Significant Win for Litigation Funders

Litigation funding group LPF Group has prevailed in an attempt by accounting firm PWC to derail the $300 million lawsuit regarding Christchurch developer David Henderson’s Property Ventures group and is a significant win for litigation funding arrangements.

The decision from Justice Brendan Brown refused PWC’s request to rules that the litigation funding was an abuse of process in a decision that once again establishes the rising importance of litigation funding in New Zealand’s litigation scene, including complex company failures such as those involving the Property Ventures group.

Property Ventures group collapsed in 2010 following its disastrous investment in the Queenstown ‘Five Mile’ development. The group had borrowed heavily from finance companies, including Hanover Finance and its successor, Allied Farmers, who assumed $40 million in load ‘assets’ from Hanover.

The group’s liquidator Robert Walker sought compensation from the group’s directors, including prominent Christchurch lawyer Austin Forbes QC, and from PWC as the group’s auditor. LPF Group provided the funding for the litigation, a litigation funding group that has largely specialised in funding litigation relating to failed companies, including finance, property and investment groups.

The ruling this week will provide LPF with 42.5 percent of the funds obtained through the litigation. A separate arrangement between LPF and Allied Finance saw the latter paid $100,000 for its $40 million debt and it will also receive 5 per cent of the net funds received from the litigation.

PWC claimed the ‘abuse’ was due to LPF allegedly making “excessive and disproportionate” profit from the litigation in which it had no antecedent interest.

The Judge held that the financial interest by LPF did not affect the actual cause of action or the outcome of the litigation. The decision demonstrates the evolving attitude of the courts towards litigation funding arrangements. The Judge found that the funder’s arrangements did not amount of an abuse “on the traditional grounds” and also examined the arrangement from the perspective of the assignment of the cause of action and whether it was permissible.

He considered the funding arrangement “as a whole” including the controls asserted by the funder and the profit share, as well as the role of the lawyer. Was this a “champertous assignment”.

The Judge observed:

However an assignment of a debt must of course be genuine. As Hobhouse LJ explained in Camdex:44
… An assignment of a debt is not invalid even if the necessity for litigation to recover it is contemplated. Provided that there is a bona fide debt, it does not become unassignable merely because the debtor chooses to dispute it. Suing on an assigned debt is not contrary to public policy even if the assignor retains an interest. What is contrary to public policy and ineffective is an agreement which has maintenance or champerty as its object; such a consequence will not be avoided by dressing up a transaction which has that character and intent as an assignment of a debt. But, because the assignment of a debt itself includes no element of maintenance and is sanctioned by statute, any objectionable element alleged to invalidate the assignment has to be proved independently and distinctly in the same way as any other alleged illegality has to be proved in relation to a contract which is on its face valid.
(emphasis added)

There is no dispute here that an assignment of the GSA to SPF has taken place. The Assignment is not challenged as a sham. However the clothing of the Assignment is nevertheless sought to be impugned as having a champertous object by virtue of the assignee’s alter ego as the litigation funder.