A leading defendant law firm and a QC have failed to strike out a professional negligence action brought after the claimants in a case they defended acquired their insolvent client’s cause of action.
The claim against BLM and Jonathan Waite QC follows the PIP breast implant group litigation, which involved around 1,000 claimants.
Some 623 of those claims were brought against Transform Medical Group (CS) Ltd, which was insured by Travelers in relation to 197 claims, but not the remaining 426. Travelers did not disclose this until June 2014, four months before the hearing was due.
The uninsured claimants did not discontinue their claims, as that would have rendered them liable to pay Transform’s costs. Instead, they pursued their claims to judgment in the hope that they could obtain non-party costs orders against Travelers.
Transform went into administration in 2015; the uninsured claimants obtained judgment against it the following year, but the £6m in damages and £11m in costs have not been paid.
The uninsured claimants applied to the court for an order that Travelers pay their costs of the action – not any damages. The High Court made such an order, a decision upheld by the Court of Appeal, but then overturned last year by the Supreme Court.
Welsh firm Hugh James were the lead claimant solicitors and in 2018 Involegal, the volume remortgage law firm owned by the partners of Hugh James, took an assignment of Transform’s cause of action against BLM and Mr Waite.
Involegal alleges that the lawyers negligently advised Transform not to inform Hugh James that Transform was not insured for those 426 claims until 2014; Hugh James first asked about the insurance position in May 2012.
Involegal says that, had Hugh James been told of the position in 2012, the uninsured claimants would not have registered under the group litigation order made in April 2012 or would have sought to have their claims stayed.
Instead, Transform had to deal with the uninsured claims and Involegal says this led to it entering administration.
Under the assignment and a declaration of trust, after payment of Involegal’s costs (Hugh James is acting for it) and sums to the administrators as consideration for the assignment, any balance will be paid to the uninsured claimants by way of damages and to Hugh James in respect of unpaid costs incurred in respect these claims.
Involegal will pay the administrators £250,000 for the assignment if it obtains up to £5m, and 5% of any amount received above that.
The defendants sought summary judgment on the ground that the assignment “savours” of champerty and/or maintenance and was therefore invalid.
The administrators had indicated during the administration that they would not pursue claims.
His Honour Judge Jarman QC, sitting as a High Court judge, ruled that, while the amount payable to the administrators in the event of Involegal succeeding may be small when compared to the potential recoveries, “the point is on the evidence that those are sums which would otherwise not be available to the creditors because the administrators would not have carried on with the proceedings”.
As a result, there was “a realistic prospect” that the assignment would be found to come within the exception to champerty and maintenance for trustees and liquidators who can only realistically turn a cause of action into money for creditors by selling it.
“In case I am wrong about that and it is necessary… to show that Involegal has a commercial interest in the assignment, I would also hold that it has a realistic prospect of establishing such an interest.
“It is clear that Involegal is a different legal entity to Hugh James and that Involegal itself, as opposed to its members, will not benefit from the assignment and trust even if there is a net recovery.
“Nevertheless, in my judgment it has a realistic prospect of establishing a sufficient interest, through its members, in seeking to recover in respect of uninsured claimants the unsatisfied judgments for damages and in respect of Hugh James the unsatisfied judgments for costs, in either case in whole or in part.”
The judge also rejected the argument that the claim should be struck out as an abuse of process on the basis that it was seeking “a third bite of the cherry”, the uninsured claimants having failed to obtain costs from Transform and then from Travelers.
This was a different cause of action, he ruled, even though calculating quantum would involve considering what would have happened in the claims against Transform.
The final ground was that Involegal could not establish that Transform would not have entered into administration and would have continued to trade had the uninsured claims not been pursued.
In November 2014, Aurelius Investments paid £3.3m for Transform’s debt and acquired control of its business.
HHJ Jarman ruled there was a realistic prospect that Involegal would be able to establish that the contingent liability in respect of the uninsured claims was a key factor in Aurelius’s decision in early 2015 “not to continue its objective of seeking to improve Transform’s performance and of turning it around”.
He also refused the defendants’ application for security for costs or a payment into court. He rejected their criticisms of the after-the-event insurance policy obtained by Involegal.
He noted that the insurers promised to notify the defendants in the event that the policy was cancelled, giving them an opportunity in that event to make another application for security.
“No one is suggesting fraud or recklessness here and Involegal, regulated as it is by the SRA, is unlikely to fail to comply with its obligations.”