Hazel Chambers
Mishcon de Reya
Okay, so hello everybody, welcome to the latest in our Disputes Nightmares scenario webinars. I’m joined today by Ed and Aarushi. In this session we are going to be looking at a not uncommon scenario that may arise in the course of litigation um, we’re envisaging a situation in which our client has been involved in an active piece of litigation for some time um, and is in fact approaching trial. So by this point they’re heavily invested. Um, at this point it becomes apparent your opponent is in financial difficulty uh, so what do you do? We want to hear from both claimant and defendant perspectives so I am going to describe one scenario but then we’ll have a kind of uh, sliding doors moment where we flip it one way or the other um, but we’ll start with the claimant’s perspective. So, so here’s our scenario um, you represent a technology company pursuing a 2.5 million pound breach of contract claim against a former distribution partner. After eighteen months of hard pushed litigation your client is confident of success at trial which is scheduled in three months’ time. However, you’ve just discovered the defendant’s solicitors have come off the record and the defendant is now acting as a litigant in person. The defendant’s offices have been downsized significantly, recent company filings show mounting losses and reduced turnover and the defendant is seeking multiple adjournments. Your client has already spent £800,000 in costs and is facing the prospect of an unenforceable judgment against an impecunious defendant. That’s the claimant’s perspective.
Um, similar scenario but now from the defendant’s perspective. Again you represent the technology company; you’re defending a 2.5 million pound breach of contract claim. Your client had a strong defence and the claim appears to be overstated however eighteen months into litigation you are concerned that the claimant is in serious financial difficulty. Uh, the warning signs that you’ve spotted are the claimant’s solicitors are pressing for immediate settlement at heavily discounted figures. The claimant has failed to comply with several Court orders citing cash flow issues. Intelligence suggests that a number of the claimant’s suppliers are complaining about non-payment and despite their weak case, the claimant is refusing to discontinue hoping for a quick settlement. Again, your client has spent a significant sum defending the claim and now faces a dilemma. Do they continue to trial against an opponent who may not be able to pay an adverse costs order if they lose or settle a weak claim to avoid further costs against the claimant with nothing to lose.
Uh so Ed, I am going to come to you first. So when you first discover your opponents difficulties, what are the critical steps that you should take in the short-term, so the first two to four weeks to protect your client’s position?
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
Thanks Hazel Chambers. So I am Ed Chi, I’m a partner in the finance and banking litigation team at Mishcon um, and in answer to Hazel’s question I think the first thing the client needs to do is just take a breath and think, are they jumping at shadows, is this, is this the claimant’s own concerns uh, that it’s trying to sort of look at in the run up to trial and then it needs to understand if there are issues, what are they exactly. So it needs to undertake, hopefully it’s undertaken investigations already um, as part and parcel of um, being the claimant, of issuing the proceedings and understanding why it is going to issue these proceedings in the first place. But then it needs to understand if there is an issue, is this an insolvency issue? Is it a liquidity issues? Is it actually an issue that the defendant is just disengaging because it doesn’t want to engage? Um, and therefore, what is the ultimate choice that is the claim in the claimant’s gift. Is this something that the claimant needs to understand there are other potential litigation claims running against the defendant and how progressed they are and ultimately if there are assets that the claimant has identified, what are the enforcement options? What action to take for enforcement does the claimant foresee? And are these potentially actions that can be taken ahead of a judgement. So I think that’s the first thing, the immediate thing that I think a claimant would need to undertake in that sort of scenario.
Hazel Chambers
Mishcon de Reya
Mm. You’re trying to put them in a position where they can make informed choices essentially.
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
Exactly, there’s, there’s no point taking decisions that are, that are rash. Um, if you are in the run up to trial you need to understand are you going to be pressing ahead as quickly as possible for this trial, uh, and to take enforcement action as quickly as possible. Is there stuff you can do before trial, before judgment or is it actually the sort of scenario where you’re obviously a claimant, you’ve, you’ve initiated these proceedings, you can’t just, well you can just abandon but you’re on the hook for, for cost penalties if you do. But is it the case that you need to try and cut back and restrict the amount of loss that you are already going to incur and you need to effectively try and incur the least amount of costs in the run up to trial as possible.
Hazel Chambers
Mishcon de Reya
And Aarushi, what about from a defendant’s perspective? What are some of the, the first steps a defendant should take?
Aarushi Sahore
Brick Court Chambers
Thanks Hazel Chambers um, my name is Aarushi, I’m at Brick Court Chambers, I’m a Barrister and I am going to try and address this from the defendant’s perspective. So when you’re the defendant and you come across this issue obviously it’s concerning because you are liable um, for your costs and you might want to recover them if you win but it’s slightly less concerning than if you are a claimant because it is actually an opportunity if you play your cards right, to bring the litigation to a close and to actually put some pressure on the other side because now the claimant is sort of limping towards um, a trial and so you need to work out what to do. My own view is similar to Ed. The first step is to get to the bottom of what actually is happening here and how serious the problem is. As a defendant you have a few more tools in your tool box under the Civil Procedure Rules to actually uncover that information. So maybe if you are the claimant you are limited to things like look doing company searches or, or trying to do some own investigations but the defendant has a right to what is called security for costs under CPR 25 and you might or indeed, should have looked into this before as well at the start of the litigation to try and get some security for your costs. If for example, it’s a um, company that looks like it’s in difficulties or it’s an overseas company and as part and parcel of that you’re entitled to various types of information from them and so what I would do is try and press that either as shaping up to an urgent application or trying to find more information from a, based on a prior order to say, for example, based on my experience, you used to have a funder, you’d say to the claimant, now what’s going on with the funding arrangement given that you’ve, you know, missed all these deadlines and saying you’ve got no funds left. So you need to get to the bottom of the factual position exactly as Ed says, but as the defendant you might have a few more tricks up your sleeve to do that.
Hazel Chambers
Mishcon de Reya
Cool. And I guess um, depending on what that intelligence tells you, it may have been that a security application would not have been meritorious at the outset or even a few months ago but as things change, as the factual landscape changes, that may make a security, um, application, um, a better option? Or more like…
Aarushi Sahore
Brick Court Chambers
Exactly but I think in this situation where we are talking about an upcoming trial, it’s a, it’s also a risky move because the claimant will say, you’re just trying to stifle my claim by you know, asking me to put up some huge sum of money shortly before trial. So you need to assess the situation carefully but that’s what you look towards doing.
Hazel Chambers
Mishcon de Reya
Sure. Um, so that’s the kind of immediate, um, thought. Then, then how do you think, and I’ll come back to Ed first. How do you adapt your litigation strategy, um, and potentially manage increased costs if you’re dealing with an impecunious opponent. Are there practical steps that you can take to protect your client’s interests?
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
Yeah there are. I mean I think, I think the first thing is, as I said, if you are running up to trial you need to understand you obviously have to adapt your strategy going into trial to cut those costs. So, for example, if this is now a litigant in person you need to understand how you’re going to affect service. You need to engage with the other side potentially if, if there is incomplete information about how do you serve documents on the other side, has a Notice of Change been filed correctly, that sort of stuff. You then need to understand going into trial, for example, do you really need a senior KC? Do you need all of the experts that you previously had lined up? Will the other side’s experts be turning up at all? Will the other side’s witnesses be turning up? You, you just don’t know at this stage. Um, you don’t even know, for example, if the experts on the other side have been paid or are being paid in the run up to this, to this hearing, um, and therefore you might end up writing to the Court and saying, we were listed for a five week trial, it’s now going to be two or three. So that, that’s something that you will be looking at an immediate saving of costs just in terms of time of tenure.
Hazel Chambers
Mishcon de Reya
Mm hmm.
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
But then you’ve got things about, for example, transcripts. You need to understand bundles. You’re going to have to effectively help a litigant in person to manage the conduct of the trial. And most of it is going to fall upon you even if you weren’t the claimant to start with. So I think all of that is things, you know, all of these are things that you are going to need to understand. The Court is going to be keen to ensure that there is equality of arms as much as possible and as claimant, as a represented party, it is always on you to ensure that you are the party taking the lead. Um, you can obviously try and nudge things to the position, you know, in the right direction but you obviously can’t take, can’t take an unfair advantage of the fact that you are no up against the LIP, um.
Hazel Chambers
Mishcon de Reya
No, and I guess key for the client to understand, it’s not just you being fair and, and reasonable about things. There is actually a requirement on legal representatives to, to treat, um, a litigant in person fairly, as you described.
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
Absolutely, absolutely. Yeah, you have, you have to make sure that you are writing in plain English, you have to make sure that you tone down the legalese. You don’t have to point out the other side’s errors and, but, you know, to the extent that they are making those errors, um, that is on them and not, and not you but you do have to make sure that everything that you say, everything you put across, um, is easily or as easily understandable from the other side’s position as it is from yours.
Hazel Chambers
Mishcon de Reya
Sure. And Aarushi, how might litigation strategy change from a defendant’s perspective?
Aarushi Sahore
Brick Court Chambers
I think on the defensive side, i.e., limiting your exposure, it’s similar to what Ed says, you want to think about can you make your, um, trial strategy a bit more lean and try and save costs depending on what’s going on on the other side. Um, as the defendant, there’s also some thinking that needs to go into the potential offensive strategies as well. So, I’ve seen this happen in some cases, and different approaches will suit different scenarios, but there’s a spectrum of possibilities between, on the one hand, you try and slow things down as well and accept, for example, that the trial might need to be adjourned or some, you know, delayed or something needs to happen, um, to enable the claimant to try and sort themselves out, keep updating the Court but then agree to basically discontinue if it reaches a point where they just can’t. That can, that can work in some cases. The other end of the spectrum is to actually put your foot on the accelerator and to insist that the claimant continues to meet the various deadlines, prepares for trial, seeks things like an Unless Order so that they have to take certain steps or there will be, you know, consequences on them. That’s a slightly higher risk, higher reward strategy because you’re still sinking costs into,…
Hazel Chambers
Mishcon de Reya
Yeah.
Aarushi Sahore
Brick Court Chambers
…you know, putting your foot on the accelerator so, um, it really depends on the particular nuances of the, the scenario but I think there’s a few different options there.
Hazel Chambers
Mishcon de Reya
Sure. And, um, I mean, we’ve talked about approaching trial and the costs associated with trial. Obviously trial tends to focus everybody’s minds on whether actually, um, the dispute is capable of being settled, um, but settlement negotiations can become particularly challenging obviously when one party has limited resources, um, Ed, from a claimant’s perspective, what, what approach have you found works best in terms of keeping settlement discussions, um, productive?
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
I, I think you really need to understand the psychology of your defendant in this scenario. Um, is it the case that actually they want out of the litigation? Is it the case that your, your judgment against them that is potentially pending is something that they just want to avoid, even if they don’t have the money to pay the judgment? Or is it a, I no longer care about anything in this litigation, even if I go down, I’m going down hard. So I, I think you need to understand the prompts assessment going in, you know, in from the start. Um, and then you’re looking at obviously the questions of, well, am I looking at an immediate return? Am I willing as a claimant to accept the potential for future earnings knowing that they have, the defendant has a cash flow problem today, and what security, if any, am I willing to take over assets that are currently illiquid? Um, then, you know, that’s purely a judgment call in terms of, you know, even if you are a claimant looking at an impecunious defendant, can you throw into the pot the fact that you will get a judgment, um, you know, potentially it’s an increased chance of a judgment given the fact that they no longer have, have, uh, lawyers involved. Um, is that something that you can say, well this is actually something that you want, you know, the risk is now increased to you, you potentially want a bigger cut of, whatever settlement you were looking at previously. Um, and that’s the point at which, as Aarushi was saying, as a defendant in that scenario you could then start asking questions about, uh, what sort of financial position the other side is in. But if you are looking at settlement discussions, it is a discussion, so at that point, as claimant, you could start asking questions of the defendant, well if you’re putting these offers on the table, if we’re discussing this, this and this offer, I want to see what, what actual assets you have, show me what, you know, you’re saying you don’t have funds to make an immediate cash payment of X. Show me what you have and we’ll take a view. So that’s where you can then start to turn the position around. You can start leveraging, leveraging those discussions for information. At worst, the information may not be used in the settlement but it is still worth having that information at some later stage if and when you have to go get judgment.
Hazel Chambers
Mishcon de Reya
Sure. Um, and from a defendant’s perspective Aarushi?
Aarushi Sahore
Brick Court Chambers
So from the defendant’s perspective I think claimants can be a little unpredictable in this situation. So, on the one hand they might be quite desperate to settle because they’re running out of funds and, uh, simply discontinuing the claim is not really an option because they’ll be liable for costs under the Civil Procedure Rules and so on the one hand, it is a good opportunity to try and settle. But I’ve also seen scenarios where in fact the claimant has nothing left to lose and they are ready to bet the house on, on the particular litigation. So in a way they can, yeah, and become more entrenched. So, so settlement can become slightly more difficult even, even though you think it would be straight forward. So, I think my suggestions in terms of the tactics are, sometimes in these situations it’s easier rather than having, um, detailed written settlement discussions, you just have a sort of principle to principle, um, discussion, a frank discussion that, look, both sides are better off walking away at this stage. Um, and the other strategy is the defendant is to constantly keep an eye on the merits of your defence. So, if you think you’ve got a great defence and you think actually you are likely to win, then you need to go into those discussions with that confidence and say, we’re ready to go the whole way, you know, and, and you should prepare accordingly. But equally, if, if you’re a little bit nervous about parts of your defence and you think there’s weaknesses, this might be the opportunity for everybody to cut their losses, um, and try and come to a settlement.
Hazel Chambers
Mishcon de Reya
Sure. So know, know your opponent I think is what both of you are….
Aarushi Sahore
Brick Court Chambers
Yeah.
Hazel Chambers
Mishcon de Reya
Um, okay so, so looking forward now to perhaps a trial actually having taken place. When might it be worth pursuing, um, a judgment or I suppose maybe this is slightly before trial has taken place? But if you are thinking, is it worth having a judgment, um, when would it be worth pursuing a judgment against an opponent who does have limited assets, um, and what enforcement options are there? Um, we’ll go to Ed first.
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
So, first off, as I said, I think the first thing you need to understand is, are you willing to wait for any, any potential recovery. So, if you are getting a judgment out of pure money judgment then is it the case that actually the defendant doesn’t have any assets, only liquid assets now but has assets and therefore you are willing to take some sort of charging order, are you willing to pursue orders for sale of property, you know, you’re not getting a recovery immediately but there is a potential for recovery in the medium to short-term. And then it’s the case that obviously you are getting a judgment so would you be willing to, assuming the defendant doesn’t actually go bankrupt, doesn’t become insolvent, administration, that sort of thing, that your judgment is still worth enforcing in the medium to longer term. So, as long as you are recovering something within that six year period. Is it the sort of case that you are looking at that potentially instead. And then you need to think about, for example, even if I have a judgment, a money judgment, are you actually looking at something else potentially as well? So are you looking at a deterrence value in this judgment? Are you looking, uh, as against third parties, are you looking at something that actually you’re looking at specific performance? Um, in which case, again, do you actually want specific performance and it may be your case that you no longer want specific performance because actually, so I’ve had a scenario once where there was a specific performance order for purchase of assets but, by the defendant, but in that case if the defendant is now ordered to pay and they can’t, what’s the point? Are you actually going to pursue that? Do you want some alternative remedy that you potentially pleaded or not? And then you’ve got other things to consider in terms of even if your defendant is now impecunious and it’s not worth getting a judgment against them, is the judgment something that you can use as against third parties? Are there other actors that actually this judgment will still have a value to you even if it’s not the immediate, I can’t convert this to cash? I think that, that’s the bit you need to think about.
Hazel Chambers
Mishcon de Reya
Yeah. But all of these options presumably have costs associated with them? Varying costs associated with them?
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
Yeah, but ultimately even if you, even if you were getting a judgment against a defendant who was not 20.18, you would still have costs of, of considering or taking that forward. It’s just a question of how much cost you need to, you need to spend to then take that initial consideration and then how do you act on it afterwards.
Hazel Chambers
Mishcon de Reya
Sure. And Aarushi, anything to add from the defendant’s perspective?
Aarushi Sahore
Brick Court Chambers
Um, so for the defendant, it wouldn’t be a judgment that they are pursuing, but perhaps costs orders. So you get through trial, you win and you’ve spent a lot of costs and your entitled to recovery of those but you can’t actually in reality, uh, pursue them against the claimant. Again, you might have used some of those tools I’ve mentioned before. So security for costs could help protect you to some extent. Um, at that stage there’s also some powers in what’s called the Senior Courts Act to pursue third parties in some limited situations. So I’ve looked at this where for instance, there are, there’s a funder who you potentially can go against or there’s, you know, particular guarantee from another third party like a director and in some limited cases you can actually pursue that, um, third party. So you look for potentially enforcing against, um, them as well and again, as the defendant, you have slightly more flexibility in what you might do but the reality I think as Ed said, is you’d be pouring more money into pursuing that and the clients need to be, you know, eyes wide open about the risks of this. Sometimes all you have is the piece of paper that says, you’ve won, or whatever it is but actually the reality of getting cash into your account is quite hard.
Hazel Chambers
Mishcon de Reya
Always a balancing act. Um, we are coming up to, to finishing time so I’ll just quickly, um, my final question was really what steps can practitioners take at the outset of disputes to avoid finding themselves in the scenario if, if at all possible? Um, and we’ll go back to Ed first.
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
So I, I think the investigations right at the outset are key. Understanding what the defendant has from the outset before you kick off, uh, litigation. Uh, and those can be investigations, obviously public source, they can be stuff that you were instructing an investigator for. Um, but also obviously you, you I assume had some sort of relationship with the defendant that, at that starting point, you know, it’s just worth I think engaging with the claimant to understand what was the background to their understanding, what was their knowledge at the start. And then obviously making sure that you’re monitoring that, uh, defendant throughout. So you would need to have Google alerts, for example. You would have a case tracker to understand what other, you know, what other litigation pops up against this party so that you are just carefully monitoring what, I’m not saying you spend a fortune at each stage but so that you, you continuously understand what information is out there and then at any point that you get an interim costs order throughout the proceedings, making sure that you are acting on that to enforce those as you go. If nothing else, they will let you know that there’s, you know, they will stand as a trigger point so that if at any stage one of those interim orders is, is left unpaid, you know that potentially there’s something you can enforce and take action now, which might actually get you away out of the litigation at a sooner stage. But also it is something that then you can potentially press for, I want this payment now, so that you minimise exposure going on down the line.
Hazel Chambers
Mishcon de Reya
The kind of constant vigilance in a way?
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
Possibly.
Hazel Chambers
Mishcon de Reya
Keeping it under constant review.
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
You don’t want to throw too much money about this but absolutely.
Hazel Chambers
Mishcon de Reya
And Aarushi? Any steps the defendant can take at the outset?
Aarushi Sahore
Brick Court Chambers
It’s exactly the same in terms of the, uh, adequacy of your investigations right at the start. I would say sometimes when this does happen it can be because litigation is so long running that the picture just totally changes after a couple of years of people spending money on litigation, the trials not listed yet, so on and so forth. So, sometimes as a defendant you don’t mind the delay, you don’t mind a bit of things dragging out but actually, that can be a double edge sword that will put you in a difficult position because this financial picture keeps, um, changing. So sometimes it may be prudent to try and move things along as well.
Hazel Chambers
Mishcon de Reya
Sure. Um, thank you both, I think we are a little bit over time now. Obviously if people have questions, um, do of course feel free to reach out to us. I think you can probably find our contact details and we will do our best to come back to you, um, but thank you Ed, thank you Aarushi. Some really helpful, uh, practical insights there, um, and thank you everybody for joining.
Ed Chik
Partner, Finance and Banking Litigation Team
Mishcon de Reya
Thanks very much.
Aarushi Sahore
Brick Court Chambers
Thank you.