Cyprus: Third Party Litigation Funding, Assignment Of Claims And Champerty

The legality of a third party litigation funding, has not yet been examined by Cypriot Courts.

If such an issue, is raised, Cypriot Courts will look for guidance on English or other common law case law.

In the context of litigation funded by third parties, the English Courts have taken an increasingly liberal approach, to the principles of champerty, and maintenance.

In the recent case JENNIFER SIMPSON (as assignee of ALAN CATCHPOLE) -V- NORFOLK & NORWICH UNIVERSITY HOSPITAL NHS TRUST (2011) EWCA 1149, the English Court of Appeal has held that the principles of champerty and maintenance, still have teeth, particularly where claims are assigned.

In the above case, the Court of Appeal, followed the decision of the English House of Lords, in TRENDTEX TRADING CORP. -V- CREDIT SWISSE (1982) AC 679, which established that the assignment of a cause of action, will be void as against public policy, where the assignee does not have a "sufficient interest" to justify pursuit of the proceedings for his own benefits.

The above principle, applies whether, as in TRENDTEX, the assignee is aiming to profit from the litigation, or as in the case of SIMPSON, the assignee wanted to pursue the litigation, as part of a personal campaign, having honourable motives.

In TRENDTEX TRADING CORPN. V. CREDIT SUISSE [1982] A.C. 679, a trading company, TRENDTEX, had assigned to a bank, Credit Suisse, from which it had obtained financial support, the whole of its residual interest in a claim for US$14 million, against a Negerian bank, C.B.N., for damages for breach of contract, in failing to honour a letter of credit, having previously granted it a security interest in the claim and its proceeds. The agreement by which that assignment was effected expressly contemplated that Credit Suisse might sell the claim to a third party for US$ 800.000. The claim was subsequently settled for US$ 8 million. TRENDTEX then sought to set aside the agreement, and the assignment to Credit Suisse on the grounds that it was contrary to public policy and void as "savouring of champerty", in as much as it contemplated the possibility, to put it no higher, that a third party would make a profit out of the litigation. The House of Lords held that the assignment was void as savouring of champerty. Lord Wilberforce (with whom Lord Edmund-Davies, Lord Fraser and Lord Keith agreed) explained the position as follows at page 694F-H.

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

In GILES -V- THOMPSON and DELVIN -V- BASLINGTON (1994) 1 AC 142, Lord Mustil stated the following at page 164B-D:

".......the law on maintenance and chamberty can best be kept in forward motion by looking to its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants. For this purpose the issue should not be broken down into steps. Rather, all the aspects of the transaction should be taken together for the purpose of considering the single question whether, in the terms expressed by Fletcher Moulton L.J. in the passage already quoted from in British Cash and PARCEL Conveyors Ltd. V. Lamson Store Service Co. Ltd [1908] 1 K.B. 1006, 1014, there is 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".

The law relating to champerty took another step forward in R (FACTORTRAME) V. SECRETARY OF STATE FOR TRANSPORT, LOCAL GOVERNMENT AND THE REGIONS (NO. 8) [2003] Q.B. 381, in which the court considered the lawfulness of a contingency fee agreement entered into between the claimants and a firm of accountants, who had undertaken the preparation of their case on damages. This court held that section 58 of the Courts and Legal Services Act 1990, which provided for the introduction of conditional fee agreements, evidenced a shift in the attitude of public policy towards the conduct of litigation on terms that the obligation to pay fees is to be contingent on success. That change in public policy enabled the court to hold that the agreement was not unlawful, since it was satisfied that there was little risk on the facts of that case that the accountants (who of course were not conducting the litigation) would be tempted to inflate the damages, or otherwise undermine the administration of justice.

In SIBTHORPE V. LONDON BOROUGH OF SOUTHWALK [2011] EWCA CIV 25, [2011] 1 W.L.R. 2111 the court was concerned with the validity of a conditional fee agreement, under which the solicitors acting for the claimant agreed to indemnify her against any costs awarded in favour of the defendant. The court held that the decision in Factortame (No. 8) supported the conclusion that an agreement between a party to litigation and a person other than someone who is conducting that litigation, or providing advocacy services in connection with it will not offend against a public policy, even if its is of a kind that would formerly have been regarded as champertous, if it is unlikely to undermine the administration of justice having regard to the nature of the agreement itself and the circumstances in which it was made, Stricter rules, however, continue to apply to agreements entered into by those conducting the litigation or providing advocacy services in connection with it.

In the SIMPSON CASE (Supra) the issue arose in the context of personal injury claim. Briefly, Mrs. Simpson's late husband had contracted MRSA while a patient at a hospital operated by the defendant NHS trust. Although the infection had not contributed to his death, Mrs. Simpson believed that the hospital had failed to implement proper infection control procedures. Another patient, Mr. Catchpole, issued proceedings against the defendant after contracting MRSA in the same hospital. He assigned his claim to Mrs. Simpson for consideration of £1 and Mrs. Simpson pursued the claim in her own name and for her own benefit.

The defendant applied to strike out the action on the grounds that Mrs. Simpson had no legitimate interest in the claim and therefore the assignment was void as contrary to public policy. The Court of Appeal upheld the lower courts' decision to strike out the claim.

Following TRENDTEX, the law will not recognise, on the grounds of public policy, the assignment of a bare right to litigate, i.e. where the assignee does not have an interest sufficient to justify pursuit of proceedings for his own benefit. The court recognized that Mrs. Simpson had "honourable motives" in pursuing the claim, essentially to highlight the hospital's fallings, but this was not the sort of interest the law recognized as sufficient to support an assignment of what would otherwise be a bare right of action. It was not in the public interest to encourage litigation whose principal object was not to obtain a remedy for a legal wrong, but to pursue a different kind of object.

LEGALITY OF LITIGATION FUNDING?

It seems from the Simpson case, that if Mrs. Simpson had merely funded the litigation, brought in Mr. Catchpole's name, rather than taking an assignment of the claim, the defendant would not have any legal basis to apply for the dismissal of the claim.

Third parties are allowed to fund litigation, in exchange of a share of the proceeds and the agreement will generally be enforceable, so long as it does not have other factors that renders it objectionable, as a matter of public policy.

Such a factor, appears to be, if the third party funder exercised "control" over the litigation (see ARKIN -V- BORCHARD LINES LTD (2005) EWCA 655).

English Courts are less tolerant of the assignments of claims as opposed to third party funding, because an assignee will have the conduct of the litigation in place of the original claimant, whereas the claimant retains control of the litigation in the context of third party funding.

We expect that, if such an issue is raised before Cyprus Courts, they will adopt all the above legal principles laid down by English Courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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