Disbursement funder wins repayment of loans from law firm

Loans: agreement to repay

A disbursement funder has won judgment against its law firm client that the latter has to repay loans in cases where an after-the-event (ATE) insurer had avoided liability.

HHJ Pelling QC, sitting as a High Court judge, found that although the underlying Consumer Credit Act (CCA) loan agreement was flawed and unenforceable, Bakewells (now part of Nelsons) was under an obligation pursuant to an agreement between the two to ensure that it was enforceable.

In Sutherland Professional Funding Ltd v Bakewells (a firm) & Ors [2013] EWHC 2685 (QB), the loan agreements enabled personal injury clients to meet the cost of disbursements, and the case related to 69 cases that were settled by accepting offers that were too low to allow repayment of the sums lent, or were dismissed or discontinued with no order as to costs.

In each case the ATE insurers avoided liability and the funder, Sutherland Professional Funding, decided to pursue the law firm rather than the clients.

The judge found various problems with the loan agreement that rendered it unenforceable under the CCA, but said there was no evidence that Bakewells had examined the loan documentation for compliance with the Act.

The crucial term of the agreement between Sutherland and Bakewells provided that in the event the loan agreement was unenforceable, the law firm would pay the funder “immediately upon demand the amount of the total amount payable under the loan agreement which remains unpaid at the date of such breach or unenforceability together with any accrued interest and charges which remain unpaid”.

Despite the law firm arguing that it was a guarantee obligation, rather than a primary obligation, and that the circumstances under which the loan agreement was unenforceable did not trigger this clause, HHJ Pelling found that it was a primary obligation and that Sutherland was entitled to recover the money from Bakewells.