Leibson Corporation & Ors v TOC Investments Corporation & Ors

The Court of Appeal allowed the appellants' appeal and reversed Hildyard J's decision that BJUK was liable to reimburse TOC £2,685,206.81. The court held that neither the Newey Order nor Rule 4.30(3) of the Insolvency Rules 1986 imposed a freestanding obligation on BJUK to repay sums advanced by a third-party funder. The funding agreement, when construed in its factual matrix, did not create an enforceable obligation on BJUK to reimburse TOC except for the narrow circumstance expressly provided for in clause 3.4 (return of surplus funds). The court further held that a claim in unjust enrichment or subrogation would conflict with the parties' contractual allocation of risk and was not available on the facts.

Background and parties: TOC, funded by TNK-BP, advanced sums under a funding agreement executed on 27 July 2012 to meet provisional liquidators' fees incurred in the provisional liquidation of BJUK. Caldero had presented a petition which led to the appointment of provisional liquidators; the Newey Order (16 July 2012) recorded that BJUK would bear the fees and costs of the provisional liquidators. Following completion of the transactional and litigation steps, Rose J ordered a payment into court of the aggregate sums paid by TOC pending determination of whether BJUK should repay those sums. TOC sought repayment; BJUK (the appellants) resisted.

Nature of the claim: TOC sought reimbursement of amounts it paid under the funding agreement as funding of the provisional liquidation. The legal bases relied on below and on appeal included (i) construction of the funding agreement, (ii) the effect of the Newey Order and Rule 4.30(3) Insolvency Rules 1986, (iii) subrogation or unjust enrichment, and (iv) alternatively the rule in Ex parte James.

Procedural history: The issue was determined by Hildyard J ([2016] EWHC 20 (Ch)) in favour of TOC. The appellants obtained permission to appeal to the Court of Appeal (McCombe LJ, permission order 19 August 2016). The Court of Appeal heard the appeal and allowed it ([2018] EWCA Civ 763).

Issues framed:

• Whether the Newey Order and/or Rule 4.30(3) imposed any obligation on BJUK to repay funds advanced by TOC;
• Whether, on construction in the factual matrix, the funding agreement itself imposed a repayment obligation on BJUK;
• Whether any such obligation (if found) was displaced by the funding agreement; and
• Whether TOC could recover by subrogation or unjust enrichment, or by application of Ex parte James.

Court's reasoning: The Court of Appeal concluded (i) the Newey Order's wording that fees "shall be borne by" BJUK meant BJUK was to pay the provisional liquidators but did not itself fix how BJUK should raise funds or create contractual obligations to third-party funders; (ii) Rule 4.30(3) likewise provided for payment out of company property but did not impose a standalone contractual liability to a third-party funder; (iii) on proper construction, the funding agreement did not create an obligation on BJUK to reimburse TOC except for the limited return-of-surplus clause (clause 3.4); the word "advance" was ambiguous and context did not support implying the detailed mechanism of repayment into the contract; (iv) implication of a broad repayment term would conflict with the express contractual allocation and the strict tests for implication were not met; and (v) unjust enrichment or subrogation recovery would conflict with the agreement and was not appropriate on these facts. The appeal was therefore allowed.

Appeal allowed. The Court of Appeal held that the Newey Order and Insolvency Rule 4.30(3) did not impose a freestanding obligation on BJUK to repay sums advanced by TOC; the funding agreement did not itself create an enforceable obligation of reimbursement by BJUK except for clause 3.4 (return of surplus), and claims in subrogation or unjust enrichment would conflict with the parties' contractual allocation of risk and were not available on the facts.

Appeal from the High Court (Chancery Division) decision of Hildyard J ([2016] EWHC 20 (Ch)). Permission to appeal granted by McCombe LJ (order dated 19 August 2016). Judgment on appeal given by the Court of Appeal (Gloster LJ, Singh LJ, Beatson LJ) [2018] EWCA Civ 763, allowing the appeal and reversing Hildyard J's order for repayment to TOC.