Download Choses in Action

Choses in action and the
problem of unassignable
property
Prof Cameron Stewart
Legal Choses in Action
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Debts
Contractual rights
Copyright
Patents
Company Shares
Bank accounts
Designs
Trademarks
Legal Charges and security interests
Business Names
Reputation
Goodwill
Equitable Choses in Action
• Beneficial interest in a trust fund
• Rights of partnership
• Rights of a beneficiary under a fiduciary
relationship
• Equitable securities over funds
• Confidential information?
Assignment of choses in action
• Traditionally the law forbade the assignment
of choses on action
• Only equity would allow it
• Why?
– Distrust of the nature of choses in action
– Creation of over-litigiousness
– Problem of forcing a person into servitude
• New procedures created during the Judicature
Act reforms
Rights and liabilities not capable of
assignment – public pay
• An assignment of pay by the holder of a public
office is prohibited on the basis that such pay
is made to enable the office holder to
maintain his or her office with decorum and
propriety.
Rights and liabilities not capable of
assignment
Arbuthnov v Norton (1846) 4 Moore 219;
(1846) 13 ER 474
Norton, a judge, assigned the equivalent of six months pay to
which he was entitled to his legal personal representative
upon death. The entitlement was assigned as security for an
advance. The Privy Council ruled, after Norton’s death, that
the assignment was valid. This was so because the pay that
was assigned only fell due upon Norton’s death, that is, when
Norton no longer held public office. Because the pay was not
payable during his life, the assignment in no way diminished
Norton’s ability to maintain the dignity of his office.
Rights and liabilities not capable of
assignment - Bare rights to litigate
Bare rights to litigate include rights to sue in
tort, rights to sue for unliquidated damages in
contract and bare rights to sue in equity. None
of these rights are rights of property and
therefore they are not assignable. Debts and
rights to sue for liquidated sums in contract
are assignable because they are regarded as
rights of property.
Bare rights to litigate
Why?
In Prosser v Edwards (1835) 160 ER 196 it was said
that a bare right to litigate was unassignable
because it, in effect, encouraged litigation of
matters which the assignor was not disposed to
prosecute. In terms of legal principle, bare
rights to litigate could not be assigned on public
policy grounds because such assignments
savoured of maintenance or champerty: Glegg v
Bromley [1912] 3 KB 474, at 489–90.
Glegg v Bromley [1912] 3 KB 474
• Mrs G sued B for defamation.
• By a deed, Mrs G assigned ‘all that the interest,
sum or money, or premises to which she is or
may become entitled under or by virtue of any
verdict, compromise …’ to her husband, Mr G.
• She later won
• A creditor of Mrs G sought (as a garnishee) to
take the verdict
• Mr G claimed that he was entitled to the verdict
Vaughan Williams LJ said:
I know of no rule of law which prevents the
assignment of the fruits of an action. Such an
assignment does not give the assignee any
right to interfere in the proceedings in the
action. The assignee has no right to insist on
the action being carried on … There is in my
opinion nothing resembling maintenance or
champerty in the deed of assignment.
Bare rights to litigate – genuine commercial
interest
If the assignee has a genuine commercial
interest in taking the assignment of a bare
right to litigate, then the assignment is valid
Trendtex Trading Corporation v Credit Suisse
[1982] AC 679
• Trendex was a Swiss coy who contracted to sell cement to
an English coy for sale in Nigeria which went bad. Tye sale
was to be paid by a letter of credit from the Central bank of
Nigeria but the bank refused to pay.
• Credit Suisse was a creditor of Trendex which helped
Trendex fund the legal action against the Bank
• Trendtex purported to assign its cause of action against
Central Bank of Nigeria to Credit Suisse for $800,000.
• Central Bank agreed to pay Trendtex $8m in settlement.
• Trendtex sought a declaration that the assignment was void
for being a bare right to litigate savouring of maintenance.
• Court of Appeal found against Trendtex on the basis that
the assignment was not of a bare right to litigate. Trendtex
then appealed unsuccessfully to the House of Lords
• In Trendtex Trading Corporation v Credit Suisse [1982] AC 679, at
703; [1981] 3 All ER 520, at 531, Lord Roskill said:
• [I]t is today true to say that in English Law an assignee who can
show that he has a genuine commercial interest in the enforcement
of the claim of another and to that extent takes an assignment of
the claim to himself is entitled to enforce that assignment unless by
the terms of that assignment he falls foul of our law of champerty,
which, as has often been said, is a branch of the law of
maintenance … The court should look at the totality of the
transaction. If the assignment is of a property right or interest and
the cause of action is ancillary to that right or interest, or if the
assignee has a genuine commercial interest in taking the
assignment and enforcing it for his own benefit, I see no reason
why the assignment should be struck as an assignment of a bare
cause of action or as savouring of maintenance.
Maintenance, Champerty and
Barratry Abolition Act 1993
• Section 3: crime of maintenance abolished
• Section 4 : "[a]n action in tort no longer lies on
account of conduct known as maintenance
(including champerty)".
• Section 6:
"This Act does not affect any rule of law as to the
cases in which a contract is to be treated as
contrary to public policy or as otherwise illegal,
whether the contract was made before, or is
made after, the commencement of this Act.“
• Now found in Civil Liability Act 2002 – Sched 2
Campbell's Cash & Carry Pty Ltd v
Fostif Pty Ltd [2006] HCA 41
• In Ha v State of New South Wales (1997) 189 CLR 465, the HC found that
the tobacco licensing schemes of the states and territories were invalid
• A class action was started to reclaim the fees from licensed wholesalers
• Firmstone was a litigation funder who agreed to finance the action in
exchange for one-third of the proceeds of the action
• At trial Einstein J said the proceedings were an abuse of process
• The Court of Appeal overturned these findings and said that champerty
does not automatically mean an abuse of process – it is necessary to show
a corruption of the court process
• Some measure of control by the funder does not mean there has been an
abuse of process
• HC: appeal upheld but on other unrelated grounds. On the issue of policy
and abuse of process the HC (Gleeson CJ, Gummow, Hayne, Crennan, Kirby
JJ; Heydon and Callinan JJ in dissent) agrees with the Court of Appeal
Campbell's Cash & Carry Pty Ltd v
Fostif Pty Ltd [2006] HCA 41
• Gummow, Hayne and Crennan JJ:
[90] Two kinds of consideration are proffered as founding a rule of public policy - fears
about adverse effects on the processes of litigation and fears about the "fairness"
of the bargain struck between funder and intended litigant. In Giles v
Thompson[101], Lord Mustill said that the law of maintenance and champerty
could best "be kept in forward motion" by looking to its origins; these his Lordship
saw as reflecting "a principle of public policy designed to protect the purity of
justice and the interests of vulnerable litigants".
[91] Neither of these considerations, whatever may be their specific application in a
particular case, warrants formulation of an overarching rule of public policy that
either would, in effect, bar the prosecution of an action where any agreement has
been made to provide money to a party to institute or prosecute the litigation in
return for a share of the proceeds of the litigation, or would bar the prosecution of
some actions according to whether the funding agreement met some standards
fixing the nature or degree of control or reward the funder may have under the
agreement. To meet these fears by adopting a rule in either form would take too
broad an axe to the problems that may be seen to lie behind the fears.
Rights and liabilities not capable of
assignment - incidental to a right of
property
If there is an assignment of property with an
incidental right to litigate it is valid. This is so
because there is no assignment of a bare right to
litigate, the right being incidental to a right of
property. Accordingly, no issues of maintenance
or champerty can arise. Thus, the right to rescind
for undue influence in Dickinson v Burrell (1866)
LR 1 Eq 337 was assignable because it was
incidental to the real property assigned to the
assignor.
Rights and liabilities not capable of
assignment - insurance
An assignment by an insured to an insurer of
the insured’s right to sue, in consideration of a
payment made by the insurer to the insured in
satisfaction of a claim pursuant to an
insurance policy between the insured and
insurer, is valid. This stems from the insurer’s
right of subrogation: Compania Colombiana
de Seguros v Pacific Steam Navigation Co
[1965] 1 QB 101
Assignment of contractual rights
• The benefit (the right to receive performance)
of a contract may be assigned, but its burden
(the obligation to render performance), may
not be assigned: Pacific Brands Sport & Leisure
Pty Ltd v Underworks Pty Ltd (2006) 149 FCR
395
• Assignable contractual rights are choses in
action and hence property
Queensland Insurance Co Ltd v Australian Mutual Fire
Insurance Society Ltd (1941) 41 SR 195
• Jordan CJ said at 201-3:
• As a general rule a person may assign to another any benefit
to which he may be entitled under a contract, but cannot
escape his contractual liabilities by purporting to assign them,
although if the contract be not of a personal nature, he may
procure someone else to perform them for him. If therefore a
contract be assigned by one of the parties, the assignee may
in general compel the other party to do for his benefit
whatever he would have been liable to do for the assignor’s
benefit, subject, however, to the obligations of the assignor
being duly performed by the assignor or by someone else.
What does the contract say?Linden Gardens
Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1
AC 85
• Two joined cases
• Case 1: Lessee hires Lenmestra to remove
asbestos. Contract states that any assignment of
rights must be with the cntractors consent. Lease
is assigned. The work was defective.
• Could the new assignee sue?
• No the clause was effective – there was no policy
reason for striking it down as the contractor had
a genuine interest in controlling who it owed
contractual duties to
Linden Gardens Trust Ltd v Lenesta
Sludge Disposals Ltd [1994] 1 AC 85
• Second case:
• Lessee of 150 yr old lease gets building work done.
Contract forbids assignment of rights without consent
• Later the lease is assigned
• Building work is defective
• The original party sues – can they get substantial
damages?
• Yes – the contract intended for the original parties only
to enforce the contract so it must have been envisaged
that the parties could sue on behalf of successors in
title for substantial damages.
Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395
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Pacific Brands bought the Sara Lee business which included the licensing rights to
King Gee and Stubbies Trade marks
HW prior to the acquisition Sara Lee had granted an exclusive sub-license of these
rights to Underworks (a rival coy) for 5 yrs with a 5 yrs option
The contract bw PB and SL expressly purported to assign the license but the sublicense agreement was silent on the issue of assignment
Underworks refused to consent to an assignment of the rights to Pacific Brands
As part of the agreement with SL Underworks had to lodge marketing plans and
reports. PB argued that they had failed to comply with this terms and they sought
to terminate the sub-license
Could they do this? At trial Justice Finkelstein said that the right to terminate could
not be assigned as it was a personal privilege and not proprietorial. The
requirement to submit plans was personal and confidential and so could not be
assigned
FFC - Finn, Sundberg JJ and Emmett JJ – upheld the trial decision but differed in
approach
Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395
• FFC – found that a party's contractual rights have a
proprietary character for the purposes of assignment,
and are ordinarily assignable. They are a bundle of rights
• FFC rejected the approach of choosing between some
rights and powers of a party, and of giving to some
proprietary characteristics, while denying that character
to others.
• Once the bundle of rights is recognised the next issue is
to examine any statutory, or public policy reasons for
denying assignability
Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395
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Finn and Sundberg JJ
32 By way of background, it is appropriate to begin with a number of relatively
non-contentious propositions. First, it is well accepted that assignable contractual
rights are choses in action; are a species of personal proprietary right; and can be
transferred to a third party at law or in equity in accordance with the formal rules
governing the transfer of such rights: see Norman v Federal Commissioner of
Taxation [1963] HCA 21; (1963) 109 CLR 9 at 26; Loxton v Moir [1914] HCA 89;
(1914) 18 CLR 360 at 379. Secondly, while it is not legally possible to assign the
burden of a contract (i.e. the obligation to render performance), it may be possible
to assign (a) the entire benefit of a contract (i.e. the right to receive performance):
Don King Productions Inc v Warren [2000] Ch 291 at 318 ("Don King"); (b) if a right
under a contract is separate and severable, such a separate and severable right: cf
Federal Commissioner of Taxation v Everett [1980] HCA 6; (1980) 143 CLR 440 at
449-450; or (c) if some only of the rights under a contract are assignable, those
rights. "[A]ssignability is not a matter of all obligations arising under a contract or
none at all": Don King, above, at 319.
Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395
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Thirdly, a contract may expressly or impliedly authorise assignment of rights in a contract
which would not otherwise be assignable: Devefi Pty Ltd v Mateffy Perl Nagy Pty Ltd (1993)
113 ALR 225 at 235 ("Devefi v Mateffy"); or, conversely, may expressly or impliedly prohibit
assignment of rights otherwise prima facie assignable: Don King, above, at 319. "Such
contractual provisions are legally effective" as between the contracting parties: Don King,
ibid; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103 ff ("Linden
Gardens Trust"). Fourthly, while the product to be derived from a contractual performance
(the "fruits of performance") may be assigned; Devefi v Mateffy, above, at 234; the right to
that performance may, nonetheless, be unassignable because, having regard to the nature of
the contract and the subject matter of the contractual right in question, that right is personal
in the sense that the identity of the contractual obligee is material to the contractual
relationship itself (i.e. it is a "personal contract": Peters v General Accident Fire & Life
Assurance Corporation Ltd [1938] 2 All ER 267 at 270; Moore v Collins [1937] SASR 195; or to
the contractual performance to be rendered: Linden Gardens Trust Ltd v Lenesta Sludge
Disposals Ltd (1992) 57 BLR 57 at 77 (contract requiring a party to act on the other’s
instructions); see generally Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract (8th
Aust ed, 2002), [8-6]; Furmston (ed), above, 6.299 ff; Chitty on Contracts, Vol 1 19-053 ff (29th
ed, 2004); Farnsworth, above, SS11.4. A contractual right, though, will not be personal if,
construed in its setting, "it can make no difference to the person on whom the
[corresponding] obligation lies to which of two persons [i.e. assignor or assignee] he is to
discharge it": Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB
660 at 668.
Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395
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Fifthly, seemingly, a contractual right may itself be of such a personal character
that it cannot properly be characterised as property: cf Jack v Smail [1905] HCA 25;
[1905] HCA 25; (1905) 2 CLR 684 at 704-705; but it is not clear whether this
proposition has salience only in contexts other than assignment of such a right,
e.g. insolvency, because of the proposition immediately preceding this which
relates expressly to assignments of "personal" contractual rights. Sixthly, the
assignee of a contractual right under a legal assignment is entitled, as owner of
that right, to take action in respect of it: e.g. Conveyancing Act 1919 (NSW), s 12.
Seventhly, a third party may become a "substituted contracting party" by novation
of the original contract. Novation will, ordinarily, require the agreement of the
original and the substituted party although the original contract itself may, on its
proper construction, authorise a party to substitute a contracting party in its place
without need for a further tri-partite agreement: see Harry v Fidelity Nominees Pty
Ltd (1985) 41 SASR 458 at 460. On novation, though, there is no assignment of
rights and obligations, but rather the creation of new rights and obligations in a
new contract: Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365 at 388; Cheshire &
Fifoot’s Law of Contract, above, [8.45] ff.
Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395
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Eighthly, a contractual obligation cannot be assigned without the consent of the
other contracting party: Tolhurst v Associated Portland Cement Manufacturers
(1900) Ltd [1902] 2 KB 660 at 668. This, for practical purposes, requires novation of
the original contract; Furmston, "The Assignment of Contractual Burdens" (1998)
13 Jo Contract Law 42; see also Vickery v Woods [1952] HCA 7; [1952] HCA 7;
(1952) 85 CLR 336 at 345; Fightvision Pty Ltd v Onisforou [1999] NSWCA 323;
(1999) 47 NSWLR 473 at 491-493. Ninthly, the delegation of performance of
contractual obligations is permissible where the obligations assumed do not
require personal performance but only the producing of a result: Bruce v Tyley
[1916] HCA 34; (1916) 21 CLR 277; British Wagon Co v Lea & Co (1880) 5 QBD 149.
In such cases perfect performance by the delegate will discharge the delegating
contractor’s obligation, although that contractor will remain liable unless and until
such performance is rendered. "Whether or not in any given contract performance
can properly be carried out by the employment of a sub-contractor must depend
on the proper inference to be drawn from the contract itself, the subject matter of
it, and other material surrounding circumstances": Davies v Collins [1945] 1 All ER
247 at 250.
Pacific Brands Sport & Leisure Pty Ltd v
Underworks Pty Ltd (2006) 149 FCR 395
• Conclusion - the right to provide plans was based on the identity of
Sara lee and personal to it
• 67 Considered in its totality, we are satisfied that the Sub-Licence in
its setting, while not of a type that was necessarily inherently
personal in character...was nonetheless intended to create an
enduring relationship in which the identity of Sara Lee as the SubLicensor was material and was made so by Sara Lee in particular.
While acknowledging the legitimate interest the Sub-Licensor had
in exercising control over the use of the mark and hence having
contractual powers to that end, we consider that there are
sufficient indications in the text of the Sub-Licence itself that the
particular will to which the Sub-Licensee was asked to subject itself
was Sara Lee’s, and that that was a state of affairs that Underworks
agreed to
• Underworks needed to give consent to the assignment
Contracts for personal services
• Nokes v Doncaster Amalgamated Collieries Ltd
[1940] AC 1014; [1940] 3 All ER 549,
• Noakes worked for Hickelton Main Co Ltd
• The business was transferred to Doncaster
Colleries.
• Noakes went absent and was required to pay a
fine on the basis that he had a contract of service
with Doncaster
• Noakes said he did not have a contract for service
Nokes v Doncaster Amalgamated
Collieries Ltd
• Lord Atkin -My Lords, I confess it appears to me
astonishing that apart from overriding questions
of public welfare power should be given to a
court or anyone else to transfer a man without
his knowledge and possibly against his will from
the service of one person to the service of
another. I had fancied that ingrained in the
personal status of a citizen under our laws was
the right to choose for himself whom he would
serve: and that this right of choice constituted
the main difference between a servant and a
serf...
Tolhurst v Associated Portland Cement
Manufacturers (1900) Ltd [1903] AC 414
• Tolhurst agreed, for a term of up to 50 years,
to supply chalk to a particular cement
manufacturing company which later assigned
this contractual right to another company who
took over the first company’s business.
• Tolhurst’s claim that the assignment was
invalid was rejected because the House of
Lords took the view that it could not make any
difference to Tolhurst whether it supplied
chalk to the assignor or assignee.
Mid-City Skin Cancer & Laser Centre v
Zahedi-Anarak (2006) 67 NSWLR 569
• Zahedi, a medical practitioner, was contractually
bound by an implied obligation of confidence in
relation to records on patients kept by a medical
practice where he was employed.
• A new owner took over the medical practice
• Zahedi took records and then ended his
employment to work elsewhere.
• Could the new business owner sue on the original
obligation?
Mid-City Skin Cancer & Laser Centre v
Zahedi-Anarak (2006) 67 NSWLR 569
• Yes: Campbell J
• If one considers the contract between Dr Zahedi and [his former
employer], it has now come to an end, so far as either side having
ongoing obligations to provide services is concerned. However, the
contractual obligation continues whereby lists of patient names and
addresses which Dr Zahedi obtained … cannot be disclosed, and
cannot be used except for the purposes of the [former employer].
The obligations of Dr Zahedi under that term of the contract do not
require any personal interaction with the person to whom the
obligation is owed, and the content of the obligation is not infl
uenced by any action or decision of the person to whom the
obligation is owed. It is not an obligation requiring Dr Zahedi to do
things — it is an obligation requiring him not to do things. Dr Zahedi
can perform it perfectly by total inaction. In my view, for these
reasons no analogy can be drawn with the reasons whereby the
benefit of a contract of service is unassignable.