The High Court has refused to order two litigation funders to provide fortification for cross-undertakings in damages given in relation to asset freezing/preservation orders they had obtained over settlement proceeds in funded litigation: Omni Bridgeway (Fund 5) Cayman Invt Ltd v Bugsby Property LLC  EWHC 2755 (Comm).
The decision arose in a dispute between two litigation funders, Omni Bridgeway and Therium, and the party whose litigation they had funded, Bugsby, as to the funders’ entitlement to a share of the settlement proceeds (see our blog post here). In return for the asset freezing orders, and as is usual in such cases, the funders provided cross-undertakings to compensate Bugsby for any losses suffered as a result of the orders if the court later decided they should not have been granted.
In the present decision, the court dismissed Bugsby’s argument that the funders should be required to fortify their cross-undertakings to guard against the risk they might fail to pay any compensation that might ultimately be ordered. It found that Bugsby had failed to establish a good arguable case either that it would suffer loss as a result of the asset freezing order or that the funders weren’t “good for the money”.
Interestingly, the court considered that it was “improbable in the extreme” that these two reputable funders would choose not to honour their cross-undertakings, given the damage that would cause to their business and reputations. This contrasts with the court’s approach in the Ingenious Media litigation (outlined here), where Nugee J ordered one of these same funders to provide security for costs, having found there was a real risk that it would not meet an adverse costs order. The judge in the present case said that the circumstances, and the evidence provided, were “entirely different”, including because in Ingenious Media the funder had not provided any undertaking to meet an adverse costs order nor any actual financial information.
Omni Bridgeway and Therium obtained asset freezing/preservation orders over sums received by the respondent, Bugsby, in settlement of litigation they had funded (or, in Omni Bridgeway’s case, the benefit of equivalent undertakings from Bugsby). The funders provided cross-undertakings in damages, in the usual way.
Bugsby argued that each funder should be required to fortify those undertakings (which is typically done by paying money into court or providing equivalent security), to guard against the funders being unable or unwilling to satisfy their cross-undertakings to compensate Bugsby for its losses, which it estimated at £5.14 million. That figure was based on Bugsby’s alleged inability, as a result of the injunctions, to deploy the settlement monies in “the potentially lucrative litigation funding market, where returns of around 30% per annum can reasonably be anticipated”.
The funders resisted the application for fortification on the basis that there was no sufficient evidence to justify the £5.14 million figure, or to show that they would not satisfy any eventual order in Bugsby’s favour on the cross-undertakings.
The High Court (Jacobs J) dismissed Bugsby’s application for fortification.
There was ultimately no dispute as to the principles that apply on an application for fortification. The applicant must show a good arguable case that it will suffer loss that it would not otherwise have suffered and that is capable of intelligent estimation: see Energy Venture Partners Ltd v Malabu Oil & Gas Ltd  EWCA Civ 1295, considered here. (The judge noted that Bugsby had floated an argument that the test was a “serious issue to be tried” rather than “good arguable case”, but ultimately had not pressed the point which, the judge said, was inconsistent with the authorities.)
The arguments in this case were focused on whether there was a good arguable case that:
- Bugsby would suffer loss as a result of the injunctions; and
- The funders were not “good for” their respective cross-undertakings.
Good arguable case on loss?
The judge found that Bugsby had failed to establish a good arguable case that it would suffer the claimed loss, which the judge described as speculative. Bugsby had never participated in the litigation funding business. Although there was evidence that it wished to enter the funding market, and was in discussions about a co-funding arrangement with “a reasonably well established litigation funder”, there was no firm offer from that funder and no evidence that it had carried out its due diligence exercise or obtained internal approvals for the transaction.
Further, Bugsby had to establish a reasonable case that it would not have suffered the loss absent the injunction. Here the judge considered it improbable that the potential co-funder would have taken the risk of participating in a transaction where the funds to be advanced by Bugsby were alleged by Omni Bridgeway and Therium to be trust funds, so that there was a possibility of a tracing remedy in respect of them.
Moreover, there was no evidence of any third party having agreed to enter into a litigation funding agreement with Bugsby, and any such party was likely to have similar reasons for caution.
Good arguable case on whether funders “good for” the money?
Having dismissed the application for fortification on the basis that there was no good arguable case on loss, the judge went on to express his conclusion on whether there was a good arguable case that Omni Bridgeway and Therium would fail to meet any call on the cross-undertakings. Had it been necessary to decide, he would have held there was no good arguable case on this point.
Both funders, the judge said, had adduced evidence as to their ability and willingness to comply with the cross-undertakings. Although neither funder appeared to have significant assets within the English court’s jurisdiction, it was clear they had access to substantial funds so would be able to meet a liability for £5.4 million between them. Further, there was no real risk that they would decide not to meet such a liability. That would be a contempt of court and would have such serious business and reputational ramifications for both funders as to make it “improbable in the extreme”.