Litigation funder fails in bid for greater share of $300m award

Moulder: CEO had no authority to sign variations

Leading litigation funder Harbour has failed in its argument that it was entitled to an increase in its share of the proceeds from a $300m award that it financed.

Kazakhstan Kagazy JSC was part of the paper and packaging business Kazakhstan Kagazy Group. In late 2017, the group won a fraud claim against senior managers and shareholders.

In February 2018, it obtained final judgment of just under $300m, together with an order for £8m as an interim payment on account of costs.

The case was backed by Harbour Litigation Funding, which then brought the latest proceedings for declarations about its rights to the proceeds of the judgment.

According to KK JSC’s lead counsel, Rupert de Cruz QC of Littleton Chambers, the effect of these declarations would likely have been to deprive his client and its affiliates of any part of the proceeds.

The case involved consideration of Kazakh insolvency law as in 2016 KK JSC was declared insolvent and placed into a ‘rehabilitation’ procedure in Kazakhstan, with its then chief executive, Tomas Werner, acting as its ‘rehabilitation manager’.

There were multiple issues before the court, particularly around whether Mr Werner had authority to execute several variations to the funding agreement that increased Harbour’s commitment to fund the case to £11m and also purported to increase Harbour’s share of the proceeds.

However, Mrs Justice Moulder found on the evidence that he had neither real nor ostensible authority to do so. In relation to the variations that took place in 2017, she found that Harbour “did not have an honest belief that Mr Werner had power” to sign them.

“If I were wrong on that, I find that [Harbour] ‘turned a blind eye’,” she went on.

The judge also rejected the alternative arguments that Harbour was nevertheless entitled under the terms of the original funding agreement to ‘a return’ on substantial additional sums it had spent in the litigation, or that it was entitled to reimbursement for those additional sums by way of restitution in unjust enrichment.

While Harbour wanted to secure improved terms in return for more funding, the evidence did not show that it would only advance further funds if it got them.

The evidence indicated too that the enrichment “was not unjust as there was no ‘free acceptance’ by KK JSC” of the extra funding.

Moulder J also said she found the evidence of Ellora MacPherson, who at the time was Harbour’s general counsel and is now its chief investment officer, unreliable.

She had “an obvious motive” to support Harbour’s case and the judge said she found her evidence “on matters which are covered by the contemporaneous emails… inconsistent with the plain reading of those emails”. This “calls into doubt her other evidence”.

“Although KK JSC did not invite the court to draw adverse inferences from the absence of [two other senior Harbour staff] as witnesses in these proceedings, Ms MacPherson’s evidence is not corroborated by other witnesses.

“For these reasons I find her evidence unreliable and prefer the evidence of the contemporaneous documentary evidence.”

Mr D’Cruz QC, leading James Egan of 10 Old Square, were instructed by Marriott Harrison. Andrew Thompson QC and Ben Griffiths of Erskine Chambers, and Mark Belshaw of Essex Court Chambers, instructed By Harcus Parker, acted for Harbour.

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