Assignment of claim void for champerty

In the context of litigation funded by third parties the courts have taken an increasingly liberal approach to the principles of champerty and maintenance (the ancient rules against "trafficking" in litigation). However, a recent Court of Appeal judgment illustrates that these principles still have teeth, particularly where claims are assigned: Jennifer Simpson (as assignee of Alan Catchpole) v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149.

The court followed the House of Lords decision in Trendtex Trading Corp v Credit Suisse (1982) AC 679 HL which established that the assignment of a cause of action will be void as against public policy where the assignee does not have a "sufficient interest" to justify pursuit of the proceedings for his own benefit. That principle applies whether, as in Trendtex, the assignee is aiming to profit from the litigation or, as in this case, the assignee wishes to pursue the litigation as part of a personal campaign, however honourably motivated.

Background

The issue arose in the context of a personal injury claim. Briefly, Mrs Simpson's late husband had contracted MRSA while a patient at a hospital operated by the defendant NHS trust. Although the infection had not contributed to his death, Mrs Simpson believed that the hospital had failed to implement proper infection control procedures. Another patient, Mr Catchpole, issued proceedings against the defendant after contracting MRSA in the same hospital. He assigned his claim to Mrs Simpson for consideration of £1 and Mrs Simpson pursued the claim in her own name and for her own benefit.

The defendant applied to strike out the action on the grounds that Mrs Simpson had no legitimate interest in the claim and therefore the assignment was void as contrary to public policy. The Court of Appeal upheld the lower courts' decision to strike out the claim.

Decision

Following Trendtex, the law will not recognise, on the grounds of public policy, the assignment of a bare right to litigate, i.e. where the assignee does not have an interest sufficient to justify pursuit of proceedings for his own benefit. The court recognised that Mrs Simpson had "honourable motives" in pursuing the claim, essentially to highlight the hospital's failings, but this was not the sort of interest the law recognised as sufficient to support an assignment of what would otherwise be a bare right of action. It was not in the public interest to encourage litigation whose principal object was not to obtain a remedy for a legal wrong, but to pursue a different kind of object.

The court commented that if Mrs Simpson's real concern was to enable Mr Catchpole to obtain compensation she could have taken steps to allow him to pursue the case in his own name.

Contrast with third party litigation funding

It seems clear that if Mrs Simpson had merely funded litigation brought in Mr Catchpole's name, rather than taking an assignment of the claim, the defendant would have had no basis for complaint. Even if she had done so in return for a share of the proceeds, it is likely that the courts would have upheld the agreement. The case law in recent years suggests that the English courts are taking a more relaxed attitude to such funding arrangements, and commercial third party funding has been endorsed by reports from the Civil Justice Council and in Lord Justice Jackson's wide-ranging review of civil litigation costs.

On the current state of the law, third parties are allowed to fund litigation in exchange for a share of the proceeds and the agreement will generally be enforceable so long as it does not have other features that render it objectionable as a matter of public policy. One such feature appears to be if the funder exercises excessive "control" over the litigation (see Arkin v Borchard Lines Ltd and others [2005] EWCA Civ 655), although it is not entirely clear what would amount to excessive control such that a funding arrangement would be found to be champertous.

It may be that one reason the courts are less tolerant of the assignment of claims, as opposed to third party funding, is that an assignee will have the conduct of the litigation in place of the original claimant, whereas the claimant retains control in the context of third party funding. (Note however that where a party takes an assignment of claims vested in an insolvent company, there is no difficulty regarding champerty and maintenance. This is due to the statutory power for insolvency practitioners to sell the company property, which includes causes of action.)

Lord Justice Jackson has recommended that third party funders should be regulated, initially by way of a voluntary code of conduct, and that so long as third party funders comply with the relevant system of regulation then their funding agreements should not be overturned on grounds of champerty. A code of conduct is expected to be agreed by the end of this year.