Ndole Assets Ltd v Designer M&E Services UK Ltd

INTRODUCTION

By an application dated 1 March 2017, the defendant (“Designer”) seeks a declaration that the Claim Form and the Particulars of Claim were not properly served, alternatively that the claim should be struck out because of invalid or ineffectual service. Further, Designer seeks summary judgment against the claimant (“Ndole”) because the claim is brought by Ndole as assignees, and it is said that the circumstances of the assignments mean that the claim should be dismissed on grounds of maintenance/champerty.

Thus, although the two main issues between the parties are unconnected, I only need to decide the second issue if I am against Designer on the first. That first issue, which is concerned with whether or not the Claim Form and the Particulars of Claim were validly served, involves a consideration of Ndole’s position as a litigant in person, and the assistance provided to them by Mr Alexander Dain and his company, CSD Legal Limited (“CSD”). It is common ground that, as an unregistered barrister, Mr Dain is not permitted to carry out reserved legal activities under the Legal Services Act 2007 (“the 2007 Act”). It is Designer’s case that the service of the Claim Form and the Particulars of Claim amounted to such an activity, so that the service of those documents by Mr Dain was unlawful and therefore invalid. This matters because, if fresh proceedings were started now, Ndole’s claim may well be statute-barred. I address this first issue in Section 2 of this Judgment.

If I conclude that service was validly effected then it is necessary for me to go on and consider the second issue, which is concerned with whether or not Designer is entitled to summary judgment against Ndole, on the basis that Ndole had and has no legitimate commercial interest in these proceedings, such that their claim against Designer is bound to fail for reasons of maintenance/champerty. This in turn requires a careful consideration of the evidence and the bewildering array of loan agreements and assignments which, when the music stopped, left Ndole as the party with the purported claim against Designer. I deal with this second issue in Section 3 below.

In addition, for reasons which will become apparent, I go on and address in Section 4 below my preliminary views (all subject to further submissions from counsel) as to the best way forward in these proceedings.

ISSUE 1: WAS SERVICE UNLAWFUL?

The Facts

On 17 October 2016, Ndole wrote on headed notepaper to the TCC Registry enclosing three signed copies of the Claim Form and asking the court to issue the claim and return two sealed Claim Forms to them for service. Although Ndole’s letterhead gave their address in Tortola, British Virgin Islands, I was told that, after the claim was issued, the documents were returned to an address in Great Portland Street, the address of unidentified agents acting for Ndole.

It is common ground that, in these proceedings, Ndole is a litigant in person. It also appears to be common ground that, save for the letter of 17 October 2016, CSD has done everything else in these proceedings on behalf of Ndole. Thus, on 22 December 2016, it was CSD who provided copies of the draft Particulars of Claim to Designer. That letter began: “We act for Ndole Assets Limited…” There is nothing on the face of the letter to suggest that this was anything other than a solicitor’s letter. But in fact it could not have been, because CSD Legal and/or Mr Dain, the relevant Director, had no entitlement to carry on a reserved legal activity and could not conduct the proceedings on behalf of Ndole.

In January 2017, there was correspondence between CSD and Clarke Willmott, Designer’s solicitors. On 27 January 2017, CSD wrote to the TCC Registry with a query about the filing of the voluminous appendices to the Particulars of Claim. That letter said that CSD “are assisting the claimant in this matter”. Again, the obvious inference, in the absence of any express indication to the contrary, was that CSD Legal were solicitors.

On 31 January 2017, Mr Dain of CSD served the Claim Form, the Particulars of Claim and the seven appendices on Designer at their offices in Watford. The covering letter identified those documents as being “enclosed by way of service on you”. Again, that covering letter looks to be the sort of letter that might be expected from a claimant’s solicitor, serving the relevant documents.

The following day, 1 February 2017, Mr Dain completed a Certificate of Service identifying that he had personally served the documents the previous day. He signed the Certificate. There are four pre-printed alternatives as to the role of the person signing the Certificate: ‘claimant’; ‘defendant’; ‘solicitor’; and ‘litigation friend’. Mr Dain deleted all but the first, namely ‘claimant’. Strictly speaking, that was incorrect: he was the claimant’s agent. As to his position/office held, he typed in ‘consultant’, which was correct.

On 2 February 2017, CSD wrote to the TCC Registry enclosing the Certificate of Service, the Particulars of Claim and the correspondence in relation to the filing of the appendices. Again the letter is in a form which one would expect to see from a solicitor.

The Argument

On behalf of Designer, Mr Darling submitted that the service of the Claim Form and the Particulars of Claim amounted to either the ‘commencement’ or the ‘prosecution’ of these proceedings, or the performance of an ‘ancillary function’ in relation to the proceedings, and was therefore a reserved legal activity pursuant to Section 12 of the 2007 Act. Since it is common ground that Mr Dain and/or CSD were not entitled to carry out such an activity, Designer say that service was unlawful and invalid, and as a result, the proceedings should be struck out.

Ndole contend that the service of the Claim Form and the Particulars of Claim was not the commencement or prosecution of the proceedings or an ancillary function and seek to rely on the Court of Appeal decision in Agassi v S Robinson (HM Inspector of Taxes) [2005] EWCA Civ. 1507 in support of their contention. They also say that the CPR does not limit the identity of those who can serve documents and they refer to the fact that claim forms and other formal documents are daily served across the country by process-servers who are not entitled to carry out reserved legal activities.

The Law

Section 12 of the 2007 Act provides as follows:

“Meaning of “reserved legal activity” and “legal activity”

(1)

In this Act “reserved legal activity” means—

(a)

the exercise of a right of audience;

(b)

the conduct of litigation;

(c)

reserved instrument activities;

(d)

probate activities;

(e)

notarial activities;

(f)

the administration of oaths.

(2)

Schedule 2 makes provision about what constitutes each of those activities.”

Schedule 2 at paragraph 4 defines the “conduct of litigation” as:

“(a)

the issuing of proceedings before any court in England and Wales,

(b)

the commencement, prosecution and defence of such proceedings, and

(c)

the performance of any ancillary functions in relation to such proceedings (such as entering appearances to actions).”

Section 13 of the 2007 Act deals with the entitlement to carry on a reserved legal activity:

“Entitlement to carry on a reserved legal activity

(1)

The question whether a person is entitled to carry on an activity which is a reserved legal activity is to be determined solely in accordance with the provisions of this Act.

(2)

A person is entitled to carry on an activity (“the relevant activity”) which is a reserved legal activity where—

(a)

the person is an authorised person in relation to the relevant activity, or

(b)

the person is an exempt person in relation to that activity.

(3)

Subsection (2) is subject to section 23 (transitional protection for non-commercial bodies).

(4)

Nothing in this section or section 23 affects section 84 of the Immigration and Asylum Act 1999 (c. 33) (which prohibits the provision of immigration advice and immigration services except by certain persons).”

Section 14 of the Act stipulates that it is an offence for a person to carry on a reserved legal activity if that person is not entitled so to do.

In the TCC, it is not uncommon for there to be arguments about the costs recoverable by claims consultants in litigation, particularly following a disputed adjudication enforcement. The relevant principles have been recently restated by Jefford J in Octoesse LLP v Trak Special Projects Limited [2016] EWHC 3180 (TCC). However, the present case is a little different: as far as anyone can tell, it is the first time that an allegation of unlawful conduct has ever arisen against a claims consultant acting for a litigant in person in a construction case. Moreover, on the particular issue as to service which now arises, the authorities are less than clear.

The starting point is the decision of the Court of Appeal in Agassi, where the consultants, Tenon, were experts in tax law. The conclusion was that nothing which Tenon did in that case appeared to involve a breach of the predecessor terms of the Solicitors Act 1974 (“the 1974 Act”) and the Courts and Legal Services Act 1990 (“the 1990 Act”): see paragraph 79. But since service of the Claim Form or Particulars of Claim was not a matter which arose there, the point which I have to consider did not arise.

The decision is however important because it grapples with what is covered by the commencement, prosecution and defence of proceedings (then Section 20 of the 1974 Act). In the judgment of the court given by Dyson LJ (as he then was), it was said:

“43.

As was stated in Factortame, section 20 must be given a “restricted ambit” because of its penal nature. What does this mean? Where is the line to be drawn? Does the prohibition go any further than what is expressly prohibited? It is common ground that it does not extend to what might be termed purely clerical or mechanical activities such as photocopying documents, preparing bundles, delivering documents to opposing parties and the court and so on. Mr Speaight submits that none of the following activities, if conducted by an unqualified person, would be in breach of sections 20 or 22:

‘(a) Delivering to a court office a claim form, appeal notice, application or the like, provided it has been signed by the party himself.

(b)

Typing or printing out an appeal notice, statement of case or other formal court document, which has been drafted by a barrister.

(c)

Service of a claim form or other documents.

(d)

Taking a statement from a prospective witness.

(e)

Correspondence with the opposing party.

(f)

Preparing a bundle of documents for use in a court hearing.

(g)

Drafting instructions to a barrister.

(h)

Sitting behind a barrister during a hearing to provide administrative assistance.’

44.

He described these as “administrative support”. It is to be noted that we were shown no statute or rule which prohibits an unqualified person from giving legal advice. Mr Speaight accepts that discussing the law with counsel and/or giving legal advice to the client in connection with the litigation is not acting as a solicitor. Since such conduct by unqualified persons is not prohibited, it seems to us that, on an application of the Piper Double Glazing test, it does not amount to acting as a solicitor. Mr Drabble questions whether some of the items in Mr Speaight’s list would normally amount to mere administrative support: for example, correspondence with the opposing party which, he submits, is an integral part of the conduct of litigation. Mr Drabble says that it is a question of degree whether correspondence goes beyond what may fairly be described as administrative support for the party.

45.

This is a difficult area. There is no statutory (and so far as we are aware no other) definition of “acting as a solicitor”. The phrase “administrative support” may seem to be a convenient label to use to refer to those activities which do not amount to acting as a solicitor, but it is not particularly illuminating shorthand for the only activities that may be carried out by an unqualified person on a proper application of the Piper Double Glazing test.”

The Court of Appeal also concluded that the relevant words had to be given a narrow meaning because of the penalties for non-compliance. Dyson LJ went on to say:

“53.

Depending on the context, the word ‘proceedings’ may have a very wide ambit (see Callery v Gray (No1) [2001] EWCA Civ. 1117 at [54]; [2001] 1 WLR 2112; and, for an extreme example, see Crosbie v Munroe [2003] EWCA Civ. 350 at [34]). In the present context the word undoubtedly includes ancillary applications and appeals in the course of litigation. Only a litigant in person or an authorised litigator may issue proceedings. But what is the scope of the right “to perform any ancillary functions in relation to proceedings (such as entering appearances to actions)”? The background material to the 1990 Act that we have been shown sheds no light on the meaning of these words. Mr Drabble and Mr Carr rely on the statutory objective and the general principle stated in section 17 in support of the submission that the words should not be given a narrow meaning. They submit that there are powerful policy reasons why litigation which is not being conducted by litigants in person should be conducted by authorised litigators. The scheme introduced by the 1990 Act was intended to make provision for new and better ways of conducting litigation and a wider choice of persons providing them “while maintaining the proper and efficient administration of justice”. It is an essential part of the scheme that the enlargement of the class of persons available to conduct litigation is properly regulated.

54.

We recognise the importance of these considerations. But the language of section 119 must be interpreted in accordance with the usual rules for statutory interpretation. These include that the starting point is that words should be given their plain and natural meaning. It is also important to bear in mind the penal nature of section 70. If a person purports to exercise the right to conduct litigation when he is not entitled to do so, he commits an offence. This is not directed at the person who pretends that he is entitled to exercise the right to conduct litigation: that is the subject of the separate offence created by section 70(3). Section 70(1) is directed at the person who, whatever his state of mind, actually issues proceedings or performs any ancillary functions in relation to proceedings when he is not in fact entitled to do so.

55.

If Parliament had intended to introduce a broad definition of the right to conduct litigation, it could have defined it as the right “to issue and conduct proceedings before the court”. That would have been all-embracing and the second limb of the definition that was adopted would have been unnecessary. Instead, Parliament decided to limit the first limb of the definition to the initial formal step in proceedings, namely their issue. It then added a second limb, which, if its meaning is ambiguous or otherwise unclear, should be construed narrowly.

56.

The word “ancillary” indicates that it is not all functions in relation to proceedings that are comprised in the “right to conduct litigation”. The usual meaning of “ancillary” is “subordinate”. A clue to what was intended lies in the words in brackets “(such as entering appearances to actions)”. These words show that it must have been intended that the ancillary functions would be formal steps required in the conduct of litigation. These would include drawing or preparing instruments within the meaning of section 22 of the 1974 Act and other formal steps. It is not necessary for the purposes of this case to decide the precise parameters of the definition of “the right to conduct litigation”. It is unfortunate that this important definition is so unclear. But because there are potential penal implications, its very obscurity means that the words should be construed narrowly. Suffice it to say that we do not see how the giving of legal advice in connection with court proceedings can come within the definition. In our view, even if, as the Law Society submits, correspondence with the opposing party is in a general sense “an integral part of the conduct of litigation”, that does not make it an “ancillary function” for the purposes of section 28.”

In the subsequent case of MSJ Associates Limited v Brett Halliday (2013, unreported), a decision of HHJ Grant in the Birmingham TCC in March 2013, a point arose about the service of documents (although not, I think, the Claim Form or Particulars of Claim). Judge Grant ruled that this was administrative support and not a reserved activity. His finding was on the express basis that Dyson LJ’s judgment in Agassi endorsed and accepted the submissions of the Bar Council, noted at paragraph 43 of his judgment (and set out at paragraph 19 above).

The only other case of any relevance, Heron Brothers Limited v Central Bedfordshire Council (No.2) [2015] EWHC 1009 (TCC), suggests the contrary result. In that case, Edwards-Stuart J was dealing with a late application concerned with the role of claims consultants (Quigg Golden) and whether or not it was reasonably arguable. He concluded that he should not consider the late application, but that in any event it made no difference to his original conclusion. At paragraph 29 of his judgment he said:

“In this case Quigg Golden, having eventually received the issued claim form from the court, served it on the Defendant. I am prepared to assume that that constituted an act that it was not authorised to do and which was therefore unlawful. However, it is not the service of the issued claim form that was regularised by my judgment…”

Accordingly, Edwards-Stuart J’s remarks were not only obiter, but were based on an assumption that service was unlawful. There was no detailed consideration of the point beyond that.

Analysis

There was some debate as to whether the service of proceedings was caught by Schedule 2, paragraph 4(b) of the 2007 Act, in the word “commencement”. I can see some force in this, because paragraph 4 makes ‘commencement’ a separate concept from ‘issuing’ proceedings, which is the normal event which denotes the start of civil proceedings. But it is unnecessary for me to decide that question because Designer argue that, in any event, the service of the Claim Form and the Particulars of Claim amounted to the ‘prosecution’ of the proceedings.

I take as my starting point the ordinary meaning of the words. The prosecution of civil proceedings must, at the very least, involve the taking of certain procedural steps between the issue of the Claim Form and the handing down of judgment. Of those steps, the service of the Claim Form and the Particulars of Claim is one of the most important. If service is not effected, or if it is effected in the wrong way, then the proceedings might be fatally flawed. Correct service is therefore a prerequisite for the successful prosecution of an action.

In those circumstances, on a consideration of the ordinary meaning of the word ‘prosecution’, it seems to me that the prosecution of proceedings would encompass the service of the Claim Form and the Particulars of Claim. So is there anything in the authorities which should lead me to a different view?

Ms Sinclair’s principal argument was based on paragraph 43 of Agassi which, as I have already noted, was the argument which impressed Judge Grant in MSJ. But I regret to say that it did not impress me. Paragraph 43 is no more and no less than a verbatim record of what counsel for the Bar Council argued in Agassi amounted to administrative support, which (so it was said) was not a restricted activity. What matters is not what was argued, but whether the Court of Appeal expressly endorsed that list. In my judgment, they did not.

There is no express endorsement of the list in paragraphs 44 or 45 of Dyson LJ’s judgment. The highest Ms Sinclair could put it was that I should read paragraph 45 as a ‘tacit approval’ of the list. I cannot do so. To the contrary, Dyson LJ makes plain in that paragraph that “this is a difficult area”. There is nothing in that paragraph which could be said to endorse the list. Given that it was not necessary for the list to be endorsed as part of the Court of Appeal’s judgment in any event, it would be an unusual reading of a typically careful judgment of Dyson LJ to find that, contrary to his usual approach, he was (tacitly, not expressly) deciding issues that went beyond the particular disputes in the case before him.

Moreover, I would respectfully suggest that the list could not have been endorsed as a list of activities which, in every case, fell outside the meaning of reserved legal activity and which plainly amounted to administrative support. Take as an example one of the items in the list which does not arise in this case, namely “taking a statement from a prospective witness”. In the TCC, the written witness statement stands as that person’s evidence in chief. Is it really suggested that the taking of such a statement by a third party, amounting to the preparation of the witness’s evidence in chief, is merely administrative support, rather than a critical step in the prosecution of the proceedings?

This view of Agassi also deals with the decision in MSJ: if I am right, then Judge Grant erred in concluding that paragraph 43 was part of the Court of Appeal’s reasoning, as opposed to the simple recitation of the Bar Council’s arguments. Thus, even if Ms Sinclair is right, and Heron does not help me either, it means that none of the cases on the point can affect my view that, on the plain meaning of the word ‘prosecution’, the service of proceedings is a reserved activity, because it was a part of the prosecution of the proceedings.

In the alternative, Mr Darling argued that the service of the Claim Form/ Particulars of Claim was an “ancillary function in relation to such proceedings”. For that alternative submission he derived some support from paragraph 56 of the judgment in Agassi, where Dyson LJ found that these words “show that it must have been intended that the ancillary functions would be formal steps required in the conduct of litigation.” In my view, it cannot seriously be argued that the service of the Claim Form/Particulars of Claim was anything other than “a formal step required in the conduct of litigation.” That is therefore a further reason why, in my judgment, service is a reserved activity.

Ms Sinclair’s next submission, involving the CPR, can be dealt with much more shortly. She was right to say that the CPR does not identify, in relation to the service of the Claim Form/Particulars of Claim, who was permitted to do it, and who was not. The rules simply refer to ‘the claimant’: see for example, r.7.5 and r.6.4. But that is understandable for a whole host of reasons. The CPR is procedural, and is subordinate to substantive legislation. If a particular statute provides that X can serve a Claim Form but Y cannot, then that remains the law, whether or not it is expressly set out in the CPR. Moreover, it is unrealistic to think that the CPR should include all such stipulations or qualifications: complaint is regularly made that the CPR is too long and too over-prescriptive as it is. Additions of this sort would double its length. Accordingly, I do not think there is anything in that point.

However, Ms Sinclair had a much better argument when she identified the fact that Claim Forms and Particulars of Claim are regularly served by process-servers, all over the country, every working day of the week. Such process-servers are not entitled to carry out reserved legal activities. Accordingly, she argued, the service of these documents by CSD cannot be a reserved activity.

In my view, the (partial) answer to this is that process-servers are engaged by the relevant solicitors to carry out this particular task. They have the solicitors’ delegated authority to serve the documents. In those circumstances, since the solicitors on the record are responsible for the carrying out of all reserved legal activities, the solicitors remain responsible for the service of the documents, even if they have sub-contracted the task to professional process-servers. In that way, there is nothing inconsistent in concluding that the service of proceedings by process-servers is a reserved legal activity, for which the solicitors on the record are and remain responsible.

So what happens in a case like this, where there are no solicitors acting, and the claimant is a litigant in person? This was not a point that was addressed fully in submissions, because the principal points taken by Ndole were those which I have set out (and rejected) above. But the short answer must be that, as a litigant in person, the claimant is permitted to serve these documents. That is what the CPR says: r.7.5 refers to ‘the claimant’. So if Mr Laznik, the sole beneficial owner of Ndole, had served the documents on Designer on 31 January 2017, there would now be no difficulty.

So the final question is whether, as a litigant in person, Ndole (or Mr Laznik) was entitled to delegate that task to Mr Dain. In my view, it was. It would be nonsensical to conclude that, whilst a solicitor can delegate the carrying out of this task to a third party, a litigant in person cannot do so. There would be no basis for such discrimination. Accordingly, I have reached the view that, whilst a litigant in person can serve a Claim Form and Particulars of Claim himself, he can also ask an agent to do it on his behalf. That is what happened here. I am therefore not prepared to say that service in this case was unlawful.

Even if I had found that service was unlawful, I would have taken some persuading that the consequence of that was that the proceedings should be struck out. Service was effected, and there is no dispute that the relevant documents were served upon and received by Designer at the relevant time. In those circumstances, whilst the penal nature of the provision in the 2007 Act might have necessitated a variety of sanctions if I had concluded that it was unlawful, I would have been very reluctant to penalise Ndole by striking out their claim, particularly in circumstances where, as outlined above, real limitation issues may arise in respect of any fresh claim.

Finally, I should say a word about Mr Dain’s conduct generally. At paragraphs 6, 7, 8 and 10 above, I have expressed the view that a number of the letters that he wrote were at least potentially misleading, because he did not make it clear that CSD Legal were not a firm of solicitors and were not authorised to carry out reserved legal activity. Although I consider that he did not act in breach of the 2007 Act, and I conclude that these letters were irrelevant to the service issue in any event, I do find that Mr Dain sailed too close to the wind on a number of occasions. It would have been much better if he had set out CSD Legal’s true position at the outset, both to Designer and to the TCC Registry. I hope that he will heed that advice for the future.

Summary

For the reasons set out above, I consider that service of the Claim Form and the Particulars of Claim is a reserved legal activity, but I find that, in the circumstances of a litigant in person, service can be effected either by the litigant in person or by his agent. Ultimately, what matters is the proper service of the documents, not the identity of the person serving them. Here I find that proper service was effected.

ISSUE 2: SHOULD SUMMARY JUDGMENT BE GIVEN FOR MAINTENANCE/CHAMPERTY?

The Facts

Designer were engaged as sub-contractors by Sheldon Construction SRVC (London) Limited (“Sheldon”) to carry mechanical and electrical works at a development at Richmond Road in Hackney. The sub-contract was made in September 2010, although there is some debate as to whether the Sheldon standard conditions or the JCT conditions of contract applied. I note that, in the Particulars of Claim, Ndole rely on the Sheldon conditions and say that it is only if those did not apply that the JCT conditions were relevant.

Both sets of conditions contained provisions that would apply if the sub-contract was terminated. Clause 21.3 of the Sheldon conditions said that, in those circumstances, the costs of completion would be payable by Designer to Sheldon “on demand without prejudice to any other claim”. The JCT provisions provided that, on termination for default, the cost of completion would be recoverable by Sheldon against Designer ‘as a debt’.

It appears that, in the summer of 2010, Sheldon instructed Designer to carry out certain variations. Sheldon’s case was that Designer failed to carry out these instructions and that this entitled them to terminate Designer’s employment; alternatively they maintained that the refusal amounted to a wrongful repudiation of the sub-contract by Designer. Termination occurred in January 2011.

In the subsequent adjudications between Sheldon and Designer, it appears that the adjudicator concluded that Sheldon had been entitled to terminate Designer’s employment, but went on to decide that no sums had been identified by way of loss and damage in consequence. Neither party challenged that eventual result and so, for many years, that appeared to be that. However, unbeknownst to Designer, a whole series of events were unfolding behind the scenes relating to Sheldon’s claim.

On 30 January 2013, a company called Ellme Developments Limited (“Ellme”) loaned £600,000 to Sheldon. This was in relation to an entirely different development in NW5, in respect of which it appears that Ellme were the developers. I am told that the sole beneficial owner of Ellme was Mr Assaf Laznik, who is also the sole beneficial owner of Ndole. It is unclear what this loan was designed to achieve. There was a second loan in May 2014 and the loans were varied in November 2014 and charges were registered. By this stage, Ellme had advanced £1.2 million to Sheldon, although none of this related to the Hackney project where Designer had been a sub-contractor.

There was a third loan from Ellme to Sheldon on 5 February 2015.

On 9 June 2015, there was the first assignment deed. This related to the potential claims that Sheldon had against a company called WT&L (“WT&L”) on a third development at Sidworth Street in Hackney, and the alleged claim against Designer on the Richmond Road project (which the adjudicator had decided was of no value). This assignment recognised that Sheldon’s title to sue WT&L and/or Designer might now be vested in Ellme because of the loan agreements. So the assignment recorded Ellme’s release and surrender to Sheldon of any interest Ellme had in those claims, which then enabled Sheldon to assign those claims to a company called GHR Construction Limited (“GHR”). There is no detail as to who GHR were, or how and why they were interested in becoming the assignee of these claims. However, as a consequence of this agreement, GHR paid £200,000 to Sheldon. The first assignment deed also provided that, if GHR recovered any money, 10% of any net recovery made would be paid to Ellme.

On 30 September 2015, Ellme assigned to Ndole all its legal and beneficial rights in the debt owed to Ellme by Sheldon. The debt was valued in the sum of £700,542.10 In return, Ndole agreed not only to accept the assignment but to pay to Ellme what is referred to as ‘the assignment amount’, which was also £700,542.10. In this way, on the face of it, Ndole were obliged to pay to Ellme the equivalent of the debt Sheldon had incurred to Ellme.

Two aspects of this arrangement remain opaque. First, there is the question as to why Ndole had any interest in taking such an assignment. The best that Mr Laznik can do is paragraph 14 of his statement where he says:

“There was a genuine commercial rationale for Sheldon’s indebtedness to Ellme being assigned by Ellme to Ndole. Both Ellme and Ndole were entities wholly beneficially owned by me and it was in the interests of both companies and in my interests to have a business structure in which Ndole was Sheldon’s creditor rather than Ellme. Following its assignment of Sheldon’s debt to Ndole, Ellme ceased trading and subsequently ceased to exist.”

Surprisingly, perhaps, no particulars are provided in order to make good any of the assertions in that paragraph.

The second point is that it seems unlikely, on the face of the evidence, that the £700,542.10 was ever paid by Ndole to Ellme. That was the principal reason why, during the course of his submissions, Mr Darling called this agreement a sham.

On 26 January 2016, there was a further loan agreement between Ndole and Sheldon, although it was clarified during the course of the hearing that no further sums were loaned to Sheldon. Instead this agreement was designed to regularise the position as between Sheldon and Ndole. The relevant sum was the £700,542.10 referred to above.

On 21 July 2016, there was a second deed of assignment. This second assignment saw GHR reassign to Sheldon the claims against Designer (but not WT&L) which Sheldon had originally assigned to GHR. There was no detail of any payment made pursuant to this agreement. As already noted, the reasons why the claims were purportedly assigned to GHR, and were now being reassigned back again (despite the fact that GHR had no involvement with or claim against Designer), have not been explained.

On the same day, there was a third assignment in which, having taken the claim against Designer back from GHR, Sheldon immediately assigned it to Ndole. Part and parcel of this agreement was that Ndole would pay GHR 10% of any recovery made (although of course GHR had nothing whatsoever to do with Designer or the works at Richmond Road). The deed of assignment also provided that, if Ndole recovered more than the amount of the debt owed by Sheldon, the excess would be paid to Sheldon.

It is important to note that each of the first three assignments, to the extent that it was concerned with the claims against Designer, related to claims for damages for breach of contract. It is clear that, at some point, Ndole’s legal advisors became concerned that these might not be sufficient to assign to Ndole Sheldon’s claims for sums due under the sub-contract. Thus, on 10 October 2016, there was a fourth assignment pursuant to which Sheldon assigned to Ndole the benefit of Sheldon’s claims against Designer “to recover payment pursuant to the sub-contract and to restitution of sums overpaid”.

Copies of the four assignments referred to above were then sent by Sheldon to Designer on 14 October 2016. That appears to be the first time that Designer became aware that claims against them had been assigned and reassigned in the ways noted above; indeed this may have been the first time in five years that they learned that the claim rejected by the adjudicator may not be ‘dead’. However, the covering letter is minimal in its explanation, so Designer would have had to work all that out for themselves.

The Arguments

On behalf of Designer, Mr Darling made two attacks on the arrangements noted in Section 3.1, in order to say that the claim now advanced savours of maintenance/champerty. First, he said that the original transaction between Ellme and Ndole was a sham (paragraphs 47-49 above): it was designed simply to give Ndole a peg on which it could hang its assignment argument. More widely, he maintained that neither Ellme nor Ndole had any commercial interest in any claim against Designer. Neither party had any involvement in the Richmond Road development, and Ellme’s loan to Sheldon was only on the NW5 project.

In response, Ms Sinclair said that, whatever the position in relation to the claim for damages, the fourth assignment (of the claims under the contract) constituted the assignment of a debt, which was a property right and could not therefore be the subject of the maintenance argument in any event. As to the claims for damages, she submitted that, on the evidence, Designer have fallen far short of being able to demonstrate that the claim must fail for reasons of maintenance or champerty.

The Law

The starting point is Trendtex Trading Corporation v Credit Suisse [1982] AC 679. In that case Trendtex required the financial help of Credit Suisse in their action against C.B.N. Trendtex purported to assign to Credit Suisse its cause of action against C.B.N. although the agreement also involved a third party who had offered to buy Trendtex’s right of action against C.B.N. for a specified amount. The House of Lords reiterated that, although a party cannot assign a bare right to litigate, if the assignee had a genuine commercial interest in taking the assignment and enforcing it for his own benefit, there was no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance. On the facts in that case, the possibility, indeed the likelihood of a profit being made, either by the third party or possibly also by Credit Suisse, “savoured of champerty” and involved trafficking in litigation. It was for that specific reason alone that the claim was struck out.

The general position was summarised in Trendtex in the judgment of Lord Roskill at page 703, C-E:

“My Lords, I am afraid that, with respect, I cannot agree with the learned Master of the Rolls [1980] Q.B. 629, 657 when he said in the instant case that “The old saying that you cannot assign a ‘bare right to litigate’ is gone.” I venture to think that that still remains a fundamental principle of our law. But it 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 that 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 our law of maintenance. For my part I can see no reason in English law why Credit Suisse should not have taken an assignment to themselves of Trendtex’s claim against C.B.N. for the purpose of recouping themselves for their own substantial losses arising out of C.B.N.’s repudiation of the letter of credit upon which Credit Suisse were relying to refinance their financing of the purchases by Trendtex of this cement from their German suppliers.”

In the more recent Privy Council case of Massai Aviation Services v The Attorney General [2007] UKPC 12, Lady Hale summarised the development of the law since Trendtex and the development of the test of ‘a genuine commercial interest’. On the facts of that case, the shareholders of the relevant company sold the business but kept their legitimate claim against the defendant, and then assigned that claim to another company they had formed for that purpose. Lady Hale said:

“20.

The shareholders in CAASL owned a company which had an existing business and had acquired what it considered to be a significant business opportunity. It considered that it had been wrongfully deprived of the possibility of making the most of that opportunity and launched these proceedings. At some stage, whether or not reluctantly is not altogether clear, the shareholders decided to sell the business as a going concern while retaining the benefit of the lawsuit. We are told that they had little choice, as the relocation of Bahamasair had taken much of the working capital needed to pursue the development. The price which they achieved for the business without the lawsuit was much lower than the value which, rightly or wrongly, they then put on the business with the benefit of the lawsuit. The transfer of the business made it quite clear that, while the transferee would do nothing to hinder the assignee from pursuing the claim, it wanted no part in the claim itself. The mechanism the shareholders chose to do this was to form another company to retain the claim. We do not know exactly why they chose to do it as a company rather than as individuals. Mr John Wilson, who has presented the case for Aerostar with skill, economy and charm, suggested that it may simply have been for convenience. They did, of course, retain the benefit of limited liability but the system is quite capable of protecting defendants from being pursued by worthless companies through the mechanism of requiring security for costs.

21.

This was not wanton and officious intermeddling in another person’s litigation for no good reason. It was simply the original owners retaining part of what they owned while disposing of the rest. There is nothing contrary to public policy in allowing Aerostar to pursue the claim against these defendants and no good reason why these defendants should be permitted to escape any liability that they may have. This is not, of course, to say that a shareholder will always have a genuine and substantial commercial interest in taking an assignment of the company's claims. To take an extreme example, for a minority shareholder to buy a substantial claim for a nominal sum in the hope of making a substantial profit may well be contrary to public policy. But that is not this case. Aerostar owned all the shares in CAASL and taken as a whole the transaction was a perfectly sensible business arrangement.”

My attention was drawn to a number of other cases in which questions of maintenance/champerty arose. Those included Simpson v Norfolk and Norwich University Hospital NHS Trust [2011] EWCA Civ. 1149 in which the claimant widow took an assignment of another claim which arose out of what she said was the same negligent failure which had killed her husband. The Court of Appeal upheld the circuit judge’s decision that the law of champerty rendered the assignment of a bare cause of action void, and that the assignee had no legitimate interest in the original claim. By contrast, in JEB Recoveries LLP v Judah Binstock [2015] EWHC 1063 (Ch), a special purpose vehicle was set up by four people who had claims against a Mr Binstock. That claim was not dismissed for maintenance and champerty. HHJ Barker QC said:

“56.

As to Mr Vineall’s submission that Mr Wilson’s assignment and the Claim is or is on the brink of trafficking in litigation, I disagree. That phrase, as used in Trendtex, was attributed to a cause of action which was expected to be traded commercially between unconnected third parties as a commodity or, in the language the financial services industry, a product. In this case, the assignors are all connected with JEB; they all have a direct or indirect (through family) interest in rights equivalent or similar to the Rights; and, there is no evidence to suggest that JEB has attempted or will attempt to trade in the Rights or the Claim by further assignment. The conduct under attack in this case is a far cry from trafficking in litigation.”

In my view, neither of these authorities develop nor extend the principles in Trendex and Massai.

Analysis

I deal first with Ms Sinclair’s argument that the fourth assignment was the assignment of a debt which, pursuant to Section 136 of the Law of Property Act 1925, was a property right and therefore not subject to the law relating to maintenance/champerty. In this context, she referred to the case of Camdex International Limited v Bank of Zambia [1998] QB 22, in which the Court of Appeal said that, in an action on a debt, there was no question of maintenance or champerty, even if the necessity for litigation to recover the assigned debt was contemplated, or even if the assignor retained an interest in some or all of the proceeds of the litigation to recover the assigned debt. On the other hand, they found that an agreement which had maintenance or champerty as its object would be contrary to public policy and ineffective, and such a consequence could not be avoided by dressing up the champertous transaction as an assignment of a debt. In that case, the fact that a “bona fide debt” was owing was agreed by both parties.

During the course of her helpful submissions on this topic, Ms Sinclair said that “what matters is the correct categorisation of the cause of action”. I agree with that. Is the cause of action being purportedly assigned to Ndole in this case in reality a claim for damages/loss due to repudiation, or a claim for a debt? If the former, then the dressing up of that claim as a claim for a debt cannot avoid the argument of maintenance/champerty.

In my view, the correct categorisation of this claim is a claim for damages for wrongful repudiation, alternatively a claim for a sum due under the sub-contract as a result of a termination, triggered by the same alleged breaches on the part of Designer. That is essentially how it is described in both assignments 3 and 4. I also note that the contractual provisions that refer to the claim as ‘a debt’ are the JCT conditions which, on Ndole’s primary case, were subsidiary to the Sheldon conditions. So it seems to me that, in all those circumstances, this is some way from being a claim for a debt, since it arises out of disputed breaches of contract, and where issues of causation have already been successfully argued by Designer in adjudication.

Of course, I reach this preliminary conclusion on the basis of the material before me. If there is to be a full trial of this issue, I may come to a different view. But as things stand, I do not consider that this is properly classified as an action for a debt; it is a claim for damages and loss. Such a claim is capable of being assigned, but only if Ndole can show a genuine commercial interest in taking the assignment, and enforcing it for its own benefit. I therefore turn to that issue.

As to Mr Darling’s first criticism of the arrangements noted in paragraphs 47-49 above, namely the agreement between Ellme and Ndole of 30 September 2015, I am unable – on the material before me – to reach the view that this was a sham. That is partly because paragraphs 13 and 14 of Mr Laznik’s witness statement (paragraph 48 above) are so general as to be positively unhelpful, and partly because I have no evidence relating to the reasons for the agreement, or whether or not the agreement was actually performed (and in particular, whether or not the £700,542.10 was actually paid). Those will be matters which will have to be explored at a trial or sub-trial. They cannot be decided on an interlocutory basis.

For present purposes, I am more troubled by Mr Darling’s second criticism, relating to the interests of Ellme and Ndole. Take Ellme first. Their interest in Sheldon arose out of the loans which they had made which, if anything, must have related to the development in NW5. On the face of it, Ellme had no commercial interest in the Richmond Road project. Furthermore, by the time that such an interest was suggested (via the loans to Sheldon), the sub-contract between Sheldon and Designer had long since come to an end and the adjudication process had resulted in a sort of goalless draw.

Thus there is force in Mr Darling’s submission that what must have happened was that Sheldon were in financial difficulties with Ellme on the NW5 project and, in order to try and encourage Ellme to provide a further loan, or not to call in the previous loan(s), they offered to assign to Ellme their claim (such as it was) against Designer on Richmond Road. I accept that there is a degree of speculation about all this, but speculation is inevitable given Mr Laznik’s failure to address the detail in his witness statement.

If that analysis is right, then it might be difficult to conclude that Ellme had any legitimate commercial interest in the claim against Designer.

The position of Ndole is even more obscure. Ellme’s interests in pursuing Designer as assignee might be uncertain, but the further assignment from Ellme to Ndole is wholly unexplained, beyond the assertion that it suited Mr Laznik. In my view, it is not enough to say that because, in some unexplained way, the assignment was in Mr Laznik’s interest, Ndole have a genuine commercial interest in the claim against Designer. Why was Ellme allowed to cease to exist? Why were the claims assigned to Ndole, who had no interest in either the NW5 or the Richmond Road projects? And if the sum was not paid by Ndole to Ellme, how can it be said that Ndole has any genuine commercial interest at all in these proceedings?

For all these reasons, I consider that Designer has an arguable case on maintenance/champerty. This may be more like Trendtex and Simpson than Massai and JEB. But again, the evidence relating to that issue is incomplete, so I cannot conclude that it is unanswerable. I accept Ms Sinclair’s submission that I cannot, on the state of the evidence as it presently exists, order summary judgment in Designer’s favour: Mr Laznik’s statement does enough to meet the test in Mellor v Partridge [2013] EWCA Civ. 477. Ndole have shown that their defence to the claim of maintenance/champerty has a realistic prospect of success, such that the issue should proceed to trial. In my view, it should be resolved, on full evidence, sooner rather than later.

THE WAY FORWARD

For the reasons set out above, I reject Designer’s case on the first issue, but find that they have raised potentially good points on the second issue, albeit they are insufficient to lead to summary judgment at this stage. In the light of these findings, I will need to hear from the parties as to what they consider to be the best way forward. My preliminary views, subject to those submissions, are set out below.

Ndole are a company based in the British Virgin Islands. On the face of it, therefore, they will need to provide security for costs. In addition, because of the arguable points raised by Designer under the second issue, my preliminary view is that they should only be permitted to continue the claim if they pay a substantial sum of money into court by way of security.

Once that has happened, it may be that the maintenance/champerty point should be addressed as a preliminary issue (or sub-trial) and dealt with first. Although the court is wary about suggesting preliminary issues (because they can often seem a good idea and then lead to no real saving of time or money) it seems to me that if, on a consideration of all the evidence, the assigned claim is not capable of being pursued by Ndole, then the sooner the court and both parties know that, the better.