CA backs Hugh James’s “novel” disbursement funding agreement

Court of Appeal: claimants’ liability for disbursements was real

The Court of Appeal has backed the “somewhat novel” credit agreement that saw Welsh firm Hugh James fund clients’ disbursements to the tune of £787,500 and then recover interest on them at 4% above base.

The firm represented a number of successful lead claimants in the Phurnacite Workers Group Litigation against the Secretary of State for Energy and Climate Change and Coal Products Ltd.

The high-profile group action was brought by former employees and their families of a phurnacite plant in South Wales, successfully claiming exposure to harmful dust and fumes caused mesothelioma.

But in order to progress the case through the courts, Hugh James agreed a credit arrangement with the claimants to fund the disbursements that in the High Court Mrs Justice Swift described as “at least in the personal injury sphere… somewhat novel”.

Interest was set at 4% above base rate and payable out of damages if the claims were successful. If the individual claim was unsuccessful, the credit agreements were covered by after-the-event insurance.

Swift J rejected the government’s argument that the disbursements were not recoverable, and said the interest rate was not “excessive or unreasonable”.

On appeal by the government, it was argued that as the claimants would not have to repay the interest unless recovered from the defendants, their claim was effectively a subrogated claim by Hugh James and their liability to pay interest was notional rather than real.

This should have led the judge to assess the rate of interest by reference to the solicitors’ circumstances rather than those of the claimants – and as Hugh James should be equated to a first-class borrower, the rate should be 1% above base.

Giving the unanimous judgment of the Court of Appeal, Lady Justice Sharp dismissed the appeal. She said: “These were personal injury actions brought by claimants of modest means for their own benefit. They needed to fund their claims and they borrowed to finance their disbursements at what was conceded to be a reasonable interest rate for private individuals in their circumstances, certainly in comparison to what would have been charged in the open market.

“Under clause 5 of the agreement, payment of the interest was contingent on the claim being successful and damages actually being received… this does not mean that the arrangements were ‘unreal’ or ‘notional’… The claimants won their claims and recovered damages.

“In the events which had happened, the liability had crystallised. Their interest liability was therefore no longer contingent. It was entirely real. Having succeeded, they were liable to pay for the funding advanced to them and the interest charged upon it.”

Speaking after the High Court ruling, Gareth Morgan, lead partner on the case for Hugh James, said: “This is a precedent for a personal injury case. What it means is that if a claimant enters into a funding arrangement and incurs interest on disbursements, then in appropriate circumstances, that is a cost which can be charged against the defendant in the event of a successful claim.

“This switches the burden of funding disbursements from claimant to defendant.”

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