CHAMPERTY AND MAINTENANCE CONSIDERED: THE DEFENDANT WAS CRYING WOLF

In Casehub Ltd v Wolf Cola Ltd [2017] EWHC 1169 (Ch) Stuart Isaacs QC (sitting as a Deputy High Court Judge) rejected an argument that a claimant bringing  assigned claims amounted to champerty or maintenance. It is rare for these issues to be before the court.

“Because the question whether maintenance and champerty can be justified is one of public policy, the law must be kept under review as public policy changes.”

THE CASE

The claimant is a company that builds consumer actions online. The methodology was described by the judge.

“It does this by entering into claim purchase agreements whereby it takes an assignment of consumers’ claims to recover monies alleged to have been unlawfully charged by third parties. It then aggregates the claims into a single portfolio of claims and, once the value of the portfolio reaches a certain threshold, brings a claim in its own name against the third party in question.”

The defendant was a software company.  Several of their customers did not receive log-in information in time and the customers cancelled their agreement within the first month. Thereafter the defendant charged them a cancellation fee of £196 – calculated by the defendant’s Terms and Conditions.

  1. In September 2016, the claimant took assignments from three customers of their claims against the defendant to be refunded the cancellation fees paid by them in a total sum of £588 on the ground that the cancellation fee provisions in the Terms and Conditions are unlawful. The claimant then brought a claim against the defendant to recover that amount. The defendant disputes the claimant’s ability to bring such a claim and disputes that it has in any way acted unlawfully.

THE ACTION

The claimant issued Part 8 proceedings seeking a determination of various issues, including the issue of whether the claim purchase agreements by which the customers had assigned their rights to the claimant fell foul of the rules against champerty and maintenance.

THE JUDGMENT ON THE CHAMPERTY AND MAINTENANCE ISSUE

The judge considered the law and principles relating to champerty and maintenance in some detail. He rejected the argument that the assignments in the current case were champertous.

    1. There are two forms of the claim purchase agreements. Each form defines the relevant third party as the Debtor, the Debtor’s customer as the Vendor and the claimant as the Purchaser. Under each form, the Vendor, “agrees to irrevocably sell and assign (as legal and or beneficial owner to the [claimant] … subject to and with notice of the Terms and Conditions hereof (overleaf) such debts due and owing to me from the Debtor, and consisting of expenditure by me (directly or indirectly) of charges levied by the Debtor as specified herein (“the Debt”) and all my rights, title, interest, and benefit in the Debt including all rights to recover same from the Debtor“. Clause 1 of the terms and conditions in the claim purchase agreements provides that “[t]he Vendor sells and assigns all its rights, title, interest, and benefit in the Debt to the Purchaser with effect from the date of this agreement“. Clause 2 contains various warranties and covenants by the Vendor. Clause 3 gives the claimant the sole right and discretion of collecting and enforcing payment of the Debt.
    2. The two forms differ, however, in one respect. Under clause 6 of the terms and conditions which pertain to one form of claim purchase agreement, in the event that the claimant recovers the Debt or such part of it that is due and owing to the Vendor from the Debtor, the claimant will pay to the Vendor such sum recovered less a fixed percentage, in this case, 40% of the total sum recovered, representing third party fees, legal costs, disbursements, taxes, and liabilities profit and contribution to overheads. Under clause 7, except in so far as the Vendor otherwise determines in its absolute discretion, payment to the Vendor of any sum is contingent on receipt of all sums due from the Debtor. Hence in the event of a recovery by the claimant against the third party, the customer is able to recover the balance of the total sum recovered. The consideration for the assignment under this form of the claim purchase agreement is stated to be one penny.
    3. Under the second form of the claim purchase agreement, the terms and conditions which apply do not include similar provisions. That is because, under that form, the customer’s debt is assigned to the claimant in return for a payment of a fixed amount, in this case £40, and in the event of a recovery by the claimant against the third party, the sum recovered is retained in full by the claimant.
    4. In support of its contention that the assignments contained in the claim purchase agreements are void, the defendant submitted that (1) the assignment is of a bare cause of action and, as such, is champertous; (2) the assignment is not conducive to the administration of justice; (3) the claimant has taken too much in damages; (4) the assignment of a claim which does not exist and which may never exist is not possible; and (5) the claimant has not taken an assignment of the whole of the claim.
    5. The claimant submitted that (1) the assignment is not champertous and does not fall foul of the rule against maintenance; (2) the scope of the rules against champerty and maintenance is not to be extended; (3) public policy is in favour of upholding the assignment; (4) EU law requires that national rules do not interfere with the exercise of EU rights; (5) the rules against champerty and maintenance are inconsistent with both the assignor’s and the claimant’s right to property and thus inconsistent with Article1 of Protocol 1 of the European Convention on Human Rights (“ECHR”); and (6) it is not open to the defendant to invoke the law on champerty and maintenance.
    6. Maintenance is the support by a person of litigation in which he has no legitimate concern without just cause of excuse. Champerty is an aggravated form of maintenance. It occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit or other contentious proceedings where property is in dispute. The origins of maintenance and champerty are to be found in medieval times when intermeddling with litigation was rife. Although criminal and civil liability for maintenance and champerty was abolished by the Criminal Law Act 1967, section 14(2) of the Act provided that “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.Hence maintenance and champerty survive as rules of public policy capable of rendering a contract unenforceable. As observed in Giles v Thomson [1994] 1 AC 142, 153F-G by Lord Mustill, they have maintained a living presence in only two respects, of which one – the ground for denying recognition to the assignment of a bare right of action – is best treated as having achieved an independent life of its own.
    7. In Giles v Thomson at 164B-D, Lord Mustill expressed his belief that:
the law on maintenance and champerty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants. For this purpose, the issue should not be broken down into steps. Rather, all the aspects of the transaction should be taken together for the purpose of considering the single question whether, in the terms expressed by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v Lamson Store Services Co. Ltd. [1908] 1 KB 1006, 1014, there is wanton and officious intermeddling with the disputes of others in which the meddler has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse.
    1. Because the question whether maintenance and champerty can be justified is one of public policy, the law must be kept under review as public policy changes. In Camdex International Ltd v Bank of Zambia [1998] QB 22, 29F, Hobhouse LJ stated that the modern approach is not to extend the types of involvement in litigation which are considered objectionable. In Sibthorpe v London Borough of Southwark [2011] EWCA Civ 25, Lord Neuberger MR said, at [51], that it would be inappropriate in the 21st century to extend the law of champerty.
    2. The leading case on maintenance and champerty insofar as they apply to the assignment of a right to litigate remains Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (House of Lords) [1980] QB 629 (Court of Appeal). The background to the case is extremely complex but in essence the plaintiff assigned to the defendant its cause of action for damages against the Central Bank of Nigeria (“CBN”) for failure to honour a letter of credit issued for the purchase price and demurrage in connection with a contract for the sale of cement by the plaintiff to the buyer. The assignment was governed by Swiss law. The defendant, which had provided financial assistance to the plaintiff in relation to the sale contract and the litigation against CBN, was a substantial creditor of the plaintiff. The defendant subsequently itself assigned the cause of action to a third party who, following a settlement of the plaintiff’s claim against CBN, made a substantial profit on the price paid by the third party for the assignment. The plaintiff sought to set aside the assignment to the defendant on the ground that it was an assignment of a bare right to litigate which offended against the law of maintenance and champerty. Robert Goff J granted a stay of the proceedings in favour of the courts of Geneva pursuant to an exclusive jurisdiction clause.
    3. The Court of Appeal dismissed the plaintiff’s appeal against the grant of a stay. In considering whether, as a matter of the applicable English law, the plaintiff’s right of action against CBN was assignable at all, Lord Denning MR stated at 655A:
it is sufficient if the maintainer has a legitimate and genuine interest in the subject matter, and the circumstances are such as reasonably to warrant his support of the action or defence: so in an assignment of a chose in action, it is valid if the assignee has a legitimate and genuine interest in the subject matter and the circumstances are such as reasonably to warrant the assignment of it to him.
Lord Denning then proceeded to give some instances when the assignment of a chose in action should be held to be valid, including when it is incidental to an assignment of other property or when an undisputed debt is assigned (at 655C-D); and when a claim for damages is assigned but provided inter alia that it is made for good and sufficient consideration such as to reasonably warrant the assignment to it. “If the assignee takes three-quarters of the damages, the circumstances may not be such as to warrant the assignment: see Laurent v Sale & Co. [1963] 1 WLR 829” (at 656G-657B, in particular at 657B).
    1. Oliver LJ, with whom Bridge LJ agreed, questioned (at 663F-G) whether there was still room for distinctions between choses in action and “bare” rights of action or between strictly proprietary and purely commercial or financial interests. He said at 674F-g:
For my part, I would be prepared to hold that where a cause of action arises out of a right which was itself assignable, the cause of action equally remains assignable or, if one must use the language of the older cases, that it is not a “bare” right to litigate but itself a right of property. So to hold does not, I think, violate current notions of public policy.
    1. The House of Lords affirmed the Court of Appeal’s decision and broadly supported the Court of Appeal’s reasoning, save in respect of one statement by Lord Denning MR. Lord Roskill stated at 702C-703G stated:
My Lords, it is clear, when one looks at the cases upon 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. …

My Lords, just as the law became more liberal in its approach to what was lawful maintenance, so it became more liberal in its approach to the circumstances in which it would recognise the validity of an assignment of a cause of action and not strike down such an assignment as one only of a bare cause of action. Where the assignee has by the assignment acquired a property right and the cause of action was incidental to that right, the assignment was held effective. Ellis v Torrington [1920] 1 KB 399 is an example of such a case. Scrutton LJ stated, at pp. 412-413, that the assignee was not guilty of maintenance or champerty by reason of the assignment he took because he was buying not in order to obtain a cause of action but in order to protect the property which he had brought. But, my Lords, as I read the cases it was not necessary for the assignee always to show a property right to support his assignment. He could take an assignment to support and enlarge that which he had already acquired as, for example, an underwriter by subrogation: see Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101. My Lords, I am afraid I cannot agree with the learned Master of the Rolls [1980] QB 629, 657 when he said in the instant case that “The old saying that you cannot assign a ‘bare right to litigate’ is gone”. I venture to think that that still remains a fundamental principle of our law. But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of a claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty which, as has often been said, is a branch of our law of maintenance. …

… The court should look at the totality of the transaction. 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 has a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.
In disagreement with Oliver LJ, Lord Roskill (at 703G-704H) also considered that the assignment was objectionable as being champertous at least insofar as it was designed not to enable the defendant to recoup its own losses by enforcing the plaintiff’s claim against the CBN to the maximum amount recoverable but to enable that claim to be sold on in order for the third party to obtain a profit since the “spoils” were in effect being divided between the defendant and the third party who had no genuine commercial interest in the claim in return for a division of the spoils. However, in agreement with Oliver LJ, it did not follow that the agreement as a whole was void under Swiss law.
    1. In JEB Recoveries LLP v Binstock [2015] EWHC 1063 (Ch), the defendant applied to strike out the claimant’s claim to recover an alleged debt due from the defendant under a contract between the defendant and a Mr Peter Wilson. Mr Wilson assigned his claim to the claimant, a limited liability partnership recently established by him and two others. The basis for the defendant’s application was that the assignment was champertous. His Honour Judge Simon Barker QC (sitting as a judge of the High Court) dismissed the application. In the course of his judgment, the judge drew attention to a lecture entitled From Barretry, Maintenance and Champerty to Litigation Funding given by Lord Neuberger on 8 May 2013, of which a transcript was contained in the bundle of authorities provided by the parties here, in which the broad policy rationale for the prohibition on maintenance was identified to be the protection of the integrity of the legal process. The protection of the integrity of the legal process involves equality before the law which is recognised in CPR Part 1.1(2)(a) as an element of the overriding objective.
    2. The court held that although the assignment of a bare cause of action had long been recognised as champertous and that, without more, an assignment of the claim for a nominal sum would be likely to offend the public policy against maintenance and champerty, in the case in point there was more: the rights assigned under the assignment were not confined to a cause of action: they included debts; and the effect or substance of the arrangement was that Mr Wilson would be entitled to one third of the net fruits of the claim if successful. Having regard to the circumstances of the case, the claim, based as it was on the assignment, did not offend the public policy aimed at protecting the integrity of the legal process, including the principle of equality before the law.
    3. I accept that, consistently with Camdex International Ltd v Bank of Zambia and and Sibthorpe, the scope of the rules against maintenance and champerty is not to be extended. The question is whether, under the law as it stands, the assignments contained in the claim purchase agreements fall foul of those rules.
    4. The references in the claim purchase agreements to the defendant as the Debtor and to the charges in question as the Debt are inaccurate: the charges paid to the defendant by the customers which are the subject of the claim purchase agreements are not a debt owed by the defendant to the customer. However, they do consist of a liquidated sum which is the subject of a claim in restitution. In my judgment, under the claim purchase agreements the claimant acquired the right to the sum in question and the assignment of the right to bring a restitutionary claim to recover the sum is incidental and subsidiary to that right properly and is not a bare cause of action. The fact that liability to repay the sum is disputed does not affect its assignability.
    5. There appears to be no English authority directly on point. However, support for the above position is to be found in the High Court of Australia’s decision in Equuscorp Pty Ltd v Haxton [2012] HCA 7 at [53] where French CJ and Crennan and Kiefel JJ said:
A restitutionary claim for money had and received under an unenforceable loan agreement is inescapably linked to the performance of that agreement. If assigned along with contractual rights, albeit their existence is contestable, it is not assigned as a bare cause of action. Neither policy nor logic stands against its assignability in such a case. The assignment of the purported contractual rights for value indicates a legitimate commercial interest on the part of the assignee in acquiring the restitutionary rights should the contract be found to be unenforceable.
    1. The question which then arises is whether, taking all aspects of the claim purchase agreements together, there is wanton and officious meddling by the claimant with the dispute between the defendant and its customers in which the claimant has no interest whatsoever and where the assistance the claimant renders to the customers is without justification or excuse. The assignment by the customer to the claimant will be valid if the claimant has a legitimate and genuine interest in the subject matter and the circumstances are such as reasonably to warrant the assignment of it to him. It is in particular necessary to consider whether the integrity of the legal process is in some way impugned by the assignment.
    2. Taking all these considerations into account, I am not satisfied that there are any or any sufficient public policy grounds which would lead to the conclusion that the assignment is invalid. On the contrary, there are in my judgment strong public policy grounds in favour of upholding the assignment. The following factors are germane:
(1) the individual customers’ claims are too small for it to be cost or time-effective for them to bring claims directly against the defendant; while there certainly are means for such claims to be pursued at relatively low cost, for example online, it may be questioned how many customers would in fact go down that path and the customers should be offered the choice of proceeding along that path, at their risk and expense, or else entering into a claim purchase agreement with the claimant;
(2) it is fallacious of the defendant to suggest that there are adequate alternative means of enabling customers to pursue their claims, for example by third party financing or with “no win no fee” arrangements: assuming in the defendant’s favour that those means are available for the relatively small sums at stake in the present case, it does not follow that other alternative arrangements should be prevented;
(3) there is no evidence to support the defendant’s assertion that the operational and financial burdens on it have been stretched to the limit by having to defend the present Part 8 proceedings which seek to obtain clarification of the issues of principle which arise;
(4) even if the present proceedings have imposed a heavy burden on the defendant, common sense would suggest that its resources to resist claims by the customers’ claims are greater than the individual customers’ resources to pursue very small claims; to that extent, the assignment redresses the inequality of arms which would otherwise exist as between the defendant and the individual customers;
(5) access for customers to justice is therefore enhanced; the courts recognise the need for innovative but responsible ways of increasing access to justice for the impecunious: see the comments of Danckwerts J in Martell v Consett Iron Co Ltd [1955] Ch 363, 386-387;
(6) since the sums in dispute are quantified, there is no risk of damages being inflated or the litigation process being abused in other ways; neither the “purity of justice” nor the “interests of vulnerable litigants” is threatened in the present case; there is no adverse impact on the administration of justice;
(7) the customer has the option under one form of the claim purchase agreement of receiving 60% of the total sum recovered or else under the other form being paid a fixed amount upfront and then not receiving any part of the sum recovered; in both cases, the risk of not effecting a recovery is removed from the customer and rests on the claimant;
(8) I reject the defendant’s submission that the assignment is an attempt to circumvent the regulatory provisions governing the provision of legal services contained in section 13 of the Legal Services Act 2007: the claimant is not seeking to carry on any reserved legal activity but is acting in its capacity as a litigant seeking to enforce its assigned right to recover the charges in question;
(9) I also reject the defendant’s submission that the assignment enables the claimant to “circumvent the rules on costs”: the claimant may be made the subject of adverse costs orders and may be liable to provide security for the defendant’s costs in circumstances where an individual customer would not be;
(10) I further reject the defendant’s submission that the claimant is encouraging frivolous litigation: apart from adverse costs orders, the claimant has little motive for acquiring and then pursuing claims which are frivolous and any such claims would be liable to be struck out in the ordinary way;
(11) the claimant has a legitimate and genuine commercial interest in being able to pursue the claims assigned to it in order to protect the liquidated sums it acquired under the claim purchase agreements.
  1. I reject the defendant’s submission that, in respect of the form of claim purchase agreement under which the claimant agrees to pay the customer the sum recovered from the defendant less 40%, the assignment is not an absolute assignment of the whole of the claim and therefore fails. Under that form of the claim purchase agreement, the full amount of the charges is assigned to the claimant. The effect of clause 6 of that form of the claim purchase agreement is not, as submitted by the defendant, that the customer retains part of the proceeds of the action but that the proceeds of the action are recovered in full by the claimant, which then is liable to pay back the agreed proportion thereof to the customer. This is akin to the position in Binstock, where all the fruits of any litigation or other recovery were assigned to the claimant, in consequence of which Mr Wilson was entitled to a one-third share of any profits.
  2. The defendant placed great reliance on Simpson v Norfolk and Norwich University Hospital NHS Trust [2011] EWCA Civ 1149. In that case, the Court of Appeal held that assignment of a bare right to litigate unsupported by an interest of a kind sufficient to justify the assignee’s pursuit of proceedings for his own benefit savoured of champerty and was void. The proposition just stated is uncontroversial but Simpson is a very different case on the facts from the present case. The cause of action assigned in that case to the claimant was a bare cause of action in tort for personal injury. The assignor had issued proceedings against the defendant for damages alleging that he had developed a serious infection while an in-patient in hospital. The claimant was the widow of another patient who had previously developed the same infection at the same hospital and whose own claim had been settled without admission of liability by the defendant. Moore-Bick LJ, with whom the other members of the court agreed, stated at [24] that it was not in the public interest “to encourage litigation whose principal object is not to obtain a remedy for a legal wrong, but to pursue an object of a different kind altogether“, namely to enable the claimant to pursue a campaign against the hospital. In my judgment, Simpson provides the defendant with no support in the present case.
  3. In the result, I determine that the assignments contained in the claim purchase agreements are not void on the ground that they fall foul of the rules against champerty and maintenance.”