Court stops firm using fees generated by claims joint venture

Pickering: Balancing exercise difficult

The High Court has ordered a law firm not to use fees from a PPI claims joint venture now the subject of a dispute, despite it warning that this could put it out of business.

James Pickering KC, sitting as a deputy High Court judge, also rejected Altrincham-based Cheval Legal’s application to strike out the claim made by Momenta Holdings (PPI) Ltd, a flexible resourcing provider.

The court heard that Cheval was set up in 2020 so they could work together to pursue so-called Plevin claims, named after the 2014 Supreme Court case that allowed consumers to recover premiums paid in respect of PPI policies on the basis of undisclosed commissions.

“The nature and volume of Plevin claims is such that they are amenable to being run on a large scale,” the judge noted. Funder SpectraLegal backed the venture.

The terms of the arrangement between the two were in dispute but “it is uncontroversial that while it was Cheval (as the SRA regulated body) which directed litigation strategy and was (as it was described to me) the ‘front of house’, it was Momenta (with its supply of legal professionals) which undertook the day to day running of the claims and (as it was also described to me) the ‘leg work’”.

The relationship broke down this year, however, and in May Momenta issued a claim against Cheval and its directors – barrister Stephen McGarry, who handled the original Plevin case, and solicitor Philip Ryan – as well as DGM Administrative Services, a claims management company set up by the two lawyers.

Momenta claims that a legally binding joint venture agreement (JVA) signed in 2020 provided that profits would be shared equally with Cheval, which would hold funds received in the first instance.

Before authorising Cheval, the Solicitors Regulation Authority (SRA) required written evidence of the arrangements in place between the two and an outsourcing agreement was drafted. This was not in line with the terms of the JVA.

Judge Pickering recorded: “According to Momenta (but disputed by Cheval), the primary purpose of that document was purely to appease the SRA and was not intended to override the pre-existing JVA.”

Within a few months, “tensions began to appear”, particularly over the basis on which Momenta was to invoice Cheval, the net result of which was that it allowed debts owed to it by Cheval to accrue.

In late 2021, a new outsourcing agreement was signed, again inconsistent with the JVA.

The relationship broke down, with Cheval alleging that Momenta had mishandled claims and was in breach of the second outsourcing agreement. Momenta claimed Cheval had failed to pay sums which were due and that Cheval had been improperly overpaying DMG.

After the claim was issued, the court accepted Cheval’s undertaking not to dissipate the funds in its client account subject to certain exceptions relating to payments required for individual claims, pending a hearing on the return date.

Then, in June, Cheval issued a letter before action “indicating that, regardless of the outcome of the present proceedings, it intended to bring proceedings of its own against Momenta”.

Judge Pickering refused Cheval’s application to strike out the claim, saying that while it would be “less than straightforward” for Momenta to show that the parties entered into a JVA on certain terms and that it survived both outsourcing agreements, “I certainly do not think that it can be properly said that at trial it has no real prospect of doing so”.

He added that Cheval’s intention to issue proceedings of its own was “highly significant”, as it would mean the same issues being litigated in any event. This was “a compelling reason for the purposes of CPR 24.2(b) for the matter to be disposed of at trial”.

Cheval did not offer to maintain its undertaking and so Momenta sought an interim injunction, on the basis that the monies paid into Cheval’s client account were effectively held on trust for the benefit of the joint venture.

Applying the American Cyanamid principles, Judge Pickering found it should be granted.

Cheval “has been frank and quite openly explained that it needs the funds for various reasons”, meaning that it would use them in the absence of an injunction and would likely not have money to pay damages should they later be awarded.

“This being the case, if I were not to grant relief, there is a high likelihood that Momenta’s claim, if successful, would become effectively pointless. This of course is a compelling reason for granting interim injunctive relief.

“On the other hand, I note that Cheval is continuing to operate the business and has asserted that if I make an interim injunction it will effectively cripple and potentially destroy that business altogether. This is of course a compelling reason for refusing to do so.

“I have to say that I have not found this balancing exercise an easy one but, after careful consideration, I am of the view that justice will best be served by granting interim injunctive relief but on modified terms.”

These allow Cheval to make deductions from the fund “generally” in relation to counsel’s fees and adverse costs, as well as on specific cases. It has to report to Momenta about any deductions made on a weekly basis.

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