Champerty

The first development follows a Court of Appeal ruling last summer that an assignment of a claim to a law firm was champertous and void.

The firm in question, Candey Limited (a leading litigation firm in London), has now reportedly asked the Court of Appeal to remove champerty from legitimate solicitor-client agreements. The firm has also asked the court to validate the assignment previously declared void.

Champerty is based on public policy and is considered an aggravated form of maintenance. A person is guilty of maintenance if they support litigation in which they have no legitimate concern without just cause or excuse; and champerty arises when the person maintaining another stipulates for a share of the proceeds of the action or suit.

The rule can catch simple transfers of a cause of action, but whether or not it is champertous in reality depends on the totality of the transaction.

There is a distinction between champertous transaction between non-lawyers and those involving a lawyer: the latter is either specifically sanctioned by statute - or is void.

In Farrar & Anor v Miller, the client started proceedings against the defendant for £1.5m in 2014. He died suddenly in 2019. He had signed a DBA which was later amended to a CFA. The client later signed an assignment to his solicitors, Candey, which had the effect of terminating the CFA. The firm had already incurred costs of around £135,000.

Candey applied to court to be substituted for the client but the High Court agreed with the defendant that the assignment was champertous and, therefore, void.

Champerty is an old law and, some argue, no longer fit for the modern age. In his ruling, the judge acknowledged the considerable change in recent times in the case of litigation funding. Smith J said: “The need for, and importance of, access to justice has rendered proper and lawful transactions that would - in older days - have been caught by the doctrines of champerty and maintenance.” But he ruled against Candey.

The firm did not claim that the assignment was a CFA or a DBA. Essentially, it argued that the assignment was sufficiently similar to the DBA such that they had inferred protection from the doctrine of champerty under the Courts and Legal Services Act 1990. Furthermore, it argued that the assignment was justified in terms of access to justice.

These arguments did not stand. The assignment was not sanctioned by the 1990 Act and was clearly champertous.

As for the access to justice argument, this was rejected save for the concession that the assignment created a “very marginal benefit”. On the facts, the assignment was not necessary to improve access to justice given that its future costs were apparently taken care of.

Litigation lawyers will be watching closely to see whether the Court of Appeal will revisit and modernise the doctrine of champerty in some way.

Going back on it

Meanwhile, Candey is involved in separate proceedings in relation to the recovery of legal costs. The Supreme Court is hearing the firm’s appeal on the issue of what action a solicitor should take when entering an additional security arrangement with a client to avoid waiving its rights under a pre-existing equitable lien.

The lowers courts found that a success fee was not recoverable from the respondents. Candey's equitable lien had been waived when the parties entered into a fixed fee agreement and a Deed of Charge. The rights these conferred on the firm were inconsistent with the security conferred on them by the lien. The inference was that Candey intended to waive the lien, in the absence of any reservation by Candey of their pre-existing rights. Furthermore, the fact that the Deed of Charge created a floating charge (not a fixed charge as Candey may have expected) did not cause the lien to revive.

It will be interesting to see if the Supreme Court takes the same view – or accepts its argument that they had not intended to waive their lien by taking additional security.