators and Dunbar was served in December 2015. Those experts disagreed very significantly with the views of Mr. Wolfenden, supporting the Defendants' case that Angel House had not been sold in breach of duty or at an undervalue.
The Funding Agreement
In September 2015, and acting via a broker, Ms. Davey approached ChapelGate's investment manager, Orchard Global Asset Management LLP (“Orchard”) for funding. This led to various funding proposals being made by Orchard, and to Orchard performing some due diligence, the extent of which is not entirely clear, into Ms. Davey's claims.
On 23 December 2015 Ms. Davey and ChapelGate entered into a funding agreement (the “Funding Agreement”).
By this stage, substantial costs had already been incurred by the Administrators and Dunbar. The Administrators' evidence is that by 23 December 2015 they had incurred just over £1 million out of their total costs claimed of just over £3.13 million. On the figures that I have seen, Dunbar claims to have incurred about £2.15 million of its total costs of £4.35 million by 31 December 2015. The total costs incurred by the Defendants since the date of the Funding Agreement thus amount to about £4.33 million.
No distinction was drawn in the Funding Agreement between the Insolvency Act Proceedings and the Dunbar Proceedings, both being collectively referred to as “the Claim”. The Funding Agreement contained...
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