Peter Farrar v David Miller
| Jurisdiction | England & Wales |
| Judge | Lord Justice Arnold,Lord Justice Phillips,Lady Justice Simler |
| Judgment Date | 11 March 2022 |
| Neutral Citation | [2022] EWCA Civ 295 |
| Docket Number | Case No: CA-2021-000724 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 295
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE, BUSINESS AND PROPERTY
COURTS OF ENGLAND AND WALES, BUSINESS LIST (ChD)
Marcus Smith J
[2021] EWHC 1950 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Simler
Lord Justice Arnold
and
Lord Justice Phillips
Case No: CA-2021-000724
and
Muhammad Haque QC of, and Hossein Sharafi instructed by, CANDEY for the Appellant
Jonathan Cohen QC (instructed by North Star Law Ltd) for the Respondent
Hearing date: 3 March 2022
Approved Judgment
This judgment was handed down remotely at 10.30 on 11 March 2020 by circulation to the parties or their representatives by email and by release to BAILII and the National Archives.
Introduction
The issue on this appeal is whether a firm of solicitors which has been acting for a claimant in litigation pursuant to a damages-based agreement can validly take an assignment of their client's cause of action. Marcus Smith J held in a judgment dated 16 July 2021 [2021] EWHC 1950 (Ch) that the answer to that question was no, because the assignment was champertous. The firm of solicitors, CANDEY, now appeals with permission granted by the judge.
Factual background
The proceedings brought by Mr Farrar against Mr Miller
On 23 October 2013 the Claimant, Peter Farrar, entered into a damages-based agreement with CANDEY (“the DBA”) under which Mr Farrar agreed to pay CANDEY 50% of the proceeds from claims against the Defendant, David Miller, instead of paying CANDEY's fees on an hourly rate basis. The DBA provided that CANDEY would pay all barristers' fees, but Mr Farrar was responsible for paying all other disbursements. The DBA also provided that, in the event that Mr Miller agreed or was ordered to pay Mr Farrar's costs, any sums recovered would reduce the extent of Mr Farrar's liability to make payment out of the proceeds. Although the DBA referred to the possibility of Mr Farrar obtaining after the event (“ATE”) insurance to cover any costs he was ordered to pay Mr Miller if the claim failed, Mr Farrar did not obtain such insurance.
On 8 April 2014 Mr Farrar issued a claim form against Mr Miller claiming damages for breach of an alleged oral agreement concerning the development and sale of a piece of land in Norfolk known as “Long Stratton”. After the service of statements of case Mr Miller issued an application to strike out the claim alternatively for summary judgment dismissing it. On 26 January 2015 Chief Master Marsh acceded to that application. On 15 July 2016 His Honour Judge Barker QC, sitting as a judge of the High Court, dismissed Mr Farrar's appeal, but granted him permission to amend his Particulars of Claim to allege that the proceeds of sale of Long Stratton were held on trust for him by Mr Miller alternatively that the facts gave rise to a proprietary estoppel. The judge refused to grant Mr Farrar permission to introduce a claim for breach of fiduciary duty, however. On 14 February 2018 the Court of Appeal dismissed Mr Miller's appeal against that order, but allowed Mr Farrar's appeal against the refusal of permission to introduce the claim for breach of fiduciary duty. On 31 July 2018 the Supreme Court refused Mr Miller's application for permission to appeal. Since then no steps have been taken in the proceedings. CANDEY's evidence is that the value of the claim, if successful, is in excess of £1.6 million.
The proceedings brought by Leongreen and Galleondeal against Mr Farrar
On 7 December 2012 Leongreen Ltd, a company controlled by Mr Miller, brought a claim in the Central London County Court against Mr Farrar for possession of a property which I will refer to as “Artillery Mansions”. On 24 February 2014 HHJ Dight made an order for possession and ordered Mr Farrar to pay Leongreen's costs assessed on the indemnity basis. On 29 August 2014 Leongreen and Galleondeal Ltd, another company controlled by Mr Miller, brought a claim in the High Court against Mr Farrar for lost rent, alternatively mesne profits, and for the costs of repairs to, and of replacement of fixtures and fittings in, Artillery Mansions. This claim was subsequently transferred to the County Court at Central London. On 15 January 2016 HHJ Walden-Smith gave judgment in favour of Galleondeal in the sum of £280,542.27 plus interest in the sum of £46,048.08 and in favour of Leongreen in the sum of £119,143.85 plus interest in the sum of £8,136.72, making a total of £453,870.92 (“the CCCL Judgment”), and ordered Mr Farrar to pay Galleondeal and Leongreen's costs assessed partly on the standard basis and partly on the indemnity basis. On 21 April 2016 Mr Farrar filed an appellant's notice seeking permission to appeal against the CCCL Judgment, but permission to appeal was refused by this Court.
The CCCL Judgment remains unsatisfied and interest on it continues to accrue. Mr Miller's evidence is that the total amount due as at 24 February 2021 was £565,023.22 plus costs in respect of which an interim payment of £40,000 had been ordered, making a grand total of £605,023.21. On 5 February 2021 Galleondeal and Leongreen assigned the debts owed by Mr Farrar to Mr Miller.
The bankruptcy proceedings
At some point in 2015 Leongreen and Mr Miller petitioned for Mr Farrar to be made bankrupt. This did not result in Mr Farrar being made bankrupt, but by 12 September 2019 Mr Farrar was experiencing financial difficulties and anticipated that Galleondeal and Leongreen would present a further petition based on the CCCL Judgment.
The Assignment, the death of Mr Farrar and the subsequent applications
On 12 September 2019 Mr Farrar and CANDEY entered into a fresh damages-based agreement which replaced the DBA. There is no evidence from CANDEY which explains why this was done, but the explanation may lie in the fact that the new agreement discharged a fixed charge over the proceeds of the litigation executed by Mr Farrar on 12 November 2013. Certainly CANDEY has not relied upon the charge for present purposes.
Also on 12 September 2019 Mr Farrar and CANDEY executed a deed of assignment of Mr Farrar's claims against Mr Miller (“the Assignment”).
On 11 October 2019 Mr Farrar unexpectedly died.
On 7 May 2020 CANDEY issued an application to be substituted as claimant in place of Mr Farrar. On 25 May 2021 Mr Miller issued an application for an order under section 423 of the Insolvency Act 1986 avoiding the Assignment on the ground that it was a transaction defrauding creditors of Mr Farrar. Both applications came before Marcus Smith J, who dismissed CANDEY's application by order dated 16 July 2021. That made it unnecessary for him to deal with Mr Miller's application.
The Assignment
The Assignment contains a number of recitals. Recital A recites the proceedings brought by Mr Farrar against Mr Miller (defined as “the Proceedings”) and states that CANDEY's costs to date in respect of the Proceedings are £135,000 (defined as “the Incurred Hourly Rate Costs”). Recital B recites the DBA and the replacement agreement (incorrectly referred to as a “Conditional Fee Agreement”) which is said to be terminated by consent with immediate effect. Recital C recites that CANDEY acted for Mr Farrar in the County Court and bankruptcy proceedings brought by Leongreen, Galleondeal and Mr Miller and states that CANDEY's costs to date in respect of those proceedings are £100,000 (defined as “the Other Litigation Hourly Rate Costs”). Recital D recites the CCCL Judgment, and states that Mr Farrar is unable to pay it and anticipates that Galleondeal and Leongreen will present a petition for his bankruptcy.
The recitals then state:
“(E) [Mr Farrar] does not have sufficient funds with which to continue the Proceedings to their conclusion. [Mr Farrar] has fully investigated alternative funding options and, after doing so, has concluded that it is in his best commercial interest to enter into this Deed.
(F) [Mr Farrar] and [CANDEY] agree that entering into this Deed provides each with the best opportunity to recover any monies from [Mr Miller].
(G) [Mr Farrar] has been advised to take independent legal advice in relation to entering into this Deed.
(H) [Mr Farrar] has agreed to assign all of the benefits in the Proceedings (but not any burdens to include any historic adverse costs liability) to [CANDEY] on the terms set out in this Deed.
(I) [Mr Farrar] will receive a distribution from any Recoveries as set out below.”
As the judge noted, it is not obvious why Mr Farrar's lack of funds should have prevented him from continuing the proceedings, as stated in recital E, given that the claim being was conducted pursuant to the DBA. CANDEY's evidence is that the explanation for this is that Mr Farrar was unable to pay disbursements. CANDEY's evidence does not explain why the Assignment was entered into rather than the DBA being amended to cover such disbursements. The judge found that an obvious reason for this course being adopted was to ensure that the claim would continue even if Mr Farrar was made bankrupt. There is no challenge by CANDEY to that finding.
Notwithstanding what is said in recital G, there is no evidence that Mr Farrar in fact obtained independent legal advice before entering into the Assignment.
Clause 1 contains the following definitions:
“ Assigned Claims: all claims and entitlements arising within and out of the facts of the Proceedings (whether against [Mr Miller] or anyone else) including all claims for damages and/or relief and/or interest and/or costs.
Recoveries: any damages, profits, money and/or other benefits derived as a result of the Proceedings in respect of the Assigned Claims.”
Clause 2 provides:
“2.1 Subject to the terms of this Deed, [Mr Farrar]...
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