In SPV Optimal Osus Limited -v- HSBC Institutional Trust Services (Ireland) Limited & Ors the Court of Appeal rejected an appeal of a High Court decision dismissing proceedings as being frivolous and vexatious and bound to fail on the basis that the proceedings against the defendants were contrary to public policy, void and unenforceable as a matter of law since the assignment of the right to litigate third party claims amounted to the assignment of a bare cause of action and contrary to the rules of champerty and maintenance.
This case arose after investors put money into funds which were transmitted to Optimal Strategic for investment with Madoff Investments. The activities of Mr Madoff resulted in massive losses and the appointment of a trustee in bankruptcy.
The respondents, the two HSBC defendants, were appointed as custodians and administrators in respect of the assets. The appellant, SPV Optimal SUS Limited (SPV) received an assignment of a claim to recover assets from Optimal Strategic which included a bundle of rights and interests. SPV instituted proceedings against the HSBC defendants for negligence and other civil wrongs arising from their stewardship of the investments. SPV maintained the claim on the basis that the assignment encompassed the right to sue HSBC.
The two HSBC defendants sought to have the assignment declared contrary to public policy, void and unenforceable as being champertous in nature because it transferred a "bare right to litigate" and otherwise constituted "trafficking in litigation". It was agreed that the defendants' claim in this regard would be heard and determined in the High Court as a preliminary issue.
The High Court dismissed the proceedings as being frivolous and vexatious and bound to fail on the basis that the right to bring the proceedings against the defendants was contrary to public policy, void and unenforceable as a matter of law. Costello J found that the assignment of the right to litigate third party claims by means of the Assignment amounted to the assignment of a bare cause of action for no legitimate reason recognised by Irish law.
Costello J found in favour of HSBC on both grounds and made an order dismissing the proceedings. SPV appealed the decision to the Court of Appeal.
Court of Appeal
On appeal the Court of Appeal outlined that maintenance is interfering in litigation by supporting it financially without having any legitimate interest in the case which could justify the interference while champerty is taking a share in the outcome of the case in return for funding it.
Ryan P endorsed the proposition that the courts do not countenance trading in litigation, whereby one party not otherwise connected becomes involved for the purpose of profit. Litigation is not a commodity to be traded or discounted and so a simple or bare cause of action may not be the subject of an assignment.
The Court noted the very substantial changes in attitude to maintenance and champerty, particularly in England since the changes in legislation were introduced to allow for Conditional Fee Arrangements (CFAs) and After the Event (ATE) insurance.
Ryan P went on to hold that there is no requirement on a party objecting to a transaction on the ground of champerty to establish any specific infringement or threat to public policy. The law presumes that the transaction is wrongful and unenforceable if it constitutes or savours of champerty.
The Court of Appeal dismissed the appeal approving the reasoning of the High Court judge in respect of her analysis of the law and its application to the facts of the case. Costello J was correct in finding that the impugned transaction gave rise to the potential sale of the right to sue third parties and the court did not have to find that there was an intention on the part of the assignee to engage in trading of litigation, whether professional or otherwise.
This case involved a plaintiff who rather than supporting the litigant was purchasing the right to litigate which touches on the issue of third party funding. While the judgment makes reference to the legislative changes in England that allow for third party funding no comment with reference to the position in Ireland is made. The view of the Superior Courts with respect to third party funding and its relationship to maintenance and champerty will be addressed in the case of Persona Digital Telephony Limited v. Minister for Public Enterprise which is a leapfrog appeal from the High Court to the Supreme Court due to be heard on 3 April 2017.