Litigation funder skates round non-compete agreement … OK to reach out to former “client” but not a former “Client” … Where Upper and lower case clash in the field of battle … Solicitation without direct dealing … No contempt … Naaman Zhou reports 

THE litigation funding industry is a ravenous beast, if a recent NSW Supreme Court decision is anything to go by.  

Here we find one litigation funder going after another for contempt of court, alleging client cannibalisation contrary to an agreement and a court order.  

In a judgment that canvassed a tangled web of competitors, firms and subsidiaries, the claim was dismissed and costs awarded to the defendant. 

Patrick Coope was a founder and an employee of LCM Litigation Fund Pty Ltd, from December 1, 2013. 

Coope’s contract contained a non-compete clause in the event his services terminated. He was barred from “soliciting, canvassing, approaching or accepting any approach, or performing any work for … any Client with whom you … have had direct dealings with your employment”. 

On March 31, 2015, Coope left LCM to strike out on his own at Vannin Capital. 

A month later Coope and LCM appeared before Hammerschlag J for consent orders. Coope agreed to an undertaking on April 24, which mirrored, but slightly altered, the original contractual clause:

“The defendant undertakes forthwith and for 12 months following termination of his employment … not to solicit, canvas, approach or accept any approach to perform … work for any client with whom the defendant has had direct dealings.” 

On August 3, Coope allegedly sent an email, as managing director of Vannin Capital, to Adam Farnsworth and Anthony Duncan, the latter of Accretion Investment Management. LCM claimed that both were its clients.  

The email read: 

“During 18 years with LCM of which I was the founder, I was responsible for funding 185 completed cases with an industry leading 95 percent success rate … Vannin Capital are focused on commercial and insolvency litigation and international arbitration and would welcome any and all enquiries for funding … I look forward to catching up with you soon but in the meantime, my updated contact details are below.”

LCM sought a declaration that Coope had breached the undertaking before Hammerschlag J and was guilty of contempt of court. 

To the delight of spelling pedants, a subtle issue of capitalisation was the first issue put before Robb J in the Supreme Court. Namely, the fact that LCM’s original contract had “Client” with a capital ‘C’, while the later court order did not. 

LCM amended their statement of charge to argue that “client”, as used in the order, should have the same meaning as “Client” defined in cl.32 of Coope’s employment contract.

Coope argued that, “the use of capitalised terms … shows an intention to use defined terms [as in cl.32 of the employment agreement], but the use of the word ‘client’ in the undertaking in par.9 means that the undertaking only applies to clients, in the ordinary meaning of the word”. 

Robb sided with Coope:  

“LCM’s argument that the drafter of the undertaking in par.9 acted inadvertently in using the word ‘client’ rather than the word ‘Client’ [is unfounded]. Such inadvertence is rendered unlikely by the plainly conscious decision to draft the undertaking in par.8 in a conservative manner … The only safe and proper course is for the court to construe the undertaking in par.9 in a way that gives the word ‘client’ its ordinary meaning.”

Robb ruled that Duncan was not a client and no breach regarding him was found. Farnsworth however did fit into the ordinary definition.  

The issue regarding Farnsworth was the definition of “direct dealing”.

Robb in his judgment said: 

“The undertaking is subject to the condition that Mr Coope had direct dealings with the client within the two years prior to the date of termination of his employment. The undertaking is silent as to whether … the direct dealings must be in Mr Coope’s capacity as an employee of LCM.” 

The judge decided that “direct dealing” only applied to “direct dealings that are had, or to work performed, by Mr Coope on behalf of LCM”. 

Yet the issue of “directness” was complicated by the sheer number of litigation funders and different firms involved. 

Coope was the joint owner of a subsidiary of LCM, known as Small Claims Funding (SFC). All units on issue in SCF were equally owned by him and a Mr Moloney, and each trustee was “entitled to a fee of $10,000 for each litigation funding project profitably completed by the SCF”.

The aim of SCF was for Coope and Moloney to “undertake small litigation funding projects”.

SCF was to be a major player in the initial relationship with Farnsworth. On August 20, 2013, the solicitor for Farnsworth, Martin Rosenblatt, emailed Coope at his SCF email address, yet addressed the letter to LCM and enquired if LCM was interested in funding the litigation. Farnsworth was cc-ed in. 

On September 26, Rosenblatt sent another email to Coope, to the same SCF email address, but this time asked whether SCF was interested in funding.

On January 28, 2014, Rosenblatt then sent an email to Coope’s LCM email address asking, “Can you please advise if you have any interest interested (sic) in funding”. It was identical to one he had sent to the SCF address earlier. 

On March 19, Coope transferred responsibility for the litigation funding to Moloney.

Coope argued that he did not have direct dealings with Farnsworth, rather his direct dealings were with Rosenblatt. Further, these dealings were in his role with SCF, and not his employment by LCM.

LCM argued that on the eventual litigation funding agreement, on May 29, which Coope signed on behalf of LCM, he was identified as the “Representative” of LCM in Schedule A. 

Robb found that this did not constitute “direct dealing” with Farnsworth. 

Before he transferred responsibility, “Coope consistently dealt with Mr Rosenblatt through his SCF email address; but after that date he did not communicate with Mr Rosenblatt at all”. 

It could also not be proven that Coope had actively invited Rosenblatt to send him emails to his LCM account. Robb said: 

“The evidence requires a conclusion that Mr Coope only dealt with Mr Rosenblatt and Mr Farnsworth in Mr Coope’s capacity as an officer of SCF. That conclusion is justified on a strong balance of probabilities. As the real question is whether LCM has proved beyond reasonable doubt that Mr Coope had direct dealings with Mr Farnsworth in the relevant period, the conclusion must be reached that LCM has not carried its burden of proof.”

Regarding Duncan, the client issue was not made out. Regarding Farnworth, though he was a client, and Coope was guilty of soliciting, the issue of direct dealing was not made out. 

Thus the statement of charge was dismissed and LCM was ordered to pay Coope’s costs.