Proprietary Injunctions: When is there a “serious issue to be tried”?

A proprietary injunction is one of the central tools at the Court’s disposal to ensure that trust property is put into the right hands.^[1] Under section 37(1) Senior Courts Act 1981 the Court may grant a final injunction, ordering the party which currently holds the property to do whatever is necessary to transfer that property to the applicant.

In a recent application in the High Court^[2], Therium Litigation Funding A IC (Therium) applied for asset preservation / freezing order against Bugsby Property LLC (Bugsby). It made the application pursuant to section 44 Arbitration Act 1996 which governs the court’s powers that are exercisable in support of arbitral proceedings.

General Principles

The well-known American Cyanamid test^[3] applies to asset preservation in support of proprietary claims. It is necessary to show that:

1. There is a serious issue to be tried.
2. The balance of convenience is in favour of an injunction (including consideration of whether damages are an adequate remedy).
3. It is just and convenient to make the order sought.

The central question raised by Bugsby in response to Therium’s application was whether there was a serious issue to be tried in relation to the proprietary claims which they asserted.

Serious Issue to be Tried

While applicants for a freezing injunction are required to show a “good and arguable case on the merits”, an applicant seeking a proprietary injunction need only show that there is a “serious issue to be tried.” While it may look like semantics on the face of it, it’s a less onerous standard for the proprietary injunction.

The likelihood of success is steered further in the applicant’s favour when we consider that courts are generally very resistant to enquiring too closely into the merits of the claim at this early stage of proceedings.

It is usually the case that unless the claim is “obviously misconceived” a court is likely to proceed on the basis that there is a “serious issue to be tried.”^[4]

Is “unenforceability” a serious issue?

Nonetheless, Bugsby sought to defend the application on the primary contention that there was no serious issue to be tried. The argument centred around the enforceability of the agreements, pursuant to the very recent decision of the Supreme Court in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28.

That case decided (contrary to the views apparently held by many in the industry) that third party litigation funders, whose remuneration was to be by way of a share of any damages recovered, were providing “claims management services” within the meaning of section 58AA (3) of the Courts and Legal Services Act 1990 on damages-based agreements (DBAs).

The principal defence of Bugsby, advanced in the context of the “serious issue to be tried” argument is unenforceability pursuant to the decision in PACCAR.

Outcome

The Court held that if there is a serious issue to be tried as to the existence of the trust, the only way to provide proper protection to Therium pending the arbitration is to freeze the entirety of those trust funds. Otherwise, Therium’s final relief would be put in jeopardy.

Mr Justice Jacobs considered that the relevant authorities gave Therium a principled argument which raises a serious issue to be tried.

While the outcome of the argument is uncertain, the Court found that the complexity of the issues indicate that there are clearly serious issues to be tried, and is a matter for the arbitrators.

Mr Justice Jacobs emphasised that the remit of his decision was rightly limited at this stage: “in reaching my conclusion that there is a serious issue to be tried on this point, I do not express a view one way of the other as to who has the better of the argument. It is not the function of the court to do so at the present stage.”

Analysis

While this decision revolved around a niche point about litigation funders, we can see the general attitude towards proprietary injunctions upheld in this decision:

• The Courts are willing to grant proprietary injunctions when the claimant can demonstrate beneficial rights to the relevant property against the person or entity which currently holds it.
• When applying the American Cyanamid principles, if any of the elements needs to be debated at length, that is proof in itself that there is a serious issue to be tried.
• The court will exercise its powers under section 44 of the Arbitration Act 1996, to preserve property when the circumstances require.

Sources

Grant & Mumford, Civil Fraud Law Practice & Procedure, 1st Edition (2018), 23-060.
Therium Litigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm).
Established in American Cyanimid Co (No 1) v Ethicon Ltd [1975] UKHL 1.
Grant & Mumford, Civil Fraud Law Practice & Procedure, 1st Edition (2018), 28-205.