England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand London WC2
		3rd April 1996

 



 


LORD JUSTICE NEILL: The appeal will be dismissed with for the reasons set out in the judgments handed down.

LORD JUSTICE HOBHOUSE:

This is an appeal (brought with the leave of a member of this court) by the Defendant in the action, the Bank of Zambia, from the judgment of Mr Justice Longmore of the 18th September 1995 sitting in the Commercial Court when on an application for summary judgment under RSC Order 14 by the Plaintiffs, Camdex International Ltd, he ordered that judgment be entered for the Plaintiffs in the sum of Kuwaiti Dinars 20,595,557.429 and interest amounting to Kuwaiti Dinars 15,411,866.

The action was commenced by writ dated 26th May 1995. In their Points of Claim the Plaintiffs pleaded that on 18th May 1982 the Central Bank of Kuwait deposited with the Defendant the sum of Kuwaiti Dinars 15,000,000 for a period of a year at an agreed rate of interest. The deposit was renewed in a number of subsequent years with the interest being accumulated. On 19th May 1988 the Central Bank of Kuwait and the Defendant entered into two further agreements which had the effect of rescheduling part of the Defendant's interest liability and extended the deposit of the principal sum and the balance of the interest for a further year. The Defendant paid a sum of 616,098 Kuwaiti Dinars during 1990 but otherwise failed to pay the sums due under the 1988 agreements. Having pleaded the indebtedness of the Defendant to the Central Bank of Kuwait, the Plaintiffs pleaded that the Central Bank of Kuwait by a document in writing dated 27th April 1995 assigned absolutely to the Plaintiffs the debts due under the 1988 agreements and that the Plaintiffs had given written notice of the assignment to the Defendant and that they had accordingly become entitled to the payment of the debt to them.

The 1988 agreements referred to the Central Bank of Kuwait as the 'Depositor' and the Defendant as the 'Obligor'. The main agreement included clauses -

"This Agreement shall be binding upon and enure to the benefit of each party hereto and its successors and assigns."

"The Obligor shall not assign or transfer all or any of its rights, benefits and obligations hereunder, without the written consent of the Depositor."

"Law and Jurisdiction:

(a) This agreement shall be generally construed and interpreted in accordance with the laws of England. The English courts shall have non-exclusive jurisdiction in any dispute arising thereunder.

(b) To the extent that the obligor may in any jurisdiction in which any act or proceeding may at any time be taken for the enforcement of this agreement claim for itself or its assets immunity from suit, judgment, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to itself or its assets any such immunity (whether or not claimed), the obligor hereby irrevocably agrees not to claim and hereby irrevocably waives any such immunity to the full extent permitted by the laws of such jurisdiction. The obligor hereby irrevocably consents generally in respect of any such action or proceedings to the giving of any relief or issue of any process in connection with any such action or proceedings, including without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such action or proceedings."

The other 1988 agreement contained clauses which were obviously intended to be similar. Before Mr Justice Longmore the Defendant disputed that the Central Bank of Kuwait was entitled to assign the debts or the benefit of the agreements. The Judge held that the Central Bank of Kuwait was so entitled and there is no appeal against that part of his decision.

The Defendant does not dispute its indebtedness to the Central Bank of Kuwait or the amount of the debt. It solely disputes the validity and enforceability under English law of the assignment of the debt by the Central Bank of Kuwait to the Plaintiffs. The Defendant makes three submissions:

"(1) It is submitted that the correct test as to whether the assignment of a debt may be champertous is not the 'bona fide dispute' test, but rather whether the assignment was made in circumstances in which (assuming no adequate pre-existing commercial interest) it was known or expected that the underlying debt would have to be sued for: see Laurent v Sale [1963] 1 WLR 829 and Trendtex Trading Corporation v Credit Suisse [1982] AC 679 (per Lord Wilberforce at p.695C). Whether the debt is 'disputed' or not (see Trendtex [1980] 1 QB 629, CA, at p.654G) goes only to whether it is known or expected that the debt will have to be sued for (cf Laurent at p.833).

(2) It is further submitted that it is at the very least arguable that the bona fide dispute test (even if generally applicable) does not exclude champerty in the particular circumstances of the present case. The [Defendant] Bank is a central bank which is unable to pay its debts, which cannot avail itself of any insolvency procedures, which has grouped creditors into classes in an attempt to treat them equitably within the constraints of its limited resources, which has offered the same repayment terms to Camdex as have been offered to its other creditors, and which must meet certain targets and make certain other loan repayments to the international community if it is to receive donor aid upon which the Zambian economy is largely dependent. [references given.] The Bank contends that, on these facts, it is at least arguable that the debt now said to be owed to Camdex is and was known at the date of assignment to be sufficiently disputed for the law of champerty to apply.

(3) Even if the bona fide dispute test is applied, it is submitted that it is in any event satisfied. There is no bad faith involved in the stance adopted by the Bank, as the facts set out above make clear. The Bank genuinely disputes and has consistently disputed the debt in the sense that it has made clear its inability to treat Camdex as an exception to the rules applied by it to other creditors. It has not simply refused to pay what it knows that it must pay out of obstinacy or caprice."

The Defendant does not suggest that the second and third submissions provide it with any defence to the claim whether in the hands of the Plaintiffs or of the Central Bank of Kuwait. Mr Timothy Walker QC who appeared on behalf of the Defendant in this Court expressly adopted a similar concession which had been made before Mr Justice Longmore. (See p.5 of the judgment.) The affidavit evidence filed by the Defendant refers to the fact that it is the central bank for the Republic of Zambia and that it is unable to meet all its outstanding liabilities. Various groups of its creditors have made arrangements with it for the postponement of its debt - "the "Paris Club" creditors being mainly OECD countries; the "rights accumulation programme" under the aegis of the IMF; and so on. The Defendant accepts that the debt the subject matter of the present action does not fall within any of these schemes. In November 1994, it made an offer to the Plaintiffs to reschedule the Kuwaiti deposit debt (writing-off 50% and postponing the remainder for up to 20 years at a "highly concessionary" rate of interest) or to include it in a debt buy-back operation at 11¢ in the $ excluding accumulated interest. These offers were refused. It is not suggested that either the Central Bank of Kuwait or the Plaintiffs were under any obligation to accept any of these offers or to join in any of the other arrangements. It is fair to point out that the indebtedness which is the subject of those other schemes is on a wholly different scale to that which is the subject of the present action.

The second and third submissions are relied upon to support the first. The Defendant says, as is self evident, that this is a debt which cannot be recovered without the assistance of the courts - ie without recourse to litigation. It is clear upon the affidavit evidence that by the time of the actual legal assignment, that is to say, 27 April 1995, it was apparent that the Defendant was unwilling to pay the debt voluntarily and that a legal judgment would have to be obtained before it could be compelled to do so. The Defendant says that, in adopting this stance and in defending this action, it is, as they put it, acting bona fide in the interests of its other creditors.

But the Defendant cannot take the further step and say that the debt is disputed, bona fide or otherwise. The Defendant has no basis for disputing the debt and does not and never has sought to do so. The debt is undisputed. The only dispute raised in the Defendant's affidavits is as to the legality and enforceability of the assignment of the debt to the Plaintiffs. Any questions about the insolvency of the Defendant and any competing claims to its inadequate assets will arise, if at all, at the stage of the execution of the judgment and do not affect the entitlement of the Plaintiffs (or the Central Bank of Kuwait) to a judgment against the Defendant.

The second and third submissions therefore do not add anything to the first submission and it is not necessary to refer to them further.

The decision of Longmore J was given on an application for summary judgment under RSC O.14. Having heard the parties he gave an extempore judgment in favour of the Plaintiffs. He discussed the authorities relied upon by the Defendant and concluded (p.14):

"So it seems that in the law it is an accepted distinction that an undisputed debt may be assigned without any risk of infringing the laws of maintenance and champerty whereas a bona fide disputed debt may perhaps not. It seems to me that that is the true distinction and it is not the case, as Mr Brindle [for the Defendant] submitted, that it is merely sufficient that the assignee should know that it had to be sued for. The situation may be, and it seems to me that it is so in this case, that a debtor just says that he is unable to pay and therefore he will not pay. It does not seem to me that that amounts to a bona fide dispute in relation to the debt and so for that reason it seems to me that I have to reject the arguments of Mr Brindle made under this head."

No valid objection can be taken to the Judge's conclusion and, in my judgment, the only criticism that is to be made of his reasoning is that it adopts a test which it too favourable to the Defendant. However, leave to appeal was given and this appeal has been fully argued by Mr Walker on behalf of the Defendant and he has relied strongly upon the Laurent case and what was said about it by Lord Wilberforce in Trendtex. The fact that such arguments can be advanced indicates that the law is not as clearly understood as one would wish and that a rather fuller answer to the arguments of the Defendant is desirable.

Maintenance and Champerty:

The principle of law upon which the Defendant seeks to rely is that it is illegal to engage in maintenance or champerty. Until the Criminal Law Act 1967 such activities were both criminal and prima facie tortious. The principle of public policy survives. S.14(2) of the Act provides 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 law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal."

A person is guilty of maintenance if he supports litigation in which he has no legitimate interest without just cause or excuse. Champerty is an aggravated form of maintenance and occurs when a person maintaining another's litigation stipulates for a share of the proceeds of the action or suit. Agreements made by solicitors have to be particularly examined to see that they do not offend against these principles.

What is objectionable is trafficking in litigation. The modern approach is not to extend the types of involvement in litigation which are considered objectionable. There is a tendency to recognise less specific interests as justifying the support of the litigation of another. (Cia Colombiana de Seguros v P.S.N. [1965] 1 QB 101; Trendtex [1980] 1 QB at 653, per Lord Denning MR, and [1982] AC at 702 per Lord Roskill.) In Giles v Thompson [1994] 1 AC 142 at 153, Lord Mustill said:

"In practice, they [maintenance and champerty] have maintained a living presence in only two respects. First, as the source of the rule, now in the course of attenuation, which forbids a solicitor from accepting payment for professional services on behalf of a plaintiff calculated as a proportion of the sum recovered from the defendant. Secondly, as a ground for denying recognition to the assignment of a 'bare right of action'."

The Law of Property Act 1925: s.136:

S.136 (Legal Assignment of Things in Action) provides:

"(1) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice-

(a) the legal right to such debt or thing in action;

(b) all legal and other remedies for the same; and

(c) the power to give a good discharge for the same without the concurrence of the assignor;

...."

This provision replaced the equivalent provision in the Judicature Act 1873. The Act of 1873 made assignable in law any debt or other legal chose in action; these had previously only been assignable in equity because the legal right was considered to be "personal" to the creditor and therefore not capable of legal assignment. Equity did not treat the fact that the law categorised the right as personal as a relevant objection to the enforceability of the assignment in equity by the assignee. The effect of the 1873 Act was to require the legal recognition (subject to the stated formalities) of the assignment and enabled the assignee to sue on the assigned debt and obtain legal remedies in respect of it.

The 1873 Act was considered in a number of cases in the Court of Appeal over the following years. In Comfort v Betts [1891] 1 QB 737, the plaintiff sued as assignee of the debts incurred by the defendant to various tradesmen which had been assigned by them to the plaintiff. The assignment included terms that the assignee should proceed to recover the debts by action, or otherwise, and upon recovery thereof pay to the tradesmen respectively, out of the aggregate amount recovered, such proportionate part of such aggregate sum as should represent or comprise the individual debt due to them respectively, or such part thereof as might have been recovered by the assignee. The defendant argued that an assignment by which debts are merely assigned for the purpose of collection and recovery to a person who is not to have any interest in them is not such an assignment as is contemplated by the Act.

The Court of Appeal rejected the defence and upheld a judgment in favour of the plaintiff, the assignee, for the aggregate amount of the debts assigned. Lord Esher MR was somewhat unhappy about the practical consequences of the judgment and the growth of a new business of debt collecting together with the feature that the ability to aggregate debts in this way would remove the claims from the jurisdiction of the county court. However he held that he was

"bound to give effect to the plain words of the Act and to hold that this is a valid assignment of these debts within its terms; and therefore that it passed the legal property in them to the plaintiff". (p.740)

The other members of the court did not feel any doubt. Fry LJ said (p.740):

"I know of no legal or equitable objection to the owner of the legal chose in action converting someone else into the legal owner and himself into equitable owner only of such chose in action."

Lopez LJ said (p.741):

"It is in point of form [an absolute] assignment, and I think that beyond all doubt it passes the legal right to these debts to the assignee."

In Fitzroy v Cave [1905] 2 KB 364, the defendant was indebted to five tradesmen in Ireland in various sums amounting in all to £90 11s 5p in respect of goods sold and delivered by them respectively to him. By a deed these debts were assigned by the tradesmen to the plaintiff. The deed of assignment executed by the tradesmen also provided:

"And the assignee hereby covenants with the assignors and with each of them that in case he shall be able to recover and realise the amount of the said debts from the said Arthur Oriel Singer Cave, he will immediately thereupon pay over to them, the assignors, their executors, administrators, and assigns, the said respective amounts, or so much thereof as he may be able to recover or realise, after payment of all costs necessarily incurred by him."

The evidence was that the plaintiff was motivated by a grievance that he had against the defendant and had taken the assignment with a view to procuring the bankruptcy of the defendant. At the trial, Lawrance J held that the assignment was invalid as savouring of maintenance or as otherwise against public policy. The appeal of the plaintiff to the Court of Appeal was successful. The question was whether Comfort v Betts should be distinguished. The defendant argued:

"It is submitted that to purchase a right of action with such a collateral and indirect motive as actuated the plaintiff in this case savours of maintenance, even if it does not come exactly within the definition of it; and the authorities show that the law will not recognise such a purchase as valid. It is a transaction which brings about litigation, which would never have been initiated by the creditors themselves, and that not by way of a bona fide commercial speculation, but with a sinister and malicious purpose." (p.367)

Collins MR left open the question whether the older decisions on maintenance could still be applied to the assignment of debts; he held himself bound by Comfort v Betts considering that -

"The title of the assignee was absolute and could not be impeached because he had acted maliciously in contemplation of the law in enforcing it: (See Stevenson v Newnham 13 CB 285, Bradford Corporation v Pickles [1895] AC 587)." (p.370)

Cozens-Hardy LJ with whom Mathew LJ agreed was more emphatic about the effect of the 1873 Act. He reviewed the cases which had preceded the Act; he contrasted debts with other choses in action. He gave "a debt presently due and payable" as an example of a chose in action which though not assignable at common law was always regarded as assignable in equity. He referred to Row v Dawson 1 Ves Sen 331 as showing the view taken by the Courts of Equity:

"They admitted the title of an assignee of a debt, regarding it as a piece of property, an asset capable of being dealt with like any other asset, and treating the necessity of an action at law to get it in as a mere incident. They declined to hold such a transaction open to the charge of maintenance." (p.372)

He went on to refer to the many instances in which the assignment of debts had been recognised as effective in equity and how such acceptance was fundamental to a number of recognised classes of transaction, including the assignment of debts to trustees. He continued:

"It has never, so far as I am aware, been suggested that a trustee to whom a debt is assigned is exposed to a charge of maintenance. Mortgages are every day dealt with in this fashion, including an assignment of the debt. From time to time particular classes of obligation have by statute been rendered assignable at law and by the Judicature Act 1873 s.25(6) any debt is made assignable at law by an absolute assignment in writing, of which notice is given to the debtor. Henceforth in all courts, a debt must be regarded as a piece of property capable of legal assignment in the same sense as a bale of goods. And on principle I think it is not possible to deny the right of the owner of any property capable of legal assignment to vest that property in a trustee for himself, and thereby to confer upon such trustee a right of indemnity. It is not easy to see how the doctrine of maintenance can be applied to a case like the present. The decision of this court in Comfort v Betts really proceeds upon this footing, and seems to me to be decisive of the present case. The court is not asked to exercise any discretionary jurisdiction. If the assignment is valid at all, it is valid in all courts, and the plaintiff is entitled to judgment ex debito justitiae. The plaintiff is merely seeking by this action to recover payment of debts admitted to be justly due. ....

I fail to see that we have anything to do with the motives which actuate the plaintiff, who is simply asserting a legal right consequential upon the possession of property which has been validly assigned to him. If the defendant pays, no bankruptcy proceedings will follow. If he does not pay, bankruptcy is a possible result. In my opinion this appeal must be allowed." (pp.373-4)

These decisions of the Court of Appeal are clear. Debts are a species of property recognised before 1873 in equity and since that date both in law and equity. Like other species of property they may be transferred to another and the legal rights which are incidents of that property may be exercised by the new owner of the property. (Indeed, normally, the legal owner will be the only person entitled to exercise those legal rights.) In Ellis v Torrington [1920] 1 KB 399 at 410 Scrutton LJ succinctly summa-rised the position:

"[The courts] treated debts as property, and the necessity of an action at law to reduce the property into possession they regarded merely as an incident which followed on the assignment of the property."

From these authorities which are binding upon this Court and subsequent to which the provisions of the 1873 Act have been re-enacted in the 1925 Act, it is clearly established that debts are assignable in law as well as in equity and the fact that the assignee will have to sue for the debt raises no question of maintenance or other infringement of any principle of public policy. Similarly, it does not raise a question of maintenance or public policy that the terms of the assignment include provision that the assignee may account to the assignor for some or all of the proceeds of litigation to recover the assigned debt. The assignee of a debt is as free as anyone else to choose what he will do with the fruits of any litigation. Similarly, the owner of a debt is entitled to assign that debt to another who may be in a whole range of relationships to him from that of mere trustee through to one who owes no contractual or other obligation to him. The only qualification is that the statutory formalities must have been complied with and the assignment must be an absolute one.

There has to be a debt, otherwise there is nothing to assign. However, the fact that the debt may have to be sued for, or that it is expressly contemplated that the debt will have to be sued for, does not alter the position. Suing for an assigned debt raises no question of maintenance.

In Fitzroy v Cave (at p.374) Cozens-Hardy LJ referred to the fact that in that action "the plaintiff is merely seeking by this action to recover repayment of debts admitted to be justly due". That observation was not part of the reasoning of his decision. However it seems that it must be the source of language used in later cases. In Laurent Megaw J refers to "a bona fide dispute as to the liability". (p.832) In Trendtex in the Court of Appeal at pp.654 and 6, Lord Denning MR refers to the prohibition of the assignment of a "bare right to litigate" and the proposition that a chose in action is not assignable ... either at law or in equity and continues:

"The only exception was where property of some kind or other was assigned, and there was attached, as incidental to it, a right to bring an action: see Dawson v GN and C Railway Co [1905] 1 KB 260, 270-272 and Ellis v Torrington; or an undisputed debt was assigned, because this was regarded as a piece of property: see Fitzroy v Cave. Apart from these exceptions it was unlawful to assign a right of action for a disputed debt or for damages for breach of contract or for tort."

Counsel was not able to refer us to any judicial statement which might account for the use by Lord Denning of the word "undisputed" other than what was said by Cozens-Hardy LJ. I do not consider that, in principle, it is relevant whether or not the debt is disputed by the debtor. If there is a debt it is a species of property and the fact that the debtor disputes it (ex hypothesi, wrongly) does not make it any the less a debt nor does it provide a basis for failing to give effect to s.136 (or its predecessor). I have already cited cases which contemplate the necessity for litigation. These are clearly in accordance with the previous law. In Dickenson v Burrell LR 1 Eq 337 the transferee of certain property was held entitled to sue for an order setting aside an earlier conveyance to the defendant on the ground of the defendant's fraud. In Dawson's case at p.271, the Court of Appeal cited Dickenson v Burrell as authority for the proposition that "an assignment of property is valid even though that property may be incapable of being recovered without litigation".

The question of a disputed debt was considered by McCardie J in County Hotel v LNWR [1918] 2 KB 251. The plaintiffs were the assignees of a lease to which the other party was, by succession, the defendants. The lease included an option which the plaintiffs sought to exercise. The defendants refused to recognise the option or any relevant obligation to the plaintiffs. McCardie J considered whether the defendants' repudiation of the relevant obligation invalidated the assignment. At p.258 he said:

"Debts became assignable in equity, and their assignability at law (together with other choses in action) was finally recognised by [the 1873 Act]. Such being the state of things, it would seem strange indeed to hold that a debt could not be assigned after the debtor had repudiated the debt by refusing to pay. Can a debtor destroy the assignability of a debt by repudiating his obligation of payment? It would be equally strange if a bill of exchange could not be transferred after its dishonour; and I may indeed point out that s.36(5) of the Bills of Exchange Act 1882 expressly assumes that a dishonoured bill may be transferred."

He then referred to Prosser v Edmonds (1 Y & C Ex 497) and other authorities upon the assignability of causes of action in contract and to the law of champerty, including a reference to Dawson's case. At p.261 he held that -

"a defendant cannot destroy the assignability of a right of property, whether it be a contract or other form of property, by committing a breach of contract by repudiation prior to the assignment."

However, having regard to the terms and enforceability of the option as between the original parties, he gave judgment for the defendants and the Court of Appeal and subsequently, as a matter of the construction of the option, the House of Lords upheld the judgment for the defendants. Neither the Court of Appeal nor the House of Lords had to revisit the question of assignability. In Trendtex in the Court of Appeal at pp.673-4, Oliver LJ quoted and approved these passages from the judgment of McCardie J. The County Hotel case is among those cited in paragraph 19-027 of the current edition of Chitty on Contracts for the statement that "it is also well established that a claim to a simple debt is assignable even if the debtor has refused to pay". The editors also point out, in words which echo those of Longmore J in the present case, that "the practice of assigning or selling debts to debt collecting agencies and credit factors could hardly be carried on if the law were otherwise".

The Argument of the Defendant Bank:

It must be observed at the outset that there is no authority which contradicts the right of the Plaintiffs to recover. There was a debt and it was assigned in accordance with the statute. The need for litigation in order to recover the debt was contemplated but the need for such litigation does not make the assignment illegal or unenforceable. As a matter of fact the debt was and is undisputed but as a matter of law this is immaterial provided it can be said that there was a debt to be assigned. The price (Kuwaiti Dinars 4,119,111) paid by the Plaintiffs to purchase the debt was heavily discounted but there is no evidence that this represented anything other than a commercial valuation of the debt. The debtor was and is insolvent and unable to pay its debts in the ordinary course. It has entered into arrangements with a number of its creditors. The value of a debt depends on a number of factors including its maturity date and current interest rates and currency fluctuations but the ultimately most important factor must be the credit-worthiness of the debtor. Here the credit-rating of the debtor, the Defendant, is minimal and the payment of a heavily discounted price for the debt was appropriate. The fact that the debt was purchased on credit terms is likewise beside the point. The price was payable after the period of credit and that period has in fact now expired. If the judgment of Longmore J stands and assets of the Defendant can be found which are amenable to execution, the Plaintiffs may at the end of the day have made a profit on the transaction. But that does not invalidate the assignment of a debt; why else should a commercial entity purchase a debt? (Brownton v Inbucon [1985] 3 AER 499)

However, the Defendant argues that nevertheless the assignment was not as a matter of law enforceable. This is the first submission: I have quoted it earlier. It depends upon Laurent v Sale and Trendtex in the House of Lords. Reliance was also placed on Re Trepca Mines [1963] Ch 199. I will take these cases in date order.

Re Trepca Mines did not involve any question of an assignment. It was a case of a litigant who was financially supported by another in return for a share of the proceeds. The agreement between the litigant and the financier was unquestionably champertous in character and the actual question in the case concerned the duties of the solicitor acting for the litigant. The litigant was asserting a right to prove in the liquidation of the company. It was argued that the law of maintenance and champerty was confined to actions or suits. The Court of Appeal rejected this argument and held that it extended to proving in a liquidation and any contentious proceedings where property was in dispute which became the subject of an agreement to share the proceeds. (See pp.220 and 6.) It is therefore authority for the proposition that it is possible to make a champertous agreement in relation to legal proceedings for the recovery of a debt. It however does not qualify, or purport to qualify, in any way the authorities and principles to which I have referred earlier in this judgment.

Laurent v Sale supports a similar proposition. In that case it was alleged that in 1953 the defendants had agreed to pay certain commissions to two copper brokers. In 1956 each of the brokers purported to assign the sum said to be owing to them to the plaintiff in return for a promise by the plaintiff to pay to the brokers a proportion of the amount "which shall in fact be paid to" the plaintiff by the defendants. It appears that no reference was made to these purported assignments until 1959 when, after a solicitor's letter giving the defendants notice of the assignments, the action was started by the assignee. By their defence the defendants denied the alleged debts and further alleged that the purported assignments were illegal and champertous. On the trial of a preliminary issue it was held by Megaw J that this defence succeeded.

It is clear from p.831 of the report that Megaw J did not found his decision upon any question of what was an assignment of a "bare right" of litigation. The critical issue upon which he decided the case was that raised by the third proposition of the defendants:

"an agreement between a claimant and a stranger whereby the stranger agrees to finance the prosecution of a claim in consideration of a share of the proceeds is champertous".

This proposition of law was accepted (clearly correctly) by Megaw J. Megaw J also accepted the propositions that "the mere fact that there is the transfer of an existing debt and the mere fact that it involves a payment in consideration of the transfer of a part of a debt are not by themselves sufficient to make the transaction champertous". (p.832) He also expressly declined to extend the doctrine of champerty beyond the limits which it already had.

The question for decision therefore became the question of fact whether it should be inferred that the agreements between the plaintiff and the brokers were in reality agreements to finance litigation in consideration of a share of the proceeds. Megaw J, without referring to any authority other than Martell v Consett Iron [1955] Ch 363, which was not an assignment case, held that the 1956 agreements did have that character. At p.833 he found that to take an assignment in 1956, three years after the relevant right was said to have come into existence and to do so without making any investigation as to the reasons why payment had not been made over the course of those three years could only contemplate litigation. He continued:

"When one finds, in addition, that the so called consideration for these assignments is that [the brokers] are going to get one quarter of the total amount that Sale & Co pay, the imagination boggles at the suggestion that this is not an assignment in order that the plaintiff shall conduct litigation at his risk and expense paying for the benefit that he will get if he succeeds, the sum of one quarter of the amount that he recovers. It is obviously beyond any argument that that is exactly what this transaction was. That being so, in my view, both these so-called assignments were champertous agreements. There has been no explanation offered of how it came about that assignments of this sort were made without, as is suggested, the parties realising the claim was going to be resisted. No explanation has been given, or no explanation that can be accepted by the court, in the absence of supporting evidence, as to why if these moneys were likely to be paid by Sale & Co without dispute, nothing whatever was done to ask Sale & Co to pay between the dates of the assignments in 1956 and the date of the letter from [the solicitor] on June 24, 1959."

It is clear that Megaw J treated the 1956 agreements as colour-able. He did not treat them as bona fide assignments. He drew the inference contended for by the defendants and found that they were agreements which had as their object the financing of litigation by a party without interest in return for a share of the proceeds.

As will be apparent from the quotations I have already made and from what Megaw J says at page 832 that he had regard to the fact that the "so called assignments" were made by the brokers with the knowledge and intention, shared by the plaintiff, that legal proceedings would be necessary and that it was known that there was "a bona fide dispute as to liability". He drew the inference that the parties had a champertous intention.

This decision is therefore authority for the propositions that the substance and not the form of any transaction has to be looked at and that, if there is an actual champertous intention, then that illegal or improper intention makes the agreement unenforceable. It is well recognised in English law that an agreement which has an illegal object is likewise illegal and that an agreement to act contrary to public policy is unenforceable.

The subject matter of the Trendtex case was remarkable and unusual. For some years litigation was being carried on between Trendtex and the Central Bank of Nigeria. The claims were substantially claims for damages for breach of contract and that was how Lord Wilberforce described them at p.692. (See also Lord Roskill at p.698.) Credit Suisse as creditors of Trendtex had a legitimate interest in assisting Trendtex to recover from the Central Bank of Nigeria (p.692). The litigation between Trendtex/Credit Suisse and the Central Bank of Nigeria continued with proceedings at first instance and in the Court of Appeal and a proposed appeal to the House of Lords. However at this stage an unidentified third party came on the scene and through an intermediary offered to buy Trendtex's claims against the Central Bank of Nigeria for the sum of US$800,000. Credit Suisse made an agreement dated 4 January 1978 (governed by Swiss law) with Trendtex enabling Credit Suisse to sell its claims. Shortly afterwards the intermediary came to an agreement with the Central Bank of Nigeria whereby the latter paid US$8 million in settlement of the claims. Trendtex saw none of this money; they considered that they had been defrauded and challenged the validity of the agreement. To this end Trendtex started an action against Credit Suisse; this was the action before the House of Lords. Lord Wilberforce held that -

"The vice if any of the [January 1978] agreement lies in the introduction of the third party. It appears from the face of the agreement, not as an obligation but as a contemplated possibility, that the cause of action against CBN might be sold by Credit Suisse to a third party for a sum of US$800,000. This manifestly involved the possibility, and the likelihood, of a profit being made by the third party or possibly also Credit Suisse, out of the cause of action. In my opinion this manifestly "savours of champerty", since it involves trafficking in litigation - a type of transaction which, under English law, is contrary to public policy." (p.694)

The other members of the House agreed with this opinion; they also agreed with the speech of Lord Roskill.

Lord Roskill reviewed the history of the law affecting the assignment of causes of action. He referred to Glegg v Bromley [1912] 3 KB 474; he distinguished the assignment of "bare" causes of action and other assignments. He reaffirmed that "where the assignee has by the assignment acquired a property right and the cause of action was incidental to that right", the assignment is effective, adopting Scrutton LJ in Ellis v Torrington. He summarised the law at p.703:

"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 its 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."

Lord Roskill thus held that the agreement of January 1977 offended "because it was a step towards the sale of a bare cause of action to a third party who had no genuine commercial interest in the claim in return for a division of the spoils". (p.704)

Before us, the Defendant has placed reliance upon what was said by Lord Wilberforce at p.695 in referring to Trepca Mines and Laurent v Sale. He said:

"Two modern cases in which agreements have been held void for champerty are Re Trepca Mines and Laurent v Sale. Re Trepca Mines was concerned with an agreement governed by French law which contained provisions remarkably similar to those of the agreement of 4 January 1978; it involved the participation by a third party, M. Teyssou, in contemplated litigation to the extent of 25% and M. Teyssou was given power to conduct the litigation. The Court of Appeal held this agreement to be champertous.

In Laurent v Sale there was an assignment to Laurent of debts due from a finance house, which it was known would have to be sued for in consideration of the payment by Laurent of a proportion of the amount recovered, the litigation to be conducted by Laurent. It was held that this agreement and the assignment of the debts were champertous and unenforceable. I think that these decisions are sound in law and that the principle of them should be applied in the present case. In my opinion accordingly any such assignment of the English cause of action as was purported to be made by the agreement of January 4, 1978, for the purpose stated was, under English law, void."

Lord Wilberforce thus approved these two decisions. In the context Lord Wilberforce is doing no more than recognising that an agreement can be exposed as having a champertous character whether or not it is dressed up as an assignment, even an assignment of a debt. In my judgment what Lord Wilberforce is saying does not go any further than this nor does the decision in Trendtex itself. What is more, it could not do so without over-ruling the earlier and unquestionably authoritative decisions to which I have referred and to which Lord Roskill and the Court of Appeal in Trendtex had referred without any suggestion of disapproval. In Giles v Thompson, at pp.163-4, Lord Mustill implicitly adopted the distinction drawn by Lord Roskill between assignments of a property right which are in principle valid and assignments of bare causes of action which are in principle invalid unless the assignee can show a sufficient interest in the right assigned. The authorities were also reviewed by Lloyd LJ in Brownton v Inbucon at pp.506-8 arriving at a similar conclusion and stressing the distinction between the assignment of property rights and the assignment of a bare right to litigate.

Thus none of these authorities alters the effect of the statute and the earlier decisions of the Court of Appeal. An assignment of a debt is not invalid even if the necessity for litigation to recover it is contemplated. Provided that there is a bona fide debt, it does not become unassignable merely because the debtor chooses to dispute it. Suing on an assigned debt is not contrary to public policy even if the assignor retains an interest. What is contrary to public policy and ineffective is an agreement which has maintenance or champerty as its object; such a consequence will not be avoided by dressing up a transaction which has that character and intent as an assignment of a debt. But, because the assignment of a debt itself includes no element of maintenance and is sanctioned by statute, any objectionable element alleged to invalidate the assignment has to be proved independently and distinctly in the same way as any other alleged illegality has to be proved in relation to a contract which is on its face valid.

The Defendant has been unable to show any arguable case that the assignment of the debt by the Central Bank of Kuwait to the Plaintiffs was anything other than a bona fide purchase of a debt. The Defendant has referred to the communications between the Plaintiffs and the Defendant before the legal assignment was executed. All that these show is that the legal assignment was almost certainly preceded by some less formal agreement between the Plaintiffs and the creditor and that it was clear that the debt was undisputed but that its actual recovery would be uncertain because of the insolvency of the Defendant. All this is the stuff of wholly unobjectionable debt collection and discloses nothing which is contrary to the policy of English law. Indeed, the policy of English law, and s.136, is that where debtors are in default judgment should be entered against them in favour of the owner of the debt.

Accordingly this appeal should be dismissed.

PETER GIBSON LJ:

The common law rule that treated a debt as a strictly personal obligation and prevented the assignment of a debt without the debtor's assent was never followed in courts of equity which "from the earliest times thought the doctrine too absurd for them to adopt" (Master v Miller (1791) 4 T.R. 320 at p. 340 per Buller J.). Equity treated a debt as property to which the right to sue was merely ancillary. It therefore gave effect to assignments of debts, allowing the assignee to recover in proceedings brought in the assignee's own name. By s.25 Judicature Act 1873, now s.136 Law of Property Act 1925, debts were made assignable at law. If the statutory conditions are satisfied, such an assignment passes to the assignee "all legal and other remedies for the same". It is thus apparent from the wording of the statute that Parliament sanctioned not only the assignment of a debt, an item of property, but also the transfer of the concomitant right to sue for it.

But it is not in dispute that as a matter of public policy assignments of bare rights to litigate are invalid, and, if coupled with an agreement to share the proceeds of the litigation with the assignor, will be struck down as champertous. Stirling L.J. summarised the crucial distinction in a sentence in Dawson v Great Northern and City Railway Co. [1905] 1 KB 260 at p. 271:

"An assignment of a mere right of litigation is bad: Prosser v Edmonds (1835) 1 Y. & C. 481; but an assignment of property is valid, even although that property may be incapable of being recovered without litigation: see Dickinson v Burrell (1865) L.R.1 Eq. 337."

I do not read any of the trio of cases on which the Defendant relied, Re Trepca Mines Ltd. (No.2) [1963] Ch. 199, Laurent v Sale [1963] 1 W.L.R. 829 and Trendtex Trading Corp. v Credit Suisse [1982] A.C. 679, as undermining, still less abrogating, that well recognised distinction. In Laurent v Sale, on the very special facts of that case (which included the clear contemplation of the parties that the assignment was for the purpose of the assignee enforcing "supposed rights" by litigating a bona fide dispute as to liability: see p. 822) Megaw J. felt able to infer a champertous intention. He plainly thought the transaction was colourable. In the present case the debt is not disputed, the particular difficulties of the Defendant in paying all or any of its creditors being irrelevant to the question whether there is a bona fide dispute as to liability. In my judgment Mr. Howard was right to submit that there is no basis in authority or principle for denying the validity of the assignment. It is a normal, and for many in business an essential, incident of modern commercial life that debts are bought and sold, and it would be highly unfortunate if such everyday transactions were to be held to be impugnable as champertous, save in wholly exceptional circumstances not present here.

For these and the reasons given by Hobhouse L.J. and Neill L.J. I too would dismiss this appeal.

NEILL LJ:

I agree that this appeal should be dismissed for the reasons set out in the judgment of Hobhouse L.J. I only add a few words of my own because of the importance of the principles involved.

In the language of section 136 of The Law of Property Act 1925 a debt is a "legal thing in action". More commonly a debt is described as a "legal chose in action" which meant historically a thing recoverable by an action in the old common law courts.

Until the last quarter of the 19th century legal choses in action, save in some exceptional cases, could not be assigned at law. This rule included debts. Such an assignment was looked upon as open to the objection of maintenance: see Fitzroy v. Cave [1905] 2KB 364, 372 per Cozens-Hardy L.J. But the courts of Equity took a different view. They admitted the title of an assignee of a debt and regarded a debt as a piece of property. The necessity to bring an action to recover the debt was regarded as an incident of the property right.

In 1873 the courts of Common Law and the courts of Equity were merged. A new form of statutory assignment was introduced by the Supreme Court of Judicature Act 1873 section 25(6). It then became possible to make an absolute assignment in writing of any debt or legal chose in action. The importance of this change in the law was recognised in a series of cases in the Court of Appeal including Comfort v. Betts [1891] 1 QB 737 and Fitzroy v. Cave (supra). In the latter case at 373 Cozens-Hardy L.J. put the new position clearly:

"Henceforth in all courts a debt must be regarded as a piece of property capable of legal assignment in the same sense as a bale of goods."

The fact that it may be necessary for the assignee to bring an action to recover the debt does not vitiate the assignment on the grounds of maintenance.

In the present case the Bank of Zambia (the bank) sought to rely on three modern authorities - In Re Trepca Mines Ltd (No.2) [1963] Ch. 199; Laurent v. Sale & Co. [1963][ 1 WLR 829 and Trendtex Trading Corporation v. Credit Suisse [1982] AC 679. In my opinion, however, none of these cases throws any doubt on the earlier decisions in the Court of Appeal nor on the summary given by Scrutton L.J. in Ellis v. Torrington [1920] 1 KB 399 who said at 410:

"[The courts] treated debts as property, and the necessity of an action at law to reduce the property into possession they regarded merely as an incident which followed on the assignment of the property."

On the other hand there may be circumstances in which an assignment of a debt will be regarded as champertous. In Laurent v. Sale (supra) Megaw J. concluded that the plaintiff's intention in taking the assignments of certain old debts was so that he could by way of litigation seek to enforce the supposed rights under letters which the defendants had written to the two assignors. The facts in that case were unusual and the decision does not affect the general rule that a debt and any incidental right of action are capable of assignment.

It is also quite clear from the speeches in Trendtex Trading (supra) in the House of Lords, and in particular from the speech of Lord Roskill, that it is only where there is the sale of a bare cause of action or where the intention of the parties can be shown to be champertous that an assignment of a debt will be struck down. Lord Roskill summarised the position at 703:

"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 had a genuine interest in taking the assignment and 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."

I would also draw attention to a passage in the speech of Lord Mustill in Giles v. Thompson [1994] 1 AC 142 where he said at 164B:

"... I believe 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 of whether... there is wanton and officious intermeddling with the disputes of others in where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse."

In the present case Camdex International Ltd. have bought a debt at a discount. It is a bona fide and undisputed debt, though it is true that the bank says it is unable to pay it. The consideration for the assignment has already become payable and may well have been paid. I can see no basis for an argument that the agreement to assign was champertous.

I too would dismiss the appeal.

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Order: Appeal dismissed; stay of execution refused; moneys obtained to be retained in the jurisdiction until disposal of appeal hearing. Draft minute of undertaking to be submitted.