The Supreme Court has given new guidance on when a litigation funding arrangement will amount to an impermissible assignment of a bare cause of action in PricewaterhouseCoopers v Walker  NZSC 151.
The case concerned the validity of a litigation funding agreement between SPF No.10 Limited (SPF), and the liquidators of Property Ventures Limited (PVL) and related companies, Messrs Robert Walker and John Marshall (Funding Agreement).
SPF funded litigation by the liquidators against PriceWaterhouseCoopers (PwC) (among others) under the Funding Agreement. SPF also took an assignment of a general security agreement over the assets and undertaking of PVL and the other respondents (Assignment). The liquidators alleged that PwC breached various tortious and contractual duties owed as auditor to PVL.
PwC applied to stay the proceeding on the grounds that the combined effect of the Funding Agreement and Assignment amounted to an abuse of process. The Funding Agreement and Assignment gave SPF control in a legal sense over the liquidator's claim against PwC, as well as an entitlement to all or substantially all the proceeds of a successful claim. In effect, SPF was both funding the litigation, and would also receive the fruits of any litigation.
Despite the parties settling prior to the hearing being argued in the Supreme Court, the Court delivered judgment on the basis that the "appeal involves important issues on which the court heard full argument".
The Supreme Court held it was arguable that the arrangement would have constituted an abuse of process. It did not need to decide that point because SPF provided last-minute undertakings to the Court in which it agreed not to exercise certain rights under the Funding Agreement and Assignment.
- The timing of an impugned transaction is relevant. In this case the Assignment occurred after the litigation had commenced
- The courts will look to the substance of a transaction to ascertain whether it amounts to a bare cause of action
- The courts will scrutinise the utility of the transaction
- The amount of the potential judgment sum will be relevant in assessing whether the assignment is permissible.
See the Court's decision here.