Law firm fails in bid to throw out claim assigned to litigation funder

High Court: Case not suitable for summary judgment

A law firm being sued for wrongly releasing £2m it held in escrow among other alleged errors has failed in its bid for summary judgment on major elements of the claim.

Deputy Master Teverson held that it would not be appropriate to dispose of them this way.

Well-known insolvency litigation funder Manolete Partners is suing Salisbury law firm Sampson Coward as assignee of the claims of former clients UK Property and Land Specialists Ltd (UKPALS) and Nero Developments Ltd, property development companies that were owned by the same man, Nigel Jeremy Weir, and are now both in liquidation.

The law firm acted for both on nearly £10m of financing provided by two connected lenders in 2013 and 2015 respectively, and agreed and undertook to act as escrow agent.

Manolete claims that Sampson Coward did not operate the escrow accounts as it had agreed to, allowing Mr Weir to use its client account as a banking facility for day-to-day expenses, and in total the firm paid out £2m that it should not have done.

The claims also include a breach of undertaking by Sampson Coward and that the firm improperly acted on three back-to-back sales of property assets belonging to UKPALS. It is alleged these transactions had no commercial purpose and involved a diversion of profits away from UKPALS.

In seeking summary judgment, the law firm argued that the money held on escrow belonged to, and was held for, the lenders; it would be for them and not the borrowers to bring any claim.

The deputy master said this was “not a suitable issue on which to grant summary judgment”, as the claim had a realistic prospect of success on the issue of the borrowers’ beneficial entitlement to the money.

He came to the same conclusion on undertaking issue, despite the law firm pointing to the Supreme Court ruling in 2021 that the court could not summarily enforce an undertaking from an LLP.

The claimant’s counsel noted that the Supreme Court had said at paragraph 140 it was open to it as a matter of developing the inherent jurisdiction of the court to treat a solicitor’s undertaking as extending to one given by an incorporated law firm.

He submitted that, accordingly, the point remained open and was not a basis for summary judgment.

The deputy master said: “The notes in the White Book 2022 at paragraph 3.4.2 state that a claim may be struck out as not being a valid claim as a matter of law. They state however it is not appropriate to strike out a claim in an area of developing jurisprudence, since, in such areas decisions as to novel points of law should be based on actual findings of fact…

“I accept that paragraph 140 gives the claimant at least some basis for saying that this is an area in which the law either is developing or may be developed.

“The courts have emphasised the importance of the principle that the development of the law should be on the basis of actual facts found at trial and not on assumed or hypothetical facts.”

Therefore, he said, the question would be better dealt with as part of the wider claim so it could be considered alongside the full factual background.

Finally, on the back-to-back sales, the defendant argued that the claimant had not set out any clear causation case.

“This in my judgment is not an issue that is suitable to be determined by way of summary judgment application made prior to the filing of a defence,” Deputy Master Teverson said.

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