The Ecu Group Plc v HSBC Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Moulder |
| Judgment Date | 24 June 2022 |
| Neutral Citation | [2022] EWHC 1616 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2019-000068 |
[2022] EWHC 1616 (Comm)
Mrs Justice Moulder
Case No: CL-2019-000068
IN THE HIGH COURT OF JUSTICE
THE BUSINESS AND PROPERTY COURTS
COMMERCIAL COURT (QBD)
7 Rolls Buildings, Fetter Lane, EC4A 1NL
Joshua Crow (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Applicants
Benjamin Williams QC and Stephen Innes (instructed by Harcus Parker Limited) for the the Respondent
Hearing dates: 29 April 2022
Approved Judgment
THE HONOURABLE Mrs Justice Moulder
This is the reserved judgment on the application (the “Application”) by the Defendants (“HSBC” or the “Defendants”) dated 3 March 2022 pursuant to Section 51 of the Senior Courts Act 1981 for an order requiring Therium Litigation Finance Atlas AFP IC (“Therium”) (i) to pay the Defendants' costs of and occasioned by the proceedings on the indemnity basis and (ii) to pay US$1,004,014.11 representing the balance of the payment on account that the Claimant, ECU Group PLC (“ECU” or the “Claimant”) was required to pay to the Defendants.
Evidence
The Defendants rely on the fifth and sixth witness statements of Mr James Brady of Cleary Gottlieb Steen & Hamilton LLP dated 3 March 2022 and 26 April 2022 respectively, and the second witness statement of Mr Michael Petley of ECU dated 5 January 2022.
Therium relies on the witness statement of Mr Neil Purslow, Director and Chief Investment Officer of Therium Capital Management Limited dated 22 April 2022.
Background
It is not necessary to set out the background to the substantive proceedings which are in my judgment at [2021] EWHC 2875 (Comm). The Court handed down judgment on this matter in favour of the Defendants on 1 November 2021.
Insofar as the costs of the proceedings are concerned, by order dated 26 November 2021 the Court added Therium as a party to the proceedings for the purposes of costs only; required the Claimant to pay the Defendants' costs of and occasioned by the proceedings on the indemnity basis and required the Claimant to make a payment on account of the Defendants' costs of and occasioned by the proceedings in the amount of $11 million within 14 days of receipt of the sealed order.
The date for payment on account was extended by consent to 4pm on 29 December 2021.
The Defendants have received the sum of $9,995,985.89 in respect of the payment on account.
As far as the position of Therium is concerned, the following is taken from the evidence of Mr Purslow:
i) Therium provided its contribution to the funding of these proceedings via a Litigation Funding Agreement (the “LFA”) which was signed on 19 September 2019.
ii) By this date the following steps had already occurred:
a) 30 January 2017: ECU's letter before claim.
b) 3 February 2019: Issue date for the claim.
c) 20 May 2019: Particulars of claim filed.
d) 25 July 2019: HSBC's defence filed.
iii) Prior to this date, Therium had provided no funding for the proceedings nor was there any contractual agreement for it to do so.
iv) Pursuant to the LFA, Therium agreed to provide a commitment of (approximately) £6.6m to ECU for the purposes of funding the proceedings up until the conclusion of the liability trial. This figure included the cost of premiums for the various expected ATE Insurance premiums and deed fees to cover adverse costs exposure in the sum of £1,640,800. In addition, the LFA provisioned for a further commitment of (approximately) £2.7m to be utilised during the quantum stage of the proceedings.
v) Under the terms of the LFA, Therium also agreed to reimburse ECU for part of the costs incurred since 30 November 2018 and the amounts outstanding to Mishcon de Reya LLP (“Mishcon de Reya”) at the date of signing of the LFA. These sums amounted to £563,873.50 in respect of Mishcon de Reya invoices dated between 8 January 2019 and 3 May 2019, all of which had previously been settled by ECU, and £382,973.77 for Mishcon de Reya invoices dated between 3 May 2019 and 18 October 2019.
According to Mr Purslow, Therium has provided £9,306,208 under the LFA for the purposes of funding the proceedings (included within this amount is £1,640,800 in relation to premiums for Adverse Costs Insurance and Deeds of Indemnity). Therium's percentage share of the funding is said by Therium to be either 53%, or at most 64%.
This figure is disputed by HSBC, which asserts that the percentage share is significantly higher.
The LFA included a condition with respect to adverse costs insurance. It was agreed between Therium and ECU that the appropriate level of cover was £7,500,000. Therium agreed that £5,000,000 of adverse costs cover would be provided by the insurance market (in this case, QBE and Amtrust) and an excess layer of £2,500,000 (the “Escrow Amount”) would be provided by one of ECU's outstanding Class 1 bondholders, James Caird Investments Limited (“JCIL”). The Escrow Amount agreement was signed on 25 November 2019.
The amount recovered under the adverse costs insurance and from the Escrow Amount is equal to the amount paid so far to HSBC in respect of the interim payment on account of costs, i.e. US$9,995,985.89.
It is said by Mr Purslow that it is:
“difficult at this point to gain a complete picture of the funding arrangements utilised by ECU for the proceedings. The only parties with knowledge of the full extent of the funding arrangements are ECU and its Directors, and without their participation in the Hearing, we will not have the opportunity to challenge the Disclosure that we are all currently reliant upon.”
According to his evidence, the funding of the proceedings (and ECU itself) since ECU first sought legal advice in Summer 2016 to date has been provided by at least 27 separate parties (excluding the providers of the ATE insurance), including 9 corporate entities and 18 individuals. The individuals include current and former ECU Directors, as well as their friends, associates and family members. All the individuals and corporates with the sole exception of Therium are either existing shareholders or bondholders, or both.
Pursuant to the LFA, if the proceedings were successful, depending on how quickly a pay-out was obtained, in addition to the reimbursement of costs paid out, Therium stood to receive a “contingency fee” of three times the amount of costs funded (around £28 million) plus 20% of any recovery net of costs above £100,000,000.
Although under the terms of the LFA, Therium was not entitled to “ interfere” in the conduct of the litigation, the funding was to be provided in five tranches and Therium had a “ right” at its “ sole discretion” to decide whether to fund each of the subsequent tranches. It also had various rights to information (including to be kept informed of “ significant developments”, and a monthly report regarding the progress and conduct of the proceedings), as well as a right for its consent to be sought before any change of solicitors or counsel.
Therium also entered into a priorities agreement (the “Priorities Agreement”) with ECU, the insurers and the investors which sets out the priority order for paying the sums due to each of them from any recoveries made in the prosecution of the claim. Under the Priorities Agreement, any proceeds were paid first to reimburse Therium for its funding amounts; thereafter, other funders were entitled to reimbursement of the amounts paid out by them; this was followed by payment of the contingency fees to Therium and others, and then any balance to ECU (the “Waterfall”).
Amount of funding
Mr Purslow identified the following additional “sources of funding” (as referred to below, these are not all accepted by HSBC as such):
i) Class 1 Bonds: £2,000,000 funded in June 2017 used in the pre-action phase of the litigation against HSBC. Under the terms of the Bonds, the bondholders stood to benefit as to 25–35% of any net litigation receipts from the proceedings.
ii) Escrow Amount: £2,500,000 funded in November 2019 and held in escrow to meet potential adverse costs risk. JCIL was entitled to the return of capital plus a return of £1,175,000 from the litigation proceeds in accordance with the Priorities Agreement.
iii) Escrow Arrangement Fee: £200,000 funded in November 2019 to pay an arrangement fee to JCIL. JCIL was entitled to the return of its capital plus a return of £200,000 from the litigation proceeds in accordance with the Priorities Agreement (i.e. subject to the prior claims of amongst others Therium).
iv) Deeds of Indemnity: £330,000 funded in November 2019 and used to purchase bonds in order to provide additional adverse costs protection. The funders were entitled to return of capital plus a return on capital of £330,000 from the litigation proceeds in accordance with the Priorities Agreement.
v) Funding for the retainer of Richard Lissack QC: £205,000 funded in December 2020 was used to retain Mr Lissack QC for an advance brief fee, quantum analysis and work in advance of and attendance at a potential mediation. The funders were entitled to return of capital plus a return of £205,000 from the litigation proceeds in accordance with the Priorities Agreement.
Mr Purslow's evidence is that these sources of funding amounted to £5,235,000 and, of this, £3,235,000 was received following the signing of the LFA in September 2019.
Therium also seeks to include the Class 2 Bonds as part of the funding provided to ECU to pursue litigation on the basis that (as stated by Mr Purslow) ECU has had no ongoing business throughout the life of this litigation save for litigation itself and the Class 2 Bonds were used “ at least in part to compensate and incentivise ECU non-executive directors and management”.
...
To continue reading
Request your trial
-
Court Exercises Discretion On Funder's Costs
...J decided it was just for the costs order to reflect the corresponding downside to the LFA. ECU Group plc v HSBC Bank plc and others [2022] EWHC 1616 (Comm) (24 June "Read the original article on GowlingWLG.com". The content of this article is intended to provide a general guide to the subj......