assignment of a cause of action precedent

Assignment of claims

An untraditional approach to combining the claims of plaintiffs; how it differs from class actions, joinder, consolidation, relation and coordination

A large class of plaintiffs engages you to bring a common action against a defendant or set of defendants. As counsel, you resolve to combine the plaintiffs’ various claims into a single lawsuit. In this article, we touch on some of the traditional approaches, such as a class action, joinder, consolidation, relation, and coordination. To that list, we add as an approach the assignment of claims, a procedural vehicle validated by the United States Supreme Court, but not typically employed to combine the claims of numerous plaintiffs.

Class actions

In Hansberry v. Lee (1940) 311 U.S. 32, the United States Supreme Court explained that “[t]he class suit was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable. Courts are not infrequently called upon to proceed with causes in which the number of those interested in the litigation is so great as to make difficult or impossible the joinder of all because some are not within the jurisdiction or because their whereabouts is unknown or where if all were made parties to the suit its continued abatement by the death of some would prevent or unduly delay a decree. In such cases where the interests of those not joined are of the same class as the interests of those who are, and where it is considered that the latter fairly represent the former in the prosecution of the litigation of the issues in which all have a common interest, the court will proceed to a decree.” ( Id. at pp. 41-42.)

In California’s state courts, class actions are authorized by Code of Civil Procedure section 382, which applies when the issue is “‘one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.’” ( Noel v. Thrifty Payless, Inc. (2019) 7 Cal.5th 955, 968; see also, e.g., Cal. Rules of Court, rules 3.760-3.771.) “The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” ( Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021.) “The community of interest requirement involves three factors: ‘(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.’” ( Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435; see Civ. Code, § 1750 et seq. [Consumers Legal Remedies Act]; cf. Fed. Rules Civ.Proc., rule 23(a) [prerequisites for federal class action].)

Parties, acting as co-plaintiffs, can also obtain economies of scale by joining their claims in a single lawsuit. Under California’s permissive joinder statute, Code of Civil Procedure section 378 (section 378), individuals may join in one action as plaintiffs if the following conditions are met:

(a)(1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or

(2) They have a claim, right, or interest adverse to the defendant in the property or controversy which is the subject of the action.

(b) It is not necessary that each plaintiff be interested as to every cause of action or as to all relief prayed for. Judgment may be given for one or more of the plaintiffs according to their respective right to relief.

This strategy of joining multiple persons in one action has been referred to as a “mass action” in some decisions involving numerous plaintiffs. (See Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110, 1113; Petersen v. Bank of America Corp . (2014) 232 Cal.App.4th 238, 240 ( Petersen ); cf. 28 U.S.C. § 1332(d)(11)(B) [federal definition of “mass action”].)

In Petersen , for example, 965 plaintiffs who borrowed money from Countrywide Financial Corporation in the mid-2000’s banded together and filed a single lawsuit against Countrywide and related entities. ( Petersen , supra , 232 Cal.App.4th at pp.  242-243.) The plaintiffs alleged Countrywide had developed a strategy to increase its profits by misrepresenting the loan terms and using captive real estate appraisers to provide dishonest appraisals that inflated home prices and induced borrowers to take loans Countrywide knew they could not afford. ( Id. at p. 241.) The plaintiffs alleged Countrywide had no intent to keep these loans, but to bundle and sell them on the secondary market to unsuspecting investors who would bear the risk the borrowers could not repay. ( Id. at pp. 241, 245.) Countrywide and the related defendants demurred on the ground of misjoinder of the plaintiffs in violation of section 378. The trial court sustained the demurrer without leave to amend and dismissed all plaintiffs except the one whose name appeared first in the caption. ( Id . at p. 247.) The Court of Appeal reversed and remanded for further proceedings. ( Id . at p. 256.)

Petersen resolved two questions. First, it concluded the operative pleading alleged wrongs arising out of “‘the same . . . series of transactions’” that would entail litigation of at least one common question of law or fact. ( Petersen, supra, 232 Cal.App.4th at p. 241.) The appellate court noted the individual damages among the 965 plaintiffs would vary widely, but the question of liability provided a basis for joining the claims in a single action. ( Id. at p. 253.) Second, the appellate court concluded “California’s procedures governing permissive joinder are up to the task of managing mass actions like this one.” ( Id. at p. 242.)

Consolidation

Code of Civil Procedure section 1048, subdivision (a) provides that, “[w]hen actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” (See also Fed. Rules Civ.Proc., rule 42.)

There are two types of consolidation. The first is a consolidation for purposes of trial only, when the actions remain otherwise separate. The second is a complete consolidation or consolidation for all purposes, when the actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment. ( Hamilton v. Asbestos Corp., Ltd. (2000) 22 Cal.4th 1127, 1147 ( Hamilton ).)

Consolidation is designed to promote trial convenience and economy by avoiding duplication of procedure, particularly in the proof of issues common to the various actions. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleadings, § 341, p. 470.) Unless all parties in the involved cases stipulate, consolidation requires a written, noticed motion (Cal. Rules of Court, rule 3.350(a); Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 514), and is subject to the trial court’s discretion. ( Hamilton, supra, 22 Cal.4th at p. 1147.)

In a procedure somewhat similar to consolidation, under California Rules of Court, rule 3.300(a), a pending civil action may be related to other civil actions (whether still pending or already resolved by dismissal or judgment) if the matters “[a]rise from the same or substantially identical transactions, incidents, or events requiring the determination of the same or substantially identical questions of law or fact” or “[a]re likely for other reasons to require substantial duplication of judicial resources if heard by different judges.” ( Id. , rule 3.300(a)(2), (4).) An order to relate cases may be made only after service of a notice on all parties that identifies the potentially related cases. No written motion is required. ( Id ., rule 3.300(h)(1).) The Judicial Council provides a standard form for this purpose. When a trial court agrees the cases listed in the notice are related, all are typically assigned to the trial judge in whose department the first case was filed. ( Id ., rule 3.300(h)(1)(A).)

Related cases are not consolidated cases. Related cases maintain their separate identities but are heard by the same trial judge. Consolidated cases, in contrast, essentially merge and proceed under a single case number.

Coordination

Under Code of Civil Procedure section 404, the Chairperson of the Judicial Council is authorized to coordinate actions filed in different courts that share common questions of fact or law. (See Cal. Rules of Court, rule 3.500 et seq.) The principles underlying coordination are similar to those that govern consolidation of actions filed in a single court. (See Pesses v. Superior Court (1980) 107 Cal.App.3d 117, 123; see also 28 U.S.C. § 1407 [complex and multidistrict litigation].)

Thus, for example, in McGhan Med. Corp. v. Superior Court (1992) 11 Cal.App.4th 804 ( McGhan ), the plaintiffs petitioned for coordination of 300 to 600 breast implant cases pending in 20 different counties. Coordination was denied because the motion judge found that common questions did not predominate “in that the cases involve[d] different implants, different designs, different warnings, different defendants, different theories of defect, different modes of failure, and different injuries.” ( Id. at p. 808.) Among other factors, the trial court concluded that it was impractical to send hundreds of cases to a single county and that the benefits of coordination could be best achieved by voluntary cooperation among the judges in the counties where the cases were pending. ( Id. at p. 808, fn. 2.)

The Court of Appeal reversed in an interlocutory proceeding, ruling the trial court had misconceived the requirements of a coordinated proceeding. ( McGhan, supra, 11 Cal.App.4th at p. 811.) As the appellate court explained, Code of Civil Procedure section 404.7 gives the Judicial Council great flexibility and broad discretion over the procedure in coordinated actions. ( Id. at p. 812.) Thus, on balance, the coordinating judge would be better off confronting the coordination drawbacks (including difficulties arising from unique cases, discovery difficulties, multiple trials, the necessity of travel, and occasional delay) because the likely benefits (efficient discovery and motion practice) were so much greater. ( Id. at pp. 812-814.)

Civil Code section 954 states “[a] thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.” The term “thing in action” means “a right to recover money or other personal property by a judicial proceeding.” (Civ. Code, § 953.) California’s Supreme Court has summarized these provisions by stating: “A cause of action is transferable, that is, assignable, by its owner if it arises out of a legal obligation or a violation of a property right. . . .” ( Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) The enactment of Civil Code sections 953 and 954 lifted many restrictions on assignability of causes of action. ( Wikstrom v. Yolo Fliers Club (1929) 206 Cal. 461, 464; AMCO Ins. Co. v. All Solutions Ins. Agency, LLC (2016) 244 Cal.App.4th 883, 891 ( AMCO ).)

Thus, California’s statutes establish the general rule that causes of action are assignable. ( AMCO, supra , 244 Cal.App.4th at pp. 891-892.) This general rule of assignability applies to causes of action arising out of a wrong involving injury to personal or real property. ( Time Out, LLC v. Youabian, Inc. (2014) 229 Cal.App.4th 1001, 1009; see also, e.g., Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1381 [“‘assignability of things [in action] is now the rule; nonassignability, the exception. . .’”].)

Although the assignment of claims on behalf of others to an assignee, or group of assignees, is not unique, it has not typically been used as a procedural vehicle for combining the claims of numerous plaintiffs. But, that’s not to say it can’t be done.

In fact, the United States Supreme Court has sanctioned such an approach. In Sprint Communications Co., L.P. v. APCC Services, Inc. (2008) 554 U.S. 269 ( Sprint ), approximately 1,400 payphone operators assigned legal title to their claims for amounts due from Sprint, AT&T, and other long-distance carriers to a group of collection firms described as “aggregators.” ( Id. at p. 272.) The legal issue presented to the United States Supreme Court was whether the assignees had standing to pursue the claims in federal court even though they had promised to remit the proceeds of the litigation to the assignor. ( Id . at p. 271.) The Court concluded the assignees had standing.

In support of its conclusion, the Court recognized the long-standing right to assign lawsuits:

. . . [C]ourts have long found ways to allow assignees to bring suit; that where assignment is at issue, courts — both before and after the founding — have always permitted the party with legal title alone to bring suit; and that there is a strong tradition specifically of suits by assignees for collection. We find this history and precedent ‘well nigh conclusive’ in respect to the issue before us: Lawsuits by assignees, including assignees for collection only, are ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’

( Sprint , supra , 554 U.S . at p. 285.)

On this basis, the Court concluded:

Petitioners have not offered any convincing reason why we should depart from the historical tradition of suits by assignees, including assignees for collection. In any event, we find that the assignees before us satisfy the Article III standing requirements articulated in more modern decisions of this Court.

( Sprint , supra , 554 U.S at pp. 285-286.)

The Court also considered the argument that the aggregators were attempting to circumvent the class-action requirements of Federal Rule of Civil Procedure 23. ( Sprint, supra, 554 U.S. at pp. 290-291.) The Court rejected this argument as a barrier to aggregation by assignment on the grounds that (1) class actions were permissive, not mandatory, and (2) “class actions constitute but one of several methods for bringing about aggregation of claims, i.e., they are but one of several methods by which multiple similarly situated parties get similar claims resolved at one time and in one federal forum. [Citations.]” ( Id. at p. 291.)

Granted, Sprint arose in the context of Article III, a “prudential standing” analysis. However, in reaching its decision that assignees had standing, the Court relied significantly on three California state decisions addressing assignment of rights under California law. (See Sprint, supra, 554 U.S. at pp. 294-296.)

Under California law, assignment of claims is not a panacea. Not all claims can be assigned. In California, assignment is not allowed for tort causes of action based on “wrongs done to the person, the reputation or the feelings of an injured party,” including “causes of action for slander, assault and battery, negligent personal injuries, seduction, breach of marriage promise, and malicious prosecution.” ( AMCO, supra , 244 Cal.App.4th at p. 892 [exceptions to assignment also include “legal malpractice claims and certain types of fraud claims”].) Other assignments are statutorily prohibited. (See, e.g., Civ. Code, § 2985.1 [regulating assignment of real property sales contracts]; Gov. Code, § 8880.325 [state lottery prizes not assignable].)

Likewise, because a right of action cannot be split, a partial assignment will require the joinder of the partial assignor as an indispensable party. (See, e.g., Bank of the Orient v. Superior Court (1977) 67 Cal.App.3d 588, 595 [“[W]here . . . there has been a partial assignment all parties claiming an interest in the assignment must be joined as plaintiffs . . . ”]; 4 Witkin, Cal. Procedure, supra, Pleadings, § 131(2), p. 198 [“If the assignor has made only a partial assignment, the assignor remains beneficially interested in the claim and the assignee cannot sue alone”].)

That said, California’s rules of law regarding standing and assignments do not prohibit an assignee’s aggregation of a large number of claims against a single defendant or multiple defendants into a single lawsuit. To the contrary, no limitations or conditions on this type of aggregation of assigned claims is imposed from other rules of law, such as California’s compulsory joinder statute. (See Sprint , supra , 554 U.S. at p. 292 [to address practical problems that might arise because aggregators, not payphone operators, were suing, district “court might grant a motion to join the payphone operators to the case as ‘required’ parties” under Fed. Rules Civ.Proc., rule 19].)

There are many procedural approaches to evaluate when seeking to combine the claims of multiple plaintiffs. Class actions and joinders are more traditional methods that trial counsel rely on to bring claims together. Although a largely unexplored procedural approach, assignment appears to be an expedient way of combining the claims of numerous plaintiffs. It avoids the legal requirements imposed for class actions and joinders, and it sidesteps a trial judge’s discretion regarding whether to consolidate, relate, or coordinate actions. Indeed, under the right circumstances, an assignment of claims might provide a means of bypassing class action waivers in arbitration agreements. Perhaps an assignment of claims should be added to the mix of considerations when deciding how to bring a case involving numerous plaintiffs with similar claims against a common defendant or set of defendants.

Judith Posner

Judith Posner is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

Gerald Serlin

Gerald Serlin is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

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2 – Corresponding legal duty in the defendant toward the plaintiff

The second element of the cause of action corresponds to the primary right of the plaintiff. This duty may arise from a contract or may be imposed by positive law independent of the contract, or it may arise ex contractu or ex delictu (consequences from breaching the contract).

There are several ways to determine whether the defendant had a duty to act:

• The defendant is engaged in the creation of the risk which resulted in the plaintiff’s harm.
• Voluntary undertaking: The defendant volunteered to protect the plaintiff from harm.
• Business/voluntary relationships:
• Business owner and customer;
• Innkeeper and guest;
• Land possessor who opens her land to the public;
• A person who voluntarily takes custody of another person.

Case example: Solomon v. Bates (N. C.)

In this case, the theory involves directors that are trustees for creditors, and individually owe a legal duty to them. The directors were wrong acting in a fraudulent, negligent, mismanagement affecting the creditor’s rights.

Case example: Purcell vs R.R 108 N.C 414

The court gave the verdict that the failure to discharge the duty required by the laws was a wrong caused by the defendant’s negligence -tort- and is properly united by the tort by fraud and deceit form part of the complaint.

3 – Wrong or violation of the plaintiff’s right, or breach of duty on the part of the defendant

Duty is the action which is to be done or not done by the person in obligation of it. A cause of action arises wherever there is proof that there was the existence of a duty towards the plaintiff by him which he failed to procure resulting in a breach. For instance, negligence as a Tort is a breach of duty that is not desired by the plaintiff but committed by the defendant.

The Wrongful Act or Omission forms part of the action that leads to affecting the right of the plaintiff.

• A buys a horse from B.
• Later he came to know that the horse is suffering from a life-threatening disease.
• As a result, B’s Non-Disclosure of information is part of the Wrongful Act with his clear intention to commit fraud against A.
• Here, A has full rights to bring legal action against B.

Case example: Hart v. Hanson , 14 N.D. 570, 105 N.W. 942 (1905)

The defendants were directors of the State Bank of Northwood, the plaintiff and his assignors became sureties on the such-depositary bond, and the same was delivered to and accepted by the county. County funds were thereupon deposited in the bank and were closed by the state authorities by reason of its insolvency. Here the defendant’s activities are part of the question since they acted fraudulently, as they already knew the insolvency of county funds but they remained silent . They were also the trustees in whose name the creditors invested money. Consequently, the directors were held completely liable to creditors.

When the defendant intentionally interferes with the rights of the plaintiff they lay the foundation for the lawsuit with the cause of action.

Case example: Davenport v. Underwood

The court held the defendant liable. The bank directors were held responsible for causing losses for the bank as they were directly liable to depositors on the grounds of fraud and negligence while performing the corporation’s duties.

Case example: Delano v. Case

In this case, the defendant committed a wrongful act on the ground of negligence. The court ruled that the purpose of cause of action could exist where there has been a liability in the right of the corporation to be enforced.

4 – Concurrence of right, duty, and wrong

According to Salmond “no right can exist without any corresponding duty and vice versa”.

Every person is rendered some rights which are granted to him against individuals or some against the public at large. These rights cannot be taken away. On the other hand, it’s the duty of individuals around him to let him enjoy his right by doing or restraining from doing anything which may hinder it. Rights and duties exist simultaneously.

A right is an interest protected by the law or the state, and it’s the duty that mandates the protection of the right. But when the protection is infringed by a failure to follow the duty, it gives rise to the wrong committed and hence, to a cause of action. This renders another right to claim the damage suffered for the one whose right was infringed.

5 – Damage

When the duty obliged is not performed, the right is infringed causing loss or damage and can be claimed with the cause of action that arose. Damages can be defined as the injury caused or loss incurred by the plaintiff due to the failure of the defendant and can be remedied by issuing the cause of action claiming damages.

Case example: Marzetti v. Williams (1830) 1 B & Ad 41

This case stated that every contract implies a duty to be performed by the parties and in the event of breach, cause of action arises against the party at fault mandating the use of the maxim, Ubi jus ibi remedium . Where there is action given by law, there are damages to the violated right.

6 – Concurrence of wrong and damage

The maxims damnum sine injuria and injuria sine damnum are elaborative of the relationship between the wrong and damage. Damnum sine Injuria refers to damages without injury or damages where there is no infringement of any legal right in spite of the loss which might have been incurred.

On the other hand, Injuria sine damno refers to infringement of legal right without causing any harm, loss, or damage to the plaintiff. Whenever any legal right is infringed, the plaintiff or the one who suffers can bring a cause of action against the one who infringed the right. Therefore, damages are the result of the cause of action through an actionable wrong.

Case example: Clark v. McClurg 215 Cal 279

In order to establish that there was breach of duty, the plaintiff must not only prove the existence of actionable wrong but also damages thereof. It was emphasized that the concurrence of actionable wrong and damages are important for the cause of action to be advanced.

Case example: Mogul Steamship Co Ltd v McGregor, Gow & Co [1892] AC 25

This case established that immoral acts done in a lawful manner led to no legal injury, hence no damages to be claimed by the plaintiff, and no point of the cause of action.

Last thoughts for the legal researcher

Although this guide is limited in scope and purpose, it’s clear that your own duty as a lawyer is to be well-versed with the facts of a case and to competently analyze similar cases where possible. This demands significant time and effort in both research and analysis, and understandably so. Yet the energy spent in gathering pertinent definitions and requirements don’t need to be so cumbersome.

The steps laid out above to specify causes of action serve only as basic principles so you can confidently proceed to the next phase of thorough analysis and file a lawsuit.

Originally published on November 17, 2022

The content appearing on this website is not intended as, and shall not be relied upon as, legal advice. Although this content was created to provide you with accurate and authoritative information, it was not necessarily prepared by attorneys licensed to practice law in a particular jurisdiction. It is general in nature and may not reflect all recent legal developments. Thomson Reuters is not a law firm and an attorney-client relationship is not formed through your use of this website. You should consult with qualified legal counsel before acting on any content found on this website.

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Assignability of Causes of Action – A Divergence between the Federal and State Jurisdictions

A brief history

As a general proposition, a purported assignment of a cause of action that savours of maintenance will be void. A bare right of litigation, for example a right to recover damages in tort, has traditionally been considered not to be assignable either at law or in equity. 2 The cases have sometimes drawn a distinction between a so-called “personal right to litigate” as against an “impersonal right” in the nature of a proprietary right. 3 However, the distinction between so-called “personal rights” and “impersonal rights” is often elusive.

Historically, the courts have been reluctant to condone assignments of causes of action generally. Parker J in Glegg v. Bromley 4 observed:

“Equity on the grounds of public policy did not give validity to the assignment of what is in the cases referred to as a bare right of action, and this was so whether the bare rights were legal or equitable. I have looked at a good many authorities on that point, and I am satisfied that the real reason why equity did not allow the assignment of a bare right of action, whether legal or equitable, was on the grounds that it savoured of or was likely to lead to maintenance.”

The trial was heard by Fullagar J in the High Court. His Honour held that if there had been a tortious taking of the wool by the Commonwealth, the growers’ rights of action in tort against the Commonwealth could not be assigned at law or in equity to Mr Poulton. However, his Honour’s conclusions in that regard were obiter , given that his Honour found that the relevant regulations were valid and thus there had been no tort committed.

An appeal to the Full Court constituted by Williams, Webb and Kitto JJ was dismissed. At page 602, the Full Court said:

“. . . If it were true that the Commonwealth were guilty of conversion of the [growers’] wool, it would be the [growers] alone who could elect to waive the tort and take the proceeds of sale. This would be so, both because there was not in fact any purported assignment to the plaintiff of the right of action for the tort, and because, according to well established principle, the right was incapable of assignment either at law or in equity . . . ”.

Modern developments

In 1981, the House of Lords in Trendtex Trading Corporation v. Credit Suisse 6 liberalised the hitherto relatively strict rules against assignment of causes of action. Roskill LJ delivered the leading judgment. His Honour re-stated that it is a fundamental principle of English law that one cannot assign a bare right to litigate. However, if the assignment is of a property right or interest, or if the assignee has a genuine commercial interest in taking the assignment and in enforcing it for his or her own benefit, there is no reason why the agreement should be struck down as an assignment of a bare cause of action, or as savouring of maintenance. 7

Trendtex was a decision relating to the assignment of a contractual cause of action. In Giles v. Thompson, 8 the House of Lords extended the application of the Trendtex principle to tortious causes of action. The House of Lords determined that the question was whether there had been “wanton and officious intermeddling with the disputes of others in which the meddler has no interest whatever and where the assistance he renders to one or the other party is without justification or excuse.” 9

Australian cases post- Trendtex

There is a division in the cases that have been decided in Australia since the House of Lords decision in Trendtex as to whether the Trendtex approach is to be preferred over the stricter approach set out in the dicta of the four judges of the High Court in Poulton . Decisions that support the adoption of the Trendtex principle in Australia are largely decisions in the State Supreme Courts. 10 In contrast, a number of single judges of the Federal Court have declined to apply the Trendtex approach and, instead, have expressed the view that the dicta in Poulton ought to be followed until the High Court determines otherwise, 11 although two recent Federal Court decisions suggest that Court may also be moving towards adoption of the Trendtex approach. 12

The Federal Court decisions have generally reflected the view that it is not open to courts of first instance to depart from the considered statements of the High Court in Poulton and that, in consequence, bare rights of action in tort should be regarded as incapable of assignment, whether or not the tort is of a personal kind. This view is reflected in the observations of the authors of Equity: Doctrines and Remedies (4 th Ed, 2002) at [6-480] that “. . . it is not easy for courts below the High Court legitimately to depart from the considered dicta of three [sic] High Court justices”. In fact, the dicta in Poulton are those of four High Court justices when one includes Fullagar J, who delivered the first instance decision.

The High Court considered in some detail the history of maintenance and champerty. At para [73], Gummow, Hayne and Crennan JJ said:

“Assignment of a chose in action ‘made with the improper purpose of stirring up litigation’ would raise questions of maintenance and champerty. But the mere assignment of the proceeds of litigation would not. If the assignment stipulated that the assignee should participate in the litigation, the assignment was lawful only ‘if he have some legal interest (independent of that acquired by the assignment itself) in the property in dispute; but that where his interest is generated only by the assignment itself, such a stipulation would be improper’”. 14

Commencing at para [79] of the joint judgment, the Court referred in detail to the decision in Trendtex , without apparent approval or disapproval of the approach of the House of Lords. Gleeson CJ concurred in the reasons of Gummow, Hayne and Crennan JJ on this public policy point. Their Honours concluded that the fact that Firmstones had sought out retailers with claims and had control of the litigation and that they hoped to profit from the litigation was not sufficient to warrant condemnation of the arrangements as being contrary to public policy or as leading to any abuse of process. 15 Callinan and Heydon JJ dissented on this point and found that the arrangements did constitute an abuse of process.

The Full Court of the Federal Court in Deloitte Touche Tohmatsu v. J P Morgan Portfolio Services Ltd, 16   found the issue, like that in Fostif , was whether a litigation funding agreement constituted an abuse of process. Once again, there was no assignment of any cause of action to the litigation funder. Tamberlin and Jacobson JJ (Rares J dissenting), held that it was not an abuse of process and that the litigation funder did have a genuine commercial interest in the enforcement of the claim. Both Fostif and Trendtex were cited in support. Rares J noted that it was common ground between the parties that the causes of action in question “ were not capable of assignment to [the litigation funder]”. 17

Of the exceptions to the more restrictive approach of the Federal Court to this question are two recent cases. The first was that of Finkelstein J in TS&B Retail Systems Pty Ltd v 3 Fold Resources Pty Ltd & Ors. 18   In obiter , his Honour said:

“In Australia there is a debate whether the Trendtex principle should be adopted. The cases for and against (the latter all being decisions of the Federal Court) are collected in Rickard Constructions Pty Ltd v. Rickard Hails Moretti Pty Ltd . . .  It may be that the debate is now over for the High Court in Campbells Cash and Carry Pty Ltd v. Fostif Pty Ltd . . .  seems to have approved Trendtex . . .  In any event, my own view is that the logic of Lord Roskill’s view [in Trendtex] is inescapable. That is especially so when, as here, the cause of action is connected with, or relates to, rights or interests owned, or that will fall into the ownership, of the assignee”.

The second recent case in the Federal Court is Tosich v Tasman Investment Management Ltd 19 where Gyles J, having noted the divergence in the cases as to the application of Trendtex , expressed his view that the approach of the High Court in Fostif supported the reasoning of Finkelstein J in TS&B Retail.  

However, Heerey J as recently as October 2007 expressed a contrary view that the decision of the High Court in Poulton retains its authority, and that Trendtex is not good law in Australia. 20 Although the decision of Heerey J was appealed, the appeal was determined without reference to this point. 21

Assignment of contractual causes of action

The issue that then arises is as to whether a right to sue for unliquidated damages for breach of contract is capable of assignment. Meagher, Gummow and Lehane give a somewhat abbreviated answer in the negative, 25 and refer to cases such as  Torkington v. Magee 26 and County Hotel Co v. London and Northwestern Railways. 27 Likewise, Cheshire & Fifoot’s Law of Contract suggests that a bare right to litigate for a past breach of contract is generally not assignable, 28 although there is a suggestion that there may be exceptions to this proposition as set out in Trendtex .

If the Trendtex principle is applied, then bare rights to litigate for unliquidated damages for breach of contract may be assignable provided either:

(a)    they are annexed to a right of property;  or

(b)    the assignee has a genuine and substantial, or genuine commercial, interest in the enforcement of the cause of action.

Poulton dealt with the assignability of tortious causes of action. There is no High Court authority directly on the issue as to whether contractual causes of action may be assigned. The position so far as contractual causes of action were concerned was summarised by McDougall J in Rickard Constructions v. Rickard Hails Moretti Pty Ltd, 29 in the following terms:

“In relation to contractual causes of action, I find the distinction between liquidated and unliquidated claims difficult to follow. I have already noted that a debt is assignable even if it is overdue. As is pointed out in Meagher, Gummow and Lehane at 281 [6-480], where the debt is overdue, ‘there has been a breach of the contract to pay and . . . in fact, all that is assigned is the right to sue to recover the debt. The case of an overdue debt merely points up the problem inherent in the distinctions drawn in this breach [sic] of the law: for what is a debt but a right to sue to recover a sum certain? In what other sense is a debt to be regarded as property?’ I do not think that a rule based on public policy which encourages illogical distinctions of this sort should be applied unless there is no alternative. I do not regard the obiter statements in Poulton, limited as they are to an assignment of bare causes of action in tort, as providing a compelling reason to accept such illogical distinctions and their consequences”.

Accordingly, his Honour found that, in principle, an assignment of a cause of action in contract to recover unliquidated damages should be accepted where the assignee has a sufficient interest to support the assignment.

Assignment of causes of action in tort

A right to sue in tort is never itself property: it is a bare right of action. 30 The position of the assignability of causes of action in tort (at least non-personal causes of action) remains somewhat in a state of flux. Notwithstanding the High Court’s liberalisation of the law concerning maintenance and champerty in Fostif , the High Court has not expressly overruled the earlier strong dicta of four judges of the Court in Poulton . However, there is a sense that the march of the law is generally heading away from the strict approach exemplified by Poulton and towards a more general acceptance of the approach adopted by the House of Lords in Trendtex . 

Nevertheless, the position of the majority of the Federal Court cases is exemplified generally by the approach Rares J in Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd 31 where it was said:

“New Boston argued that I should not follow the decision of the High Court in Poulton . . . which denied that a right of action in tort was assignable at all. It was suggested that this was the old view of the law. New Boston argued that I should follow what was said by Debelle J in South Australian Management Corp v. Sheahan . . . namely that the decision could be explained as relating to an assignment of a claim in tort where the assignee had no genuine commercial interest. However, in Garcia v. National Australia Bank Ltd (1998) 194 CLR 395 . . . at [17] Gaudron, McHugh, Gummow and Hayne JJ made it clear that the doctrine of precedent in Australia binds me to follow the decisions of the High Court unless and until that court decides that the time is right for a change in the law. I propose to do that. There is no basis to read down the considered judgment of Williams, Webb and Kitto JJ in Poulton . . . that a right of action in tort is incapable of assignment at law or in equity. I am of opinion that Debelle J was wrong not to have applied this binding authority”.

This approach seems to have been generally reflected in the Federal Court decisions (with the exception of the decisions of Finkelstein J in T S & B Retail Systems Pty Ltd 32 and Gyles J in Tosich v Tasman Investment Management Ltd 33 ). However, the almost universal approach of the State Supreme Courts has been to apply the Trendtex doctrine and to conclude that a cause of action in tort may be assigned (at least not a personal cause of action) provided that the assignee has the necessary interest in the litigation. 34

There remains some question as to whether causes of action for personal torts (such as damages for personal injury, defamation or false imprisonment) may ever be capable of being assigned. 35

Assignment of causes of action in equity

A bare right to sue in equity has traditionally been considered not able to be assigned. 36 However, one must question the appropriateness of maintaining a distinction between equitable causes of action and contractual or tortious claims. Indeed, it may be that the courts are moving towards a position that even equitable causes of action may be assigned provided that the assignee has the necessary interest in the outcome of the litigation.

Nevertheless, this matter has not been the subject of much judicial consideration in recent times. 

Assignability of statutory causes of action

Whether a statutory cause of action is assignable will turn on the terms of the statute. To take but one example, there has been frequent litigation concerning the assignability of causes of action under sections 82 or 87 of the Trade Practices Act 1974. It is well established that causes of action for recovery of damages under either of those sections are not capable of assignment. 37 A cause of action under the corresponding provisions of the Fair Trading Act of the States is also not able to be assigned. 38

The necessary interest to support an assignment

It is clear that, even if Trendtex is good law in Australia, any assignee must have more than a mere personal interest in profiting from the proceedings. Cohen J in Monk v. Australia & New Zealand Banking Group Ltd 39 said:

“In my opinion [the interest claimed by the plaintiff] is not a genuine commercial interest in the way that the phrase has been used in the judgments. Examples may be given from the facts in the various cases concerned. For instance it was held that there was such an interest where the assignee was already a substantial creditor of the assignor with a right to enforce the debt (Trendtex, re Timothy’s) or where the assignee was the sole shareholder who was a guarantor of the overdraft of the assignor (re Daley) or where the assignee was a debenture holder with an interest in protecting the value of its security (First City Corporation)”.

Lindgren J in National Mutual Property Services (Australia) Pty Ltd v. Citibank Savings Limited 40 said:

“. . . The genuine commercial interest referred to in Trendtex is not a nebulous notion of the general commercial advantage of the assignee but something more specific and limited. In particular, it does not embrace an interest arising from an arrangement voluntarily entered into by the assignee of which the impugned assignment is an essential part, like the arrangement in the present case. Rather, the expression refers to a commercial interest which exists already or by reason of other matters, and which receives ancillary support from the assignment”.

These reasons were approved by Heerey J in Salfinger v. Nuigini Mining (Australia)Pty Ltd. 41

Mere personal interest of the assignee will therefore be insufficient. General commercial advantage will also be an insufficient ground to found an assignment. The assignee must have some commercial interest which the assignment may in some way protect.

The issue of the assignability of causes of action is an area of the law that has been in a state of some flux for many years. Notwithstanding this, it is somewhat surprising that there is little direct High Court or intermediate Appellate Court authority on the issues that have been explored in this paper.

There has been a clear divergence between the general approach of the Federal Court (preferring to adopt the approach in Poulton and eschewing the Trendtex approach) and that of the State Supreme Courts which have instead embraced the Trendtex position. There is a suggestion in some of the most recent Federal Court cases that that jurisdiction may be moving towards embracing Trendtex as good law, although this is certainly not a uniform phenomenon.

The effect of the divergence is that particular care should be taken when determining which court to proceed in if reliance is to be placed upon an assignment of causes of action, whether in contract, tort, or equitable causes of action. The Federal Court has shown a much more marked reluctance to uphold assignments of causes of action generally.

The inconsistencies between the various single court decisions will ultimately have to be resolved by a decision of the High Court. Given the decision in Fostif , where a rather more liberal view of the law of maintenance and champerty was expressed in the majority decision, one might expect that the Trendtex approach will ultimately prevail. However, until the High Court has given that pronouncement, practitioners should be alive to the differing approaches by the courts in this complex area of the law.

Matthew Brady

• The writer acknowledges the assistance obtained from the research of Mr G Gibson QC and Mr D O’Brien of counsel in the preparation of this paper – however all errors are the writer’s alone.
• See, Cheshire & Fifoot’s Law of Contract, 9 th ed, 2008, para [8.7]. 
• See, T S & B Retail Systems Pty Ltd v. 3 Fold Resources Pty Ltd & Ors (2007) 158 FCR 444 at 465. 
• [1912] 2 KB 474 at 489-490.
• [1953] 89 CLR 540. 
• [1982] AC 679. 
• At 696 – 697; 703. 
• [1994] 1 AC 142.
• At p 164 per Mustill LJ, with whom the other members of the House agreed. 
• See, Re Timothy’s Pty Ltd and The Companies Act [1981] 2 NSWLR 706; Monk v. Australia & New Zealand Banking Group Ltd (1994) 34 NSWLR 148; South Australian Management Corporation v. Shehan (1995) 16 ACSR 45 (Debelle J); Beatty v. Brashs Pty Ltd   [1998] 2 VR 201 (Smith J);  Singleton v. Freehill Hollingdale & Page   [2000] SASC 278 (Olsson J); Vangale Pty Ltd (In Liquidation) v. Kumagai Gumi Co Ltd   [2002] QSC 137 (Mullins J); Rickard Constructions Pty Ltd v. Rickard Hails Moretti Pty Ltd (2005) 220 ALR 267 (McDougall J); Scholle Industries Pty Ltd v AEP Industries (NZ) Ltd [2007] SASC 322 (Withers J). In New Zealand see First City Corporation Ltd v Downsview Nominees Ltd [1989] 3 NZLR 710 (Gault J). McMurdo J in BHP Coal Pty Ltd v O & K Orenstein & Koppel AG [2008] QSC 141 at [76] and Beech J in Corporate Systems Publishing v Lingard (No 4) [2008] WASC 21 at [53] — [58] noted the diverge in the authorities but did not express a preference.
• See, Park  v. Allied Mortgage Corporation Ltd (1993) ATPR (Digest) 46-105 (Davies J); All State Life Insurance Co v. Australia & New Zealand Banking Group Ltd (FCA, Beaumont J, No G381 of 1994, 7 November 1994, unreported, BC 9400129); National Mutual Property Services (Aust) Pty Ltd v. Citibank Savings Ltd (1995) 132 ALR 514 (Lindgren J); Chapman v. Luminis (No 4) (2001) 123 FCR 62 (von Doussa J); Deloitte Touche Tohmatsu v. Cridlands Pty Ltd   (2003) 134 FCR 474 (Selway J); Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd (2007) 236 ALR 720 (Rares J); Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 (Heerey J).
• See TS&B Retail Systems Pty Ltd v 3-Fold Resources (2007) 229 ALR; Tosich v Tasman Investment Management [2008] FCA 377
• (2006) 229 CLR 386 
• Footnotes omitted. 
• See, [88]. 
• (2007) 158 FCR 417.
• At para [134]. 
• [2007] FCA 151.
• [2008] FCA 377 at [29]-[33].
• Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 at [119]. 
• [2008] FCAFC 103
• See Comfort v. Betts [1891] 1 QB 737; Fitzroy v. Cave (1905) 2 KB 364;  County Hotel and Wine Co v. London & Northwestern Railway Co [1918] 2 KB 251; Re Daley;  Ex parte: National Australia Bank Ltd (1992) 37 FCR 390 at 394-5.
• Torkington v. Magee [1902] 2 KB 427.
• Rickard Constructions v. Rickard Hails Moretti Pty Ltd (supra) at 281; Camdex International Ltd v. Bank of Zambia [1998] 2 QB 22; Re Kenneth Wright Distributors Pty Ltd (In Liquidation); W J Vine Pty Ltd v. Hall [1973] VR 161. 
• See, para [6-480] at p 282. 
• Supra . 
• At para [8.7].
• (Supra) at [54]. 
• Prosser v. Edmonds (1835) 160 ER 196. 
• (2007) 236 ALR 720 at [73]. 
• Supra 
• See Supreme Court cases referred to earlier.
• See, Trendtex (supra), at 702; South Australian Management Corp v. Shehan (1995) 16 ACSR 45 at 57-58; Monk v. Australia & New Zealand Banking Group (1994) 34 NSWLR 148 at 151-153. 
• Prosser v. Edmonds (1835) 160 ER 196;  Glegg v. Bromley [1912] 3 KB 474 at 489-490. 
• See, Park v. Allied Mortgage Corporation Ltd (1993) ATPR (Digest) 46-105 at 53,467; Allstate Life Insurance Co v. Australia & New Zealand Banking Group Ltd [1994] FCA 814 at [18]; Pritchard v. Racecage Pty Ltd (1997) 72 FCR 203 at 218;  Chapman v. Luminis (No 4) (2001) 123 FCR 62 at [204] – [207];  Boston Commercial Services Pty Ltd v. G E Capital Finance Australasia Pty Ltd (supra) at [50] – [52]; Salfinger v. Nuigini Mining (Australia) Pty Ltd (No 3) (supra) at [110]. 
• See, Chapman v. Luminis Pty Ltd (supra). 
• Supra , at 153. 
• Supra , at 540.
• Supra , at [121] – [122]. 

Article III, Section 2, Clause 1:

The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;—to all Cases affecting Ambassadors, other public Ministers and Consuls;—to all Cases of admiralty and maritime Jurisdiction; to Controversies to which the United States shall be a Party;—to Controversies between two or more States; between a State and Citizens of another State, between Citizens of different States,—between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects.

An assignment of a legal claim occurs when one party (the “assignor” ) transfers its rights in a cause of action to another party (the “assignee” ). 1 Footnote Black’s Law Dictionary 136 (9th ed. 2009) (defining “assignment” as “the transfer of rights or property” ). The Supreme Court has held that a private litigant may have standing to sue to redress an injury to another party when the injured party has assigned at least a portion of its claim for damages from that injury to the litigant. The Supreme Court in the 2000 case Vermont Agency of Natural Resources v. United States ex rel. Stevens held that private individuals may have Article III standing to bring a qui tam civil action in federal court under the federal False Claims Act (FCA) on behalf of the federal government if authorized to do so. 2 Footnote 529 U.S. 765, 768, 778 (2000) . The FCA imposes civil liability upon “any person” who, among other things, knowingly presents to the federal government a false or fraudulent claim for payment. 3 Footnote 31 U.S.C. § 3729(a) . To encourage citizens to enforce the Act, in certain circumstances, a private individual, known as a “relator,” may bring a civil action for violations of the Act. Such plaintiffs sue under the name of the United States and may receive a share of any recovered proceeds from the action. 4 Footnote Id. § 3730(d)(1)–(2) . Under the FCA, the relator is not merely the agent of the United States but an individual with an interest in the lawsuit itself. 5 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 772 ( “For the portion of the recovery retained by the relator . . . some explanation of standing other than agency for the Government must be identified.” ) (citing 31 U.S.C. § 3730 ).

Ordinarily, if the relator’s financial interest in the outcome of the case were merely a byproduct of the suit itself, there would be no injury sufficient for standing. 6 Footnote Id. at 772–73 ( “An interest unrelated to injury in fact is insufficient to give a plaintiff standing. . . . A qui tam relator has suffered no [invasion of a legally protected right]—indeed, the ‘right’ he seeks to vindicate does not even fully materialize until the litigation is completed and the relator prevails.” ) (citations omitted). The Supreme Court has held that a litigant’s interest in recovering attorneys’ fees or the costs of bringing suit by itself normally does not confer standing to sue. E.g. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 107 (1998) ( “The litigation must give the plaintiff some other benefit besides reimbursement of costs that are a byproduct of the litigation itself.” ); Diamond v. Charles, 476 U.S. 54, 70–71 (1986) ( “[T]he mere fact that continued adjudication would provide a remedy for an injury that is only a byproduct of the suit itself does not mean that the injury is cognizable under Art. III.” ). In Stevens , however, the Supreme Court recognized a distinction that confers standing upon qui tam plaintiffs in FCA cases. Justice Antonin Scalia, writing for the Court, determined that assignments of claims are distinguishable from cases in which a litigant has a mere financial interest in the outcome of the suit because the assignee-plaintiff actually owns a stake in the dispute as a legal matter. 7 Footnote Vt. Agency of Nat. Res. , 529 U.S. at 773 . Justice Scalia drew support for this distinction from the long-standing historical practice of the government assigning a portion of its damages claim to a private party and allowing that party to assert the injury suffered by the federal government as a representative of the United States. 8 Footnote Id. at 774, 778 The Court noted the “long tradition of qui tam actions in England and the American colonies,” 9 Footnote Id. concluding that “Article III’s restriction of the judicial power to ‘Cases’ and ‘Controversies’ is properly understood to mean ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’” 10 Footnote Id. Although the Court held that the relator had standing to sue under the qui tam provision, it ultimately determined that the plaintiff could not maintain the action against a state agency for allegedly submitting false grant claims to the EPA because states were not “persons” subject to liability under the False Claims Act. Id. at 787 .

Eight years after deciding Stevens , the Supreme Court again found that an assignee of a claim had standing, even when the assignee had promised to remit all of the money it recovered in the proceedings to the assignor. 11 Footnote Sprint Commc’ns Co. v. APCC Servs., Inc. , 554 U.S. 269 , 271 (2008) . In Sprint Communications Co. v. APCC Services, Inc. , payphone operators had assigned their legal claims for money owed to them by long-distance communications carriers to third-party collection agencies. 12 Footnote Id. at 271–72 . The agencies were authorized to bring suit on behalf of the payphone operators and promised to pay all of the proceeds of the litigation to the payphone operators for a fee. 13 Footnote Id. at 272 . The Court held that these collection agencies had standing to pursue the operators’ claims because of the long history of courts’ acceptance of such claims. 14 Footnote Id. at 273–75 . The Court noted that “federal courts routinely entertain suits which will result in relief for parties that are not themselves directly bringing suit. Trustees bring suits to benefit their trusts; guardians ad litem bring suits to benefit their wards; receivers bring suit to benefit their receiverships; assignees in bankruptcy bring suit to benefit bankrupt estates; executors bring suit to benefit testator estates; and so forth.” Id. at 287–88 . Assignment was sufficient to transfer the injury to the collections agencies, and the injury to the operators that had been transferred to the collection agencies would be redressed by a favorable judicial decision, even if the agencies would subsequently pay all of the proceeds to the operators. 15 Footnote Id. at 286–87 ( “[I]f the [collection agencies] prevail in this litigation, the long-distance carriers would write a check to [them] for the amount of dial-around compensation owed. What does it matter what the [agencies] do with the money afterward?” ).

The Stevens and Sprint cases could have broader implications for Article III standing doctrine, as they suggest a way in which the constitutional limitations on standing may be bypassed through the assignment of rights to a third party. 16 Footnote See also ArtIII.S2.C1.6.4.3 Particularized Injury. For instance, if Congress enacts a federal statute recognizing an injury to the federal government that otherwise satisfies Article III’s requirements, it may assign a portion of its claim to a private party, thereby potentially giving that plaintiff standing to sue as a representative of the United States. 17 Footnote See Vt. Agency of Nat. Res. , 529 U.S. at 773 . This is essentially the operation of the False Claims Act. 18 Footnote 31 U.S.C. §§ 3729–3733 . However, it is unclear whether every such statute would necessarily resolve all Article III standing concerns. In Stevens and Sprint , the Court gave significant weight to the lengthy history of courts recognizing the types of assignments at issue when determining that the litigants in those cases had standing to sue. 19 Footnote See id. at 774, 778 ; Sprint Commc’ns Co. , 554 U.S. at 273–75 . Moreover, there may be a number of concerns about the constitutionality and practicality of using assignments to delegate core government functions (e.g., criminal prosecutions) to private parties when courts have not historically recognized claims based on such assignments, including concerns about interference with the Executive Branch’s Article II powers and prosecutorial discretion. 20 Footnote See Heather Elliott , Congress’s Inability to Solve Standing Problems , 91 B.U. L. Rev. 159 , 195–204 (2011) (questioning whether Congress’s assignment of claims to citizen suitors in order to confer standing would be constitutional or practical).

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Champerty and Assignment of Causes of Action

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McCool Controls and Engineering Ltd v Honeywell Control Systems Limited [2024] IESC 5.

McCool Controls and Engineering Limited ( Company ) was the original plaintiff in proceedings against Honeywell Control Systems Ltd ( Honeywell ) for alleged breaches of an agreement between the parties.  The proceedings were commenced in 2005.  Mr McCool was the managing director and majority shareholder of the Company, and he brought an application to substitute him for the Company as the plaintiff in the proceedings, where the Company could no longer afford legal representation.  The application was based on an assignment entered into between the Company and Mr McCool, whereby the Company assigned the cause of action to him for the nominal consideration of €1 ( First Assignment ).  The First Assignment contained a clause allowing Mr McCool to reassign any or all the rights transferred ( onward transmission clause ).

Honeywell successfully applied to have the substitution order discharged. The High Court (Noonan J) found that the assignment was invalid and an abuse of process as it amounted to an impermissible attempt to circumvent the rule in Battle (as discussed in our article here ).  The assignment was also found to savour of champerty (meaning it is conducive to carrying out champerty) because it expressly provided for the onward transfer of the cause of action to a disinterested third party.  Mr McCool appealed the decision to the Court of Appeal ( COA ).

Despite the pending appeal, Mr McCool brought a second application to the High Court to be substituted as plaintiff.  This application was grounded on a second assignment executed by the Company in favour of Mr McCool ( Second Assignment ).  The Second Assignment was similar to the First Assignment, save that it omitted the onward transmission clause.   Simons J refused this application on the basis that the matter was already decided by the High Court in 2018.  Mr McCool also appealed this refusal to the COA.

The COA in 2022, dismissed both appeals upholding the findings of the High Court.  The COA found that the First Assignment savoured of champerty because Mr McCool did not have a pre-existing legitimate interest in the transaction giving rise to the claim.  Only the Company, which had entered the agreement with Honeywell, held that interest.

Mr McCool sought and obtained leave from the Supreme Court to appeal on the narrow grounds of whether an assignee of its interest in litigation by a corporate body can pursue the action by being substituted as a plaintiff in place of the company, irrespective of the purpose of the assignment.

Assignment of a bare cause of action

An assignment of a chose of action, such as a cause of action in litigation, is not enforceable under Irish law if it “savours of” maintenance or champerty.  “Savours of”, as explained by Murray J, means that the assignment offends the same public policy as maintenance and champerty. Champerty means an agreement to fund or support litigation in which the party providing that support has no legitimate interest, in return for some share in the proceeds of that litigation.  Maintenance occurs when a person supports litigation in which they have no legitimate interest.  Both are torts and offences under Irish law.

Assignments of bare causes of action have traditionally been regarded as commercialising litigation and therefore offensive.  Such assignments formed the subject of the seminal Supreme Court decision of SPV Osus v HSBC International Trust Services (Irl) Ltd [2018] IESC 44, (discussed in our article here )  which is authority for the position under Irish law that the assignment of a bare cause of action is unenforceable unless the assignee had a genuine commercial interest in the assignment.

Although leave to appeal in this case was restricted to a very narrow point around the rule in Battle, Mr Justice Hogan and Mr Justice Murray nonetheless considered the public policy behind the tort of champerty as applied to the assignment of a cause of action. Hogan J found it impossible to avoid considering the question of whether the First Assignment was champertous.

Murray J after reviewing existing authorities on the assignment of a cause of action/ right to litigate, summarised the relevant rules concerning assignments of bare causes of action as follows:

• Such an assignment is prima facie champertous and therefore unenforceable unless the assignee has a genuine commercial interest in the claim that pre-existed the assignment and was independent of it (e.g. through their shareholding or debt);
• However, the extent of the shareholding or debt cannot be so small that it renders their interest insubstantial.
• There should be a reasonable proportion between the percentage share of the proceeds of the claim taken by the assignee and their pre-existing commercial interest in the claim.

Hogan J referring to the comments of O’Donnell J in SPV Osus , and disagreeing with the findings of the COA, concluded that the First Assignment was not champertous because Mr McCool had a clear personal interest in the outcome of the proceedings. As the principal shareholder in the Company, he had a legitimate interest in receiving the assignment of the cause of action.  There was no question of him “investing in litigation”.

Whilst the validity of the assignment and the public policy issues regarding maintenance and champerty did not form part of the appeal to the Supreme Court, the comments of Murray and Hogan JJ are a welcome clarification of the principles that a court may apply in testing the validity of an assignment of a cause of action.

Notably, Hogan J applied a broader interpretation of the findings in SPV Osus than the COA had, in circumstances where Mr McCool and the Company had a shared mutual interest in the proceedings.  This might suggest a growing tolerance by the courts of assignments of a right to litigate/ bare cause of action.  It certainly shows that the law is continuing to develop in this area.

Regarding insolvent companies, and applying Murray J’s findings, such companies may face difficulties in establishing a pre-existing interest of sufficient substance to successfully stand over an assignment of a cause of action to their shareholders or creditors. However, in practice, large, interested creditors of insolvent companies often fund a liquidator to bring proceedings against third parties.  The extent of their debt will most likely be of sufficient substance to take the assignment outside the rules against maintenance and champerty.

We will continue to monitor developments in this area.  Should you wish to discuss this article or maintenance and champerty in general, please contact Ruairi Rynn , Paul Convery  or Barbara Galvin .

To read more about maintenance and champerty please see our previous William Fry articles here .

Contributed by Gail Nohilly

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8 Assigning Causes of Action Ancillary to Property Interests

• Published: July 2023
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This chapter considers those scenarios in which the cause of action being assigned has been held to be capable of assignment as being incidental to, or aligned with, a property interest, and, hence, is distinguishable from a bare right to litigate. Given that these are categories of cases to which the courts have traditionally been more accommodating, a claimant will typically seek to prove that the assignment under challenge falls within one of these categories, or is sufficiently analogous to one of them to warrant validity. There are six such categories: claims which are incidental to the purchase of property, claims for statutory compensation associated with property damage, assignments of the ‘fruits of the litigation’, assignment of debts (even disputed debts), assignments of claims associated with intellectual property, and assignment of liquidated sums (even where in dispute).

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Deeds of assignment - what claims are you really buying?

Global Corporate Limited v Dirk Stefan Hale [2017] EWHC 2277 (Ch) 

A recent judgment re-iterates the importance of carefully drafting a deed of assignment when assigning claims.

In Global Corporate , the liquidators of a company assigned certain claims by way of a deed of assignment to Global Corporate Limited (the “ Assignee ”). The Assignee (the Applicant in this case) then brought several claims against the company’s former director and shareholder.

Two of the Assignee’s claims were dismissed because, as the High Court held, only the claims expressly set out in in the transfer documentation were transferred to the Assignee. As the other claims had not been provided for in the deed of assignment, they failed for lack of standing.

Powerstation UK Ltd (the “Company”) entered liquidation in November 2015 and liquidators were appointed.

The liquidators identified various claims against a former director of the Company. The claims related to payments to the former director which, in the liquidators’ view, constituted an unlawful dividend or, in the alternative, a transaction at an undervalue.

The Assignee agreed to purchase the claims from the liquidators. The assignment of claims was recorded in a deed of assignment dated 25 August 2016 between the liquidators and the Assignee (the “ Deed ”). Under the terms of the Deed, the liquidators assigned the ‘claim’. ‘Claim’ was defined as (emphasis added) “a potential debt to the company comprising alleged illegal dividends and/or transactions at an undervalue ”.

The Assignee subsequently brought claims against the former director on the basis that the payments to him constituted either:

• unlawful dividends;
• a transaction at an undervalue;
• a preference; or
• misfeasance.

On the unlawful dividends claim, the judge, His Honour Judge Matthews, concluded that the Company’s articles did not allow the former director to declare provisional dividends capable of being subsequently re-categorised (which the judge found was the nature of the payments made to the former director). Therefore, whatever the payments were, they were not dividends and so could not be unlawful. This removed the Assignee’s prospects of seeking recovery of unlawful dividends pursuant to section 847 of the Companies Act 2006.

The transaction at an undervalue claim failed on the basis that sufficient consideration had been given.

On the remaining claims (misfeasance and preference), HHJ Matthews said that the Assignee did not have standing as the Deed did not mention these claims.

At para 45 HHJ Matthews said, in respect of the misfeasance claim:

‘There is some difficulty here with the applicant’s title to sue, since the deed of assignment did not on its face extend to any claim in respect of director’s misfeasance.'

At para 66 HHJ Matthews noted that, as regards the preference claim:

‘The applicant is not an assignee of any claim of the company or the liquidators in respect of a preference...The first reference to a claim to set aside a preference that I have been able to find in the documents comes out in the application notice of 12 September 2016... But this cannot operate so as to confer on the applicant a title to sue that he otherwise would not have.’

HHJ Matthews emphasised that a preference claim could not be implied into the Deed due to the material differences between a transaction at an undervalue and a preference. If the Assignee wanted to acquire a right to bring a preference claim, the Deed should have expressly mentioned it.

At para 67 HHJ Matthews commented that:

‘A preference is not the same as a transaction at an undervalue, and neither is there necessarily an example of the former every time there is the latter. If the applicant wished to take an assignment of the claim to set aside a preference, it should have drafted the deed of 25 August 2016 so as to achieve this end.’

Finally, the court held that while the liquidators of the Company did retain the right to bring a claim to set aside a preference, they were not parties to the application and an effective order could therefore not be made.

Consequences

This case highlights the importance of thoroughly reviewing the deed of assignment where claims are being acquired.

Only those rights of action expressly mentioned in a deed of assignment will be transferred to the assignee. The court will not allow an assignee to bring an action which has not been included in the wording of the assignment. Further, the court will not imply alternative causes of action into deeds of assignment where those actions have material differences from those actually transferred.

Filed under

• United Kingdom
• Insolvency & Restructuring
• Charles Russell Speechlys
• Liquidation
• Companies Act 2006 (UK)
• High Court of Justice (England & Wales)

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Cause of Action

Definition of cause of action.

Cause of Action in a Court Case

Specific causes of action, cause of action elements.

The facts a plaintiff must prove to win each specific cause of action are referred to as “elements.” Cause of action elements may vary greatly, or may overlap substantially, depending on the circumstances of the case. For example, elements for certain causes of action may include:

Answering a Complaint and Causes of Action

Consulting an attorney, related legal terms and issues.

Legal development

What's in an assignment - are pre-existing claims included

08 May 2023

What you need to know

• Ordinarily, a party's personal right to sue another party (a 'bare right of action') is not assignable to an unrelated third party.
• One exception to this general rule is if the assignee has a genuine and substantial interest, or a genuine commercial interest, in enforcing the claim to be assigned that is separate or distinct from the assignment itself.
• In Billabong Gold Pty Ltd v Vango Mining Ltd [No 2] [2023] WASCA 58, the WA Court of Appeal held that the commercial interest supporting the assignment of a right of action need not be 'pre-existing' at the time of assignment.  What is required is that the interest be distinct from the assignment itself, not that it necessarily predate it.
• This decision clarifies earlier cases which seemed to suggest that the separate commercial interest needed to predate the assignment.

What you need to do 

• Parties looking to take an assignment of rights under a contract should carefully consider whether any pre-existing or potential claims connected with that contract (for example, for breaches that may have occurred) will be included in and are enforceable following the assignment.
• Assignees need to ensure the assignment falls into one of a number of well‑recognised categories of cases which are exceptions to the general rule prohibiting the assignment of a bare right of action.
• Counterparties to contracts which have been assigned should carefully consider whether assignees looking to enforce claims arising in respect of the relevant contract before the assignment can do so.

Executive Summary

Subject to limited and defined exceptions, the law does not usually permit a party to assign a 'bare right of action' to another party.  For example, where Party B breaches the terms of its contract with Party A, Party A cannot usually assign to a third party (Party C) its right to sue Party B for unliquidated compensatory damages for that breach.  This prohibition is presently justified by the public policy interest of avoiding otherwise unrelated and uninterested third parties meddling in litigation and propagating disputes. 

One of the well-recognised exceptions to this prohibition arises where the purported assignee of the right of action (i.e. Party C) can establish that it has a genuine and substantial interest, or a genuine commercial interest, in enforcing the claim to be assigned (with that interest being distinct and separate from the interest merely derived from the assignment itself).  In that situation, Party C is not an unrelated or uninterested third party and the policy reasons justifying the prohibition against assignment do not arise. 

Against that background, WA's Court of Appeal in Billabong Gold Pty Ltd v Vango Mining Ltd [No 2] [2023] WASCA 58 ( Billabong Gold ) concluded that the relevant commercial interest did not need to arise or exist prior to the assignment.  This decision suggests broader availability of the ability to assign rights of action, and should be borne in mind by parties taking assignments of contracts where there may be existing or potential claims or causes of action connected with those contracts that have not yet been made or litigated.  

Dispute Between Billabong and Vango

In the primary proceedings, Billabong Gold Pty Ltd ( Billabong ) sued Vango Mining Ltd ( Vango ) and Dampier (Plutonic) Pty Ltd  ( Dampier ) in relation to alleged breaches of an Ore Treatment Agreement dated 23 September 2014 ( OTA ).  

Importantly, Billabong was not a party to the OTA when it was formed.  Rather, the OTA was originally between Northern Star Resources Ltd ( Northern Star ), on the one hand, and, on the other hand, Vango and Dampier who were joint venture partners under the Plutonic Dome JV.  The Plutonic Dome JV held a number of tenements, including tenements from which gold was produced at a deposit.  The OTA relevantly granted Northern Star a 'right of first refusal' in relation to any transfer of the tenements subject to the Plutonic Dome JV. 

On 11 May 2016, Vango and Dampier executed an agreement under which Vango agreed to acquire all of Dampier's interest in the tenements held by the Plutonic Dome JV ( May 2016 Vango/Dampier Sale Agreement ). 

On 12 August 2016, Northern Star entered into an asset sale and purchase agreement with Billabong ( Billabong Sale and Purchase Agreement ) under which Northern Star agreed to sell its gold mining operations, including its tenements, to Billabong.  As part of this process, Northern Star and Billabong also entered into a General Deed of Assignment and Assumption dated 11 October 2016 ( Billabong Assignment Deed ) which included an assignment by Northern Star to Billabong of its rights under the OTA. 

Subsequently, on 24 August 2016, Vango acquired all of the shares in Dampier, and Dampier became a wholly owned subsidiary of Vango.

Relevantly, two important questions arose in the primary proceedings:

• Did Vango and Dampier breach the right of first refusal clause under the OTA by failing to give Northern Star the option to acquire the tenements the subject of the May 2016 Vango/Dampier Sale Agreement; and
• if so, did the Billabong Assignment Deed assign Northern Star's right to sue for that breach of the OTA to Billabong? 

With respect to those two questions, the trial judge found that: 

• Vango/Dampier breached the right of first refusal clause by failing to provide offers for the transfer of tenements to Northern Star; and
• that cause of action in favour of Northern Star arising from that breach was a 'bare right of action' which was not assignable to Billabong as Billabong had no genuine commercial interest in enforcing the right of action for this breach of contract.  

Billabong appealed and the right of action was held to be assignable

On appeal, among other things, Billabong challenged the primary judge's conclusion that Northern Star's right of action in respect of Vango/Dampier's breach of the first refusal clause under the OTA could not be assigned to Billabong by the Billabong Assignment Deed. 

The Court's analysis of the principles concerning the assignability of a 'bare right of action'

The Court commenced its analysis by noting that the rule prohibiting the assignment of bare rights of action is justified by the public policy notions related to the doctrines of maintenance and champerty.  Maintenance refers to an unconnected third-party assisting to maintain litigation, commonly by providing financial assistance.  Champerty is a form of maintenance whereby the third-party provides financial assistance in return for a share of the proceeds. 

(It is worth noting that legal causes of action are assignable at law under s 20 of the Property Law Act 1969 (WA) and its equivalents in the other States.  However, a bare right of action is not considered to be a legal chose in action, even though it is sometimes confusingly referred to as one.)

A number of well-recognised exceptions to this general rule were then identified.  

• First, a right of action can be assigned if it is annexed to or ancillary to a property right being assigned. 
• Secondly, the rule does not apply if the assignee of the subsisting cause of action itself has a genuine and substantial interest, or a genuine commercial interest, in enforcing the claim that is otherwise distinct or separate from the interest merely derived from the assignment itself.  The requirement that the commercial or other interest be 'distinct or separate' exists because, were it otherwise 'the exception would swallow the rule because the assignment itself would always provide the commercial interest'. 
• Thirdly, there is no prohibition on an assignee taking an assignment of a cause of action to support and enlarge a right already acquired. 
• Fourthly, where the benefit of a contract is assigned, there is no impediment to the assignee pursuing a cause of action for breach which has occurred after the date of assignment.

Does the relevant commercial interest need to pre-exist at the time of assignment?

The appeal was focussed on the second exception.  The Court noted that in every case, the totality of the transaction must be considered and the concept of a genuine commercial interest is to be applied in a broad and practical way.  

The Court looked at a number of earlier cases which appeared to suggest that the relevant commercial interest must exist prior to the assignment.  

The Court found there was no such requirement and set out five reasons why the commercial interest need not pre-date the assignment.

• First, the need for a pre‑existing commercial interest does not appear to have been established by the High Court of Australia in Equuscorp Pty Ltd v Haxton [2012] HCA 7.  Equuscorp was authority for the proposition that the relevant commercial interest can at least arise contemporaneously with the assignment at issue.
• Secondly, this question had been left open by the New South Wales Court of Appeal in the earlier case of Bakewell v Anchorage Capital Master Offshore Ltd [2019] NSWCA 199. 
• Thirdly, a number of other earlier authorities only concluded that the supporting commercial interest needed to be distinct or separate from the interest acquired under the assignment itself. While this requirement is usually satisfied in circumstances where that commercial interest pre-dates the assignment, that did not constitute a strict legal criterion in itself.
• Fourthly, the Court reviewed persuasive authority from the United Kingdom's House of Lords and concluded that the approach adopted in that jurisdiction did not require that the supporting commercial interest be pre-existing. 
• Fifthly, and finally, the Court concluded that nothing in the policy justification of the rule, being the avoidance of trafficking in litigation, required that the relevant commercial interest always predate the assignment.    

For those reasons, the court held that the relevant commercial interest need not be pre-existing to the assignment of the cause of the action.  

In any event, Billabong had a 'sufficient commercial interest' to justify assignment of Northern Star's right of action for breach of the OTA

Notwithstanding the analysis outlined above, the Court also concluded that, in any event, Billabong did hold a pre-existing commercial interest sufficient to support the assignment of the causes of action for breach of the OTA.  

In summary, this was because the Billabong Sale and Purchase Agreement (which was dated 12 August 2016 and pre-dated the Billabong Assignment Deed, which was dated 11 October 2016) gave Billabong a genuine and substantial interest or a genuine commercial interest in enforcing the relevant breaches of the OTA, beyond the assignment of the OTA itself.

Implications for contracting parties

This decision is relevant to parties taking assignments of contracts (or who are counter-parties to a contract under which rights are being assigned) where there may be existing or potential claims or causes of action connected with those contracts that have not yet been made or litigated.  

Parties looking to take an assignment of rights under a contract should actively consider whether the proposed assignment will include rights to sue or enforce pre-existing or potential claims under or in connection with the contract.

Unless the rights fall into one of a number of well‑recognised categories of cases which are exceptions to the general rule prohibiting the assignment of a bare right of action, the rights will not 'follow the assignment'. 

In cases where the proposed assignee is looking to rely on the exception involving a separate and distinct commercial interest in suing or enforcing the claim, this decision helpfully confirms that a pre-existing commercial interest is not strictly required. 

On the other hand, counterparties to contracts which have been assigned who are facing claims by the assignee should carefully consider whether the assignee can still enforce or sue on such claims, especially in respect of claims which arose before the assignment occurred.

One final point

As the Court of Appeal noted, the rule prohibiting the assignment of bare rights of action has historically been justified by the public policy notions related to the doctrines of maintenance and champerty.  

For those State jurisdictions where the tort of maintenance and champerty have been abolished (including, recently, Western Australia by virtue of s 36 of the Civil Procedure (Representative Proceedings) Act 2022 (WA) although the abolishment only applies to causes of action accruing after the provision came into operation), the underlying justification has now fallen away.  

It remains to be seen whether courts will revisit the continued application of the rule prohibiting the assignment of bare rights of action.  If the rule is also abolished, it will remove the need for contracting parties to grapple with the complexities of the exceptions to the rule.     

Authors:  Adrian Chai, Partner; Charles Dallimore, Senior Associate and Max Evangelisti, Graduate.

The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying it to specific issues or transactions.

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In what circumstances can you assign a claim or cause of action?

Published by a lexisnexis dispute resolution expert.

This Practice Note sets out the requirements and considerations for permitted assignment of claims or causes of action in English civil litigation.

For guidance on how to assign a claim or cause of action, with particular consideration as to what should be included in the assignment documentation, see Practice Note: How do I assign a claim or cause of action?

Note: in this Practice Note, we refer to the assignment of both causes of action and claims. We define a cause of action as '...a factual situation the existence of which entitles one person to obtain from the court a remedy against another person' ( Letang v Cooper ) and a claim as the formal assertion of a cause of action by a claimant against a defendant. In the authorities , the phrases 'assigning a cause of action' and 'assigning a claim' are sometimes used interchangeably. For the purposes of this Practice Note, unless the context indicates otherwise, we refer to:

assigning 'causes of action' when considering whether the assignment

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Related legal acts:

• Courts and Legal Services Act 1990 (1990 c 41)
• Law of Property Act 1925 (1925 c 20)

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