Month: November 2017

Some risk for Great Reward: Longford Capital Secure Massive Investment for Litigation Funding

Litigation funding appears set to continue its exponential growth, with litigation funder Longford Capital Management LP announcing in September of this year that it had managed to raise a $500 million fund to support its litigation portfolios.

Longford Capital is a private investment company that provides funding to law firms, businesses, and individuals involved in large commercial disputes. Typically, this means claims worth between $25 million and $1 Billion.

Litigation funding covers lawyer’s fees and expenses incurred during litigation, in return for a piece of the settlement/ judgment if the case is successful. If unsuccessful, the client does not owe the funder anything. This form of investment seems to be attracting investors from numerous sectors looking to take advantage of this new asset that isn’t tied to more traditional markets.

This fund positively dwarfs Longford’s previous litigation fund of $56.5 million. In a press release, it was stated that they had, “already committed $100 mil for new investments”. Longford also announced the Limited Partner Advisory Committee for this fund which consists of five high profile investors:

  • John A. Beirne, Jr., Founding Partner and Chief Investment Officer of Beirne Wealth Consulting Services, LLC.
  • Michael D. Bills, Founder and Chief Investment Officer of Bluestem Asset Management, LLC
  • T. Bondurant French, Executive Chairman of Adams Street Partners, LLC.
  • Edward M. Liddy, former Chairman, President and CEO of The Allstate Corporation, former member of the Board of Directors and Chairman of the Audit Committee of The Goldman Sachs Group, Inc.
  • Jeffrey N. Vinik, former manager of the Fidelity Magellan Fund.

William H. Strong, Chairman and Managing Director of Longford Capital, when speaking of “Fund II”, stated that Longford was able to attract over $1 Billion dollars in interest and that “enthusiasm for litigation finance is also growing among the investor community”.

However, with such success comes competition. Other companies like Burford Capital made $488 million in new investments in the first half of 2017 and, closed its own $500 million fund to invest in litigation-related complex strategies in July of this year. As a result, the competition may cause the profit margin to shrink. There may also be trouble brewing on the horizon with the new Fairness in Class Action Litigation and, Furthering Asbestos Claim Transparency Act of 2017 which is currently before the US senate. This bill was introduced by The Institute for Legal Reform amidst concerns that litigation funding may be driving litigation strategy and as a result of calls for transparency relating to third party litigation funding. However, until that bill becomes law and the impacts are seen it looks like litigation funding isn’t slowing down anytime soon.

We expect to see the growth of the litigation funding market develop at double digit rate in 2018.

© 2017 Chambers of Lawrence Power

Flight makes emergency landing after wife secretly discovers husband cheating on her

For many, the design and release of “Touch ID”, a feature on all iPhones since 2013’s iPhone 5S,[1] has changed the way we access our phones and protect the private information contained on them. Rather than requiring a code, Touch ID allows phone users to unlock their device[2] by holding their fingerprint over a touch-sensitive button.

Passengers on Qantas flight QR-972 from Doha to Bali may now dispute the apparent advantages[3] of such instant access, after an argument between a husband and wife caused the pilot to make an emergency landing in Chennai on Sunday, 5 November. The wife, who was allegedly intoxicated, used her sleeping husband’s fingerprint to unlock his phone and discovered incriminating messages in his inbox.

She apparently became aggressive with the cabin crew who sought to calm her down after she repeatedly hit and shouted at her husband. The husband and wife and their young child were escorted off of the aircraft by the authorities at Chennai and placed in a holding room before the wife sobered up.

No criminal charges were made and the family later caught a flight to Doha from Kuala Lumpur. A Central Industrial Security Force official in India said that:

“On November 5, at about 10 am, Qatar Airways flight QR-962 (Doha-Bali) was diverted to Chennai. A lady along with her husband and a child, all Iranian nationals, were offloaded by Qatar Airline[s] as the lady passenger (who was intoxicated) misbehaved with crew members inflight. They were sent to Kuala Lumpur by Batik Air flight 6019 for further travel to Doha”.

The moral of the story

The events stand as a useful reminder of the willingness of airlines to divert flights in the interests of safety. The onboard safety of passengers is a paramount concern for cabin crew and the cockpit, and passengers can quickly find themselves in the hands of foreign authorities for what happens in the sky. Although there was apparently no criminal activity on which to prosecute, this could easily have been different if the argument had continued to escalate.

The story comes after reports the week before that two people were arrested after being caught carrying out a sexual act in full view of other passengers on a Delta airlines flight from Los Angeles to Detroit. The pair, who were strangers before meeting on the flight, were recorded by a fellow passenger. It later emerged that the man had a pregnant fiancee at home.

The ease with which the wife was able to check her husband’s personal messages raises broader questions concerning the safety of the Touch ID feature. This is particularly important since banking applications increasingly allow access to banking facilities, including the making of withdrawals and payments, with a mere fingerprint. Online purchases can also be made with fingerprints via Apple Pay and Paypal. P.I.N., come back; all is forgiven. Bye biometrics.

© 2017 Chambers of Lawrence Power

[1] With the exception of the 2017 iPhone X.

[2] The feature can also be used to purchase applications and access online banking facilities.

[3] On 4 September 2013, Wells Fargo analyst Maynard Um predicted that a fingerprint sensor in the iPhone 5S would help mobile commerce and boost adoption in the corporate environment: http://appleinsider.com/articles/13/09/04/fingerprint-sensor-in-apples-iphone-5s-predicted-to-boost-mobile-commerce-enterprise-adoption.

A bitter taste in the mouth of travel providers? The Court of Appeal’s Decision in Wood v TUI Travel plc T.A. First Choice 2017 EWCA Civ 11

The Court of Appeal was recently asked whether a couple could recover damages pursuant to the implied condition in section 4(2) of the Supply of Goods and Services Act 1982, (“the 1982 Act”), for harm suffered whilst on an all-inclusive holiday.

In April 2011, Mr and Mrs Wood travelled to the Dominican Republic on holiday. Whilst there Mr Wood suffered acute gastroenteritis and had to be hospitalised for four days. It was accepted by His Honour Judge Worster that the couple only consumed food provided by the hotel during their stay. He concluded that the provision of food and drink to Mr and Mrs Wood constituted the supply of good and services under the 1982 Act and awarded them £24,000 in total compensation.

First Choice appeal this decision arguing that His Honour Judge Worster should have concluded that:

  • The contract in question was a contract for services and it could not simultaneously be a contract for goods.
  • No property in goods was transferred to Mr and Mrs Wood and they held no property in the food they consumed.
  • By virtue of either of the above there was no implied condition under Section 4(2) of the 1982 and that the correct implied term was one of “reasonable care and skill” under Section 13 of the Sale of Goods and Services Act.

First Choice focused on the second point submitting that a licence was granted to all-inclusive customers to consume food or drink. First Choice relied on PST Energy 7 Shipping LLC and another v OW Bunker Malta Ltd and another [2016] AC 1034; [2016] UKSC 23. This case involved the sale of ship fuel. There was a clause stating that title in the fuel would not pass to the ship owners until it had been paid for in full and another clause stating that the ship owner could use the fuel from the moment of delivery. This was deemed not a contract for sale due to the retention of title clause which demonstrated there was no intention to transfer the property in the fuel.

On behalf of Mr and Mrs Wood, it was argued that a contract could be both a contract for goods and services simultaneously. First Choice could fulfil their obligations through others and whilst the Woods would have to show agreement to transfer of property in the food and drink they received, this would not have to be direct. Furthermore, the submission that the hotel maintained possession of the food until it was eaten (at which point it was destroyed) was unrealistic.

Lord Justice Burnett dismissed the appeal stating that he could not find PST Energy to be applicable citing the retention of title clause as a distinguishing factor. He reasoned that property in a meal, once ordered, transfers when the meal is served. Being in buffet form should not change this, i.e when the customer helps themselves to a portion property transfers. He also disagreed that this could make package tour operators the de factoguarantors for food they are contracted to provide all over the world. any potential claimants would still have to prove fault on the part of the holiday provider to be successful.

Lord Justice McFarlane and Sir Brian Leveson, agreed with the conclusions reached by Lord Justice Burnett.

Mina Heung
© 2017 Chambers of Lawrence Power

Excessive service charges and what to do about them

Background

Service charges are fees that homeowners often commit to pay under the terms of the lease they enter into when they purchase their homes.[1] They are increasingly common in share-of-freehold properties, and commonly include the costs of insurance, lighting, maintenance, cleaning and the repair of common parts such as lifts and gyms, as well as fees for the purchase, sale, sublet or alteration of a flat. They can also effect the purchase of some freehold properties.

In recent years, such charges have spiralled and are often excessive, both in their amount and in exchange for the quality of service received. Research by Direct Line for Business indicates that a third of management companies hiked service charges in the years 2014 to 2016, pushing the average charge up to £1,863, which is over twice the average monthly rent.[2]

At the time of writing, service charges are unregulated. As such, they are often exploitative and homeowners may be left footing unexpected bills of between £1,000 and £3,000 per year.

What to do about service charges

There are a number of steps that can be taken by homeowners to challenge excessive or unreasonable service charges.

Short of buying the freehold of the property outright, the first step is always to complain directly to the managing agent or freeholder. Homeowners should write to the agent or freeholder, setting out in detail why they think the fees charged are unreasonable. Even if this yields no reduction, it is a useful step in narrowing down the issues and is in compliance with paragraphs 6 and 8 of the Practice Direction on Pre-Action Conduct and Protocols.[3]

If the agent or freeholder is unresponsive to negotiation, the matter may be referred to the First Tier Tribunal (Property Chamber).[4] This can be done in one of two ways.[5]

First, homeowners can make a Right to Manage application under the Commonhold and Leasehold Reform Act 2002 to acquire the right to manage the residential block.[6]Homeowners can either set up their own company to oversee the management or, more often than not, employ a different property management firm under more favourable terms.

Secondly, one can apply to the Tribunal to decide whether the amount charged is reasonable.[7] Under section 20 of the Landlord and Tenant Act 1985, service charges are limited to a reasonable amount. If the Tribunal determines that a sum claimed is unreasonable, it can be significantly reduced and homeowners may even have returned to them part of the sums already paid.

Reform

The Government is currently analysing responses to a major consultation, entitled “Tackling unfair practices in the leasehold market”, which ran from 25 July to 19 September 2017.[8] The consultation followed the announcement by Communities Secretary Sajid Javid of plans to cut out unfair abuses of leaseholders, including stamping out unreasonable service charges.

The Law Commission has also recently proposed the introduction of a new framework to regulate the charging of “event fees”, whereby owners of retirement homes are charged fees on certain events including sale, sub-letting or change of occupancy.

Chambers’ Commercial and Chancery Team is able to provide expert advice on the challenging of unreasonable service charges, as well as leasehold disputes generally.

[1] Section 18(1) of the Landlord and Tenant Act 1985 defines a service charge as “an amount payable by a tenant of a dwelling as part of or in addition to the rent–(a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord’s costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs”.

[2] https://www.directlinegroup.com/media/news/brand/2016/property_pain_service_charges_increasing_ rapidly_14_mar_2016.aspx.
[3] https://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_pre-action_conduct.
[4] If the management agent is registered with the Association of Residential Managing Agents, (“ARMA”), homeowners also have the right to complain to an independent ombudsman.
[5] Despite repeated lobbying by ARMA, freeholders cannot refer cases to the First Tier Tribunal (Property Chamber) in the same way as leaseholders.
[6] https://www.lease-advice.org/documents/form-rtm-eng.doc.
[7] https://www.lease-advice.org/files/2016/08/leasehold3-eng.doc.
[8] https://www.gov.uk/government/consultations/tackling-unfair-practices-in-the-leasehold-market.

Maxwell Myers
© 2017 Chambers of Lawrence Power

New aviation insolvency rules suggested in wake of Monarch collapse

In the early hours of the morning on 2 October 2017, Monarch Airlines flight ZB3785 from Tel Aviv to Manchester touched down. It was to be the Airlines’ last flight, just under 50 years since its first, when its Bristol 175 Britannia 300 turboprop landed in Madrid.
The collapse of the company resulted in the largest ever peacetime repatriation exercise, during which the Government and the Civil Aviation Authority, (the “CAA”), brought 110,000 stranded passengers back to the UK, running 700 flights over a two-week period. Commenting on the operation, Chris Grayling, Secretary of State for Transport, said that “[t]he CAA has essentially set up one of the UK’s largest airlines to conduct it”.
The Government has wasted no time in suggesting that the time has come to revisit the rules governing insolvency in the aviation sector. This article discusses these possible reforms.

The collapse of Monarch
Monarch Airlines was formed on 5 June 1967, as a subsidiary of Globus Getaway Holdings, being funded largely by the Mantegazza family. It expanded steadily until the 2000s, during which the company’s disappointing turnover forced the board to reconfigure many of the company’s operations. Despite these efforts, a pre-tax loss of £32.3 million was announced in the financial year ending in 2009.
Although reporting a modest profit in 2010, the company lost £45 million in the year ending October 2011. After a failed £75 million rescue package in 2011, the airline was bought for the nominal sum of £1 in 2014 by private equity firm Greybull Capital.
A particular concern prior to the takeover was the company’s pension scheme, which was reportedly carrying a deficit of some £158 million. As part of the takeover, the pension scheme was separated from the company under an agreement with the Pension Protection Fund, (the “PPF”), which was approved by the Pensions Regulator. Under the terms of the agreement, the former owners made a £30 million mitigation payment into the company and demonstrated that the company’s other creditors had made “significant compromises” on their claims. Greybull Capital gave the PPF a 10% equity stake in the restructured company as well as a £7.5 million secured loan note,[1] allowing the PPF to gain from any turnaround in the company’s fortunes.
Notwithstanding these efforts, reports emerged in September 2017 that the company was facing difficulties with its CAA Air Travel Organiser’s Licence, (“ATOL”), owing to severe financial difficulties. The airline had faced similar problems the year before, but managed to renew its licence following a quick cash injection from shareholders. Without its ATOL, the airline would have been unable to sell package holidays, rending many of its operations defunct.
On 30 September 2017, the CAA extended Monarch’s licence, leaving it with 24 hours to settle its financial affairs. On 1 October, however, the airlines’ late night flights to Ibiza were cancelled at the point of boarding as the deadline for its licence extension loomed. At 4:00 BST the following morning, the CAA confirmed that Monarch Airlines had ceased all operations and had entered administration, leaving 110,000 passengers overseas and over 300,000 future bookings cancelled.

The insolvency rules
On 3 October 2017, the company’s Chief Executive, Andrew Swaffield, publicly blamed the applicable insolvency rules for the company’s collapse. He explained that there was a detailed rescue plan in place, under which the airline was to sell its short-haul business and switch to long-haul flights using a fleet of new Boeing 737 Maxs. The new model’s fuel efficiency would have given the company a clear cost advantage over competitors.
However, the grounding of the airline by the CAA apparently made the search for an appropriate buyer impossible.
He told BBC Radio 4:
“The UK’s insolvency framework doesn’t allow airlines to continue flying, unlike in Germany or Italy, where we see both Air Berlin and Alitalia continuing in administration . . . We couldn’t figure out a way of reducing those losses significantly, either by selling the short-haul airline or by improving it”.
The suggestion seems to be that the company could have survived were it not for the immediate suspension of operations. The comments have resulted in speculation as to the appropriateness of the UK’s insolvency rules in the aviation sector.

Suggested reforms
On 9 October, Chris Grayling made a statement on the collapse of Monarch to the House of Commons. He said:
“Of course, right now our efforts are rightly focused on getting employees into new jobs and getting passengers home. After that, our effort will turn to working through any reforms necessary to ensure that passengers do not find themselves in this position again.
“We need to look at all the options–not just ATOL, but whether it is possible to enable airlines to wind down in an orderly manner and look after their customers themselves, without the need for the government to step in. We will be putting a lot of effort into that in the months ahead”.[2]
Exactly how the Government foresees enabling airlines to “wind down in an orderly manner and look after their customers themselves” remains to be seen. It seems that the policy behind any reform, however, will be to allow airlines to continue trading as long as possible and to avoid collapse as far as possible. This may mean more relaxed ATOL licensing requirements, or a grace period during which companies can trade, and hopefully stabilise, before entering administration.
Although no concrete steps have yet been taken, the preliminary comments on suggested reform have been welcomed by industry experts.
Following the statement to the House of Commons, Adrian Hyde, President of the Association of Business Recovery Professionals, (“R3″), commented that:
“The transport secretary’s interest in airline insolvency rules is welcome. The air industry is one of a number of parts of the economy where sector-specific rules on insolvency can make orderly wind-downs or business rescue tricky. Key licences can often be withheld from insolvent companies, for example. More structured wind downs could help improve outcomes for employees, creditors, and customers.
“Although the thinking behind some of the rules in various sectors is understandable, the rules can sometimes make rescue all but impossible–leading to avoidable job losses or creditors being left out of pocket–or can significantly alter the way the insolvency is handled. R3 would welcome the opportunity to work with the government and regulators to introduce constructive and positive reforms, as they have in other specific sectors”.

Watch this space
Whether or not “positive reforms” are made, Mr Grayling’s comments arguably commit the Government to a reconsideration of the insolvency framework applicable to the aviation sector. Following the controversies surrounding the Government bailout of the banks following the 2008 financial crisis, reform to the insolvency rules that would allow companies to cease trading in stages, mitigating losses and encouraging rescue, seems a positive and workable policy.
The collapse of the company also raises questions following the involvement of the PPF. On 9 October, Frank Field, Chair of the Work and Pensions Committee, wrote to Alan Rubenstein, Chief Executive of the PPF, asking whether the Fund has received any payments from Monarch in respect of the secured loan note and where it ranks in order of creditor preference.[3]
Commenting on the letter, Mr Field stated:
“How can it be that once again, mega rich individuals could walk away from a collapsed company with a bumper profit while ordinary people pick up the bill? This massively supports the case for the law to change, to robustly protect pension schemes against owners seeking to line their pockets while avoiding their responsibilities, in line with our recommendations”.

© 2017 Chambers of Lawrence Power

[1] A secured note is a form of loan that is backed by the borrower’s assets. In the event of default by the borrower, the assets can be sold as collateral to repay the loan.
[2] https://hansard.parliament.uk/commons/2017-10-09/debates/D27444A9-86D6-4E2B-A675-8D7A1DD15FF8/MonarchAirlines.
[3] http://www.parliament.uk/documents/commons-committees/work-and-pensions/Correspondence/Letter-from-the-Chair-to-CEO-of-The-Pension-Protection-Fund-relating-to-Monarch-Airlines-retirement-benefits-plan-9-October-2017.pdf.