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Resource type: Practice note Status: 18 December 2012 Jurisdictions: England, Wales
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This note explains how a claim or cause of action may be assigned, whether by legal assignment or equitable assignment. It sets out the situations in which an assignment may be effected, including assignment in the context of an administration, liquidation or bankruptcy. The note provides guidance on drafting an assignment as well as the practical considerations, such as the recovery of costs. Sarah Clarke and Adam Deacock, 11 Stone Buildings
CONTENTS
What claims may be assigned? Effect of contractual prohibition on assignment At what stage may a claim be assigned? To whom can a cause of action be assigned? What is required to effect a valid assignment of a cause of action? Legal assignment or equitable assignment? Requirements for a legal assignment Requirements for an equitable assignment
Litigation costs when a claim has been assigned Security for costs Costs incurred by the assignor before the assignment Who is liable for costs awarded in favour of the defendant? Assignment of claims in the context of insolvency When might an ofce-holder assign a claim? Who may assign a claim in insolvency? Claims capable of assignment by an ofce-holder Claims not capable of assignment by an ofce-holder Potential liability of ofce-holder Drafting an assignment of a cause of action
Is the assignees recoverable loss limited by the loss incurred by the assignor? Effect of consideration Loss occurring to assignee before assignment of claim Impact of the rules on maintenance and champerty General principles Exceptions to the rules on maintenance and champerty
Procedural issues following an assignment Legal assignment Equitable assignment Assigning proceedings that have been commenced Counterclaims where a claim has been assigned
An assignment is the transfer of a right from one party to another. A cause of action by which a party may be able to enforce a right is a chose in action and, in principle, is capable of assignment. This note considers how a cause of action may be assigned and highlights the practical issues that may arise on and after an assignment. Examples of the situations where a party may wish to assign a cause of action include: On transfer of a contract or other property to which the cause of action relates. For example, when a property has been sold, the buyer may take an assignment of a right to sue the builder for any defects. Insolvency of the claimant. In general terms, the ofce-holder appointed over an insolvent company or individual bankrupt has a duty to realise the value in the assets, including any causes of action. In some circumstances, this may be best achieved by an assignment. Corporate mergers, acquisitions or reorganisation. Group litigation or class actions. For more detail about the assignment of contracts, see Practice note, Contracts: assignment and Standard document, Deed of assignment of contract. Assignment of insurance policies is outside the scope of this note, see Practice note, Security assignment of contractual rights.
IS THE ASSIGNEES RECOVERABLE LOSS LIMITED BY THE LOSS INCURRED BY THE ASSIGNOR?
EFFECT OF CONSIDERATION
The fact that consideration is paid to the assignor, does not extinguish the loss suffered so as to prevent the assignee pursuing a claim to recover damages. In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1992] 57 BLR 57, the Court of Appeal considered whether an assignment of a building for full value meant that the assignor had suffered no loss. If that was the case, then the assignee could not recover loss because it was asserting the assignors cause of action. The only limitation, as a matter of quantum, was that the assignee could recover no more than the assignor could have recovered had there been no assignment. (The decision in Linden Gardens on the assignability of a cause of action was overturned by the House of Lords, but the Court of Appeals decision on this point remains authoritative (see Loss occurring to assignee before assignment of claim). The court has conrmed that the same principle applies where there is no or only nominal consideration for an assignment. In Pegasus v Ernst & Young [2012] EWHC 738 (Ch), Pegasus had issued proceedings for negligence against the defendant accountants in connection with tax advice. After Pegasus went into liquidation, it transferred substantially all of its assets to a third party (IHUK). The transfer included an assignment of the cause of action for a nominal consideration. The High Court held that IHUK could be substituted as claimant in the proceedings. Pegasus could still be said to have suffered a loss, otherwise the losses that had previously existed would have disappeared into a legal black hole. Where a wrong had been committed in relation to property, and loss was capable of arising as a result, the fact of an assignment did not mean that the assignor could no longer be said to have suffered loss. This was the case even if the assignment was gratuitous or for part value (GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd [1982] SC (HL) 157). See Legal update, Assignment of cause of action for nominal sum no bar to recovery of consequential losses (High Court).
What was assigned ... was a cause of action for breach of contract against Technotrade and legal remedies for it. It was not an assignment of a loss ... The assignment included the remedy in damages for the cause of action. The remedy in damages for breach of contract is not, in principle, limited to the loss suffered as at the date of the accrual of the cause of action or as at any particular point of time thereafter. (Paragraph 41, Technotrade.) The Court of Appeal also afrmed the authority of the Court of Appeal decision in Linden Garden (as referred to in Effect of consideration) (paragraph 52, Technotrade). For more detail on the judgment, see Legal update, Assigned cause of action did not leave a gap in liability. For further guidance, see Practice note, No loss and assignment: the development of the common law in the construction context.
For a more detailed discussion of the circumstances in which the court will order costs against a non-party, see Practice note, Costs and non-parties to litigation. The potential liability of an insolvency ofce-holder is considered in Potential liability of ofce-holder.
Proceedings which are already on foot at the date of administration or liquidation (Re Edennote [1995] 2 BCLC 248). Hybrid claims which combine personal damages with a claim relating to the assets in the bankruptcy (Ord v Upton [2000] 2 WLR 755). Hybrid claims vest in the trustee, but any proceeds of the personal claim will be held on trust for the bankrupt. Hybrid claims may be assigned, but the assignee (if someone other than the bankrupt) will take the claim subject to the bankrupts right to a share of the proceeds.
LEGAL ASSIGNMENT
Following a valid legal assignment on notice to the defendant: The assignor ceases to have an interest in the action. The assignee is entitled to bring proceedings in his own name. The particulars of claim should plead the details of the assignment and the date notice was given to the defendant.
EQUITABLE ASSIGNMENT
Where the assignee takes pursuant to an equitable assignment, the assignor should be a party to the proceedings, ideally as co-claimant. The assignee may be required to indemnify the assignor against costs, if necessary. Proceedings brought without joining the assignor will not be a nullity, and the defendant may be prepared to waive the requirement to join the assignor (Central Insurance Co Ltd v Seacalf Shipping Corporation (The Alios) [1983] 2 Lloyds Rep 25 and Brandts Sons & Co v Dunlop Rubber Co [1905] AC 454).
The assignee will need to seek to be joined (in the case of an equitable assignment) or substituted (in the case of a legal assignment) as the claimant and will need to amend the particulars of claim to plead the assignment accordingly. Although the assignee will not have been entitled to the cause of action at the date of issue, the court has a discretion to permit an amendment to plead the assignment as a fresh cause of action notwithstanding that it arose after the issue of the proceedings (Hendry v Chartsearch Ltd [1998] CLC 1382 and Maridive & Oil Services (SAE) and another v CMA Insurance Co (Europe) Ltd [2002] EWCA Civ 369). The court may even permit an such an amendment (that is, to plead an assignment that post-dates the commencement of proceedings) after the relevant limitation period has expired, provided the evidence on which the assignee relies is already substantially in issue (Finlan v Eyton Morris Wineld). In Finlan, the assignee issued a claim form the day before expiry of the limitation period and hours before completing a legal deed of assignment. The court held that, when the claim was issued, there had been no assignment, merely an agreement to assign the claim. Despite this nding, the court was prepared to grant permission to amend the claim enabling the assignee to plead the assignment. For more detail, see Legal update, Court allows amendment to plead post-claim form assignment. However, the court may refuse to permit amendment after the expiration of a limitation period where the claim was issued by a party with full knowledge that they did not, at the time of issue, have standing to bring the claim, in the hope of obtaining an assignment at a later date (Pickthall v Dickinson LLP [2009] EWHC Civ 543). Where the assignment takes effect as a legal assignment, it will be necessary for the assignee to seek to be substituted for the assignor under CPR 19.2(4). Where the assignment takes effect as an equitable assignment, it will be necessary to amend proceedings to join the assignee under CPR 19.2(2). The procedure for adding a party to proceedings is considered in more detail in Practice note, Amendments to statements of case. For guidance on the assignment of a claim during arbitration proceedings, see Practice note, When does an arbitration agreement bind a third party in English law?.
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