England and Wales High Court (Technology and Construction Court) Decisions

The High Court of Justice
Technology and Construction Court

		Case number: 1998 TCC No 548
		Date Judgment Handed Down to the Parties: 23 February 1999

This preliminary issue was concerned with the question as to whether a cause of action in tort made by a company against architects, being one commonly referred to as a Hedley Byrne claim, was capable of being assigned to a third party by the liquidator of the assignor. The issue involved a construction of section 165(3) of the Insolvency Act 1986 and the words "things in action" contained in the definition of "property" in section 436 that Act. It also involved a consideration of the extent to which the doctrines of maintenance and champerty are applicable to preclude the liquidator from assigning such a cause of action. The decision was that the relevant cause of action fell within the definition of "property" and that the assignment by the liquidator was authorised by section 165(3) of, and paragraph 6 of Part III of Schedule 4 to, the Insolvency Act 1986.

1. Introduction

1. This judgment follows the trial of a preliminary issue in this action pursuant to Order 33, rule 3. The issue was ordered to be tried by Judge Hicks Q.C. by an order dated 5 February 1999 and is concerned with the question of whether the assignment by the liquidator of the assignor to the plaintiff of the cause of action with which this action is concerned is authorised by sections 165 and 166 of, and paragraph 6 of Part III of Schedule 4 to, the Insolvency Act 1986. If the assignment is not so authorised, the plaintiff has no power or entitlement to maintain the action which would then have to be stayed or dismissed without further ado.
2. I take the facts from the pleadings which are assumed to be true for the purposes of this preliminary issue. The action arises out of Turner Page Music Ltd's ("TPM") proposed acquisition and development of the BBC Television Theatre at Shepherd's Bush, London in 1993. TPM retained a firm of architects and project managers called Torres Design Associates Limited ("TDA") to provide professional services in connection with that development. A funder of the development, the Bank of Ireland, was concerned with TDA's level of professional indemnity insurance cover and sought an appropriate assurance that it was sufficient. The defendant, as TDA's insurance brokers, was therefore asked by the Bank to confirm TDA's level of professional indemnity cover. The request was made by reference to the level of cover that was in force in the current year of cover, namely the 1993 cover. The Bank asked the defendant whether the cover had been renewed and whether the limit of indemnity was £500,000, the limit previously in force. TPM alleges that the defendant negligently replied that such cover had been renewed. In fact, the cover that had been provided for 1994 was subject to an endorsement to the effect that the cover of £500,000 was to include the legal costs incurred by TDA in defending legal proceedings arising out of any claim covered by the policy. This endorsement had the effect of significantly reducing any recoverability by TPM for any successful claim made by it against TDA and any judgment obtained by it against TDA. TPM also alleges that the defendant was aware that its assurance would be drawn to the attention of TPM by the Bank and that TPM would rely on that assurance.
3. TPM's claim against the defendant is based on the allegation that the defendant's assurance to the Bank came to its notice and that TPM relied upon that assurance. The alleged result was that TPM has suffered loss. The loss arises as a result of TPM having made a claim against TDA for loss arising out of TDA's negligent performance of its engagement. TDA obtained a substantial judgment and a costs order in its favour which were only partially satisfied. TPM's insurance recovery was subject to TDA's costs being deducted from the sum payable under the policy. Had the cover not been subject to the 1994 endorsement, it is alleged that the shortfall in recovery by TPM from TDA would have been much less than it was. Equally, had the defendant given accurate advice as to the level of cover, TPM alleges that it would not have engaged TDA and it would not have incurred any loss by way of a shortfall in recovery. The size of the claim is approximately £220,000, quantified by reference to the total shortfall between the judgment sum and recoverable costs on the one hand and the recovery from TDA on the other. It is this shortfall that TPM sought to recover from the defendant by relying on the type of claim usually referred to as a Hedley Byrne claim since it is alleged that the defendant was negligent in giving its original advice to the Bank.
4. In September 1988, TPM was placed into creditors voluntary liquidation and, on 20 November 1998, the liquidator entered into an agreement with the plaintiff which the plaintiff alleges constitutes a valid and effective assignment of the Hedley Byrne cause of action that TPM has against the defendant. Pursuant to that assignment, these proceedings were started by the plaintiff by a writ issued on 20 November 1998. The relevant terms of this assignment, in summary, are that it recites that the assignee (the plaintiff) is a company owned by the shareholders of TPM and that the liquidator has agreed with the assignee for the assignment to it of such claims and legal rights of action as are mentioned in the agreement, namely the claim or claims against MPW (the defendant). The consideration for the assignment is stated to be £750, the receipt of which is acknowledged by the agreement. Any recovery from the defendant are to be shared as follows: the first tranche of recovery of £25,000 is to be retained by the plaintiff, the next tranche is to be spent on the reasonable legal costs incurred by the plaintiff and the balance of any recovery is to be split between the plaintiff and the liquidator in the proportion 90:10.
5. The assignment has been executed by the parties as a deed. Thus, as an agreement under seal, it did not, in fact, need to be supported by consideration.

2. The Statutory Provisions

6. The relevant provisions of the Insolvency Act 1986 are as follows:

(1) Section 165(3) provides that:

"The liquidator may, without sanction, exercise either of the powers specified in Part II of ... Schedule [4] (institution and defence of proceedings; carrying on the business of the company) and any of the general powers specified in Part III of that Schedule."

(2) Paragraph 4 of Part II of Schedule 4 provides that:

"[The liquidator shall have the] Power to bring or defend any action or other legal proceedings in the name of and on behalf of the company."

(3) Paragraph 6 of Part III of Schedule 4 provides that:

"[The liquidator shall have the] Power to sell any of the company's property by public auction or private contract with power to transfer the whole of it to any person or to sell the same in parcels."

(4) Section 436, the section described as that dealing with "Expressions used generally", provides that:

"'property' includes money, goods, things in action, land and every description of property wherever situated ..."

7. The preliminary issue involves the meaning and ambit of the phrase "things in action". Since many of the relevant authorities concerned with this phase in an insolvency context are concerned with the powers of a trustee in bankruptcy to sell a bankrupt's causes of action, it is worth referring to a trustee's powers to sell causes of action. These are also found in the Insolvency Act 1986 and they mirror the analogous powers given to liquidators as well as those contained in earlier bankruptcy legislation, namely the Bankruptcy Acts 1869, 1883 and 1914. These powers may be summarised as follows: the property of the bankrupt vests in the trustee; "property" is defined in identical terms to the definition of "property" applicable to a liquidator's powers; and the trustee has the power to sell such property with identical powers of sale to those granted to a liquidator.

3. The Issues

8. It can be seen, therefore, that if the cause of action that is embraced by the expression "claim or claims against MPW" in the assignment is properly described as "things in action", it must follow that the assignment that occurred here is sanctioned and authorised by the Insolvency Act 1986 since that assignment is a sale within the meaning of section 165(3) of the Act. This was conceded by both counsel appearing at the hearing of the preliminary issue, Mr Raeside for the defendant and Mr Matthias for the plaintiff.
9. It was also contended by Mr Matthias that TPM's claim against TDA was property which the liquidator had the power to sell since it is "things in action". In making this submission, he relied on a series of modern authorities which included Ramsey v Hartley [1977] 1 W.L.R. 686, C.A.; Bang & Olufsen U.K. Ltd. v Ton Systeme Ltd (unreported) 16 July 1993; Court of Appeal (Civil Division) Transcript No. 834 of 1993; Grovewood Holdings PLC v James Capel & Co Ltd. [1995] Ch 80, a decision of Lightman J.; Circuit Systems Ltd. v Zuken-Redac Ltd. [1997] 1 W.L.R. 721, C.A. and, in the House of Lords reported as Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd. and others [1998] 1 All ER 218, H.L.; and Investors Compensation Scheme Ltd. v West Bromwich Building Society [1998] 1 WLR 896, H.L.
10. Mr Raeside accepted that, if the relevant cause of action assigned to the plaintiff was "property" and "things in action", the assignment was one authorised by the Insolvency Act 1986. However, he contended that the relevant cause of action, being one exclusively grounded in the tort of negligence, was not capable of being assigned by anyone and was not, in consequence, "things in action". This argument, he contended, had never been addressed by the authorities relied on by Mr Matthias nor by the earlier authorities on which these modern authorities relied. Mr Raeside concluded that I should hold that the assignment is void and unenforceable as being champertous.
11. In determining the preliminary issue, therefore, the following questions must be answered: (1) what are "things in action"; (2) what causes of action are capable of being "things in action"; (3) are tortious causes of action excluded from the definition of "things in action"; (4) is the assignment of the cause of action in this case champertous and, in consequence, incapable of being brought within the statutory authorisation of a sale of property by a liquidator; and (5) are these questions already answered by previous authority which I am required to follows?

4. Summary of the Relevant Law

12. It is necessary to summarise the development of the relevant law before it is possible to consider the answers to the questions posed by the preliminary issue. This is because the law is complex and the issue involves a consideration of two legal principles of long-standing. The first principle is that property rights should be freely transferable and marketable with the corollary that the law should provide parties with such assistance as is reasonably possible to assist them in achieving this purpose. The second principle is that it is contrary to public policy to allow a free market in claims and causes of action since it was traditionally thought that such a market would encourage the stirring up of strife and the pursuit of malicious suits. This principle has been addressed by the doctrine that assignments and agreements savouring of maintenance or champerty are usually to be treated as both illegal and void. These principles clash in the case of insolvent parties since many insolvent companies and individuals have unsatisfied causes of action which could realise significant sums if litigated but which cannot be litigated by the insolvent party or its liquidator or trustee because of a lack of the necessary resources needed to fund the litigation. In many cases, however, the causes of action could be pursued by others and the resulting recovery could be used to provide significant redress to the insolvent's creditors. However, in many cases, this could only be achieved by the liquidator or trustee assigning the causes of action to third parties, which would be an assignment potentially tainted with maintenance or champerty.
13. Legislation concerned with the affairs of insolvent companies and individuals has, for at least one hundred years, answered this difficulty by creating an exception to the principle that maintenance and champerty should be discouraged. This approach of the law has been helpfully summarised by Lord Hoffmann, drawing on earlier dicta, in this way in the Norglen case:

"The law is traditionally hostile to the assignment of causes of action in return for a share of the proceeds. Such transactions were described as champerty (division of the field) and regarded as illegal and unenforceable. It is unnecessary to examine the reasons: judges said that it would encourage malicious suits, but treating such arrangements as criminal was also, before the introduction of legal aid, an effective way of preventing poor people from obtaining legal redress. The position of liquidators and trustees in bankruptcy is however quite different. The courts have recognised that they often have no assets with which to fund litigation and that in such case the only practical way in which they can turn a cause of action into money is to sell it, either for a fixed sum or a share of the proceeds, to someone who is willing to take proceedings in his own name. In this respect they are of course no different from many other people. But because trustees and liquidators act on behalf of creditors, the courts have for the past century construed their statutory powers as placing them in a privileged position." (ibid., page 224)

14. The way in which the courts have provided liquidators and trustees with the privilege position referred to by Lord Hoffmann has been to vest in them, or give them control of, all the property of the insolvent, to define "property" so as to include all "things in action" and to extend the scope of "things in action" to cover all or most causes of action or "bare rights to litigate" even though these were not traditionally regarded as being "things in action". Liquidators and trustees were then given the statutory power to sell all "things in action".
15. The concept of "things in action", traditionally, was only considered to cover intangible property rights which could only be enforced by legal action or process. The concept is very ancient and this explains its earlier name of "chose in action" which is derived from the Norman French. That early definition of "chose in action" was referred to in the speech of Lord Blackburn in Colonial Bank v Whinney (1886) 11 App. Cas. 426 at page 439, a case which held that shares in an incorporated company, which were only capable of being transferred by deed, were "choses in action". He stated:

"The principal argument used by counsel for the respondent ... was that "choses in action", of which things in action is a translation, had a technical sense in our old law limited to the right to sue for debt or damages."

16. However, Lord Blackburn rejected that narrow definition of "things in action". He held that the concept of "things in action" extended to any personal chattels which were not in possession. This, and other nineteenth century cases, led Channell J., in 1902, to define "chose in action" as follows:

"'chose in action' is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession. ... 'debt or other legal chose in action' mean 'debt or right' which the common law looks on as not assignable by reason of its being a chose in action, but which a Court of Equity deals with as being assignable" (see Torkington v Magee [1902] 2 KB 427 at 430-431).¹

17. In the early nineteenth century, a lawyer would have stated that a bare right to litigate was not a chose in action since it could not be assigned. Reliance would have been placed on such authorities as Prosser v Edmonds (1835) 1 Y. & C. Ex. 481. This held that the assignment of an action was tainted by maintenance and champerty and was not maintainable even though the relevant cause of action was framed in fraud and alleged the fraudulent disposal of an inheritance. However, modern thinking would conclude that such a cause of action, although a bare right to litigate, was undoubtedly part of the assignor's property, given that "property" now has a much wider meaning.
18. However, even in the early nineteenth century, the law was beginning to relax its strict prohibition in the "trafficking" of law suits. This can be seen in the case of Williams v Protheroe (1829) 5 Bing. 309. This case confirmed that the purchaser of an estate could maintain an action for arrears of rent and dilapidations based on causes of action which had arisen prior to the sale. This was one of a number of cases which allowed assignments which were apparently tainted with maintenance or champerty on the grounds that the assignee had a legitimate interest in obtaining and pursuing the relevant rights to litigate. One such interest was the need to pursue an action which was closely allied to a recognised property interest.
19. Dawson v Great Northern and City Railway Company [1905] 1 KB 260 significantly developed this relaxation of the earlier law. The case concerned the assignment of a claim for compensation under the Lands Clauses Consolidation Act 1845 following a notice to treat. The claim was concerned with compensation for structural damage caused by the Railway Company whilst exercising statutory powers. The Court of Appeal held that the assignment was valid since it was the assignment of a claim which was a necessary incidence of the conveyance of the affected land and which had been made to the assignee at the same time as the assignment.
20. The law also recognised that beneficiaries of trust funds had a legitimate interest in funding litigation designed to secure and preserve trust property. Thus, a trustee could legitimately assign his rights of action to beneficiaries of the trust when these were concerned with an injury to the trust estate. Another example of the law taking a more relaxed attitude to assignments savouring of maintenance was its recognition of the enforceability of an assignment of an action by an insured to his insurers where the action related to the relevant insured loss.
21. It was against this background that the courts had to construe the statutory grant of powers to liquidators and trustees by legislation starting with the Companies Act 1862 and the Bankruptcy Act 1869. The question that had to be answered was whether the expressions "property" and "things in action" covered bare rights to litigate. The answers were provided in three late Victorian decisions, two being of the Court of appeal and the third being that of Chitty J. These developments were helpfully and clearly explained by Lightman J. in the Grovewood Holdings case in words I gratefully adopt:

"The Bankruptcy Act 1869 (32 & 33 Vict. c. 71), which is the ancestor of the modern bankruptcy legislation, provided that all the property, defined to include choses in action, of a bankrupt vested in his trustee in bankruptcy, and empowered the trustee in bankruptcy to sell to anyone all the property, likewise defined, of the bankrupt. The Court of Appeal in Seear v Lawson (1880) 15 Ch D 426 held that a bare right to sue was included in the term 'property' for the purpose of both provisions and accordingly, by way of statutory exception to the rules against maintenance, the trustee could sell a bare right of action. Sir George Jessel M.R. remarked, at p. 433:

'The proper office of the trustee is to realise the property for the sake of distributing the proceeds amongst the creditors. Why should we hold as a matter of policy that it is necessary for him to sue in his own name? He may have no funds, or he may be disinclined to run the risk of having to pay costs, or he may consider it undesirable to delay the winding-up of the bankruptcy till the end of the litigation.'

The following year, in In re Park Gate Waggon Works Co. (1881) 17 ChD 234, the Court of Appeal held that section 95 of the Companies Act 1862 (25 & 26 Vict. c. 89), the ancestor of modern company legislation, which authorised a liquidator to sell the property, similarly defined, of the company likewise permitted the liquidator to sell causes of action, notwithstanding the rules against maintenance.

In Guy v Churchill, 40 ChD 481 Chitty J. held that the statutory authorisation of a sale by a trustee in bankruptcy of a cause of action free from the rules against maintenance extended as far as to permit a sale on terms that the assignee should fight the action at his own expense and share any recoveries with the trustee. He reasoned, at pp. 488-489:

'The policy of the statute appears to be to give power to the trustee, with the sanction of the committee, to make arrangements in reference to choses in action which are considered beneficial to the creditors. It would be a strange and inconsistent result to say that although the right of action may be sold out and out it cannot be disposed of on the terms that some part of the fruit of the action, if successful shall come back to the bankrupt's estate for division among his creditors ... It would be too fine a distinction to hold that the arrangement ... is void merely because the bankrupt's estate gets back part of any money that may be recovered in the action.' (ibid., pages 84-85)

22. The courts, therefore, readily found a legitimate interest in assignments by liquidators and trustees of rights to litigate, having held these to form part of the insolvent's property. The assignment provided the means for liquidators and trustees to fund litigation needed to bring in and realise for the benefit of creditors the full potential of the insolvent's property. When the relevant assignment was made to the bankrupt himself, or to a promoter or other person connected with the insolvent company, or to a creditor or creditors of the insolvent, the legitimate interest of the assignor in granting the assignment and of the assignee in accepting it was reinforced because the fruits of the litigation would more readily be made available to help to repay those affected by the insolvency. However, as Chitty J. made clear in Guy's case, (at page 485 of the report), it is not permissible to bring automatically into the statutory code of bankruptcy doctrines, such as that of maintenance and champerty, from other branches of the law. In Guy's case, the relevant deed granting the assignment would have been void for champerty, apart from the bankruptcy law. In the Bang & Olufsen case, Balcombe L.J. pointed out in his judgment that:

"... an assignment made by a trustee in bankruptcy is valid if it is within the powers conferred by statute upon the trustee, notwithstanding that it might otherwise be held void for maintenance or champerty, because one may not automatically bring doctrines from other branches of the law into statutory code of bankruptcy."

23. The result has been, therefore, that if the relevant assignment is of a right to litigate which has vested in the liquidator or trustee, it is a valid and enforceable assignment notwithstanding the fact that the same assignment by the assignor, as a solvent individual, might be held void for infringing the prohibition of agreements savouring of maintenance. This result was achieved by giving the concept of "things in action" a wide meaning and by drawing on the gradual relaxation of the strict prohibition of agreements savouring of maintenance and champerty which the law was already beginning to countenance.
24. These developments do not, however, conclude the issue in this case. This is because one general class of claims or causes of action has never been regarded as being assignable to, or being capable of vesting in, a trustee in bankruptcy. The cause of action in this case is said by the defendant to be within this excluded class which is also said to be applicable to liquidations. Thus, so it is argued, although the liquidator has the power to pursue the action himself if he choses to (by virtue of his powers granted by paragraph 4 of Part II of Schedule 4 of the Insolvency Act 1986), he cannot assign the relevant cause of action to the plaintiff.
25. The class of claims and causes in action I am referring to has been described in some of the relevant authorities as being those that are personal to the bankruptcy. In some authorities they are described as being tortious claims. An early authority giving effect to this exception is Beckham v Drake 2 H.L.C. 604 where Erle J. stated:

"The right of action does not pass where the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind, or character, and without immediate reference to his rights of property. Thus it has been laid down that the assignees cannot sue for breach of promise of marriage, for criminal conversation, seduction, defamation, battery, injury to the person by negligence, as not by carrying safely, not curing, not saving from imprisonment by process of law." (ibid., page 621).

Baron Parke, in the same case, added that the part of the damages recoverable for the bankruptcy's personal injury:

"could not be transferred to the assignees, and ought not to be lost ..." (ibid., page 628).

26. This apparent exception arises because personal rights, and damages providing compensation for injuries of a personal nature, are regarded as being unassignable since no-one other than the bankrupt could have a legitimate interest in pursuing claims for them. Most, but not all, of these claims are tortious in origin. Moreover, such claims do not form part of the estate of the bankrupt and, until the law was changed in relatively modern times, many of the torts in question were extinguished by the death of the person affected by the wrong.
27. The exception does not necessarily relate to the whole of the relevant cause of action. Thus, in Wilson v United Counties Bank Ltd. [1920] A.C. 102, the House of Lords held that part but not all of the damages recovered from the bank by Major Wilson related to loss which was personal in nature and did not, in consequence, pass to his trustee in bankruptcy. The bulk of the damages, however, related to injury to Major Wilson's estate and did pass. The action related to cheques which the bank had wrongly dishonoured and the personal loss related to injury to Major Wilson's credit and reputation.
28. It is clear that this exception does not, in the modern law, relate to every type of tort claim since some tort claims can be assigned by a solvent litigant so long as the assignment is for a good commercial reason and is made to someone with a legitimate interest in the litigation.
29. Recent authorities have upheld the assignment of some tort claims or have regarded them as being, in principle, assignable. These include the following authorities and causes of action that were referred to during the argument in this case:
30. Ramsey v Hartley2. The assigned cause of action was one exclusively based on a Hedley Byrne type claim, being a claim against accountants with whom the assignor had no contract. The claim related to allegedly negligently prepared accounts which the defendant had put into circulation and which the assignor claimed had been relied on to make a disastrous financial investment.
31. Turner v Schindler & Co3. The assigned causes of action were for malice and fraud. The assignment was held to be unenforceable but only on the ground that the assignee had no valid commercial interest in the litigation. The court accepted that the claims were, in principle, assignable.
32. Levy v A.B.N. Amro Bank N.V.4. The assigned causes of action included causes of action for tortious negligence and negligent misstatement.
33. Mayhew-Lewis v Westminster Scaffolding Group Plc5. The assigned causes of action were based on the torts of interference with goods and detinue.
34. Investors Compensation Scheme Ltd. v West Bromwich Building Society6. The assigned causes of action included those based on negligence which allegedly gave rise to economic loss and on misrepresentation.
35. It follows that the modern law does not, for tortious claims, provide a blanket exception to the modern rule allowing the assignment of causes of action where there is a good commercial or other reason for the assignment. The exception relates to purely personal claims, or to those parts of a claim which are purely personal. Such claims are primarily tortious in nature but can also be contractual, if the necessary personal element is present. The exception has, however, only been applied in the reported authorities to bankrupt individuals. No example of the operation of this exception in the case of an insolvent company was referred to in argument.
36. It is possible to summarise the relevant principles of law in this way:
37. A bare right to litigate all claims and causes of action, except those of a purely personal character, are "things in action" and vest in, or may be pursued by, a liquidator or a trustee.
38. The exception relating to claims and causes of action of a purely personal character covers personal torts and similar claims arising in contract.
39. There is no decision extending the exception to economic torts.
40. There appears to be no reported authority in which the exception has been held to be applicable to the claims and causes of action of insolvent companies in liquidation.

5. The Questions Answered

41. In the light of the law relating to insolvency which I have now summarised, it is clear that unless the causes of action in this case are regarded as being of a purely personal character and unassignable by a liquidator, the assignment to the plaintiff is both valid and enforceable.
42. It would, in theory, be possible for the cause of action in this case to be pursued by the liquidator even if it is not assignable since the Insolvency Act, as has already been noted, allows the liquidator to bring any action in the name of the company and to sell all "things in action". The language of the two powers is lightly different with the effect that if the cause of action in this case is of a kind which means that it is not to be regarded as "things in action", it would not have to be consigned to limbo since the liquidator could still pursue it in TPG's name. Difficult questions might then arise, however, as to whether the proceeds could be distributed amongst the general body of creditors. Such a result could not be achieved for the creditors of a bankrupt, since the same cause of action could not be pursued by the trustee of a personal plaintiff.
43. In reaching a conclusion as to the ambit of the personal claim exception, I must bear in mind that the early cases which provide for it, when referring to the exception as covering "tort claims", were decided before the general tort of negligence had been developed and before claims for purely economic loss were possible. This was a time before Donoghue v Stevenson [1932] AC 562 and Hedley Byrne v Heller & Partners Ltd. [1964] AC 465 had been decided and at a time when tort claims were synonymous with either personal claims or claims arising out of physical damage. A claim of this kind now sought to be made was impossible at that time. It is seeking the recovery of the economic loss of a company which was caused by negligent advice which the company relied on and which has allegedly resulted in damage to the trade and cash-flow of the company. The liquidator and the company's creditors have a clear and commercial interest to recover, if at all possible, that loss.
44. Furthermore, there are several sound policy reasons why the personal exception should not be available for Hedley Byrne claims. In particular:
45. A contractual claim of the kind being maintained in this case by the plaintiff in tort would be "things in action" which could be sold or assigned.
46. The tortuous cause of action is "equivalent to contract", to use the well-known phrase of Lord Devlin in the Hedley Byrne case⁷ and could easily have been a contractual cause of action had the defendant charged a nominal sum for the service it provided.
47. As is clear from the recent decision of the House of Lords in Henderson v Merrett Syndicates Ltd. [1995] 2 AC 145, where there is a contractual relationship and the relevant claim is one based on negligent conduct or advice, there exist concurrent causes of action in both contract and tort. This highlights the potential absurdity of contractual claims being "things in action" but identical tortious claims not having this characterisation.
48. There is no good policy reason for distinguishing a Hedley Byrne claim from a similar claim brought in contract.
49. The Hedley Byrne claim has none of the characteristics of personal claims.
50. The tortious Hedley Byrne claim has been held by the Court of Appeal and the House of Lords to be assignable and the claim is for the recovery of loss directly caused to the company's balance sheet arising out of the performance of the activity which the company was promoted to undertake. The proceeds of the litigation would, therefore, be of the same kind as other recovery on behalf of the company and would ordinarily be regarded as its property.
51. It follows that this cause of action is not personal and it formed part of TPG's property. In the light of this finding, it is unnecessary for me to decide whether the doctrine that personal claims are not "things in action" extends to companies since, even if it does, these causes of action are not caught by the doctrine. However, I have considerable doubts whether any tortuous claim maintainable by a company falls within the doctrine since a company is not a natural person, it has no feelings, it suffers no pain and experiences no personal humiliation and suffering. It may be that only torts providing claims for damage to a company's individual reputation would be subject to this exception but that is not a question which I need attempt to answer in this judgment.
52. Since the claim is of a kind which can, in principle, be "things in action" and can be assigned by the liquidator, it is not strictly necessary for me to decide whether the assignment offends the prohibition on champertous assignments. However, Mr Raeside argued that the plaintiff had no genuine commercial interest in the assignment and suggested that such an assignment could not, in consequence be an assignment of "things in action". I reject this submission. The plaintiff and TPG are both solely owned by the same body of shareholders. TPG, as pleaded in the statement of claim, was incorporated to acquire and develop licensed premises and the shareholders had, in consequence, invested in a company which was to carry out the kind of activity which gives rise to this claim. If the cause of action is assigned by the liquidators of TPG to a sister company with a common shareholding, the same investors who invested in that insolvent company and who have lost the value of their shareholding stand to gain financially from the litigation since, if it is successful, the proceeds will enrich the sister company and provide the means of its paying dividends to its shareholders' shareholdings. Moreover, the liquidator and the creditors of TPG may also benefit financially. It follows that, even if the assignment had not been by a liquidator with statutory powers, it would have been valid and enforceable and would not have offended the prohibition on champertous and assignments.
53. I finally turn to the question of whether it is open to me to conclude that the Hedley Byrne claim is not "things in action", albeit that I have reached that conclusion independently. In view of the two decisions of the Court of Appeal in Ramsey v Hartley and Bang & Olufsen, it is, in fact, no longer open for me to conclude that a Hedley Byrne claim is not "things in action". This is because, in the former case, the Court of Appeal, in a bankruptcy case, held that such a claim was "things in action" and, in the latter case (which involved a fraud claim), the Court of Appeal held that principles concerned with "things in action" applicable to bankruptcy were to be applied in liquidations in the same way. Thus, it ought to follow that a Hedley Byrne claim constitutes property of the insolvent company and is to be regarded as "things in action".
54. Mr Raeside argued that the question as to whether a Hedley Byrne claim was subject to the personal exception and was not "things in action" was never decided in Ramsey's case since it was conceded by both counsel in that case that such a claim was "things in action" and that that concession did not form part of the ratio decidendi of the decision. He relies on this passage from the judgment of Megaw L.J.:

"There are rights of action belonging to a bankrupt which do not pass to the trustee. The exceptions in section 38 [of the Bankruptcy Act 1914] are not exhaustive: see Williams on Bankruptcy, 18th ed. (1968) et seq. However, we do not have to consider that question here. It is accepted by both parties that this "thing in action" - the plaintiff's Hedley Byrne claim against the defendant - did pass to the trustee. The question is: did it pass back again?" (pages 692-693).

Mr Raeside also relied on a passage from Lord Hoffmann's speech in what he submitted was the only subsequent authority directly in point, Norglen's case, as suggesting that no consideration was given to this question in that case. The passage reads:

"These cases [viz Seear v Lawson and Ramsey v Hartley] both happened to concern trustees in bankruptcy, but the powers of liquidators have been given a similar construction and in Guy v Churchill (1889) 40 Ch D 481 at 485 Chitty J held that there could be no objection to an assignment in return for a share of the proceeds, which: 'Apart from the bankruptcy law ... is plainly void for champerty.' In the face of this line of authority, counsel for both appellants accepted that apart from the impact of legal aid and the effect on the right on the defendant's right to security for costs, the assignments could not be challenged." (page 225 per Lord Hoffmann).

55. An immediate reading of these two passages would suggest that Mr Raeside's submission has some force. However, I cannot accept that each decision was reached without, respectively, the Court of Appeal and the House of Lords having considered the "things in action" question or without having decided that a Hedley Byrne claim of the kind I am concerned with was "things in action". In each case, reference was made to the concession. It is clear from a full consideration of both Megaw L.J.'s judgment and Lord Hoffmann's opinion that each had considered the supporting authorities and had formed his own view that the appropriate concession had been rightly made. Each judge was bound to consider the position himself since each was bound by his judicial oath to administer justice according to law and each had to apply the words of a statute to the facts before him, regardless of any concession by the parties as to the meaning of the statute. That view, which formed part of the ratio decidendi of each decision, was to the effect that a Hedley Byrne claim, or a tortious claim for purely economic loss, gave rise to "things in action".
56. A second consideration applies. That is that in the several cases decided by appellate courts that I have already referred to in paragraph 29 above, it has been decided that analogous or identical causes of action are assignable to third parties. I am required to follow and apply each of these decisions. These authorities have the result that a Hedley Byrne claim does not suffer from the essential defect which precluded personal claims from being both property and "things in action", namely that they were unassignable. The only way in which I can give meaningful effect to these authorities is to hold that the claim in this case is assignable, the property of TPM and "things in action".
57. Finally, even if Ramsey v Hartley and Norglen did not consider and consciously decide the personal exception question but merely slavishly accepted and gave effect to the parties' concessions, I would still be bound to give effect to the view of the law that these authorities applied. That view was an integral and essential step in the reasoning of the decision which lead to the conclusion that the causes of action in each case were "things in action". That being so, a lower court is bound to give effect to that view since it formed part of each decision. Only a court of equivalent jurisdiction could contemplate departing from that conclusion.

6. Conclusion

58. The result of this consideration of the law is that the plaintiff succeeds on this preliminary issue. The Hedley Byrne claim is "things in action" and is neither a personal claim nor is it incapable of being assigned. The claim that was assigned was part of the property of TPG which the liquidator had the power to sell. Even if the doctrine of personal actions had been applicable to this claim, had TPG been a bankrupt, the claim would still have formed part of the property of TPG as a company and would have been capable of being sold by its liquidator. Moreover, the actual assignment was not champertous since the plaintiff, as assignee, had good and sufficient commercial reasons for taking the assignment in question. Finally, I am bound by authority to reach the conclusion that the assignment is enforceable. It follows that I answer the preliminary issue as follows:

The assignment of 2 November 1998 from TPG to the plaintiff by the liquidator of TPG was authorised by sections 165 and 166 of, and paragraph 6 of Part III of Schedule 4 to, the Insolvency Act 1986 and may be given effect to.

HH Judge Thornton Q.C.

23 February 1999

Endnotes

59. The decision of Channell J. was reversed on appeal on another ground: [1903] 1 KB 644.
60. [1977] 1 W.L.R. 686, C.A.
61. Unreported, 28 June 1991; Court of Appeal (Civil Division) Transcript 665 of 1991. This case was not cited in argument but is referred to, and quoted from, in the judgment of the Court of Appeal in Norglen Ltd. v Reeds Rains Prudential Ltd. [1996] 1 W.L.R. 864 at page 890. This latter judgment was cited in argument.
62. One of the three cases argued together and reported as Norglen v Reeds Rains Prudential Ltd. (ibid).
63. ibid., being another of the three "Norglen" cases.
64. [1998] 1 WLR 896, H.L.
65. ibid., page 529.