The Judicial Committee of the Privy Council Decisions

Massai Aviation Services & Anor v. The Attorney General & Anor (The Bahamas) [2007] UKPC 12 (26 February 2007)

Privy Council Appeal No 58 of 2005

(1) Massai Aviation Services

(2) Aerostar Limited Appellants

v.

(1) The Attorney General

(2) Bahamasair Holdings Limited Respondents

FROM

THE COURT OF APPEAL OF

THE COMMONWEALTH OF THE BAHAMAS

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL

Delivered the 26th February 2007

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Present at the hearing:-

Lord Bingham of Cornhill

Lord Scott of Foscote

Baroness Hale of Richmond

Lord Carswell

Lord Brown of Eaton-under-Heywood

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[Delivered by Baroness Hale of Richmond]

1. The first issue before the Board is whether an assignment of the cause of action in this case from the first plaintiff to the second was void for champerty. Ordinarily this would make little difference to the outcome. If the assignment was void the assignor could simply continue the action, which had already been begun before the assignment took place. In this case, however, the first plaintiff does not wish to continue the action. If this assignment is void, therefore, the defendants will, should the cause of action otherwise be good, have had a fortunate escape. As Mr James Dingemans QC, who appears for the defendants, readily accepts, this is not an attractive proposition. If the assignment is good, the remaining issues are those in the claim itself.

The claim

2. The first plaintiff was originally named Cleare Air Aviation Services Ltd (CAASL). It carried on business at Nassau International Airport, which is owned by the Commonwealth of the Bahamas. In 1995, the Government invited tenders for the monopoly provision of fixed base operation (FBO) services at the airport. CAASL and others put in their bids but all were rejected. The Government then invited several parties, including CAASL, to identify sites for non-monopoly FBO facilities. CAASL identified an 11 acre site.
3. On 18 December 1995, the Government wrote offering CAASL a 21 year lease of the site as from 1 January 1996 at $6000 per acre per annum. Also offered were options to lease an additional five acres and to extend the lease for a further 21 years at a rent to be agreed. CAASL was to survey the site and present a proposed development plan within 30 days of acceptance of the offer; construction and development were to begin not later than 60 days from the same date. CAASL accepted this offer on 19 December 1995.
4. CAASL went into occupation on 1 January 1996 and produced a comprehensive development plan dated 18 January 1996. However, on the site were a large hanger and a stores building which were occupied by Bahamasair, the national carrier which is ultimately owned by the Government. Bahamasair claimed to have an interest in both buildings and initially refused to leave either. They vacated the hanger in March 1996 but only vacated the stores building after CAASL had been persuaded by the Government to build a new one for them elsewhere at a cost of just over $324,000. This took until March 1997. The stores building was in the middle of the site and the development was delayed. CAASL claimed that its business had collapsed as a result.
5. The formal lease was granted on 18 December 1997, for a term commencing on 1 January 1996, the Government having acknowledged that this would not prejudice any claims that CAASL might have for breaches of the prior agreement. That lease contained, in article 13.B(3) a lessor's covenant for title and quiet enjoyment in conventional terms (see paragraph 22 later).
6. CAASL began this action against the Government and Bahamasair on 24 February 1998. Against the Government, it claimed damages for loss of profits caused by the delay in establishing its own operation at the airport while competitors were able to establish theirs, or for the loss of the value of the user of the property of which it was deprived, and/or the $324,139.69 which it had paid in order to get Bahamasair out. Against Bahamasair, it claimed the rent collected by Bahamasair on the retained hanger, damages for trespass and the $324,139.69 as money had and received.

The assignment

7. After the proceedings had begun, the shareholders in CAASL decided to sell the business for what they could get. They decided, however, to keep the lawsuit. For all we know, the purchasers may have been unwilling to buy it with the business or to pay a price for the business which included what the shareholders believed the lawsuit to be worth. Accordingly a new company, Aerostar Ltd, was formed in August 1998. At that date, the shareholdings in Aerostar exactly mirrored the shareholdings in CAASL. Aerostar acquired all the issued share capital in CAASL. Thus at that stage the ultimate owners of CAASL, including the lawsuit, remained the same.
8. On 14 October 1998, CAASL assigned its entire interest in the lawsuit to Aerostar, its sole shareholder, for $10. On 15 October 1998, Aerostar sold its shareholding in CAASL to Executive Flight Support Ltd for $1,200,000, while retaining the lawsuit. As part of this transaction, CAASL was to change its name to Massai Aviation Services Ltd, while Aerostar through its subsidiary company Cleare Air Ltd was to have the sole right to use the name 'Cleare Air' (although we understand that it has not done so).
9. On 22 February 1999 the writ was amended to add Aerostar as second plaintiff and all claims for relief by the first plaintiff were deleted.

The decisions in the courts below

10. In a reserved judgment dated 9 May 2003, Longley J dismissed the claim on the ground that the assignment was void. But for that, there was no issue about the outstanding rent on the hanger (claimed from Bahamasair) and he would also have awarded the rent CAASL should have had from the stores building during the period it had been kept out of possession (although it is not entirely clear whether he would have awarded it against Bahamasair as trespassers or the Government for breach of contract or both). He also talked of the Government even now "indefensibly opposing" the claim for reimbursement of the expenses incurred in relocating Bahamasair. It appears, therefore, that he would also have awarded the cost of the new building against the Government. However, he rejected the claim for the alleged collapse of the business, on the ground that it had not collapsed and was still a going concern, having been sold for $1,200,000. No detailed consideration was given at the trial to quantifying any loss of profits that might have been caused by the delay in gaining full access to the site.
11. The Court of Appeal dismissed Aerostar's appeal on the ground that the assignment was void and dealt so shortly with the substance of the claim itself that it is difficult to know whether they would have taken the same view as the trial judge.

Was the assignment void?

12. At common law, maintenance and champerty are both crimes and torts. In England and Wales both the crime and the tort have been abolished by ss 13(1) and 14(1) of the Criminal Law Act 1967. This was as a result of a recommendation of the Law Commission (see Law Com No 7, Proposals for Reform of the Law relating to Maintenance and Champerty, 1966) The Law Commission defined maintenance as "the giving of assistance or encouragement to one of the parties to an action by a person who has neither an interest in the action nor any other motive recognised by the law as justifying his interference" (para 3) and champerty as "a particular kind of maintenance, namely maintenance of an action in consideration of a promise to give to the maintainer a share of the subject matter or proceeds thereof, if the action succeeds" (para 4). A contract involving maintenance or champerty is (and this remains the law in England and Wales) unenforceable and void.
13. The original object of the law was to protect vulnerable defendants, who might be unable to resist unmeritorious claims which were being pursued against them with the help of the rich and powerful: see Giles v Thompson [1994] 1 AC 142, per Lord Mustill at 153. A later object was to protect vulnerable plaintiffs, who might be induced to part with some of the proceeds of their action in return for assistance in pursuing it: hence both contingency and conditional fee arrangements with legal advisers were prohibited. However, just as the need to protect vulnerable defendants has receded, so too have we come to appreciate that "treating such arrangements as criminal was also, before the introduction of legal aid, an effective way of preventing poor people from obtaining legal redress": see Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1, per Lord Hoffmann at 11.
14. The crimes had fallen into disuse long before they were abolished in England and Wales. In relation to the torts, the Law Commission observed that "the trend of judicial decisions has been to increase the number of interests which the courts are prepared to accept as lawful justification" (para 10) and that it would usually be almost impossible to prove that any loss had been suffered as a result of the maintenance (para 11). In policy terms, now that a great volume of litigation was supported by trades unions, insurance companies or legal aid, the Commission commented (para 15):

"The truth is that today the great bulk of the litigation which engages our courts is maintained from the sources of others, including the state, who have no direct interest in its outcome but who are regarded by society as being fully justified in maintaining it."

15. One aspect of the rule (which also remains part of the law of England and Wales) is that the law will not recognise the assignment of a 'bare right of action' on the ground that such a transaction savours of maintenance or champerty. As Steyn LJ explained in the Court of Appeal in Giles v Thompson [1993] 3 All ER 321 at 328:

". . . it seems that one of the abuses which afflicted the administration of justice was the practice of assigning doubtful or fraudulent claims to royal officials, nobles or other persons of wealth and influence, who could in those times have expected to receive a very sympathetic hearing in the court proceedings. The agreement often was that the assignee would maintain the action at his own expense, and share the proceeds of a favourable outcome with the assignor."

16. However, as Lord Roskill observed in Trendtex Trading v Credit Suisse [1982] AC 679, at 702-703:

". . . just as the law became more liberal in its approach to what was lawful maintenance, so it became more liberal in its approach to the circumstances in which it would recognise the validity of an assignment of a cause of action and not strike down such an assignment as one only of a bare cause of action."

Lord Roskill went on to say at 703:

"But it is today true to say that in English law an assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, which, as has often been said, is a branch of our law of maintenance."

17. Later English cases have developed the concept of a genuine commercial interest. Thus in Brownton v Edward Moore Inbucon Ltd [1985] 3 All ER 499, the Court of Appeal held that a defendant who had settled with the plaintiff had a genuine commercial interest in taking an assignment of the plaintiff's claim against the other defendant who was denying liability. The Court refused to limit the concept to cases in which the assignee would recover no more than his commercial interest. Making a profit on the transaction did not automatically render it void. In Norglen Ltd v Reeds Rains Prudential Ltd, 3 February 1994 (unreported), Morritt J held that the interests of the assignees as both creditors of and shareholders in the company which had assigned its claim to them were sufficient:

"The law of champerty is designed to prevent officious or wanton intervention in the litigation of others . . . I see nothing officious or wanton in the intervention of members. In my judgment the interests of Mr and Mrs Rogers as creditors and contributories give them a sufficient substantial and commercial interest in the cause of action of Norglen against the defendants, precisely commensurate with the benefits they would derive under the assignment and related undertakings. Accordingly, the assignment and undertakings cannot be void on the ground of champerty."

When the case reached the Court of Appeal, that conclusion was accepted to be correct: see [1996] 1 WLR 864, per Sir Thomas Bingham MR at 873. In Circuit Systems Ltd and Basten v Zuken-Redac (UK) Ltd (1994) 11 Const L J 201, HHJ Havery QC, took the approach in Norglen a step further in upholding the assignment of a claim by a company to its 98% shareholder on terms that he was to have 60% of the proceeds and the company 40%. This too was upheld in the Court of Appeal: see [1996] 1 WLR 721. As Simon Brown LJ observed at 734:

"Given the correctness of Judge Havery QC's conclusion that the rights of a shareholder can give rise to a genuine and substantial commercial interest . . . it is impossible to argue that a 98% shareholding, as here, does not justify an assignment on terms that the first 60% of the proceeds of the litigation will go to the assignee."

Norglen and Circuit Systems together reached the House of Lords on other grounds: see [1999] 2 AC 1. The correctness of the lower courts' approach to the principles under discussion here was not questioned. Nevertheless, Mr Dingemans urges us to leave the line where it was drawn in Norglen: only a shareholder who is also a creditor would have a sufficient commercial interest to justify an assignment of the company's claims.

18. The buying and selling of choses in action is, of course, commonplace. Debts are regularly traded at a discount so that the creditor can obtain some of what he is entitled to while passing on the risks of litigation to others. Businesses are regularly sold with the benefit of their claims as well as their liabilities. Had CAASL sold all its business, including this claim, to Executive, no-one could have objected. What raised eyebrows was the sale of the business to Executive while Aerostar retained the claim. Eyebrows were raised even higher when it emerged that Aerostar had paid only $10 for the claim. This began to look like a very substantial profit, or "trafficking" in litigation.
19. But "trafficking" is a pejorative term which takes the debate no further: it simply means trading in something (be it drugs or people) in which it is not permissible to trade. In order to decide whether the particular transaction is permissible, it is essential to look at the transaction as a whole and to ask whether there is anything in it which is contrary to public policy. When one looks at this transaction as a whole, it is clear that there was nothing objectionable about it at all.
20. The shareholders in CAASL owned a company which had an existing business and had acquired what it considered to be a significant business opportunity. It considered that it had been wrongfully deprived of the possibility of making the most of that opportunity and launched these proceedings. At some stage, whether or not reluctantly is not altogether clear, the shareholders decided to sell the business as a going concern while retaining the benefit of the lawsuit. We are told that they had little choice, as the relocation of Bahamasair had taken much of the working capital needed to pursue the development. The price which they achieved for the business without the lawsuit was much lower than the value which, rightly or wrongly, they then put on the business with the benefit of the lawsuit. The transfer of the business made it quite clear that, while the transferee would do nothing to hinder the assignee from pursuing the claim, it wanted no part in the claim itself. The mechanism the shareholders chose to do this was to form another company to retain the claim. We do not know exactly why they chose to do it as a company rather than as individuals. Mr John Wilson, who has presented the case for Aerostar with skill, economy and charm, suggested that it may simply have been for convenience. They did, of course, retain the benefit of limited liability but the system is quite capable of protecting defendants from being pursued by worthless companies through the mechanism of requiring security for costs.
21. This was not wanton and officious intermeddling in another person's litigation for no good reason. It was simply the original owners retaining part of what they owned while disposing of the rest. There is nothing contrary to public policy in allowing Aerostar to pursue the claim against these defendants and no good reason why these defendants should be permitted to escape any liability that they may have. This is not, of course, to say that a shareholder will always have a genuine and substantial commercial interest in taking an assignment of the company's claims. To take an extreme example, for a minority shareholder to buy a substantial claim for a nominal sum in the hope of making a substantial profit may well be contrary to public policy. But that is not this case. Aerostar owned all the shares in CAASL and taken as a whole the transaction was a perfectly sensible business arrangement.

Liability

22. CAASL originally claimed damages for breach of various implied terms, as to vacant possession and quiet enjoyment, in the agreement made in December 1995. At that stage the Government was disputing that this was an agreement for a lease and thus merged with all the terms in the lease executed in December 1997. By the time the case reached the Court of Appeal, however, it was accepted that the doctrine in Walsh v Lonsdale (1882) 21 Ch D 9 applied. The Court of Appeal quoted the express terms of lessor's covenants in Article 13.B (1) of the lease:

"Notwithstanding anything by the Lessor (or anyone through whom the lessor derives title) made done executed or omitted or knowingly suffered the Lessor has full power to grant the demise hereby created and that the Lessee paying the rents hereby reserved and performing and observing the several covenants conditions and agreements herein contained on its part to be performed and observed shall and may peaceably and quietly hold and enjoy the demised premises during the term hereof without any lawful interruption or disturbance by the Lessor or any person lawfully claiming under or in trust for the Lessor."

Unfortunately, having concluded that the assignment was void, the Court of Appeal did not go on to consider whether there had been a breach of this covenant as opposed to the alleged implied term for immediate vacant possession.

As Lord Millett explained in Southwark London Borough Council v Mills [2001] 1 AC 1 at 22,

"It has long been understood that the word 'quiet' in such a covenant does not refer to absence of noise. It means without interference. The covenant for quiet enjoyment was originally regarded as a covenant to secure title or possession. It warranted freedom from disturbance by adverse claimants to the property. . . But its scope was extended to cover any substantial interference with the ordinary and lawful enjoyment of the land . . . "

23. It cannot seriously be doubted that the Government was in breach of this covenant by allowing Bahamasair to remain in occupation of the buildings after agreeing to grant a lease of the whole site. CAASL knew that Bahamasair was in occupation of the two buildings but not that they were claiming to be entitled to remain there indefinitely. It has not, of course, been established that they had any such right. But whatever right they were claiming was undoubtedly "under the Lessor" who had let them put buildings on the Government's land. It was clearly in opposition to the claim of the Lessee, CAASL. Quite apart from the refusal of Bahamasair to vacate the stores building until provided with somewhere else to go, they continued for a while to collect rents from the occupants of the hanger and refused to account to CAASL for them. CAASL did not take its lease subject to any interest that Bahamasair might have in the site or any part of it. The whole purpose of the transaction was the comprehensive redevelopment of the site so as to provide an FBO facility, including a terminal building, and for that the Lessee required access to the whole site. This it was denied in breach of the Lessor's covenant.

Damages

24. It appears to be accepted that CAASL was entitled to any rents collected from the occupants of the hanger and not accounted for, and also to a "rent" for the stores building during the period for which it was kept out of occupation. The trial judge would have awarded both of these. There has been no cross appeal and that decision should stand.
25. More controversial are the sums paid for the new building to rehouse Bahamasair. As against the Government, the question is whether these were paid as an outright gift in order, as the judge put it, to "keep themselves in the good books of the government of the day" or whether they were sums reasonably expended in an attempt to mitigate the losses flowing from the Government's breach of covenant. The judge appears to have regarded the refusal to reimburse this as indefensible, although he also referred to CAASL "rather charitably" agreeing to fund the relocation. Mr Dingemans drew our attention to certain passages in the evidence which indicate that CAASL was anxious to remain on good terms with the Government for the sake of future relations and business at the airport. But this does not detract from the obvious fact that it would not have spent these large sums of money in constructing another building had it been able to get Bahamasair out of the stores building in any other way. It cannot be inferred that it was intending to make a gift either to the Government or to Bahamasair. The appellant is clearly entitled to be reimbursed in full with interest at the conventional rate of 10%. As the money was expended over a period of some months, interest should run from a point roughly midway through the process, namely 1 January 1997.
26. Originally the claim was for a much larger sum to reflect the allegation that CAASL's business had virtually collapsed as a result. Not surprisingly this failed, because the business had not collapsed and much of it had indeed been sold, albeit for less than CAASL may have thought it worth. There may well have been a claim for loss of profits caused by the delay but this has never been precisely particularised or proved, nor did the plaintiff seek an order for damages to be assessed. It is far too late to do that now.
27. Accordingly, the Board will humbly advise Her Majesty that this appeal should be allowed and damages awarded to the extent indicated above. The parties are invited to make written submissions on costs within 21 days of the date of this judgment.