I have just bloged this on my own blog, but it may be of some interest in the US.
A heavyweight piece of litigation funding, conducted by a London HQed litigation partner at Clifford Chance came in for significant criticism from the trial judge (who now sits in the Court of Appeal). The latest judgment concentrates on the litigation funding arrangements surrounding that. Here's what I wrote...
The latest instalment in the Excalibur case is interesting for many reasons. One is Lord Justice Clarke’s claim that making litigation funders pay costs on an indemnity basis when costs are awarded against the party they are funding on an indemnity basis is not likely to chill access to justice. I do not propose to deal with that at length here here save to say:
- This is an extraordinary case by any measure.
- The risk of increased cost liability for litigation funders is likely to have some impact on access to justice. The real question is whether such an impact is proportionate.
- Should the judgment have a broader impact, it is likely to encourage litigation funders to take a stronger role in assessing the merits of cases and supervising the conduct of claims. Indeed, one of the elements of the case is to question the due diligence of the funders conducted here.
- There are merits, but also demerits in encouraging a trend towards greater provision by litigation funders particularly as regards independence of clients and instructed lawyers.
Another interest in the case is something which I have written about before, the conduct of the original claim by Clifford Chance. A number of interesting matters emerge.
The Fee Agreement
The first is the nature of the representation agreement entered into with their client. Clarke LJ observes that the agreement “has not been disclosed” but:
it appears that Clifford Chance agreed to provide their services at a 40% discount. In the event of success in the action Clifford Chance would receive an uplift equivalent to 40% of their undiscounted fees, a further 100% of that 40%, and a success fee to be determined by Excalibur in its sole discretion.
I have no problem with firms being able to enter into such an agreement but I do think it raises the question as to what kind of agreement it is and whether it is within the rules regulating CFAs and DBAs. Is it a conditional fee agreement? Is it a hybrid damage based agreement with the damage based element being discretionary? Is it a proper work round of the ban on DBAs until 2013 and the current bar on hybrid DBAs? Are we to take it at face value that there is no damage based element to this arrangement and that the client has a genuine discretion to offer the law firm a contractual gift? Without more evidence, I think we have to assume the latter, but it seems to me an odd arrangement for arms length parties to enter into.
What the funders were told about the merits of the case and how those merits were assessed
The case involved several litigation funders some of whom, it appears from the judgment, relied solely or mainly on the advice of Mr Panayides the Clifford Chance partner with conduct of the claim. It is worth emphasizing that Clarke LJ did not have the benefit of evidence from Clifford Chance or all the paperwork passing between Clifford Chance and the funders. Also though, in relation to one crucial witness for the funders he says, “I have no reason to doubt that what he there says is substantially accurate.” What do we learn from this?
It seems to be the case that part of the reassurance offered to funders was by way of a Clifford chance opinion. This may imply that (as one would hope) the firm reviewed the merits of the claim and stood behind a decision that the Excalibur case had, “a strong likelihood of success.” Of course it is well known that Clarke LJ sees this view as “deeply flawed” but he does not go as far as saying Clifford Chance could not hold that view. He has previously said, however:
Excalibur’s case on [a particular]… topic …had involved it (a) contradicting itself, and (b) developing theories which (i) were not open to it in the light of the way the case has developed …and (ii) were unsupported by the evidence.
…the deceit claim …had all the hallmarks of a lawyer’s artefact. It did not make sense.
He also accepts for the purpose of this judgment that:
Mr Panayides said that Clifford Chance were so confident that they were on a partial Conditional Fee Agreement, something they had virtually never done; that it was the best claim he had ever seen; and that he had never lost a case in his entire legal career. It was very unlikely that the case would go all the way to trial but if it did it would take place within the year.
And that one of the funders:
…asked if it would be possible to get a QC's opinion. Mr Panayides said that that would not be possible before the date by which the funding was needed. Mr Lemos’ statement does not explain why there was any deadline, let alone one which should prevent him from obtaining the second opinion which he had sought.
…During the trial Mr Panayides or his assistant would send transcripts and a summary report highlighting the key issues and how generally they thought that the trial was progressing. Mr Panayides’ reports were generally very positive. At no point in the trial did Mr Panayides change his views on the prospects of success.
The same witness claimed not to have been told until January 2013 that there was “a remote possibility” that the Defendants could bring a claim against the funders for costs. The crux of the matter is summarized by the judge in this way:
Mr Lemos [who himself trained but did not practice as a barrister] says (i) that he and his family were told throughout the proceedings that the claim had a very strong prospect of success; (ii) that he believes that they were misled and deceived by the Wempens just as much as the Defendants were; (iii) that the legal opinion that he was given was flawed from the start and everything flowed from there. At no point were they told to seek legal advice; and they did not think of doing so because they felt that to all intents and purposes Clifford Chance were their legal advisers. They were not personally responsible for the matters which caused me to order indemnity costs.
I do not regard Mr Lemos as having behaved in a morally reprehensible manner or with any impropriety. He was approached by a partner, well known to his family and in a firm of top rank solicitors, who gave him extremely confident advice which was repeated as the case progressed, despite the fissures which were developing in it. He does not appear to have become consciously aware of the legal sink hole which underlay Excalibur’s case and which opened up during its course.
Clarke LJ does not impute to Clifford Chance a lack of belief in their own advice, (indeed he says, “I am sure that Clifford Chance remained confident to the end”) but he does note a judgment by Gloster J (as she then was) referred in June 2011 pointed to obvious problems with the case including, “an obvious laches defence to any claim for specific performance” (based on delay), “the lack of evidence as to Excalibur’s financial or technical capabilities” and , “that Excalibur’s grounds for saying that any Gulf Defendant was party to the Collaboration Agreement were not at that stage “legally or evidentially convincing.” He also observes, that Mr Panayardes continuing confidence in the case at the later stages, “is surprisingly light of the cross examination of the Wempens”.
Other funders are reported as having received similarly:
‘very upbeat and optimistic’ assessments of prospects of success, which he rated as very high ("the best case he had ever seen in his career") with prospects in excess of 70%.
These other funders did however do some due diligence on the claim. Advice was sought by one from Orrick, Herrington and Sutcliffe although this was based on limited documents which interestingly did not include the Gloster J judgment. That opinion was “heavily caveated” and made plain their heavy reliance on Clifford Chance, in particular them having skin in the game through reducing their fees. That letter of advice said Excalibur were more likely than not to win. Allen & Overy also gave an opinion to one of the funders, “to the effect that Excalibur had a “high likelihood” of recovery.” That opinion Clarke LJ describes as “curious” (para. 102) but it at least provide some comfort to Clifford Chance that their judgments may not have been as poor as initially implied.
We are thus left in a very tantalising position. What was the cause of Clifford Chance’s miscalculation of the prospects of success in this case? Did they, or particularly the partner in charge, behave appropriately in his discussions with funders? Was his description of the claim part of the normal biasing towards one’s client interests which occurs subcionsciously, or was it part of the lawyer’s advocacy of their client’s position? To what extent is such advocacy legitimate when dealing with apparently sophisticated third parties? Or is there a case that unfair advantage was taken? What is one to make of the family connection between funder and partner? Ought, the prospects of success have been appreciated (particularly towards the end of the case when further support was sought from funders). Did the somewhat opaque fee agreement, high stakes and aggressive litigation strategy compromise the quality and independence of the lawyers judgment in this case? Clarke LJ does not say, but seems to leave all options open. There is also a further possibility, that Clarke LJ's assessment of the original case is unduly harsh (although Gloster J's prior judgment is with him). We must wait and see if there is more to come.