Assignment of a claim or cause of action | Practical Law

assignment of bare cause of action

Assignment of a claim or cause of action

Practical law uk practice note 1-522-7861  (approx. 32 pages).

assignment of bare cause of action

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assignment of bare cause of action

Assignability of Causes of Action – A Divergence between the Federal and State Jurisdictions

assignment of bare cause of action

A brief history

As a general proposition, a purported assignment of a cause of action that savours of maintenance will be void. A bare right of litigation, for example a right to recover damages in tort, has traditionally been considered not to be assignable either at law or in equity. 2 The cases have sometimes drawn a distinction between a so-called “personal right to litigate” as against an “impersonal right” in the nature of a proprietary right. 3 However, the distinction between so-called “personal rights” and “impersonal rights” is often elusive.

Historically, the courts have been reluctant to condone assignments of causes of action generally. Parker J in Glegg v. Bromley 4 observed:

“Equity on the grounds of public policy did not give validity to the assignment of what is in the cases referred to as a bare right of action, and this was so whether the bare rights were legal or equitable. I have looked at a good many authorities on that point, and I am satisfied that the real reason why equity did not allow the assignment of a bare right of action, whether legal or equitable, was on the grounds that it savoured of or was likely to lead to maintenance.”

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The trial was heard by Fullagar J in the High Court. His Honour held that if there had been a tortious taking of the wool by the Commonwealth, the growers’ rights of action in tort against the Commonwealth could not be assigned at law or in equity to Mr Poulton. However, his Honour’s conclusions in that regard were obiter , given that his Honour found that the relevant regulations were valid and thus there had been no tort committed.

An appeal to the Full Court constituted by Williams, Webb and Kitto JJ was dismissed. At page 602, the Full Court said:

“. . . If it were true that the Commonwealth were guilty of conversion of the [growers’] wool, it would be the [growers] alone who could elect to waive the tort and take the proceeds of sale. This would be so, both because there was not in fact any purported assignment to the plaintiff of the right of action for the tort, and because, according to well established principle, the right was incapable of assignment either at law or in equity . . . ”.

Modern developments

In 1981, the House of Lords in Trendtex Trading Corporation v. Credit Suisse 6 liberalised the hitherto relatively strict rules against assignment of causes of action. Roskill LJ delivered the leading judgment. His Honour re-stated that it is a fundamental principle of English law that one cannot assign a bare right to litigate. However, if the assignment is of a property right or interest, or if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his or her own benefit, there is no reason why the agreement should be struck down as an assignment of a bare cause of action, or as savouring of maintenance. 7

Trendtex was a decision relating to the assignment of a contractual cause of action. In Giles v. Thompson, 8 the House of Lords extended the application of the Trendtex principle to tortious causes of action. The House of Lords determined that the question was whether there had been “wanton and officious intermeddling with the disputes of others in which the meddler has no interest whatever and where the assistance he renders to one or the other party is without justification or excuse.” 9

Australian cases post- Trendtex

There is a division in the cases that have been decided in Australia since the House of Lords decision in Trendtex as to whether the Trendtex approach is to be preferred over the stricter approach set out in the dicta of the four judges of the High Court in Poulton . Decisions that support the adoption of the Trendtex principle in Australia are largely decisions in the State Supreme Courts. 10 In contrast, a number of single judges of the Federal Court have declined to apply the Trendtex approach and, instead, have expressed the view that the dicta in Poulton ought to be followed until the High Court determines otherwise, 11 although two recent Federal Court decisions suggest that Court may also be moving towards adoption of the Trendtex approach. 12

The Federal Court decisions have generally reflected the view that it is not open to courts of first instance to depart from the considered statements of the High Court in Poulton and that, in consequence, bare rights of action in tort should be regarded as incapable of assignment, whether or not the tort is of a personal kind. This view is reflected in the observations of the authors of Equity: Doctrines and Remedies (4 th Ed, 2002) at [6-480] that “. . . it is not easy for courts below the High Court legitimately to depart from the considered dicta of three [sic] High Court justices”. In fact, the dicta in Poulton are those of four High Court justices when one includes Fullagar J, who delivered the first instance decision.

assignability-cigar.jpg

The High Court considered in some detail the history of maintenance and champerty. At para [73], Gummow, Hayne and Crennan JJ said:

“Assignment of a chose in action ‘made with the improper purpose of stirring up litigation’ would raise questions of maintenance and champerty. But the mere assignment of the proceeds of litigation would not. If the assignment stipulated that the assignee should participate in the litigation, the assignment was lawful only ‘if he have some legal interest (independent of that acquired by the assignment itself) in the property in dispute; but that where his interest is generated only by the assignment itself, such a stipulation would be improper’”. 14

Commencing at para [79] of the joint judgment, the Court referred in detail to the decision in Trendtex , without apparent approval or disapproval of the approach of the House of Lords. Gleeson CJ concurred in the reasons of Gummow, Hayne and Crennan JJ on this public policy point. Their Honours concluded that the fact that Firmstones had sought out retailers with claims and had control of the litigation and that they hoped to profit from the litigation was not sufficient to warrant condemnation of the arrangements as being contrary to public policy or as leading to any abuse of process. 15 Callinan and Heydon JJ dissented on this point and found that the arrangements did constitute an abuse of process.

The Full Court of the Federal Court in Deloitte Touche Tohmatsu v. J P Morgan Portfolio Services Ltd, 16   found the issue, like that in Fostif , was whether a litigation funding agreement constituted an abuse of process. Once again, there was no assignment of any cause of action to the litigation funder. Tamberlin and Jacobson JJ (Rares J dissenting), held that it was not an abuse of process and that the litigation funder did have a genuine commercial interest in the enforcement of the claim. Both Fostif and Trendtex were cited in support. Rares J noted that it was common ground between the parties that the causes of action in question “ were not capable of assignment to [the litigation funder]”. 17

Of the exceptions to the more restrictive approach of the Federal Court to this question are two recent cases. The first was that of Finkelstein J in TS&B Retail Systems Pty Ltd v 3 Fold Resources Pty Ltd & Ors. 18   In obiter , his Honour said:

“In Australia there is a debate whether the Trendtex principle should be adopted. The cases for and against (the latter all being decisions of the Federal Court) are collected in Rickard Constructions Pty Ltd v. Rickard Hails Moretti Pty Ltd . . .  It may be that the debate is now over for the High Court in Campbells Cash and Carry Pty Ltd v. Fostif Pty Ltd . . .  seems to have approved Trendtex . . .  In any event, my own view is that the logic of Lord Roskill’s view [in Trendtex] is inescapable. That is especially so when, as here, the cause of action is connected with, or relates to, rights or interests owned, or that will fall into the ownership, of the assignee”.

The second recent case in the Federal Court is Tosich v Tasman Investment Management Ltd 19 where Gyles J, having noted the divergence in the cases as to the application of Trendtex , expressed his view that the approach of the High Court in Fostif supported the reasoning of Finkelstein J in TS&B Retail.  

However, Heerey J as recently as October 2007 expressed a contrary view that the decision of the High Court in Poulton retains its authority, and that Trendtex is not good law in Australia. 20 Although the decision of Heerey J was appealed, the appeal was determined without reference to this point. 21

Assignment of contractual causes of action

assignability-bs125934.jpg

The issue that then arises is as to whether a right to sue for unliquidated damages for breach of contract is capable of assignment. Meagher, Gummow and Lehane give a somewhat abbreviated answer in the negative, 25 and refer to cases such as  Torkington v. Magee 26 and County Hotel Co v. London and Northwestern Railways. 27 Likewise, Cheshire & Fifoot’s Law of Contract suggests that a bare right to litigate for a past breach of contract is generally not assignable, 28 although there is a suggestion that there may be exceptions to this proposition as set out in Trendtex .

If the Trendtex principle is applied, then bare rights to litigate for unliquidated damages for breach of contract may be assignable provided either:

(a)    they are annexed to a right of property;  or

(b)    the assignee has a genuine and substantial, or genuine commercial, interest in the enforcement of the cause of action.

Poulton dealt with the assignability of tortious causes of action. There is no High Court authority directly on the issue as to whether contractual causes of action may be assigned. The position so far as contractual causes of action were concerned was summarised by McDougall J in Rickard Constructions v. Rickard Hails Moretti Pty Ltd, 29 in the following terms:

assignability-bs2063543.jpg

“In relation to contractual causes of action, I find the distinction between liquidated and unliquidated claims difficult to follow. I have already noted that a debt is assignable even if it is overdue. As is pointed out in Meagher, Gummow and Lehane at 281 [6-480], where the debt is overdue, ‘there has been a breach of the contract to pay and . . . in fact, all that is assigned is the right to sue to recover the debt. The case of an overdue debt merely points up the problem inherent in the distinctions drawn in this breach [sic] of the law: for what is a debt but a right to sue to recover a sum certain? In what other sense is a debt to be regarded as property?’ I do not think that a rule based on public policy which encourages illogical distinctions of this sort should be applied unless there is no alternative. I do not regard the obiter statements in Poulton, limited as they are to an assignment of bare causes of action in tort, as providing a compelling reason to accept such illogical distinctions and their consequences”.

Accordingly, his Honour found that, in principle, an assignment of a cause of action in contract to recover unliquidated damages should be accepted where the assignee has a sufficient interest to support the assignment.

Assignment of causes of action in tort

A right to sue in tort is never itself property: it is a bare right of action. 30 The position of the assignability of causes of action in tort (at least non-personal causes of action) remains somewhat in a state of flux. Notwithstanding the High Court’s liberalisation of the law concerning maintenance and champerty in Fostif , the High Court has not expressly overruled the earlier strong dicta of four judges of the Court in Poulton . However, there is a sense that the march of the law is generally heading away from the strict approach exemplified by Poulton and towards a more general acceptance of the approach adopted by the House of Lords in Trendtex . 

Nevertheless, the position of the majority of the Federal Court cases is exemplified generally by the approach Rares J in Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd 31 where it was said:

“New Boston argued that I should not follow the decision of the High Court in Poulton . . . which denied that a right of action in tort was assignable at all. It was suggested that this was the old view of the law. New Boston argued that I should follow what was said by Debelle J in South Australian Management Corp v. Sheahan . . . namely that the decision could be explained as relating to an assignment of a claim in tort where the assignee had no genuine commercial interest. However, in Garcia v. National Australia Bank Ltd (1998) 194 CLR 395 . . . at [17] Gaudron, McHugh, Gummow and Hayne JJ made it clear that the doctrine of precedent in Australia binds me to follow the decisions of the High Court unless and until that court decides that the time is right for a change in the law. I propose to do that. There is no basis to read down the considered judgment of Williams, Webb and Kitto JJ in Poulton . . . that a right of action in tort is incapable of assignment at law or in equity. I am of opinion that Debelle J was wrong not to have applied this binding authority”.

This approach seems to have been generally reflected in the Federal Court decisions (with the exception of the decisions of Finkelstein J in T S & B Retail Systems Pty Ltd 32 and Gyles J in Tosich v Tasman Investment Management Ltd 33 ). However, the almost universal approach of the State Supreme Courts has been to apply the Trendtex doctrine and to conclude that a cause of action in tort may be assigned (at least not a personal cause of action) provided that the assignee has the necessary interest in the litigation. 34

There remains some question as to whether causes of action for personal torts (such as damages for personal injury, defamation or false imprisonment) may ever be capable of being assigned. 35

Assignment of causes of action in equity

A bare right to sue in equity has traditionally been considered not able to be assigned. 36 However, one must question the appropriateness of maintaining a distinction between equitable causes of action and contractual or tortious claims. Indeed, it may be that the courts are moving towards a position that even equitable causes of action may be assigned provided that the assignee has the necessary interest in the outcome of the litigation.

Nevertheless, this matter has not been the subject of much judicial consideration in recent times. 

Assignability of statutory causes of action

Whether a statutory cause of action is assignable will turn on the terms of the statute. To take but one example, there has been frequent litigation concerning the assignability of causes of action under sections 82 or 87 of the Trade Practices Act 1974. It is well established that causes of action for recovery of damages under either of those sections are not capable of assignment. 37 A cause of action under the corresponding provisions of the Fair Trading Act of the States is also not able to be assigned. 38

The necessary interest to support an assignment

It is clear that, even if Trendtex is good law in Australia, any assignee must have more than a mere personal interest in profiting from the proceedings. Cohen J in Monk v. Australia & New Zealand Banking Group Ltd 39 said:

“In my opinion [the interest claimed by the plaintiff] is not a genuine commercial interest in the way that the phrase has been used in the judgments. Examples may be given from the facts in the various cases concerned. For instance it was held that there was such an interest where the assignee was already a substantial creditor of the assignor with a right to enforce the debt (Trendtex, re Timothy’s) or where the assignee was the sole shareholder who was a guarantor of the overdraft of the assignor (re Daley) or where the assignee was a debenture holder with an interest in protecting the value of its security (First City Corporation)”.

Lindgren J in National Mutual Property Services (Australia) Pty Ltd v. Citibank Savings Limited 40 said:

“. . . The genuine commercial interest referred to in Trendtex is not a nebulous notion of the general commercial advantage of the assignee but something more specific and limited. In particular, it does not embrace an interest arising from an arrangement voluntarily entered into by the assignee of which the impugned assignment is an essential part, like the arrangement in the present case. Rather, the expression refers to a commercial interest which exists already or by reason of other matters, and which receives ancillary support from the assignment”.

These reasons were approved by Heerey J in Salfinger v. Nuigini Mining (Australia)Pty Ltd. 41

Mere personal interest of the assignee will therefore be insufficient. General commercial advantage will also be an insufficient ground to found an assignment. The assignee must have some commercial interest which the assignment may in some way protect.

The issue of the assignability of causes of action is an area of the law that has been in a state of some flux for many years. Notwithstanding this, it is somewhat surprising that there is little direct High Court or intermediate Appellate Court authority on the issues that have been explored in this paper.

There has been a clear divergence between the general approach of the Federal Court (preferring to adopt the approach in Poulton and eschewing the Trendtex approach) and that of the State Supreme Courts which have instead embraced the Trendtex position. There is a suggestion in some of the most recent Federal Court cases that that jurisdiction may be moving towards embracing Trendtex as good law, although this is certainly not a uniform phenomenon.

The effect of the divergence is that particular care should be taken when determining which court to proceed in if reliance is to be placed upon an assignment of causes of action, whether in contract, tort, or equitable causes of action. The Federal Court has shown a much more marked reluctance to uphold assignments of causes of action generally.

The inconsistencies between the various single court decisions will ultimately have to be resolved by a decision of the High Court. Given the decision in Fostif , where a rather more liberal view of the law of maintenance and champerty was expressed in the majority decision, one might expect that the Trendtex approach will ultimately prevail. However, until the High Court has given that pronouncement, practitioners should be alive to the differing approaches by the courts in this complex area of the law.

Matthew Brady

  • The writer acknowledges the assistance obtained from the research of Mr G Gibson QC and Mr D O’Brien of counsel in the preparation of this paper – however all errors are the writer’s alone.
  • See, Cheshire & Fifoot’s Law of Contract, 9 th ed, 2008, para [8.7]. 
  • See, T S & B Retail Systems Pty Ltd v. 3 Fold Resources Pty Ltd & Ors (2007) 158 FCR 444 at 465. 
  • [1912] 2 KB 474 at 489-490.
  • [1953] 89 CLR 540. 
  • [1982] AC 679. 
  • At 696 – 697; 703. 
  • [1994] 1 AC 142.
  • At p 164 per Mustill LJ, with whom the other members of the House agreed. 
  • See, Re Timothy’s Pty Ltd and The Companies Act [1981] 2 NSWLR 706; Monk v. Australia & New Zealand Banking Group Ltd (1994) 34 NSWLR 148; South Australian Management Corporation v. Shehan (1995) 16 ACSR 45 (Debelle J); Beatty v. Brashs Pty Ltd   [1998] 2 VR 201 (Smith J);  Singleton v. Freehill Hollingdale & Page   [2000] SASC 278 (Olsson J); Vangale Pty Ltd (In Liquidation) v. Kumagai Gumi Co Ltd   [2002] QSC 137 (Mullins J); Rickard Constructions Pty Ltd v. Rickard Hails Moretti Pty Ltd (2005) 220 ALR 267 (McDougall J); Scholle Industries Pty Ltd v AEP Industries (NZ) Ltd [2007] SASC 322 (Withers J). In New Zealand see First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (Gault J). McMurdo J in BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141 at [76] and Beech J in Corporate Systems Publishing v Lingard (No 4) [2008] WASC 21 at [53] — [58] noted the diverge in the authorities but did not express a preference.
  • See, Park  v. Allied Mortgage Corporation Ltd (1993) ATPR (Digest) 46-105 (Davies J); All State Life Insurance Co v. Australia & New Zealand Banking Group Ltd (FCA, Beaumont J, No G381 of 1994, 7 November 1994, unreported, BC 9400129); National Mutual Property Services (Aust) Pty Ltd v. Citibank Savings Ltd (1995) 132 ALR 514 (Lindgren J); Chapman v. Luminis (No 4) (2001) 123 FCR 62 (von Doussa J); Deloitte Touche Tohmatsu v. Cridlands Pty Ltd   (2003) 134 FCR 474 (Selway J); Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd (2007) 236 ALR 720 (Rares J); Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 (Heerey J).
  • See TS&B Retail Systems Pty Ltd v 3-Fold Resources (2007) 229 ALR; Tosich v Tasman Investment Management [2008] FCA 377
  • (2006) 229 CLR 386 
  • Footnotes omitted. 
  • See, [88]. 
  • (2007) 158 FCR 417.
  • At para [134]. 
  • [2007] FCA 151.
  • [2008] FCA 377 at [29]-[33].
  • Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 at [119]. 
  • [2008] FCAFC 103
  • See Comfort v. Betts [1891] 1 QB 737; Fitzroy v. Cave (1905) 2 KB 364;  County Hotel and Wine Co v. London & Northwestern Railway Co [1918] 2 KB 251; Re Daley;  Ex parte: National Australia Bank Ltd (1992) 37 FCR 390 at 394-5.
  • Torkington v. Magee [1902] 2 KB 427.
  • Rickard Constructions v. Rickard Hails Moretti Pty Ltd (supra) at 281; Camdex International Ltd v. Bank of Zambia [1998] 2 QB 22; Re Kenneth Wright Distributors Pty Ltd (In Liquidation); W J Vine Pty Ltd v. Hall [1973] VR 161. 
  • See, para [6-480] at p 282. 
  • Supra . 
  • At para [8.7].
  • (Supra) at [54]. 
  • Prosser v. Edmonds (1835) 160 ER 196. 
  • (2007) 236 ALR 720 at [73]. 
  • Supra 
  • See Supreme Court cases referred to earlier.
  • See, Trendtex (supra), at 702; South Australian Management Corp v. Shehan (1995) 16 ACSR 45 at 57-58; Monk v. Australia & New Zealand Banking Group (1994) 34 NSWLR 148 at 151-153. 
  • Prosser v. Edmonds (1835) 160 ER 196;  Glegg v. Bromley [1912] 3 KB 474 at 489-490. 
  • See, Park v. Allied Mortgage Corporation Ltd (1993) ATPR (Digest) 46-105 at 53,467; Allstate Life Insurance Co v. Australia & New Zealand Banking Group Ltd [1994] FCA 814 at [18]; Pritchard v. Racecage Pty Ltd (1997) 72 FCR 203 at 218;  Chapman v. Luminis (No 4) (2001) 123 FCR 62 at [204] – [207];  Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd (supra) at [50] – [52]; Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) (supra) at [110]. 
  • See, Chapman v. Luminis Pty Ltd (supra). 
  • Supra , at 153. 
  • Supra , at 540.
  • Supra , at [121] – [122]. 
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The Modern Doctrines of Champerty and Maintenance

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The Modern Doctrines of Champerty and Maintenance

9 Assigning ‘Bare’ Causes of Action: Proving a Genuine Commercial Interest

  • Published: July 2023
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The requirement of proving that the assignee had a genuine commercial interest in the subject matter of the transaction applies particularly to where the assignor has sought to assign a cause of action, or a ‘bare right to litigate’. This approach flows from the analysis undertaken in Trendtex Trading Corp v Credit Suisse and has operated as a considerable brake upon the validity of assignments . It means that, where the assignment is challenged, the court must hunt for the ‘something more’, some genuine commercial interest over and above the assignee’s right in acquiring the cause of action and the profits that will accompany that assignment. Case law analysis reveals that several relationships between assignor and assignee have pointed to a genuine commercial interest on the assignee’s part; these are considered in this chapter. Various circumstances which show a close identity of interest between the assignor and the assignee have also proven to be important in upholding the validity of assignments. Both the categories of relationships and the identities of interest sufficient to justify an assignment are not closed but are constantly evolving. The chapter also considers the other side of the coin, viz , those matters which tend to denounce any genuine commercial interest that renders the assignment champertous. Before that, however, those things which are not assignable causes of action (causes of action that have not accrued at all, or causes of action that have been compromised) are discussed, for those are not champertous so much as ineffective.

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assignment of bare cause of action

Litigation notes

Claim assigned to spv not struck out as champertous.

This post is part of the following categories:

The High Court has refused to strike out a claim as champertous where it had been assigned to an LLP in which the assignor had a one-third interest and which had been formed to pursue the assigned claim (and other similar claims):  JEB Recoveries LLP v Binstock [2015] EWHC 1063 (Ch) .

In recent years the courts have taken an increasingly liberal approach to the principles of champerty and maintenance (the ancient rules against “trafficking” in litigation) in the context of third party litigation funding . It had appeared that the principles would be applied more strictly where claims are assigned to, rather than merely funded by, a third party (as for example in the case of  Simpson v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149, outlined here ). The present decision may indicate a softening of the court’s approach in that context also.

However, the assignment of claims remains a high risk strategy, as each case will turn on its facts and the effect of a finding of champerty is that the assignment will be void and the assignee will be unable to pursue the claim. It is also worth noting that the present decision may be appealed; the court said it was prepared to grant permission, if requested, given the importance of the issue.

Legal background 

The House of Lords decision in  Trendtex Trading Corp v Credit Suisse  (1982) AC 679 HL established that the assignment of a bare cause of action will be found champertous, and therefore void as against public policy, where the assignee does not have a “sufficient interest” to justify pursuit of the proceedings for his own benefit. (Note however that there is a statutory exception for the assignment of claims vested in an insolvent company. There is also no difficulty in assigning debts, as opposed to claims for damages or other remedies.)

In Simpson , the Court of Appeal applied Trendtex  in finding that the assignment of a personal injury claim against a hospital trust was void in circumstances where the assignee, a widow whose husband had died in the care of the same hospital trust, wished to pursue the claim as part of a campaign to highlight the hospital’s failings.   Although the assignee had “honourable motives” in pursuing the claim, this was not a sufficient interest of the sort required by law. The court said it was not in the public interest to encourage litigation whose principal object was to pursue some object other than obtaining a remedy for a legal wrong.

Background facts 

The claim concerned an alleged debt under an alleged contract between a Mr Wilson and the defendant, under which Mr Wilson was to perform certain services relating to a proposed reverse takeover of the defendant’s business interests. Mr Wilson carried out work pursuant to the contract but no reverse takeover occurred.  

Mr Wilson and two other individuals formed the claimant (JEB) as an LLP and assigned to it certain claims against the defendant, including the present claim, for the consideration of £1. (The other assigned claims are not relevant for present purposes, as the court declined to hear them on jurisdiction grounds.) Mr Wilson undertook to provide information to JEB to assist in pursuing the claim, and to pass any monies received from the defendant to JEB.

T he alleged consideration for the services provided by Mr Wilson comprised acknowledgment by the defendant of an alleged debt of £10 million said to have been due under a different contract and a monthly retainer of €10,000 plus expenses.  By the Particulars of Claim, JEB sought (a) damages of £10 million; (b) amounts invoiced of €131,513.90 (after giving credit for sums paid by the defendant); and (c) “aggravated damages” of up to £2 million.

The defendant applied to strike out the claim as an abuse of the process on the grounds that it was champertous. It submitted  that this was a bare assignment of a cause of action and was, or was on the brink of, litigation trafficking. The defendant also argued that to permit the claim to continue would be to allow Mr Wilson, as the subject of the claim, to “cost-proof” his litigation.

The court (HH Simon Barker QC sitting as a High Court judge) refused to strike out the claim on grounds of champerty (though the judge said he was provisionally minded, acting on the court’s own initiative, to strike out the claim for aggravated damages as groundless). He did however recognise that the application raised a point of law of some importance, and said it was therefore appropriate to grant permission to appeal if requested.

The judge accepted that a bare assignment of a cause of action has long been recognised as champertous and that, normally, an assignment of a claim in contract for damages would be likely to offend the public policy against maintenance and champerty. However, this case had a number of distinguishing features: the rights assigned were not confined to a cause of action, but included debts; and Mr Wilson remained entitled to one third of the fruits the claim, if successful, because of his one-third interest in JEB.

The position of Mr Wilson and JEB in relation to the claim was, the judge said, very different from that of the assignor and assignee in Simpson . JEB was a special purpose vehicle which had as its commercial objective the recovery of debts and claims of its partners and their families against the defendant; it had no separate purpose unconnected with the assigned claims. By contrast, in Simpson the assignee had sought to use the assigned claim to carry on a separate campaign.

Also, there was no question here of “trafficking in litigation”, as the phrase was used in Trendtex , ie a cause of action which was expected to be traded commercially between unconnected third parties. The assignors were all connected with JEB and all had a direct or indirect (through family) interest in the assigned rights or similar rights.

The judge observed that, far from the assignment cost-proofing Mr Wilson in relation to the litigation, it had made it likely that (if the claim was not struck out as champertous) the defendant would be able to get an order for security for costs against JEB, whereas Mr Wilson as an impecunious individual would not have fallen into one of the categories for which security is available. Accordingly, that should not be a matter weighing against JEB.

It was also relevant that the assignment required Mr Wilson to provide information to JEB about the rights, and Mr Wilson and his wife would be the claimant’s witnesses whether the action was brought by Mr Wilson or JEB. So it was improbable that evidence would be suppressed or exaggerated because the claim was brought by JEB.

The court concluded that permitting the claim to proceed would not put the integrity of the legal process at risk or otherwise undermine the ends of justice. Accordingly, it did not offend against the public policy underlying the prohibition of champerty.

The judge in this case cited the Court of Appeal’s observation in Simpson  that the law on maintenance and champerty is open to further development as perceptions of the public interest change. He also said he bore in mind that: shortly before Simpson , the Court of Appeal (in  Morris v Southwark LBC and Sibthorpe v Southwark LBC [2011] EWCA Civ 25) rejected an argument that it was champertous for solicitors acting under a conditional fee agreement (CFA) to indemnity their clients against an adverse costs order and noted that champerty was to be curtailed not expanded; and since  Simpson , the rules relating to litigation funding had changed to permit damages-based agreements (DBAs) which allow lawyers to act in return for a share of damages. The judge in the present case appears to have taken the view that these developments indicate a shift in public policy, justifying a more liberal approach – particularly where (as here) the arrangement gives the defendant greater costs protection than it would have had if the claims had been brought by the original party:

“In a litigation climate where legal representatives can both share in the fruits of the claim they advance and underwrite their client’s costs risk of the claim and thereby enable an impecunious client to pursue a just claim, why should the court decline to hear, on grounds of public policy, the claim of an impecunious litigant which has been assigned to an entity in which he has an interest and which assignment creates the opportunity to open an otherwise closed door to reasonable and proportionate protection in costs on the application and for the benefit of the defendant…?”

It is not clear to what extent the decision was also influenced by the facts of the particular case, including that the assigned claims included claims in debt as well as damages, and the nature of the connection between the assignor and assignee. It would certainly be dangerous to interpret the decision as giving carte blanche to the practice of assigning claims to an SPV where they are to be pursued in the English courts  – a practice which  is more common in some other EU jurisdictions, such as Germany, where claims are in some cases being “bundled” in an SPV by claimants, to be pursued together.

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According to the Court of Appeal case tracker, the hearing of the appeal is expected to take place in June 2016.

Note that in a decision dated 19 October 2016, the Court of Appeal allowed an appeal against the High Court's decision that it had jurisdiction to hear the claim against Mr Binstock (see [2016] EWCA Civ 1008 ). Accordingly, it was not necessary to consider the High Court's finding that the claim was not founded upon a champertous assignment.

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Article III, Section 2, Clause 1:

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;—to all Cases affecting Ambassadors, other public Ministers and Consuls;—to all Cases of admiralty and maritime Jurisdiction; to Controversies to which the United States shall be a Party;—to Controversies between two or more States; between a State and Citizens of another State, between Citizens of different States,—between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.

An assignment of a legal claim occurs when one party (the “assignor” ) transfers its rights in a cause of action to another party (the “assignee” ). 1 Footnote Black’s Law Dictionary 136 (9th ed. 2009) (defining “assignment” as “the transfer of rights or property” ). The Supreme Court has held that a private litigant may have standing to sue to redress an injury to another party when the injured party has assigned at least a portion of its claim for damages from that injury to the litigant. The Supreme Court in the 2000 case Vermont Agency of Natural Resources v. United States ex rel. Stevens held that private individuals may have Article III standing to bring a qui tam civil action in federal court under the federal False Claims Act (FCA) on behalf of the federal government if authorized to do so. 2 Footnote 529 U.S. 765, 768, 778 (2000) . The FCA imposes civil liability upon “any person” who, among other things, knowingly presents to the federal government a false or fraudulent claim for payment. 3 Footnote 31 U.S.C. § 3729(a) . To encourage citizens to enforce the Act, in certain circumstances, a private individual, known as a “relator,” may bring a civil action for violations of the Act. Such plaintiffs sue under the name of the United States and may receive a share of any recovered proceeds from the action. 4 Footnote Id. § 3730(d)(1)–(2) . Under the FCA, the relator is not merely the agent of the United States but an individual with an interest in the lawsuit itself. 5 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 772 ( “For the portion of the recovery retained by the relator . . . some explanation of standing other than agency for the Government must be identified.” ) (citing 31 U.S.C. § 3730 ).

Ordinarily, if the relator’s financial interest in the outcome of the case were merely a byproduct of the suit itself, there would be no injury sufficient for standing. 6 Footnote Id. at 772–73 ( “An interest unrelated to injury in fact is insufficient to give a plaintiff standing. . . . A qui tam relator has suffered no [invasion of a legally protected right]—indeed, the ‘right’ he seeks to vindicate does not even fully materialize until the litigation is completed and the relator prevails.” ) (citations omitted). The Supreme Court has held that a litigant’s interest in recovering attorneys’ fees or the costs of bringing suit by itself normally does not confer standing to sue. E.g. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 107 (1998) ( “The litigation must give the plaintiff some other benefit besides reimbursement of costs that are a byproduct of the litigation itself.” ); Diamond v. Charles, 476 U.S. 54, 70–71 (1986) ( “[T]he mere fact that continued adjudication would provide a remedy for an injury that is only a byproduct of the suit itself does not mean that the injury is cognizable under Art. III.” ). In Stevens , however, the Supreme Court recognized a distinction that confers standing upon qui tam plaintiffs in FCA cases. Justice Antonin Scalia, writing for the Court, determined that assignments of claims are distinguishable from cases in which a litigant has a mere financial interest in the outcome of the suit because the assignee-plaintiff actually owns a stake in the dispute as a legal matter. 7 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 773 . Justice Scalia drew support for this distinction from the long-standing historical practice of the government assigning a portion of its damages claim to a private party and allowing that party to assert the injury suffered by the federal government as a representative of the United States. 8 Footnote Id. at 774, 778 The Court noted the “long tradition of qui tam actions in England and the American colonies,” 9 Footnote Id. concluding that “Article III’s restriction of the judicial power to ‘Cases’ and ‘Controversies’ is properly understood to mean ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’” 10 Footnote Id. Although the Court held that the relator had standing to sue under the qui tam provision, it ultimately determined that the plaintiff could not maintain the action against a state agency for allegedly submitting false grant claims to the EPA because states were not “persons” subject to liability under the False Claims Act. Id. at 787 .

Eight years after deciding Stevens , the Supreme Court again found that an assignee of a claim had standing, even when the assignee had promised to remit all of the money it recovered in the proceedings to the assignor. 11 Footnote Sprint Commc’ns Co. v. APCC Servs., Inc. , 554 U.S. 269 , 271 (2008) . In Sprint Communications Co. v. APCC Services, Inc. , payphone operators had assigned their legal claims for money owed to them by long-distance communications carriers to third-party collection agencies. 12 Footnote Id. at 271–72 . The agencies were authorized to bring suit on behalf of the payphone operators and promised to pay all of the proceeds of the litigation to the payphone operators for a fee. 13 Footnote Id. at 272 . The Court held that these collection agencies had standing to pursue the operators’ claims because of the long history of courts’ acceptance of such claims. 14 Footnote Id. at 273–75 . The Court noted that “federal courts routinely entertain suits which will result in relief for parties that are not themselves directly bringing suit. Trustees bring suits to benefit their trusts; guardians ad litem bring suits to benefit their wards; receivers bring suit to benefit their receiverships; assignees in bankruptcy bring suit to benefit bankrupt estates; executors bring suit to benefit testator estates; and so forth.” Id. at 287–88 . Assignment was sufficient to transfer the injury to the collections agencies, and the injury to the operators that had been transferred to the collection agencies would be redressed by a favorable judicial decision, even if the agencies would subsequently pay all of the proceeds to the operators. 15 Footnote Id. at 286–87 ( “[I]f the [collection agencies] prevail in this litigation, the long-distance carriers would write a check to [them] for the amount of dial-around compensation owed. What does it matter what the [agencies] do with the money afterward?” ).

The Stevens and Sprint cases could have broader implications for Article III standing doctrine, as they suggest a way in which the constitutional limitations on standing may be bypassed through the assignment of rights to a third party. 16 Footnote See also ArtIII.S2.C1.6.4.3 Particularized Injury. For instance, if Congress enacts a federal statute recognizing an injury to the federal government that otherwise satisfies Article III’s requirements, it may assign a portion of its claim to a private party, thereby potentially giving that plaintiff standing to sue as a representative of the United States. 17 Footnote See Vt. Agency of Nat. Res. , 529 U.S. at 773 . This is essentially the operation of the False Claims Act. 18 Footnote 31 U.S.C. §§ 3729–3733 . However, it is unclear whether every such statute would necessarily resolve all Article III standing concerns. In Stevens and Sprint , the Court gave significant weight to the lengthy history of courts recognizing the types of assignments at issue when determining that the litigants in those cases had standing to sue. 19 Footnote See id. at 774, 778 ; Sprint Commc’ns Co. , 554 U.S. at 273–75 . Moreover, there may be a number of concerns about the constitutionality and practicality of using assignments to delegate core government functions (e.g., criminal prosecutions) to private parties when courts have not historically recognized claims based on such assignments, including concerns about interference with the Executive Branch’s Article II powers and prosecutorial discretion. 20 Footnote See Heather Elliott , Congress’s Inability to Solve Standing Problems , 91 B.U. L. Rev. 159 , 195–204 (2011) (questioning whether Congress’s assignment of claims to citizen suitors in order to confer standing would be constitutional or practical).

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Assignment of a Bare Cause of Action void as being Champertous

Facts SPV Osus Limited -v- HSBC International Trust Services (Ireland) Limited & ors [2015] IEHC 602 arose out of the Madoff fraud.  Optimal Strategic US Equity Limited ( OS ) invested nearly all of its assets in Madoff funds and had a claim as an unsecured, non-preferential, creditor in the Madoff bankruptcy ( the Allowed Customer Claim ). In addition, OS had potential claims against third parties arising out of the investment losses. OS transferred its Allowed Customer Claim to the Plaintiff ( SPV ) by an assignment of claim ( the Assignment ) “together with any affirmative claims of the assignor against third parties.”

The defendants were the HSBC Custodian and Administrator to OS and it was claimed that they were guilty of misrepresentation, negligence and breaches of contract and fiduciary duties in the services provided by them. The damages claimed totalled almost US$2.2 billion.

The defendants argued that SPV was unconnected with the underlying contracts which give rise to the claims and the Assignment was the assignment of a bare cause of action and was void as being champertous, contrary to public policy, and unenforceable.

Decision The Court adopted the definition of champerty set out by Clarke J in Thema International Fund plc v HSBC Institutional Trust Services (Ireland) Limited [2011] 3 I.R. 654 :- "Champerty is a particular form of maintenance whereby the person concerned obtains a share in the subject matter or proceeds of litigation in return for assisting with funding the litigation concerned.” and noted that the Irish courts will not enforce any agreement which savoured of maintenance or champerty because it offended against Irish public policy and it was irrelevant whether or not the disputed agreement was valid in another jurisdiction.

The Court comprehensively reviewed a number of Irish and English authorities and noted that the following principles:-

  • It is unlawful to fund or assign litigation in return for a share of the proceeds unless the funder or assignee has a lawful interest or some other legitimate concern in the litigation.  
  • The assignment of a bare cause of action for purposes which the law does not recognise as legitimate savours of champerty.  
  • Trafficking in litigation is contrary to public policy.  
  • Wanton and officious intermeddling in the litigation of others is contrary to public policy.  
  • The scope of the law of maintenance and champerty must accommodate itself to modern social realities.  
  • The law in relation to maintenance and champerty must be considered in the light of the constitutional right of access to justice.  
  • The law in relation to maintenance and champerty must not place any unnecessary obstacles in the path of persons with a legitimate claim.  
  • The assignment of a cause of action that is incidental or ancillary to a property right or interest is not champertous.   
  • The interest which a party maintains or enjoys in a suit which he is maintaining must exist independently of the agreement which gives him a share in the proceeds of the suit.  
  • The assignment of a cause of action to a party who has a genuine commercial interest in the cause of action is not champertous.   
  • A shareholder or creditor of a company (or other entity) who already has an indirect link to the impecunious company (or other entity) may have an indirect and therefore legitimate interest in the litigation of the company (or other entity) and may lawfully fund the company’s litigation.   
  • Professional third party funders who make a commercial decision to ‘invest’ in litigation in the hope of making a profit commit the torts of either maintenance and/or champerty.  
  • In considering whether an agreement is champertous, the Court should look at the totality of the transaction.   
  • The Court is concerned with substance rather than the form of a transaction in considering whether if offends the law of maintenance and/or champerty.

SPV argued that the assignment of the third party rights was ancillary or incidental to the assignment of the Allowed Customer Claim and therefore was not an assignment of a bare right to litigate.  It also argued that it has a genuine commercial interest in the enforcement of the third party claim.

The defendants argued that the third party claims did not become incidental or ancillary to the Allowed Customer Claim simply because they were assigned in the same document and instead were stand alone claims.

The Court rejected the argument that the assignment of the third party claim was incidental to the assignment of the Allowed Customer Claim. In the Court's view, for a cause of action to be incidental to the assignment of a property right or interest (such as the Allowed Customer Claim), it must relate to the protection or realisation of that other interest and could not encompass non-bankruptcy third party claims.

With regard to SPV's argument that it had a genuine commercial interest in the enforcement of the third party claim the court noted that SPV had not been incorporated when the wrongful events were alleged to have occurred.  The Court held that in considering the issue of a genuine commercial interest the critical issue is whether the original wronged parties remain (directly or indirectly) the parties pursing the litigation. This is to be contrasted with such wronged parties realising their interest in the cause of action by selling it to a third party who then pursues it for the benefit of that third party. Accordingly, the Court also rejected the argument that SPV had a genuine commercial interest in enforcing the third party claim.

In the Court's view the transaction involved the sale of litigation and was prohibited by Irish public policy. It described the proceedings as the very type of wanton or officious intermeddling in the litigation of another which had been condemned by the courts for centuries.

Accordingly, the Court declared that the Assignment was contrary to public policy, void and unenforceable as a matter of law and the proceedings were dismissed as being frivolous, vexatious and bound to fail.

For further information please contact Paula Mullooly at [email protected]

Date Published: 27 October 2015

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assignment of bare cause of action

Bakewell v Anchorage Capital Master Offshore Ltd: Can Ancillary Rights and Claims Be Sold?

Jones Day

The Background: An assignee of loans owed by the Arrium Group sued certain officers of the Arrium Group, alleging they had made negligent misstatements or misrepresentations in drawdown and rollover notices issued prior to the assignment. Arrium's former chief financial officer ("CFO") argued that the proceedings were doomed to fail, as a bare chose of action is not assignable. The primary judge rejected that argument. The CFO sought leave to appeal.

The Question: The issue on appeal was whether it was arguable that the rights of the original lenders to bring ancillary claims in relation to the facility agreements could be assigned.

The Outcome: The New South Wales Court of Appeal found that it was at least arguable that the assignment of the ancillary claims was valid, but left the ultimate determination to be made at the final hearing.

Looking Ahead: The decision supports the widely held view that an assignment of debt can carry with it an assignment of a cause of action, but illustrates that the law in the area continues to evolve. The decision also highlights some of the potential risks in the secondary debt market and some of the creative arguments that may be raised against assignees.

Background In the recent decision in Bakewell v Anchorage Capital Master Offshore Ltd [2019] NSWCA 199, the New South Wales Court of Appeal considered whether it was arguable that ancillary rights and claims could be sold alongside a loan. During 2013 to 2015, the Arrium Group entered into facility agreements with a number of financiers, including Deutsche Bank. After Arrium entered voluntary administration in 2016, certain debts under those facilities were assigned to Anchorage. Deutsche Bank was also assigned debts owed to other original financiers. Anchorage brought proceedings against officers of the Arrium Group, alleging they had made negligent misstatements or misrepresentations in drawdown and rollover notices issued under the facility agreements. Anchorage sought orders joining other assignees as plaintiffs and joining Arrium's former CFO Robert Bakewell as a defendant, alleging he had given the instruction or direction to draw down on all available amounts under the facilities. The CFO resisted, arguing the proceedings were doomed to fail as a bare chose of action is not assignable, and as a result, any ancillary claim the original lenders may have had could not be assigned to Anchorage. The primary judge rejected this argument and joined the CFO as a defendant. The CFO sought leave to appeal. Issues for Determination The issues for determination on appeal were whether the primary judge erred in finding it was arguable that:

  • Existing authorities left open the possibility that a cause of action is assignable where it is part of a larger transaction for an assignment of property rights, if the assignee has a legitimate commercial interest in both sets of rights. In this case, this meant that Anchorage's right to bring an action against the officers of the Arrium Group came with the assignments of the debts.
  • Anchorage and other assignees had a legitimate commercial interest in taking an assignment of property rights and an ancillary assignment of a cause of action.

The Decision

Justice Bell, with Justices Macfarlan and White agreeing, did not grant leave to appeal on the basis that:

  • The CFO would be an active defendant in the proceedings in any event, as the arguments he made against Anchorage would not apply to Deutsche Bank, which was also a plaintiff and an original financier. There was no case for severing the actions of Anchorage and Deutsche Bank.
  • It was, at the very least, arguable that the existing authorities left open the possibility that Anchorage could bring a valid action against officers of the Arrium Group.
  • The principle relating to the prohibition against the assignment of bare causes of action was not immune to development, modification or even elimination, and its public policy underpinnings were not so secure as to justify summary dismissal on the basis of existing authority.

Two Key Takeaways

  • The full extent of the prohibition against the assignment of bare causes of action is not settled and continues to evolve. Assuming the CFO continues to press his position, the court will have the opportunity in the final hearing to provide further clarity on the exceptions to the prohibition, and the public policy underpinning it. Watch this space.
  • Regardless of what the court may decide at a final hearing, the case illustrates some of the inherent risks in the secondary debt market and the creative arguments that assignees may face when attempting to enforce rights.

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assignment of bare cause of action

Assignment of a claim or cause of action

Practical law uk practice note 1-522-7861  (approx. 32 pages), get full access to this document with practical law.

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  • Increase efficiency
  • Enhance productivity
  • Improve response time
  • Substantive Law
  • 1 Scope of this note
  • Effect of contractual prohibition on assignment
  • 3 At what stage may a claim be assigned?
  • 4 To whom can a cause of action be assigned?
  • Legal assignment or equitable assignment?
  • Requirements for a legal assignment
  • Requirements for an equitable assignment
  • Effect of consideration
  • No loss occurring to assignee before assignment of claim
  • General principles
  • Exceptions to the rules on maintenance and champerty
  • Security for costs
  • Costs incurred by the assignor before the assignment
  • Who is liable for costs awarded in favour of the defendant?
  • Assignment of benefit and burden of solicitors' retainer
  • When might an office-holder assign a claim?
  • Who may assign a claim in insolvency?
  • Claims capable of assignment by an office-holder
  • Claims not capable of assignment by an office-holder
  • Assignment of claims to an office-holder
  • Potential liability of office-holder
  • 10 Drafting an assignment of a cause of action
  • Legal assignment
  • Equitable assignment
  • Assigning proceedings that have been commenced
  • Counterclaims where a claim has been assigned

In what circumstances can you assign a claim or cause of action?

Published by a lexisnexis dispute resolution expert.

This Practice Note sets out the requirements and considerations for permitted assignment of claims or causes of action in English civil litigation.

For guidance on how to assign a claim or cause of action, with particular consideration as to what should be included in the assignment documentation, see Practice Note: How do I assign a claim or cause of action?

Note: in this Practice Note, we refer to the assignment of both causes of action and claims. We define a cause of action as '...a factual situation the existence of which entitles one person to obtain from the court a remedy against another person' ( Letang v Cooper ) and a claim as the formal assertion of a cause of action by a claimant against a defendant. In the authorities , the phrases 'assigning a cause of action' and 'assigning a claim' are sometimes used interchangeably. For the purposes of this Practice Note, unless the context indicates otherwise, we refer to:

assigning 'causes of action' when considering whether the assignment

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Key definition:

Requirements definition, what does requirements mean.

A DCO should include “Requirements” to which the development authorised by the DCO is to be subject. Similar to planning conditions, a requirement specifies the matters for which detailed approval needs to be obtained before the development can be lawfully begin.

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Assignment of a claim or cause of action

Practical law uk practice note 1-522-7861  (approx. 32 pages).

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Trusting the signs to assign: assigning causes of action of trustee companies.

By Sam Kingston , Mathew Gashi

When a corporate trustee goes into liquidation, there is often uncertainty about how it is to be wound up which requires Court intervention. On 15 October 2021, the Federal Government initiated a consultation process relating to trusts and insolvency, which looks to consider, amongst other things, what powers an external administrator has to administer trust property.

Relevantly, liquidators generally have the power to assign causes of action belonging to a company, or claims conferred on the liquidator by the Corporations Act 2001 (Cth) ( Act ). However, a liquidator’s power to sell or assign causes of action has certain limitations which were recently considered in Anderson v Canaccord Genuity Financial Limited [2022] NSWSC 58 ( Anderson Judgment ). In particular, limitations may arise in circumstances where the company acted in a capacity as trustee of a trust, which highlights the complexities that arise when a corporate trustee is placed in liquidation.

In the Anderson Judgment, the Court found that where the causes of action arose from breaches of duty owed to a company in its capacity as a trustee of a trust, and the company in liquidation ceased to act as trustee (as is often the case), the proper plaintiff was the new trustee of the trust.

Contrary to some previous cases, the Court also seems to suggest that liquidators can assign rights which are proprietary in nature (such as, for example, judgment debts) and personal rights (such as, for example, claims for misleading and deceptive conduct).

The Court's judgment creates some uncertainty about whether personal rights to sue which are held by a company are also capable of assignment, and if so what rights can be assigned. In circumstances where there are conflicting judgments, practitioners should seek legal advice prior to negotiating the assignment of claims which might be considered 'personal' to the company.

In general, when considering whether to assign any claims or rights to sue, practitioners should carefully consider the nature and merits of the claims sought to be assigned. Practitioners should also be wary if any complicating factors might arise in the purported assignment, such as if the claims are those of the company itself or if they are claims only available to the trustee of a trust.

How does an assignment of a cause of action work?

A liquidator has the power to sell or dispose of a company’s property, which relevantly includes a ‘chose in action’ (such as potential claims). This is a useful power as assigning a cause of action may realise funds in circumstance where a liquidator might not be able to fund potentially valuable pieces of litigation. Additionally, a liquidator may assign any right to sue which is conferred on them under the Act provided the following conditions are met:

  • If legal proceedings have already commenced, the right to sue cannot be assigned without the approval of the Court.
  • Before assigning any right to sue, the liquidator must give written notice to the creditors of the proposed assignment.

The assignment of a cause of action is usually documented in a Deed of Assignment. Depending on the terms of the deed, the assignment might also be subject to additional conditions such as approval of creditors or the Court. This is particularly the case if the assignment is intended to last more than three months.

Once a cause of action has been assigned, the liquidator should generally issue a notice of assignment that complies with the relevant State property law acts [1] ( Assignment Notice ). It is worth noting that in the Anderson Judgment, an Assignment Notice was not issued. This was not fatal as the assignors of the causes of action were joined as parties to the proceeding, binding them to any judgment.

Assignment of claims of a trustee company

The key issue in the Anderson Judgment was whether there was a valid assignment of claims broadly described as ‘Conspiracy Claims’ made up of claims for breach of fiduciary duties and breach of the obligations of good faith and honesty arising from employment contracts.

The key considerations addressed in the Anderson Judgment on the assignment of causes of action are briefly summarised below.

Were the ‘Conspiracy Claims’ claims of the company or of the trust?

The Court held the assignee had standing to sue for any breach of obligation owed to the companies in liquidation, but only to the extent that the claims related to each company in its own right. Where the company entered into any agreement in its own capacity, and not as trustee of any trust, the assignment of any rights and obligations arising under those agreements was effective.

Conversely, the assignee could not sue for any breaches of obligations which were owed to a company in its capacity as trustee. The liquidator could not assign these rights because the company was not the proper plaintiff (it was the trustee of the trusts at the time claims were sought to be made).

Could a bare right to litigate or personal chose in action by assigned?

Many statutory causes of action are incapable of assignment, because they are personal to the company rather than proprietary in nature. Personal claims are claims which are only available to the person who suffered the relevant loss or damage. Common examples are claims for misleading and deceptive conduct under the Australian Consumer Law and breaches of director duties under the Act.

Relying on past judgments of the Supreme Courts of New South Wales and Western Australia, the Court:

  • found breaches of fiduciary duty are claims capable of assignment under the Act [2]
  • seemed to suggest that there is no reason to limit the assignment of claims to only those which are proprietary in nature in view of the wording of the Act. [3]

This approach conflicts with judgments of the Supreme Court of Victoria and the Supreme Court of New South Wales. Relevantly in:

  • Pentridge, the Court found that statutory causes of action for misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) were unassignable [4]
  • Re Colorado Products, the Court found that statutory causes of action for breaches of directors duties under the Act were not assignable. [5]

Implications

The Court’s judgment leads to some uncertainty about the extent to which personal rights to sue, which are held by a company, are capable of assignment. In general, when considering whether to assign any legal claims or rights to sue proceedings, practitioners should carefully consider the nature of the claims sought to be assigned. Practitioners should be wary if any complicating factors might arise in the purported assignment, such as if the claims are those of the company itself or if they are claims only available to the trustee of a trust.

[1] See for example section 134 of the Property Law Act 1958 (Vic), section 12 of the Conveyancing Act 1919 (NSW), Civil Law (Property) Act 2006 (ACT) s 205, Law of Property Act 2000 (NT) s 182, Property Law Act 1974 (Qld) ss 199, 200, Law of Property Act 1936 (SA) s 15, Conveyancing and Law of Property Act 1884 (Tas) s 86 and Property Law Act 1969 (WA) s 20. [2] Re Colorado Products Pty Ltd (In Prov Liq) (2014) 101 ACSR 233; [2014] NSWSC 789 ( Re Colorado Products ). [3] EC Dawson Investments Pty Ltd v Crystal Finance Pty Ltd (No 3) [2013] WASC 183. [4] Pentridge Village Pty Ltd (in liq) v Capital finance Australia Ltd [2018] VSC 633 ( Pentridge ). [5] Re Colorado Products.

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The Australian Professional Liability Blog

Stephen Warne on professional negligence, regulation and discipline around the world

Latest on assignability of tortious professional negligence claims

A man tried to sue for professional negligence in his capacity as an assignee of the alleged victim of that negligence.  The case was determined on a limitations point, but in Kovarfi v BMT & Associates Pty Ltd   [2012] NSWSC 1101 Justice McCallum of the Supreme Court of NSW gathered together the authorities in relation to the uncertain question of the assignability in Australia of causes of action in tort:

‘Was Kata-Lyn’s right of action in tort capable of assignment?

  • The third ground relied upon by the defendants is that the two assignments (in so far as they purported to assign the cause of action in tort now pleaded against BMT) were ineffective because a bare cause of action in tort is not a chose in action and is not capable of being assigned at law.
  • The defendants acknowledged that there is some divergence of opinion as to the application of that principle but submitted that the weight of authority in Australia supports their contention. The principle is often referred to (in Australia) as the rule in Poulton, having been stated in obiter dicta in the decisions of the High Court in Poulton v The Commonwealth [1953] HCA 101; (1953) 89 CLR 540 at 571.3 per Fullagar J at trial and, on appeal to the Full Court, at 602.9 per Williams, Webb and Kitto JJ, where it was described as “well-established principle” that a right of action in tort was incapable of assignment either at law or in equity.
  • Poulton was concerned with the assignment of a cause of action in tort. The House of Lords subsequently held, in a case concerning the assignment of a cause of action in contract, that a bare right of action could be assigned where the assignee had a genuine commercial interest in the enforcement of the claim: Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703D per Lord Roskill; see also at 694E per Lord Wilberforce. In so holding, Lord Roskill described the rule that “you cannot assign a ‘bare right to litigate'” as still a fundamental principle of law.
  • Trendtex is sometimes referred to as the origin of an exception to that fundamental principle which came after (and thus potentially qualified) the statement of the rule in Poulton. However, instances of an exception where the assignee has “an interest in the suit” had been recognised at least as early as the decision of the English Court of Appeal in Ellis v Torrington [1920] 1 KB 399. In that case, also a case in contract, an assignment of the benefit of a covenant in a lease held to be sufficiently connected with enjoyment of the property so as not to be a bare right of action.
  • What is unclear to me is whether the existence of a genuine commercial interest in the enforcement of the assigned claim is properly considered as the basis for an exception to the rule in Poulton (regardless of the cause of action allegedly assigned) or, conversely, whether the unassignability of a bare right of action in tort remains beyond the reach of the exception recognised in Trendtex.
  • The existence of any sensible basis for drawing a distinction in that context between the position in tort and the position in contract has been doubted in this State: Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 1041 at [42]-[61]; (2004) 220 ALR 267 at 280-285 per McDougall J. That decision sets out, comprehensively and with welcome clarity, the relevant principles and competing authorities. McDougall J concluded (at [53]) that, were it necessary to reach a concluded view, it would be that he was at liberty to depart, and should depart, from the dicta of the High Court in Poulton. It was not necessary to reach a concluded view because his Honour was not satisfied as to the existence of a sufficient interest (at [62]-[71]).
  • Interestingly, some support for his Honour’s analysis may be found in the joint judgment of Gummow and Bell JJ in Equuscorp at [79] and the dissenting judgment of Heydon J at [157]. Gummow and Bell JJ at [79] cited the decisions in Ellis v Torrington, Trendtex and Rickard Constructions as instances of “an exception” to the rule in Poulton. Heydon J at [157] similarly noted that Trendtex may elsewhere have been understood as an exception to the principle stated in the dicta in Poulton. However, Equuscorp was not specifically concerned with the question that arises in the present case and does not resolve it. The joint judgment of French CJ, Crennan and Kiefel JJ did not analyse the relevant principles in terms that shed any light on the present question: see [48]-[51].
  • Mr Williams, who appeared for the defendants, submitted that the weight of Australian authority supports the proposition that the rule in Poulton remains valid with respect to bare causes of action in tort. One of the decisions cited in support of that submission was Rickard Constructions at [53] but I think that overlooks the conclusion reached by McDougall J on that issue.
  • Separately, however, Mr Williams relied upon the following decisions: Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (No 2) [1994] FCA 1463 (unreported, 7 November 1994) at [7]-[8] per Beaumont J; National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (No 1) [1995] FCA 1628 at [131] per Lindgren J and Salfinger v Niugini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 at [119] per Heerey J. Those decisions reinforce the obligation of single judges not to depart from the considered dicta of the High Court. McDougall J felt at liberty to do so in Rickard Constructions, but his Honour’s enjoyment of such freedom was unclouded by the later remarks of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [130] and following, especially at [134].
  • Had the issue arisen for decision by me, I would have felt constrained to conclude that Kata-Lyn’s cause of action in tort against BMT was not capable of being assigned and, accordingly, that Mrs Kovarfi cannot maintain the cause of action.’
  • Lessons from a tome in the dome on the assignment of suits’ fruits
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Terminology

  • When Subsidisation Is Justified
  • English Legislation
  • Australian Legislation
  • The Present New Zealand Law – Criminal Liability
  • The Present New Zealand Law – Tort
  • The Present New Zealand Law – Contract
  • Contingency Fees: For And Against
  • Assignment Of Right To Sue
  • Difficulties In Insolvency Situations

Subsidising Litigation

1 WHERE A PAYS OR CONTRIBUTES to the cost to B of the institution of or continued prosecution of or resistance to civil legal proceedings to which B is a party the technical name for the wrong that such action by A may constitute is maintenance . If B is the claimant and the arrangement is that as a quid pro quo for A’s support A is entitled to share in the fruits of B’s claim the technical name for this particular variety of maintenance, “a particularly obnoxious form of it” according to Lord Denning, 1 is champerty . Of great practical importance is the particular form of champerty that can be committed where A is a lawyer (or as we will see a para-lawyer) and performs legal work on the basis that his remuneration entitlement is dependent on the owtcome of the litigation. In this paper we will refer to all such arrangements as ones for contingency fees , but it will need to be remembered that this is not a precise legal term, that the nomenclature is not settled 2 and that as our discussion proceeds we will need to distinguish among various classes of contingency arrangements.

2 In late medieval England unruly nobles whom judges were reluctant to defy frequently employed as a method of oppressing the vulnerable the systematic promotion of lawsuits, “suits fomented and sustained by unscrupulous men of power” as Lord Mustill has described them. 3 Even after the stronger central government of the Tudors had brought the barons to heel the procuring of litigation against an enemy continued to be a popular and effective method of inflicting harm. It was to counter these evils that there were developed maintenance and its subset champerty as both crimes and as torts (that is as grounds for a civil claim). 4 With changing times these remedies became less and less resorted to.

While both remained crimes and independent torts until abolished by the Criminal Law Act 1967, their domain has steadily shrunk over the centuries. Conduct which would once have been objectionable would not now raise an eyebrow. With the growth over time of developed legal institutions and a specialised legal profession, the requirements of public policy in this field have been radically transformed. 5

The principal modern significance of the old rules is in the context of contingency fees and of the rule prohibiting the assignment of a bare cause of action, that is of a right to sue. 6

When subsidisation is justified

3 It is only unjustified subsidisation that constitutes maintenance and champerty.

Maintenance is directed against wanton and officious inter-meddling with the disputes of others in which the [maintainer] has no interest whatever and where the assistance he renders to one or the other party is without justification or excuse. 7

The definition by the courts of the circumstances in which public policy requires subsidisation to be classified as unjustifiable has altered to reflect changing social realities:

My Lords, it is clear, when one looks at the cases of maintenance in this century and indeed towards the end of the last that the courts have adopted an infinitely more liberal attitude towards the supporting of litigation by a third party than had previously been the case. 8

Justification may be found in a genuine commercial interest.

Thus persons engaged in a particular trade or profession or linked by some proprietary or other legitimate common bond may lawfully associate themselves with a view to protecting, if necessary by litigation, the interests of each in the common field at the expense of all. For example, it is perfectly proper for manufacturers to combine in defending an infringement action by a patentee against one of their number, for a mutual protection society of fishery owners to support proceedings by some of its members against a factory accused of polluting a river, or for an employer to maintain an employee who had been libelled in relation to his duties. Likewise, insurance and indemnity contracts may provide a sufficient business interest. Thus, there is no objection to a manufacturer securing business from customers of a rival on terms that he would indemnify them in respect of liability arising from a transfer of their custom, or to a workers’ compensation insurer [instigating] proceedings by an injured worker against a third party. 9

Or the justification may be a charitable motive. The facts that the rule is founded on public policy and that public policy can change with the passage of time and may not be identical in every jurisdiction are neatly illustrated by the cases in which a lawyer undertakes work on the basis that the lawyer will charge a fee (but only a normal fee) if the claim succeeds and not otherwise. Such an arrangement (called acting on a speculative basis) has long been permitted in Scotland. 10 In 1935 in the New Zealand case of Sievewright v Ward & Others Ostler J regarded such an arrangement as “consistent with the highest professional honour”. 11 A similar conclusion was reached 25 years later in Australia. 12 But recently in England (at a time when the law permitted certain classes of contingency fee arrangements into which the transaction under consideration did not fall) the Court of Appeal classified such an agreement as champertous. 13

English legislation

4 In 1966 the Law Commission for England and Wales reported that maintenance and champerty as crimes were a dead letter. 14 As to their efficacy as torts, the decision of the House of Lords in Neville v London Express Newspaper Ltd 15 was that while an unsuccessful defendant had a right of action against one who had maintained the plaintiff’s action it was necessary to prove special damage and that special damage did not include costs.

It cannot be regarded as damage sufficient to maintain an action that the plaintiff [ sc in a claim against a maintainer] has had to discharge his legal obligations or that he has incurred expense in endeavouring to evade them. 16

As to a successful defendant the Commission noted that:

In the case of Wm. Hill (Park Lane) v Sunday Pictorial (“Times” newspaper April 15th 1961) it was decided that where the maintained action had failed , a claim for damages for maintenance also failed, unless it could be shown that the maintained action would not have been brought or continued without the assistance of the maintainer. 17

The Commission concluded that:

Obviously the factor of damage is almost impossible of proof. In the light of the cases on lawful justification and proof of damage, our conclusion is that the action for damages for maintenance is today no more than an empty shell. 18

The Commission’s recommendation that maintenance and champerty be abolished as crimes and torts was adopted by the Criminal Law Act 1967 19 but, as also recommended by the Commission, that statute carefully preserved the rule that maintenance could render unenforceable a contract between maintainer and maintained. The provision reads:

The abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal. 20

So in a jurisdiction that lacks any equivalent to New Zealand’s Illegal Contracts Act 1970 section 7 a maintainer remains debarred from enforcing a champertous agreement.

5 Twenty or so years later in a reversal of policy made with the acknowledged intention of providing greater access to justice while avoiding the cost to the public purse of widening eligibility for legal aid 21 the United Kingdom legislature enacted the Courts and Legal Services Act 1990 section 58. This provision was by the Access to Justice Act 1999 section 27(1) replaced by new sections 58 and 58A. These sections came into force on 1 April 2000 and are set out in Appendix A. The sections permit written conditional fee agreements (that is agreements providing that the provider of the legal services will be paid the provider’s fees and expenses, including an increment based on success, only in specified circumstances) in any proceedings whether in court or not, 22 subject to compliance with certain requirements contained in the sections, or in subordinate legislation the promulgation of which is to be preceded by specified consultation. These sections do not apply to family and criminal proceedings. There is a requirement of disclosure as a percentage of a normal fee of the amount by which a normal fee is in terms of the agreement to be increased by reason of the fact that the payment obligation is conditional, and fixing the upper limit of such a percentage (currently 100 per cent) 23 as one to be specified by subordinate legislation. Remuneration on the basis of a percentage of the recovered amount is not permitted.

There was a clear consensus that it would not be right in principle, and would be likely to have a number of undesirable side effects, for a lawyer to be permitted to undertake a case in return for some percentage of whatever damages might be received. 24

The current Conditional Fee Agreements Regulations 25 are reproduced in Appendix B.

Australian legislation

6 In Victoria, maintenance and champerty were abolished as torts by the Abolition of Obsolete Offences Act 1969, but abolition was accompanied by a provision copied from the United Kingdom Criminal Law Act 1967 section 14(2). 26 The Legal Practice Act 1996 permits on certain terms agreements with legal practitioners called conditional costs agreements permitting liability for some or all costs to be contingent on success. A success uplift not exceeding 25 per cent of the costs otherwise payable is permitted. Fees calculated as a percentage of the recovered amount are not permitted. Conditional costs agreements are not permitted in Family Law Act cases. The relevant sections of the statute are set out in Appendix C. References in section 103 to “the Tribunal” are to the Legal Professional Tribunal, a body made up of a “chairperson” who must be a judge or former judge, plus lawyer and lay members and having various disciplinary and other functions.

7 The legislative history in New South Wales is similar. The torts were abolished by the Maintenance, Champerty and Barratry Abolition Act 1993. Section 6 of that statute is copied from the United Kingdom Criminal Law Act 1967 section 14(2). There is a similar provision for conditional costs agreements as in Victoria, but there is provision for regulations providing for variation of the maximum success uplift percentage “Different percentages may be prescribed for different circumstances”. 27 There have to date been no such regulations.

8 In South Australia the torts were abolished in 1993. There is a similar reservation relating to illegal contracts and a further reservation of “any rule of law relating to misconduct on the part of a legal practitioner who is party to or concerned in a champertous contract or arrangement”. 28 It is not clear whether the tort is to that extent preserved. The Legal Practitioners Act section 42(6)(c) permits contingency fees subject to any limitations imposed by The Law Society of South Australia and to the power of the Supreme Court to rescind or vary a contingency fee agreement “if it considers that any term of the agreement is not fair and reasonable” (section 42(7)). A copy of Rule 8.10 and Attachment 1 to The Law Society of South Australia’s Professional Conduct Rules is annexed as Appendix D.

The present New Zealand law – criminal liability

9 There are in New Zealand no statutory provisions corresponding to the common law offences of maintenance and champerty. Since the criminal law was consolidated by statute in 1893 the sole source of New Zealand criminal law has been statutory. 29

The present new zealand law – tort

10 Apart from differences between the two jurisdictions as to the circumstances in which public policy justifies subsidisation, 30 the New Zealand law as to maintenance and champerty as torts is probably identical to that of England before the various statutory changes referred to in paragraph 4. So a no win no fee arrangement where on success only a normal fee was payable might be able to be justified as charitable, but any other contract between a supplier and a litigant making the supplier’s entitlement contingent on success, particularly one involving a success uplift, whether or not calculated as a proportion of the amount recovered, is champertous. There is much to be said for Professor Todd’s view that little would be lost by abolishing maintenance and champerty as torts in New Zealand. 31 There has been no reported New Zealand case in which a claim in tort has succeeded 32 and with the abolition of the tort in England and in New South Wales, Victoria and South Australia, there is no longer available the assistance of precedents from those sources.

11 On the other hand it is less clear to us than it was to the Law Commission that “the factor of damage is almost impossible of proof”. One would have thought that a successful defendant in a maintained action could recover as special damage from the maintainer costs awarded against the plaintiff that proved irrecoverable from the plaintiff, and the difference between party-and-party and solicitor-client costs. Although in New Zealand such a claim could be determined under the powers of the courts to award costs against a non-party and to award full costs, 33 this procedure works effectively only where the maintainer is readily ascertainable. It does not work if the maintainer keeps out of sight and it is necessary for the party seeking to pursue the maintainer to invoke such procedural processes as discovery. There are also other situations in which damage can be proved. Abolitionists should ponder the Queensland case of JC Scott Constructions v Mermaid Waters Tavern Pty Ltd 34 in which the opponent (Scott Constructions) of maintained plaintiffs recovered against the maintainer as special damages the increased cost of alternative finance necessitated by Scott Constructions’ banker withdrawing accommodation by reason of the existence of the maintained litigation. In that case it was established that the maintainer’s purpose was to procure the winding-up of Scott Constructions in order to dispose of a different claim against the maintainer by Scott Constructions, presumably on the basis that there are more ways of killing a claim than battling it out in Court.

12 A third possibility is that the torts of maintenance and champerty should be codified, but if this were to be done it would be a challenge to the draftsman to employ a language that on the one hand made it unnecessary to refer to the ancient cases, and on the other hand preserved the flexibility in relation to justifiability which has been such a feature of the modern development of the tort. The first issue on which comment is invited is as to whether the torts of maintenance and champerty should be abolished, codified or left untouched.

The present New Zealand law – contract

13 Assuming the abolition of maintenance and champerty as torts concerned with claims against the maintainer by the maintained party’s opponent, it would be irresponsible for the reforming measure to fail to regulate the position as between maintainer and maintained. There ought to be put beyond doubt the answer to the question whether it remains the rule that agreements for maintenance and champerty are illegal and void on the basis of breach of public policy. If the answer is yes (which we believe that in the absence of express provision to the contrary it clearly would be) the questions that then arise are whether the law should be changed to permit some contingency fee arrangements and if yes, what types of arrangement and in what circumstances. All these questions involve consideration of the policy issues to which in the next part of this report we turn. In this paragraph we have not overlooked the power conferred on courts by the Illegal Contracts Act 1970 section 7 to validate illegal contracts, but such a discretionary power is it seems to us no substitute for a definite rule.

Contingency fees: for and against

14 Some (perhaps excessively obvious) points need to be made by way of a preface to a more detailed consideration of the pros and the cons of contingency fees. We do not imagine that anything set out in this paragraph is controversial.

  • In comparing New Zealand with other jurisdictions certain differences need to be kept clearly in mind. In the United States of America the great bulk of litigation pursued on a contingency basis is for damages for personal injury, a class of litigation excluded in New Zealand of course by the Accident Compensation legislation. Such claims still exist in the United Kingdom and Australia also.
  • A further difference between New Zealand and the United States of America is the absence in that republic of the almost automatic practice of awarding costs against unsuccessful claimants usual in Commonwealth countries. So the plaintiff litigating on the basis of being liable to the plaintiff’s lawyer only if the claim succeeds risks nothing. There is moreover no New Zealand counterpart to the extensive American use of juries for civil claims and such phenomena as anti-trust law provisions for trebling damages, the wide availability of punitive damages and of class actions and the statutory provision for attorneys’ fees in certain classes of litigation. 35
  • Eligibility for legal aid is currently set so low (so low as to exclude even some social welfare beneficiaries) that those who are neither rich nor very poor are in practice denied access to legal services. But it may be doubted whether contingency fees could ever replace legal aid totally or even substantially. About 85 per cent of civil legal aid expenditure is for Family Court work. 36 Under a contingency fee arrangement a lawyer provides services and possibly pays various out-of-pocket amounts on the basis of the chance that the claim will yield sufficient fruit to enable recouping of those costs. Lawyers like everyone else prefer to bet on what they believe to be certainties or near certainties. So while a contingency fee regime helps those who are likely to recover something, for example those claiming capital assets on marriage breakdown or (in other jurisdictions) those who have suffered personal injuries (where the success rate is in practice high) such a regime is of no use at all to defendants or to those plaintiffs whose chances of recovery are nearer to 50/50, or to those plaintiffs who want to litigate matters that will not yield any cash return at all, such as custody cases, access cases, domestic violence cases and habeas corpus applications.
  • Total reliance cannot be placed on professional disciplinary rules to curb abuses were a contingency regime to be introduced, partly because of problems that Law Societies have in policing, but also because it is not only lawyers who might provide assistance on a champertous basis. Probably (there are no available statistics) most personal grievance claims under the Employment legislation are conducted by non-lawyer agents to whom the legislation gives rights of audience and who are remunerated on a contingency basis.
  • An unsuccessful plaintiff suing with the aid of a contingency fee arrangement is likely to incur a substantial costs liability to the successful defendant. In the United Kingdom it is possible to insure against such risk, but it is not clear that such cover would be available in New Zealand where the average rate of success compared with the United Kingdom underwriting experience would be substantially affected by the exclusion of personal injury claims.
  • Even without contingency arrangements recovery is likely in practice to be reflected in the level of charging. 37

15 What then are the arguments? In this paragraph we essay strong, even provocative, statements on each side of the dispute. We should make it clear that none of the propositions set out below represents the concluded or even the tentative view of the Law Commission. Our purpose in this paper is simply to endeavour to assist submitters in their decision-making by setting out contentions pro and con.

  • Contingency fee arrangements enable litigation that would not otherwise proceed. Opinions differ as to whether this is good or bad. On one view such increase in litigation provides access to justice to those to whom it might otherwise be denied. The liability of a plaintiff to pay costs to a successful defendant will remain and be a sufficient deterrent to baseless claims. The opposing belief is that it is naive to regard encouraging legal claims as necessarily in the public interest. The cost in terms of money and executive time of a legal claim to a defendant is such that a defendant despite the availability of a good defence often finds that it makes economic sense to buy off the claimant to be rid of the matter. So to allow contingency fees is to facilitate something akin to extortion by the institution of low merit claims against deep pocket clients. In the words of a Scottish judge, it can be that “the raising of the action was done deliberately for the purpose of concussing the defendant into settling”. 38 Proponents of each opposing view would seek support from the experience of personal grievance claims against employers and ex-employers (which is the only class of case in which, in apparent defiance of the law, contingency fee arrangements are common in New Zealand today).
  • An advocate’s responsibility is to provide a client with disinterested advice, “a clear eye and an unbiased judgment” as Buckley LJ put it. 39 If the advocate’s remuneration depends on the outcome of a claim, the advocate is no longer disinterested. This reasoning as a matter of logic applies even where the contingency arrangement does not involve any more than normal fees, in other words where there is no arrangement for a fee higher than normal in the event of success. 40
  • This problem it is said is particularly acute where the lawyer has to advise whether to settle a claim by accepting a proffered bird in the hand. The certainty of remuneration without further effort may well be permitted to override the possible benefit to the client of battling the matter out. There is a possibility of a clear conflict of interest if the lawyer (whose obligation is a fiduciary one) and the client disagree.
  • The contrary view is that realism requires a rather more down-to-earth and less precious approach. Practising lawyers even in the absence of a contingency fee regime regularly confront and successfully surmount difficulties arising from conflicts between self-interest and the interest of the client, not least in the very context of advising on the acceptance or rejection of settlement proposals. Fashionable counsel may prefer to settle a potential cause célèbre rather than be publicly seen to lose it and must withstand any temptation to permit that preference to outweigh duty to the client. The judgment of any lawyer runs the risk of being influenced by the unlikelihood of further work from a substantial client if the lawyer advises rejection of a settlement offer and the matter is then fought and lost. “The solicitor who acts for a multinational company in a heavy commercial action knows that if he loses the case his client may take his business elsewhere”. 41 (If the lawyer advises acceptance of the settlement and that advice is accepted no one ever knows what would have happened had the matter been fought.) Any lawyer in recommending settlement must take care not to be influenced by the fact that settlement will free the lawyer to do something else. One result of large city firms pricing themselves out of the market for small knock-about cases in the District Court, is that many who call themselves litigation lawyers in fact have very little experience on their feet in court with a consequent shyness about getting involved in court appearances. This can lead to an over-readiness to settle which must in the client’s interests be overcome.
  • A conflict between duty and interest is common enough in other commercial contexts. Consider for example a commission agent entitled to a commission calculated as a percentage of the price urging a seller to accept a particular offer, $x, rather than hold out for $x+$y. From the seller’s point of view the additional $y that the seller hopes to get may be important. From the agent’s point of view on the other hand the percentage of $y that the agent will get if the higher price is achieved may be not such a large amount as to make it sensible to risk losing the sale. This is an everyday situation in real estate transactions.
  • There are situations in which an advocate’s duty to the court and to the administration of justice overrides the advocate’s duty to the advocate’s client. The advocate must for example abide by certain ethical rules difficult in practice to police. The temptation to breach such rules is greater if the lawyer has a financial interest in the outcome.
The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. 42 The lawyer’s direct interest in the outcome might lead him to indulge in undesirable practices designed to enhance his client’s chances, such as coaching witnesses, withholding inconvenient evidence or failing to cite legal authorities which damage his client’s case. 43 But there are many callings in which persons can be led into misbehaviour (insider trading for example) by hope of gain. There is no reason to believe that lawyers have a greater propensity to stray from the straight and narrow path than those in other walks of life.
  • Contingency fees shift certain financial risks from litigant to lawyer. The lawyer is likely to increase the lawyer’s fees to balance the assumption of such risks.
The lawyer is able to spread those risks over a number of cases and is therefore in a better position to bear them. 44 On this premise, one economic consequence of a regime of contingency charging is that the lawyer’s other clients are subsidising the contingency fee clients. The New Zealand legal profession abandoned the belief that cross-subsidisation was a legitimate method of charging when it accepted that a swings-and-roundabout approach was not a sufficient justification for the now long abandoned regime of scale charging for conveyancing. On the other hand such an argument carried to its logical extreme would mean the outlawing of all pro bono work, and in any event the proportion of work done on a contingency basis is likely to be so slight that the feared economic consequences are unlikely.

16 Assuming a legislative scheme broadly along the lines of the English and Australian statutes, one formulation of the issues on which we invite comment arising out of this part of our paper is as follows:

(a) Should any legislation spell out that agreements amounting to maintenance or champerty are contrary to public policy and so illegal with the consequences provided by the Illegal Contracts Act 1970?

(b) Are there any classes of champertous arrangement that should be an exception to that rule?

(c) If yes, should there be excepted from the general illegality rule agreements under which the client’s liability for fees is dependent on success (a term to be defined in the agreement) and under which:

  • normal fees only will be payable; or
  • normal fees with a success uplift will be payable; or
  • the provider of the legal services is entitled to some fraction of the recovered amount?

(d) If remuneration is based on a share of the recovered amount should that entitlement be capped?

(e) If a success uplift not calculated as a share of the recovered amount is to be permitted, should it to be capped in any and if so in what way?

(f) What should be provided to the client by way of disclosure of the amount by which the agreed fee exceeds a normal fee?

(g) Should any classes of litigation be excluded from what is proposed?

(h) Should detailed regulation of such agreements be laid down:

  • by the statute;
  • by the Attorney-General or Minister of Justice, in which event should there be a statutory obligation to consult and if so whom;
  • by the New Zealand Law Society;
  • by some other person or body?

(i) Should a form of agreement between the provider of the services and the client be prescribed and if no, should there be a requirement of writing and should there be disclosure requirements other than as already mentioned in (f)?

(j) Should there be a cooling off provision?

(k) Should there be a power to vary or overrule such agreements and if yes, in whom should such power be vested?

(l) Should such an agreement be required to contain a machinery to resolve disagreements between lawyer and client in relation to settlement proposals?

(m) Assuming a case to be made out for permitting some sorts of contingency fee arrangements subject to some sorts of safeguards, does the likely number of such arrangements warrant the law change that would be required?

Assignment of right to sue

17 In paragraph 2 we noted that the principal modern significance of the torts of maintenance and champerty is in the contexts of contingency fees and of the rule prohibiting the assignment of a bare cause of action (by a bare cause of action we mean a simple right to sue, that of a person seeking exemplary damages for sexual abuse for example). It would be an easy way around the rules against maintenance if a maintainer instead of funding an action by A against B were permitted to take an assignment of A’s right of action and sue B in the maintainer’s own name. So the common-law declines to recognise an assignment of a bare cause of action (a term which does not include a liquidated debt) if the assignment savours of maintenance or champerty. But it is quite clear that:

If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, [there is] no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance. 45

The commercial interest must be an interest other than the mere acquisition of the right of action in question. “That no doubt is the interest of any assignee.” 46 There is however no objection to the assignment of the fruits of an action on terms that do not give the assignee any right to interfere with the way in which the action is conducted. The reasoning is that as a consequence of the absence of any right of interference there is (bearing in mind the historical raison d’être of such torts) no element of maintenance or champerty. 47

Difficulties in insolvency situations

18 The rule denying effect to the assignment of a bare right of action can cause difficulties in insolvency situations. A right to sue (except in respect of claims of a personal nature) will either be part of the bankrupt’s property that passes to the assignee, 48 or part of the company’s property in respect of which a liquidator has rights and obligations. But commonly the assignee or liquidator lacks the funds to prosecute the claim, and wishes to sell it. In the case of claims existing at the commencement of the bankruptcy or liquidation the problem has been solved by judicial sleight of hand. In Seear v Lawson 49 (a case of bankruptcy) and Re Parkgate Waggon Works Co 50 (a liquidation) it was held that the statutorily conferred power of sale of the cause of action overrode the general prohibition. 51 As Robert Walker J has put it:

What has happened is that since 1880 the court has repeatedly held, and Parliament in successive reviews of the insolvency legislation must be taken to have accepted, that the statutory powers of sale conferred on liquidators and trustees in bankruptcy may be validly exercised without any breach of the rules of public policy covering maintenance and champerty. 52

The same view has been expressed in Australia:

This view was debatable when it originated, and susceptible of more detailed consideration and exposition; conferral of a power to do something does not necessarily overcome all problems of the legality of agreeing to perform it, and supposed illegality would usually require detailed consideration of the intended effect of the statutory authorisation. However it has become well established that dispositions of rights of action under powers in statutes dealing with bankruptcy and liquidation are effective. 53

It is clear on the authorities that an assignee or liquidator can sell a right of action on terms that entitle the assignor to a share of the ultimate fruits of the litigation. 54

19 But it is necessary to note a distinction between on the one hand claims existing at the commencement of the bankruptcy or liquidation enforceable by ordinary action to which the rules set out in the previous paragraph apply, and on the other claims enforceable by the exercise of the liquidator or assignee’s statutory powers which are outside those rules. The judgment in the case of In Re Oasis Merchandising Services 55 refers to:

... the distinction which we would draw between the property of the company at the commencement of the litigation (and property representing the same) and property which is subsequently acquired by the liquidator through the exercise of rights conferred on him alone by statute and which is to be held on the statutory trusts for distribution by the liquidator. 56

and approves the judgment of Knox J in In re Ayala Holdings Ltd (No 2) which describes

... the fundamental distinction between assets of a company and rights conferred upon a liquidator in relation to the conduct of the litigation. The former are assignable by sale under paragraph 6 Schedule 4, the latter are not because they are an incident of the office of liquidator. 57 58

There would seem to be sound policy reasons to permit, perhaps with the approval of the High Court, the funding of claims in the Oasis category on terms that would otherwise be champertous, provided that the liquidator or assignee kept control of powers that by the legislation are vested in the liquidator or assignee, not in some financier. Such arrangements are possible in Australia as an accidental consequence of the terms of its uniform legislation, and an examination of the reported cases from that jurisdiction gives an indication of the arrangements commercially available. 59 So the final issue on which comment is invited is whether as part of the current review of the insolvency legislation such champertous arrangements should be authorised and if so on what terms.

IMAGES

  1. Assignment Cause of Action Pending Litigation Form

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  2. Deposition Preparation

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  3. Cause of Action.doc

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  5. Assignment of a claim or cause of action

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  6. Guide On Cause of Action In Lawsuit

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VIDEO

  1. English Video Assignment (Cause & Effect)

  2. Cause and Effect Essay Assignment (11/7/2023)

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COMMENTS

  1. Going Bare in the Law of Assignments: When is an Assignment Champertous?

    Dr. David Capper's paper on The Assignment of a Bare Right to Litigate is a response to the Irish treatment of champerty and maintenance.1 It is judicious in its treatment of recent Irish and other common law precedent, and the conclusion it draws is a cautious one.

  2. Assignment of a claim or cause of action

    Assignment of a claim or cause of action by Adam Deacock Opens in a new window, Radcliffe Chambers Maintained • England, Wales This note explains how a claim or cause of action may be assigned, whether by legal assignment or equitable assignment.

  3. Assignability of Causes of Action

    Parker J in Glegg v. Bromley4 observed: "Equity on the grounds of public policy did not give validity to the assignment of what is in the cases referred to as a bare right of action, and this was so whether the bare rights were legal or equitable.

  4. Assigning 'Bare' Causes of Action: Proving a Genuine Commercial

    The requirement of proving that the assignee had a genuine commercial interest in the subject matter of the transaction applies particularly to where the assignor has sought to assign a cause of action, or a 'bare right to litigate'.

  5. Claim assigned to SPV not struck out as champertous

    The judge accepted that a bare assignment of a cause of action has long been recognised as champertous and that, normally, an assignment of a claim in contract for damages would be likely to offend the public policy against maintenance and champerty.

  6. Supreme Court Rules a 'Right to Litigate' Cannot be Assigned ...

    An assignment of a bare cause of action involves the outright sale of a cause of action which is then pursued by the assignee (who has no interest or connection to the action other...

  7. Assignees of a Claim

    An assignment of a legal claim occurs when one party (the "assignor" ) transfers its rights in a cause of action to another party (the "assignee" ). 1. The Supreme Court has held that a private litigant may have standing to sue to redress an injury to another party when the injured party has assigned at least a portion of its claim for ...

  8. Assignment of a Bare Cause of Action void as being Champertous

    The assignment of a bare cause of action for purposes which the law does not recognise as legitimate savours of champerty. Trafficking in litigation is contrary to public policy. Wanton and officious intermeddling in the litigation of others is contrary to public policy.

  9. PDF Assignmentofbarerights)To)Litigate:) Assessingthemodern

    It is a fundamental rule of assignment that bare rights of action cannot be assigned, on grounds that such assignments offend the law on maintenance and champerty. ... through providing finance, is not wrongful. To render an assignment of a cause of action objectionable for unlawful maintenance, there must be 'wanton and officious ...

  10. Bakewell v Anchorage Capital Master Offshore Ltd: Can Ancillary Rights

    The full extent of the prohibition against the assignment of bare causes of action is not settled and continues to evolve. Assuming the CFO continues to press his position, the court will have the ...

  11. Can Ancillary Rights and Claims Be Sold?

    Two Key Takeaways. The full extent of the prohibition against the assignment of bare causes of action is not settled and continues to evolve. Assuming the CFO continues to press his position, the court will have the opportunity in the final hearing to provide further clarity on the exceptions to the prohibition, and the public policy underpinning it.

  12. PDF ASSIGNMENT OF CLAIMS

    Insolvency office-holders are able to assign bare causes of action without attracting any public policy which prohibits trafficking in litigation.

  13. Assignment of a claim or cause of action

    Wales. This note explains how a claim or cause of action may be assigned, whether by legal assignment or equitable assignment. It sets out the situations in which an assignment may be effected, including assignment in the context of an administration, liquidation or bankruptcy. The note provides guidance on drafting an assignment as well as the ...

  14. In what circumstances can you assign a claim or cause of action

    We define a cause of action as '...a factual situation the existence of which entitles one person to obtain from the court a remedy against another person' ( Letang v Cooper) and a claim as the formal assertion of a cause of action by a claimant against a defendant.

  15. Can a cause of action be assigned in a corporate transaction?

    It is a longstanding common law principle that a bare right of action in tort is not assignable. This is because it is considered to be tainted by "maintenance" or "champerty".

  16. Rights of Recovery for Assignees of Claims

    An assignment of claim can be a valuable way for a claimant (assignor) to monetise and a litigation funder (assignee) to pursue and enforce a legal cause of action. These advantages should be ...

  17. Assignment of a bare cause of action void as being champertous

    The assignment of a bare cause of action for purposes which the law does not recognise as legitimate savours of champerty. Trafficking in litigation is contrary to public policy. Wanton and...

  18. Assignment of a claim or cause of action

    Assignment of a claim or cause of action by Adam Deacock Opens in a new window, Radcliffe Chambers This note explains how a claim or cause of action may be assigned, whether by legal assignment or equitable assignment.

  19. Trusting the signs to assign: assigning causes of action…

    The assignment of a cause of action is usually documented in a Deed of Assignment. Depending on the terms of the deed, the assignment might also be subject to additional conditions such as approval of creditors or the Court. This is particularly the case if the assignment is intended to last more than three months.

  20. Latest on assignability of tortious professional negligence claims

    The House of Lords subsequently held, in a case concerning the assignment of a cause of action in contract, that a bare right of action could be assigned where the assignee had a genuine commercial interest in the enforcement of the claim: Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703D per Lord Roskill; see also at 694E per ...

  21. Assigning 'Bare' Causes of Action: Proving a Genuine ...

    Assigning 'Bare' Causes of Action: Proving a Genuine Commercial Interest Authors: Rachael Mulheron Request full-text Abstract As torts and as crimes, champerty and maintenance were abolished...

  22. NZLC

    If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, [there is] no reason why the assignment should be struck down as an assignment of a bare cause of action or as ...

  23. PDF Between Pricewaterhousecoopers and Robert Bruce Walker and Ors Spf No

    funding agreement was entered into before the assignment and the funding agreement was expressly conditional upon the assignment taking place. So that the two transactions on their face are linked and aredependent on each other. Third, and I need here really to engage with the argument that the

  24. Eric R. Clayborn on Instagram: "THE JUDGE IS GOD: Why does Mr. Tolson

    1 likes, 0 comments - clayborn.r.eric on February 20, 2024: "THE JUDGE IS GOD: Why does Mr. Tolson make his students repeatedly say this? "Who's the judge?"..."