assignment of bare cause of action

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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].