England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		7 December 2009

1. MR JUSTICE SALES: This is an application by the claimant seeking, in substance, to contest the validity of an assignment of costs rights from the second defendant to the first defendant under an instrument of assignment dated 14 August 2009; and, secondly, seeking an order that a sum of £50,000 paid by the claimant into court to fortify a cross undertaking in damages given in respect of a freezing order obtained at an early stage in the litigation should now be released from court back to the claimant, rather than remaining in court pending detailed assessment of costs.
2. The matter comes before me by a reference from Master Price in his order of 10 September 2009 at paragraph 7. Master Price has the conduct of the full taxation of costs between the parties. So far as the figures on costs are concerned, it is not possible for me on this short application to resolve disputed figures between the parties. Suffice it to say that Mr Stacey for the claimant has not taken me to any material which would lead me to suppose that I could at this early stage, in advance of the detailed assessment of costs, determine that the cost figures indicated by Mr D'Costa for the first defendant and second defendant are wrong such as to provide a foundation for the making of the orders sought.
3. The background to the case is a dispute as to some jewellery. The claimant maintains he had given some jewels into the possession of the first defendant and that the first defendant had converted them. The first defendant maintains a counterclaim for some £40,000 in total in respect of various payments made by, or made on behalf of, the first defendant for the benefit of the claimant. In addition, the claimant maintained separate claims against the second defendant, contending that the second defendant had accepted responsibility for the jewels and various other matters.
4. There was a trial of these claims before Blackburne J, culminating in an order of 28 November 2008. Blackburne J ordered that there be judgment for the claimant on his claim against the first defendant in the sum of £125,000 (that being the value of the jewellery in question, as found by Blackburne J) and ordered that there be judgment for the first defendant on his counterclaim against the claimant in the sum of £20,000 (that being about half the sum claimed by the first defendant). All other claims and counterclaims between the claimant and the first and third defendants were to be dismissed. The claimant's claim against the second defendant was dismissed.
5. In the order at paragraph 4 Blackburne J ordered the first defendant to pay 20 per cent of the claimant's costs of the claims and counterclaims as between the claimant and the first defendant and third defendant (a company associated with the first defendant), such costs to exclude any of the claimant's costs of his claim against the second defendant. The sums claimed by the claimant in his claim by reference to the alleged value of the jewels had been very much greater than £125,000 and that, I infer, was part of the reason why the first defendant was ordered to pay a relatively small proportion of the claimant's costs overall.
6. The claimant was ordered to pay the second defendant's costs of these proceedings on an indemnity basis. At paragraph 8 of the order Blackburne J was ordered that the claimant should make an interim payment of £150,000 to the second defendant on account of the second defendant's costs.
7. At paragraph 13 of the order the judge ordered that the cross undertaking given by the claimant to the first defendant in respect of the freezing orders obtained by him early in the proceedings should remain in place and that the £50,000 paid into court by the claimant to fortify that cross undertaking should remain in court. At paragraph 14 he ordered that the claimant pay the first defendant's costs of and occasioned by the obtaining and maintenance of the freezing orders against the first defendant, to be assessed on the standard basis if not agreed.
8. The judge also gave permission to the parties to appeal his order. There was an appeal. Both the appeal and the cross appeal were dismissed. The Court of Appeal made a costs order at paragraph 3 of its order in these terms:

"The Appellant [the first defendant] do pay to the Respondent [the claimant] his costs of the appeal and the Respondent to pay to the Appellant his costs of the cross-appeal, in each case such costs to be subject to a detailed assessment."

At paragraph 4 it ordered:

"In the assessment of such costs, the costs of the appeal and of the cross-appeal are to be regarded as respectively 75 per cent and 25 per cent of the total costs of the appeal and cross-appeal."

The Court of Appeal also ordered the appellant/first defendant to pay to the respondent/claimant, £14,000 on account of his net entitlement to costs in the Court of Appeal.

9. In the light of these rather complicated costs orders, each side has put in claims for costs, or has intimated claims for costs, and the taxation of those claims, as I have said, is before Master Price. The first of the particular matters which are before me are to determine is whether an assignment by the second defendant to the first defendant of the second defendant's costs rights against the claimant is a valid assignment. That will be a matter that is relevant to the determination of the overall costs liabilities between the parties.
10. Mr Stacey, for the claimant, submits that the assignment by the second defendant to the first defendant of his costs rights against the claimant is unlawful as being a champertous arrangement. The assignment was made in an instrument dated 14 August 2009. It was made between the second defendant as assignor and the first defendant as transferee. It referred to the order of Blackburne J under which it was adjudged and ordered that the judgment debtor (the claimant) should pay the assignor's costs, to be assessed on an indemnity basis if not agreed, and that the claimant should pay the assignor the sum of £150,000 on account of such costs. It recited that no part of the costs had been paid by the claimant and that the first defendant had agreed to pay the second defendant the sum of £1 on having an assignment of the order for costs included in Blackburne J's order and of the order that the judgment debtor pay the sum of £150,000 on account thereof. In its operative part, the document, which was executed as a deed, stated:

"In consideration of the sum of £1 paid by the Transferee [i.e. the first defendant] to the Assignor [i.e. the second defendant] (the receipt of which the Assignor acknowledges) the Assignor with full title guarantee assigns to the Transferee all the benefit and advantage of the Judgment and Orders together with the Order for costs, including the Order that the Judgment Debtor pay the said sum of £150,000 on account thereof, and interest on them and all other money recoverable under the Judgment and Orders to hold the same to the Transferee absolutely."

11. So far as the validity of that assignment is concerned, I conclude that it is a valid assignment. The point is made by Mr Stacey that the sum due finally from the claimant to the second defendant by way of payment of indemnity costs remains to be determined. He submits this is a feature of the case which indicates that the assignment is an unlawful assignment as being champertous.
12. I do not accept that submission, nor do I accept his submissions concerning the illegitimacy of the first defendant seeking to interpose himself in relation to arguments which arise as between the claimant and the second defendant.
13. The position in respect of assignment of debts under section 136 of the Law of Property Act 1925 was reviewed authoritatively by the Court of Appeal in Camdex International Limited v Bank of Zambia [1998] QB 22, in which earlier authorities were reviewed. Hobhouse LJ gave the lead judgment. At page 39 he said that none of the authorities he had reviewed:

"... 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 that 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."

14. Peter Gibson LJ agreed with Hobhouse LJ and added this at page 40B to F:

"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 LJ summarised the crucial distinction in a sentence in Dawson v Great Northern and City Railway Co [1905] 1 KB 260, 271: 'An assignment of a mere right of litigation is bad: Prosser v Edmonds [1835] 1 Y&C Ex 481; but an assignment of property is valid, even although that property may be incapable of being recovered without litigation: see Dickinson v Burrell LR 1 Eq 337.' I do not read any of the trio of cases on which the defendant relied, 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, as undermining, still less abrogating, that well recognised distinction. In Laurent v Sale & Co, on the very special facts of that case, which include the clear contemplation of the parties that the assignment was for the purpose of the assignee in enforcing 'supposed rights' by litigating a bona fide dispute as to liability, 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 and champertous, save in wholly exceptional circumstances not present here."

15. Neill LJ also agreed with the judgment of Hobhouse LJ. At page 41B to C he said in reviewing the history of section 136 of the Law of Property Act 1925:

"In 1873 the courts of common law and the courts of equity were merged. A new form of statutory assignment was introduced by section 25(6) of the Supreme Court of Judicature Act 1873. 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 [1905] 2 KB 364. In the latter case Cozens-Hardy LJ put the new position clearly, at page 373: '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 their debt does not vitiate the assignment on the grounds of maintenance."

16. All three members of the Court of Appeal concluded that the transaction in the case of Camdex, where the plaintiff had bought a debt at a discount and was seeking to enforce it, was not champertous.
17. Neill LJ, at page 41E to F, also referred to the decision in Laurent v Sale. In that case, he said:

"Megaw J concluded the plaintiff's intention in taking 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."

18. In the present case, I particularly emphasised the references to Laurent v Sale since Mr Stacey sought to rely upon that case in his submissions. In my view, essentially for the same reasons as the case was distinguished in Camdex, it is distinguishable here.
19. The position so far as the right to costs of the second defendant is concerned is that the court had made an order for costs in the second defendant's favour, had imposed a specific payment obligation in the sum of £150,000 as against the claimant in the second defendant's favour in respect of that general order to pay costs and, so far as the balance of the costs order was concerned, there was the well known mechanism of taxation in the court in order to render the claimant's debt to the second defendant a quantified amount at the end of the day.
20. In my judgment, the nature of the obligation owed by the claimant to the second defendant was a debt amounting to a piece of property (in the words of Cozens-Hardy LJ in Fitzroy v Cave) capable of legal assignment. There was nothing in the transaction of assignment that involved any champerty in my view. In particular, there was a clear established legal obligation on the part of the claimant to pay the second defendant, and there was no agreement that any proceeds of any further litigation in respect of that obligation would be shared as between assignor and assignee.
21. Although Mr Stacey referred to the limited consideration given to the assignment as a matter of suspicion, on the present application where there has been no live evidence or material on which it would be right to go behind the assignment, I do not feel able to draw any inference at all such as was drawn in Laurent v Sale on very different facts to the effect that there was there a champertous agreement. On the relevant distinction, as explained by Peter Gibson LJ in Camdex at page 40, this was not a case of an assignment of a mere right of litigation; it was a case of assignment of property, even though part of the property might be incapable of being recovered without litigation.
22. In my judgment, the present case also falls clearly within the stated principle by Hobhouse LJ at page 39, where he said that an assignment of a debt is not invalid even if by necessity litigation to recover it is contemplated. In reaching my conclusion, I have also had regard to the commentary in Chitty on Contracts, volume 1, 30th edition, page 1330, where, dealing with the reference to debt or other legal thing in action in section 136, it says:

"The phrase has been held to include the benefit of a contract for the sale of a reversionary interest, and rights to claim indefinite sums of money, as for compensation under statute for the injurious affecting of land by a railway, or for damages for loss in respect of which the assignee was the assignor's insurer [and cases are cited]."

23. It seems to me that the mere fact the costs obligation of the claimant had not been finally quantified, but was liable to quantification in the taxing process, falls directly within that indication of principle. There was an established right to be paid a sum of money even if it was, at the time of the assignment, to some extent an indefinite sum of money awaiting quantification by the court.
24. I also have in mind the principles set out by the Court of Appeal in Fitzroy v Cave [1905] 2 KB 364, one of the authorities referred to by the Court of Appeal in Camdex as being of continued validity. The head note says this:

"The plaintiff had taken from the defendant's creditors an absolute assignment of their debts in consideration of a covenant by him that if the plaintiff should recover the amount of the debts from the defendant, he would pay over to the creditors their respective debts or so much thereof as he might be able to realize after payment of the costs necessarily incurred by him. The assignment was given to the defendant, and it appeared that the plaintiff and the defendant were co-directors of a company, and the plaintiff being dissatisfied with the conduct of the defendant as director admitted that he took the assignment with a view to procure an adjudication of bankruptcy against the defendant, and thus to ensure his removal from the directorate of the company. It was held by a majority that the assignment of the debts was not invalid as savouring of maintenance or being otherwise against public policy."

(Quote unchecked)

25. The Court of Appeal affirmed in that case that the fact the assignee may have had a particular motive in wanting to have the assignment to obtain a judgment which might serve as the foundation of bankruptcy proceedings, the ultimate result of which might be the removal of the defendant from his position as a director of the company, was not a relevant matter. The motives which actuated the assignee plaintiff, who was according to the law simply asserting a legal right consequential on the ownership of property which had been validly assigned to him, were not relevant (see page 374 per Cozens-Hardy LJ).
26. It seems to me that there is nothing in the background of the current case which leads to any different conclusion in respect of the efforts by the first defendant now to rely upon the rights of the second defendant. The fear of the first defendant (and, indeed, the second defendant) is that any costs obligations that they might have may have to be met without the claimant, who appears to be outside the jurisdiction, meeting costs obligations of his own. It seems to me there is nothing in the background to this case that gives rise to any inference that a champertous arrangement is being relied upon, or that anything other than strict reliance on legal rights is being sought by the defendants in this case.
27. Having resolved that issue in favour of the first defendant, the next question for me is whether the £50,000 paid into court to fortify the claimant's cross undertaking in damages on the freezing order obtained against the first defendant should now be released. In my view, the answer to that is that it should not. Blackburne J refused to release the £50,000 when the matter was before him and I see no reason to go behind that judgment. I could see that there might be a basis on which the £50,000 might be released if it were clear to the court at this juncture that the first defendant would have costs liabilities to the claimant over and above £50,000. It might then be said that the first defendant would have the substantive protection in respect of the cross undertaking in damages on the freezing injunction of being able to set off any damages claim it might have under that cross undertaking against its own costs liability to the claimant. However, in light of the ruling that I have just given in respect of the assignment, the figures do not allow that analysis.
28. On the first defendant's case, as set out in particular in the first witness statement of Mr D'Costa, the figures are as follows: it is accepted that taking into account the judgment sum ordered by the court, interest, and the interim payment ordered in the Court of Appeal, the claimant's total entitlement against the first defendant in respect of costs and liability for damages is £243,516.97.
29. Against that the first defendant indicates that on its case it will have the benefit of the assignment of the right to indemnity costs in favour of the second defendant amounting to £235,955. In addition, it says that sums are due from the claimant to the first defendant totalling approximately another £100,000 (see paragraphs 6 to 11 of Mr D'Costa's witness statement). On these figures there is not a surplus of £50,000 clearly due from the first defendant to the claimant.
30. I have already indicated I am not satisfied that it is right on this application to seek to tax the various costs liabilities in detail and I am not satisfied that any part of the costs claims set out by Mr D'Costa can be said to be clearly wrong on the basis of the material before me. Accordingly, on these figures there is no surplus of costs or money liabilities due from the first defendant to the claimant and therefore no proper basis on which the £50,000 in court should be paid out.
31. As a final footnote to this judgment I should record that it seems to me that the two hour estimate given by the parties for this case, to include both reading by the court and judgment by the court, was woefully inadequate, with the result that (the case being listed in the general interim applications list) the parties have had to present argument on these issues in a much truncated timeframe, which was not desirable. However, having said that, I am satisfied that on the material and argument I have heard the orders I have made are correct.