In Tactus Holdings Limited (in admin) v Philip Mark Jordan & Ors [2025] EWHC 133 (Comm), the High Court has recently handed down an important reminder that, notwithstanding the changing nature of public policy, the rules against champerty and maintenance remain and claimants cannot assign a bare cause of action.
Champerty and maintenance
Champerty and maintenance date back to medieval English law. Champerty occurs where there is an agreement "by which one person undertakes to maintain or support litigation by another person… in exchange for a share of the proceeds of that litigation." This applies where the maintainer has no legitimate interest in the claim being litigated and where the maintenance occurs without just cause or excuse. Until 1967, champertous arrangements were criminal and civil wrongs in the UK.
As public policy considerations as to access to justice evolve and litigation funding has become an accepted feature of English litigation, champerty has become less prominent as a prohibition. However, it continues to apply to prevent a "stranger" from maintaining a claim.
Background to the case
In 2022, Tactus Holdings Ltd acquired the operator of an online technology retail business, pursuant to a Sale and Purchase Agreement (the "SPA"). Tactus subsequently contended that the value of the business had been overstated and commenced proceedings for breach of warranty.
In the meantime, the directors of Tactus became directors of a newly-incorporated company, Chillblast Ltd. Chillblast then entered into two assignments:
- An assignment with Tactus and Santander (with which Tactus had a revolving credit facility), assigning to Chillblast Santander's rights in respect of debts owed to it by Tactus, in exchange for £750,000 and a share of the proceeds of the breach of warranty claim (the "Santander Assignment").
- An assignment with Chillblast, by which Tactus purported to transfer its rights in the SPA and in the breach of warranty claim to Chillblast, in exchange for (among other consideration) a share of the proceeds of the claim (the "Tactus Assignment").
Ten days later, Tactus was placed into administration.
Chillblast applied to be substituted for Tactus as claimant pursuant to CPR 19.2, which provides that a court may order a new party to be substituted for an existing one if the existing party's interest or liability has passed to the new party or if it is otherwise desirable to do so.
The defendants objected on the grounds that the Tactus Assignment was ineffective because the SPA prohibited such an assignment and was, in any event, void on the grounds that it was contrary to public policy, being champertous.
Decision
The court agreed that the SPA prohibited the Tactus Assignment. Although the SPA permitted assignments to Tactus' lenders, the court rejected arguments that by virtue of the Santander Assignment, Chillblast had become such a lender.
As to the arguments on champerty, the key question is whether a third party has a "legitimate interest" in a claim. Absent a legitimate interest, the assignment of a "bare right to litigate" is prohibited. In determining whether there is a legitimate interest, the court must consider the "totality of the relevant transaction and its surrounding circumstances", and whether it "tends towards the corruption of public justice". While a legitimate interest is generally considered to be a commercial interest (especially if the right of action arises in respect of a commercial transaction), it need not be of a commercial nature.
Relevant factors include:
- Whether the interest exists apart from the assignment itself – eg an insurer taking an assignment of its insured's right of action or a lender acquiring a property right (such as a mortgage) as well as an assignment of rights of action by way of additional security. Where the assignee acquires a property right, and the right of action is assigned incidentally to that acquisition, there is likely to be sufficient interest in the claim.
- It is not necessarily sufficient that the assignee is or had been a creditor or shareholder of the assignor, but there may be circumstances where such relationships create a legitimate interest (eg if one creditor took an assignment of a right of action for the benefit of all creditors).
- An assignment that might improve the financial position of the assignee, such as by improving its relative status as a creditor of the assignor, may speak against a sufficient legitimate interest.
- Whether the assignee might be tempted to "inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice" for its personal gain.
- It is not sufficient that the assignee is aware of, or familiar with, the circumstances surrounding the claim.
- The sale of a debt owed to the assignor will not normally be treated as champertous. This differs from the sale of a right of action (which is champertous) in that a debt is generally an acknowledged liquidated sum owing by one party to another and is treated as the equivalent of a property right (which are commonly traded). In contrast, a right of action is generally by its nature intended to be litigated (the buying and selling of which might amount to impermissible "trafficking" in litigation).
- "Excessive" profits may mean an assignment exceeds an otherwise genuine commercial interest.
In this case, the court concluded that the Tactus Assignment was impermissible. Chillblast had acquired no property rights relating to Tactus; it had no involvement in the SPA or its performance and was only incorporated after the breach of warranty claim commenced. The fact that Chillblast's directors were also directors of Tactus was not sufficient to substantiate a legitimate interest.
The Santander Assignment, by which Chillblast became a secured creditor of Tactus, was also insufficient. Absent the Santander Assignment, Chillblast had no interest in the claim and a significant purpose behind the Santander Assignment was to enable Chillblast to acquire Tactus' rights of action. The two assignments were therefore "part and parcel of the same transaction", amounting to "unjustified intermeddling" by Chillblast in the dispute. Further, the Tactus Assignment was for the benefit of Chillblast alone, not all Tactus' creditors, whose interests might have been prejudiced. The fact that Chillblast had paid the costs ordered against Tactus in a summary judgment application earlier in the proceedings also did not generate a legitimate interest.
The Tactus Assignment was therefore void on grounds of public policy (as well as prohibited by the SPA). As a result, the court had no jurisdiction to order substitution pursuant to CPR 19.2.
Conclusion
Despite the changing nature of public policy, champerty remains a fundamental concept of English law. Claimants, and third parties who wish to fund a claim in return for a share of recoveries, should make sure that any agreement is not an impermissible assignment of a bare cause of action. Third parties must have a legitimate interest in the claim, and Tactus is a useful reminder of the relevant factors to take into account in order to substantiate such an interest.