Therium Litigation Funding A IC v Bugsby Property LLC

A proprietary injunction in support of arbitration may preserve the whole fund subject to a trust where there is a serious issue to be tried as to the trust’s existence and scope. At the interlocutory stage, the court should not decide difficult questions of law requiring detailed argument and mature consideration. A litigation funding agreement may contain separable provisions: the percentage-of-recovery element may be a damages-based agreement, while repayment of funding, a multiple return and trust provisions may fall outside that agreement. Whether those provisions remain enforceable, or can be severed after PACCAR, is ordinarily a serious issue for trial or arbitration. Where competing parties claim the same trust fund and their claims collectively exceed it, preserving the fund in its entirety may be just and convenient.

Therium sought an asset-preservation and proprietary freezing order under section 44 of the Arbitration Act 1996 in support of LCIA arbitration concerning litigation funding agreements with Bugsby. Bugsby had received settlement proceeds after litigation against entities in the Legal & General group. Therium claimed that the proceeds were held on trust under its funding agreement and were subject to a contractual distribution waterfall shared with other interested parties.

Bugsby relied principally on PACCAR, arguing that the funding agreement was unenforceable as a damages-based agreement. It also disputed severance, the scope of the trust and the amount which could properly be preserved. The central issue was whether Therium had shown a serious issue to be tried.

The underlying litigation had resulted in a judgment by Robin Knowles J: [2022] EWHC 2001 (Comm). The present application concerned interim relief pending arbitration.

1. Relief and governing test. The court had jurisdiction under section 44 of the Arbitration Act 1996. The American Cyanamid test applied to an asset-preservation order supporting a proprietary claim: a serious issue to be tried, a balance of convenience favouring the injunction, and a conclusion that it was just and convenient to grant the order. Trust assets receive especially strong interlocutory protection. The balance and justice factors favoured relief because Bugsby appeared insolvent and dissipation would risk rendering an arbitral award ineffective.
2. Unenforceability after PACCAR. It was common ground that the percentage-of-recovery element of the funding agreement was unenforceable under section 58AA of the Courts and Legal Services Act 1990. However, Zuberi provided a realistic argument that the statutory regime applied only to the provisions constituting the damages-based agreement. The repayment of sums advanced, a multiple return and the trust machinery could be treated as separate provisions. The court did not decide which side had the better argument, but held that the issue was serious and should be resolved by the arbitrators.
3. Severance. Applying the severance principles identified in Zuberi by reference to Egon Zehnder, there was also a serious issue as to whether the offending provisions could be removed without changing the character of the funding agreement. Diag Human, concerning a conditional fee agreement, could not simply be applied by analogy. The different statutory and common-law setting for litigation funding left room for a legitimate argument that severance would leave a lawful funding and repayment agreement.
4. Scope of preservation. Clause 13 created, or at least arguably created, a trust over the Claim Proceeds pending the preparation and agreement of the contractual account. The later agreements did not fundamentally remove that trust, although they enlarged the class of beneficiaries and altered priorities. There was a serious issue as to whether the trust extended to the entire settlement fund, including sums connected with the appeal. Because Therium and Omni claimed collectively more than the fund, preserving the whole fund was justified.
5. Disposition. Therium was entitled to the proprietary injunction sought. It was not limited to the sums remaining in Candey’s client account. The precise terms of the order and consequential matters were left for further hearing.