In a rare decision on the law of champerty, the High Court has recently handed down judgment in Tactus Holdings Limited (in admin) v Philip Mark Jordan, considering whether an attempt to assign a claim for breach of warranties by the contractual party to another party is contrary to public policy.
The facts
Tactus Holdings Limited (“Tactus”) commenced proceedings for breach of warranty under a Share Purchase Agreement (SPA) against the sellers, under the SPA in March 2023, claiming approximately £18 million. The sellers (the “Defendants”) counterclaimed for moneys due under the SPA, claiming approximately £4.3 million.
Approximately a year later, the directors of Tactus incorporated Chillblast Limited (“Chillblast”).
A month after that, Tactus (at the behest of its administrators), ChillBlast, and Santander entered into a Deed of Assignment by which Santander assigned all of its rights in Tactus’s revolving credit facility to Chillblast (the “Santander Assignment”).
Finally, two months later, Tactus and Chillblast entered into a Deed of Assignment (the “Tactus Assignment”) assigning Tactus’s rights, title, and interest under the SPA to Chillblast.
10 days later, on 23 May 2024, Tactus was placed into administration.
Tactus and Chillblast applied for an order substituting Chillblast for Tactus in the proceedings. The Defendants objected to the application on the grounds that:
the Assignment was ineffective because the SPA prohibited such assignment; and
the Assignment was void as it was champertous and contrary to public policy.
‘Champerty’
Champerty originates from medieval England and was introduced to prevent ‘strangers’ meddling in litigation with a view to making a profit. Champerty was a criminal and civil wrong until the Criminal Law Act 1967. However, the law still does not allow a “bare right to litigate” to be transferred to uninterested persons. The core reason behind this is to prohibit claims being maintained by parties with no genuine or legitimate interest, essentially being a “stranger” to it.
In determining whether an assignment is champertous, the courts will consider whether the intervention is harmful to the administration of justice, or the interest of the parties directly affected, particularly the defendants.
The judgment
On the Defendant’s first ground, the court agreed that the Assignment was not effective as the SPA prohibited such assignment. On the Defendant’s second ground, the court also agreed and found that irrespective of the ineffectiveness of the Assignment, the claim could not be passed to Chillblast because it contravened public policy and was champertous.
The judge highlighted the need to question whether assignment of the claim might tempt Chillblast, to its personal gain, ‘to inflame the damages, suppress evidence, suborn witnesses or otherwise undermine the ends of justice’. In addition, the judge considered all the surrounding circumstances of the claim and whether the assignment would amount to the corruption of public justice.
Chillblast argued that the assignment was not champertous as, amongst other factors:
the doctrine had been liberalised over the last century, and should not be used as ‘an instrument of oppression’;
by reason of the Santander Assignment, Chillblast was a secured lender of Tactus, meaning that it had a legitimate interest in the claim;
Chillblast had agreed to share the proceeds of the litigation with Tactus in a manner acceptable to the appointed administrators of Tactus; and
the adminstrators had raised no objection to the application.
The Defendants argued that Chillblast was a third party with no independent interest in the claim who stood to make a significant profit from the litigation, leaving the other creditors with little recovery. Moreover, the Defendants noted there was a substantial counterclaim against Tactus.
As discussed, the court found in favour of the Defendants. Some key findings from the judgment are:
as Chillblast had no property right in Tactus, there had to be a legitimate commercial interest in the claim for the assignment not to be champertous;
that interest must exist independently of the assignment, an obvious interest in the claim was not sufficient;
Chillblast had no prior involvement in the SPA or its performance; and
the assignment was for the benefit of Chillblast alone, with no other creditor set to benefit, meaning the interests of the other creditors might be prejudiced.
Summary
This case demonstrates that, despite the liberalisation of champerty that litigation funding has undoubtedly caused, the courts remain prepared to strike down champertous arrangements. Outside the safe harbours of litigation funding and assignments by insolvency practitioners, the courts will continue scrutinising any attempts to assign causes of action with healthy scepticism.
If you have any questions about this, please get in touch with Ben Pilbrow, Megan McNicoll, or your usual Shepherd and Wedderburn contact.
This article was co-authored by Trainee Megan McNicoll.