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Assignment of a claim or cause of action

Resource type: Practice note Status: 18 December 2012 Jurisdictions: England, Wales
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This note explains how a claim or cause of action may be assigned, whether by legal assignment or equitable assignment. It sets out the situations in which an assignment may be effected, including assignment in the context of an administration, liquidation or bankruptcy. The note provides guidance on drafting an assignment as well as the practical considerations, such as the recovery of costs. Sarah Clarke and Adam Deacock, 11 Stone Buildings

CONTENTS

What claims may be assigned? Effect of contractual prohibition on assignment At what stage may a claim be assigned? To whom can a cause of action be assigned? What is required to effect a valid assignment of a cause of action? Legal assignment or equitable assignment? Requirements for a legal assignment Requirements for an equitable assignment

Litigation costs when a claim has been assigned Security for costs Costs incurred by the assignor before the assignment Who is liable for costs awarded in favour of the defendant? Assignment of claims in the context of insolvency When might an office-holder assign a claim? Who may assign a claim in insolvency? Claims capable of assignment by an office-holder Claims not capable of assignment by an office-holder Potential liability of office-holder Drafting an assignment of a cause of action

Is the assignee’s recoverable loss limited by the loss incurred by the assignor? Effect of consideration Loss occurring to assignee before assignment of claim Impact of the rules on maintenance and champerty General principles Exceptions to the rules on maintenance and champerty

Procedural issues following an assignment Legal assignment Equitable assignment Assigning proceedings that have been commenced Counterclaims where a claim has been assigned

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A cause of action by which a party may be able to enforce a right is a chose in action and. A non-assignment provision cannot prevent assignment by operation of law. Coombe v Carter (1887) 36 Ch D 348). For the effect of such an assignment on rights of set-off. see Practice note. This would take effect as an agreement to assign future property (Re Oasis Merchandising Services Ltd [1995] 2 BCLC 493 at page 498). acquisitions or reorganisation. including any causes of action. However. this principle is subject to the following exceptions: It is capable of being overridden by statute as in the case of liquidation (see Insolvency exception). see Assignment of claims in the context of insolvency. the provision will generally prevent a purported assignment from being effective as against the non-assigning party. X will not. In some circumstances. An assignment of a cause of action may be effected as part of a transfer of property to which the cause of action relates. Insolvency of the claimant. see Counterclaims where a claim has been assigned. For example. An effective non-assignment clause which prevents a party assigning the benefit of a contract will also prevent that party assigning a claim arising under the contract. For more detail. Contracts: assignment: Non-assignment provisions. A contract between X and Y which prevents X assigning the benefit of the contract but leaves Y free to assign. the buyer may take an assignment of a right to sue the builder for any defects. Deed of assignment of contract. for example a debt (which is effectively both property and a cause action itself) or the transfer of a lease which may carry with it the right to existing arrears of rent. in principle. there are particular categories of cause of action that may not be capable of assignment. this may be best achieved by an assignment. A claim that no longer exists. a claim against one defendant where the liability is a joint liability and has been extinguished by payment by a co-defendant (Crooks v Newdigate Properties Ltd and others [2009] EWCA Civ 283). is capable of assignment. 2 . Group litigation or class actions. and any assignment that takes place will be effective as between assignor and assignee. This note considers how a cause of action may be assigned and highlights the practical issues that may arise on and after an assignment. as follows: For reasons of statutory interpretation and policy. the office-holder appointed over an insolvent company or individual bankrupt has a duty to realise the value in the assets. when a property has been sold. for example.Assignment of a claim or cause of action An assignment is the transfer of a right from one party to another. if clearly drafted (Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and others [1994] 1 AC 85). Corporate mergers. However. Security assignment of contractual rights. These claims include preference claims and wrongful trading under the Insolvency Act 1986 (IA 1986). claims that exist in an insolvency process and may only be pursued by the insolvency practitioner appointed in respect of the company or individual. For more detail about the assignment of contracts. the court has held that the assignment of a bare cause of action in tort for personal injury was void as it was contrary to public policy because the assignee had no legitimate interest in the claim (Simpson v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149). See Practice Note. Claims arising under an agreement containing a contractual restriction (see Effect of contractual prohibition on assignment). WHAT CLAIMS MAY BE ASSIGNED? The starting point is that a cause of action itself (often referred to as a “bare right to litigate”) may not be assigned as assignment would offend the rules on maintenance and champerty (see General principles). A claim that does not yet exist (such as a future claim). However. EFFECT OF CONTRACTUAL PROHIBITION ON ASSIGNMENT A contract may contain an express non-assignment provision. an attempt to assign a future cause in action may take effect in equity as a contract to assign (Re Clarke. For example. It may be possible to assign the proceeds of a cause of action. Contracts: assignment and Standard document. Assignment of insurance policies is outside the scope of this note. will have a similar effect on assignment of causes of action under the contract: Y will be able to assign. Examples of the situations where a party may wish to assign a cause of action include: On transfer of a contract or other property to which the cause of action relates. In general terms. In addition. see Practice note.

Therefore. A shareholder of the claimant or potential claimant (Massai Aviation Services and another v Attorney General and another [2007] UKPC 12. an assignment is likely to give rise to procedural complications which will need to be addressed (see Procedural issues following an assignment). 2000). but the assignment only operates against a defendant or respondent from the date that party receives the notice. only the assignee can pursue the claim and the assignee is regarded as being the sole owner of the property assigned. for example. if a charging order has been granted). obtaining an order for sale). in principle. Garnishees (1886) 18 QBD 332). If judgment has been given. by joining the assignor to the action. Any other effective assignment must constitute an equitable assignment. by a process of enforcement in the county court or a third party debt order (Goodman v Robinson Brown Janson & Co.AT WHAT STAGE MAY A CLAIM BE ASSIGNED? A claim may be assigned either before or after proceedings have been issued. see Practice note. A creditor of an insolvent claimant company. For more detail. the assignee may be bound by the arbitration clause if it seeks to enforce the assigned contractual rights. be assigned. Assignment of cause of action to shareholder not champertous). Where proceedings have been issued. WHAT IS REQUIRED TO EFFECT A VALID ASSIGNMENT OF A CAUSE OF ACTION? LEGAL ASSIGNMENT OR EQUITABLE ASSIGNMENT? There is a distinction between a legal and an equitable assignment: A legal assignment (also known as a statutory assignment) is an assignment that meets the requirements set out in section 136 of the Law of Property Act 1925 (LPA 1925). A claim that has been referred to arbitration may. Contracts: assignment. The other party or parties to the claim must be given notice of the assignment. Where enforcement proceedings have already commenced before the assignment (for example. The rights to be assigned must be wholly ascertainable and must not relate to only part of a debt or other legal chose in action. 3 . When does an arbitration agreement bind a third party in English law? TO WHOM CAN A CAUSE OF ACTION BE ASSIGNED? Examples of people who have taken assignments of causes of action include: The defendant to the claim (see Faryab v S&P (unreported). The assignment must not purport to be by way of charge only. Further. that is. The assignment must be in writing and signed by the assignor. if a contract containing an arbitration clause is assigned. notice must be given before the assignee issues any claim. There is no prescribed time limit for notice to be given. it appears it may be possible for the assignee to seek substitution pursuant to CPR 19 so that he may take further steps in the proceedings (for example. see Practice note. otherwise the assignee would only be able to take action on an equitable assignment basis. If it is intended that the benefit of any existing order be assigned then express provision should be made in the assignment. see Practice note. see Legal update. For more detail. Contracts: assignment: Types of assignment. the assignee may seek to enforce the judgment. REQUIREMENTS FOR A LEGAL ASSIGNMENT The requirements for a legal assignment under section 136 of the LPA 1925 can be summarised as follows: The assignment must be absolute (unconditional). For more detail. Following a legal assignment.

In Finlan and another v Eyton Morris Winfield and another [2007] EWHC 914 (Ch). the fact of an assignment did not mean that the assignor could no longer be said to have suffered loss. The court has confirmed that the same principle applies where there is no or only nominal consideration for an assignment. it transferred substantially all of its assets to a third party (IHUK). Blackburn J said there must be “some outward expression by the assignor of his intention to make an immediate disposition of the subject matter of the assignment”. Court allows amendment to plead post-claim form assignment. was also confined to nominal damages. See Legal update. or an assignment of an existing cause of action intended to take place in the future takes effect in equity as a specifically enforceable contract to assign and accordingly requires consideration (Re Oasis Merchandising Services Ltd. After Pegasus went into liquidation. although the reasoning is hard to follow. Mummery LJ’s judgment states: 4 . The transfer included an assignment of the cause of action for a nominal consideration. so the seller had no more than a claim for nominal damages. An immediate equitable assignment may be made in one of two ways: The assignor can inform the assignee that he transfers a right or rights to him. it is always advisable in order to ensure that the debtor or defendant does not settle with the assignor and to ensure priorities over any other assignee. The buyer relied on the report and began proceedings for damages against the defendant. an agreement to assign property does require consideration because equity does not perfect an imperfect gift. In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1992] 57 BLR 57. see Practice note. does not extinguish the loss suffered so as to prevent the assignee pursuing a claim to recover damages. The seller of a site sold the site to the buyer. Ward v Aitken and others [1995] 2 BCLC 493 at paragraph 498). In Pegasus v Ernst & Young [2012] EWHC 738 (Ch). This was the case even if the assignment was gratuitous or for part value (GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd [1982] SC (HL) 157). IS THE ASSIGNEE’S RECOVERABLE LOSS LIMITED BY THE LOSS INCURRED BY THE ASSIGNOR? EFFECT OF CONSIDERATION The fact that consideration is paid to the assignor. If that was the case. but the Court of Appeal’s decision on this point remains authoritative (see Loss occurring to assignee before assignment of claim). Pegasus could still be said to have suffered a loss. An agreement to assign property that is specifically enforceable in equity. there was a landslip that caused loss. Where a wrong had been committed in relation to property. Although notice of assignment to the debtor or defendant is not strictly necessary to perfect an equitable assignment as between assignor and assignee. following which the benefit of a site survey report provided to the seller was assigned to the buyer. as a matter of quantum. The defendant had submitted that no loss had occurred to the assignor or buyer as at the date of the assignment. Assignment of cause of action for nominal sum no bar to recovery of consequential losses (High Court). It is also said that an assignment by way of charge only will require consideration because it requires the Court’s assistance (Re Earl of Lucan (1890) 45 ChD 470). then the assignee could not recover loss because it was asserting the assignor’s cause of action. was that the assignee could recover no more than the assignor could have recovered had there been no assignment. After the purchase. However. the Court of Appeal considered whether an assignment of a building for full value meant that the assignor had suffered no loss.Assignment of a claim or cause of action REQUIREMENTS FOR AN EQUITABLE ASSIGNMENT An equitable assignment may mean one of two things: An assignment of existing rights with immediate effect (“an immediate equitable assignment”). See Legal update. For more detail. LOSS OCCURRING TO ASSIGNEE BEFORE ASSIGNMENT OF CLAIM Technotrade v Larkstore Ltd [2006] EWCA Civ 1079 concerned a negligent site survey. The Court of Appeal rejected this argument. Pegasus had issued proceedings for negligence against the defendant accountants in connection with tax advice. and. The assignor can instruct the respondent or defendant to discharge their obligation to the assignee instead of the assignor. An immediate equitable assignment does not generally require consideration. An assignment of a future cause of action. (The decision in Linden Gardens on the assignability of a cause of action was overturned by the House of Lords. The only limitation. The High Court held that IHUK could be substituted as claimant in the proceedings. otherwise the losses that had previously existed would have disappeared into a legal “black hole”. Contracts: assignment: Types of assignment. and loss was capable of arising as a result. The buyer could not claim more than the seller could have claimed.

Technotrade). Rather. English law refused to recognise arrangements whereby litigation was funded or “maintained” by third parties who had no legitimate interest in the subject matter of the litigation. Re Oasis Merchandising Services Ltd. a claimant assigned its claim against the second defendant to the first defendant (Brownton and others v Edward Moore Inbucon Ltd [1985] 3 All ER). will not offend the rules on maintenance and champerty provided the recipient obtains a genuine commercial interest in the subject of the litigation (Re Oasis Merchandising Services Ltd. maintenance and funding.“What was assigned .. The remedy in damages for breach of contract is not. limited to the loss suffered as at the date of the accrual of the cause of action or as at any particular point of time thereafter.. See Legal update. An assignment of the proceeds of a claim in which judgment has not yet been given will not offend the rules on maintenance and champerty provided the assignment does not confer any right to interfere in the litigation (Glegg v Bromley [1912] 3 KB 474 at page 490. The court held that. 5 . Champerty. For a more detailed exploration of the rules on maintenance and champerty. See Assignment of claims in the context of insolvency. No loss and assignment: the development of the common law in the construction context. in principle. For more detail on the judgment. Assigned cause of action did not leave a gap in liability.” (Paragraph 41. Here. although the claims arose under separate contracts.) The Court of Appeal also affirmed the authority of the Court of Appeal decision in Linden Garden (as referred to in Effect of consideration) (paragraph 52. they concerned the same transaction and the same damage. following settlement of proceedings against the first defendant. the Privy Council held that there was no basis for holding that only shareholders who were also creditors could take a valid assignment. However. For further guidance. see Practice note. see Legal update. the assignee had a genuine commercial interest in the proceedings. It was essential to look at the transaction as a whole and ask whether it was contrary to public policy. For examples of what constitutes a genuine commercial interest. In Massai Aviation. see Practice note. it held that there was no “wanton or officious intermeddling” in another’s litigation. Ward v Aitken and others [1995] 2 BCLC 493). and the assignment was not contrary to public policy.. the original owners had simply retained part of what they owned while disposing of the rest of the company’s assets. an assignment of the bare cause of action so that that proceedings may be brought in the name of the assignee will generally be contrary to public policy (Trendtex Trading v Credit Suisse [1982] AC 679). see Genuine commercial interest. Therefore. The assignment included the remedy in damages for the cause of action.. Where. A cause of action assigned as a consequence of a transfer of a property (such as a debt) with which the cause of action is closely related. [1999] 2 AC 1 at pages 11–12). The principle extended to assignments of causes of action to third parties. and “champertous” agreements (under which a third party would maintain an action in return for a share of the spoils of litigation). It was not an assignment of ‘a loss’ . EXCEPTIONS TO THE RULES ON MAINTENANCE AND CHAMPERTY Insolvency exception Various provisions of the IA 1986 authorise office-holders to assign a cause of action that was vested in an insolvent company or individual at the onset of the insolvency. These provisions operate as a statutory exception to the rules on maintenance and champerty (Norglen Ltd v Reeds Rains Prudential Ltd–183. IMPACT OF THE RULES ON MAINTENANCE AND CHAMPERTY GENERAL PRINCIPLES Historically. was a cause of action for breach of contract against Technotrade and legal remedies for it. Genuine commercial interest An assignment will not offend the rule against maintenance and champerty if the assignee has a genuine commercial interest in the litigation (Re Oasis Merchandising). Technotrade. at page 498). Maintenance is directed against “wanton and officious intermeddling with the disputes of others” (British Cash & Parcel Conveyors Ltd v Lawson Store Service Co Ltd [1908] 1 KB 1006). Cases where the court has found such an interest include: Where a claim was assigned to a company established by shareholders of the assignor (Massai Aviation). Assignment of cause of action to shareholder not champertous.

Senior Courts Act 1981). There is no general principle that pre-assignment costs will be included within an assignment that does not expressly assign preassignment costs. The assignee’s liability may include adverse costs incurred during the period before the assignment. For general principles relating to security for costs. However. or has ceased to be. a party to proceedings (Aiden Shipping Co Ltd v Interbulk Ltd (the Vimeria) [1986] 1 AC 965). At common law.14(2)(b)). The assignor may still be vulnerable to a costs order after the assignment on the basis that he was the original party to the claim or as a third party. Accordingly: An assignor may be able to recover from the defendant under the ordinary rules as a party (if joined to proceedings on an equitable assignment). Although there appears to be no authority on the point. The courts have discretion to determine by whom and to what extent the costs are to be paid (section 51(2). If the assignor wishes to reserve the position to recover costs after the assignee has been substituted in proceedings he should seek an order reserving such costs to the trial judge in the order substituting the assignee as claimant. Care needs to be taken to ensure the recovery of costs is not defeated by the indemnity principle. The assignment was on terms that caused the assignor to retain an interest in the outcome of the litigation (Hamilton v Official Receiver [1998] BPIR 602). The argument could be made by analogy that the same would be true of an assignee who adopts existing proceedings. the assignment should make express provision for those costs and whether the assignee is to retain the benefit of the costs. Where the assignment occurs after proceedings have been commenced and the assignee adopts the proceedings. the courts may make a different order (CPR 44. the courts have recognised that when a trustee in bankruptcy adopts and takes steps in furtherance of proceedings on foot at the commencement of the bankruptcy. see Practice note. that a party cannot recover more in costs than he is liable to pay his own solicitor (Gundry v Sainsbury [1910] 1 KB 645). that is.14(2)(a)). it is thought likely that the assignor will remain liable for the period prior to substitution. A claim to recover costs is a future claim and is a claim to future property capable only of equitable assignment (Hambleton v Brown [1917] 2 KB 93). A defendant may also seek security for costs against any person who has obtained an interest in the proceeds of the claim in exchange for a contribution to the costs of the proceedings (CPR 25. Both assignee and assignor are potentially liable to an adverse costs order if proceedings on the claim are unsuccessful. SECURITY FOR COSTS A defendant to proceedings brought by an assignee of a cause of action may seek security for costs against the assignor if the cause of action was assigned for the purpose of avoiding the possibility of an adverse costs order (CPR 25. Unless the parties can establish an implied term on the construction of the specific document. He may wish to ensure any assignment includes an indemnity for the adverse costs of proceedings. but he will only be liable for the period after assignment on the same footing as he might have been if he assigned before the claim was commenced (that is.Assignment of a claim or cause of action LITIGATION COSTS WHEN A CLAIM HAS BEEN ASSIGNED The general principles relating to the recoverability of civil litigation costs are set out in Practice note. the recovery of preassignment costs will need to be achieved under the general costs regime. the position is likely to be more complex.3(2)). Security for costs: an overview: Applications by defendants against someone other than claimant. This has the effect that the court may award costs against a non-party. 6 . It is doubtful that an assignee would be able to recover the costs incurred by the assignor in the absence of an express provision. Accordingly. Costs: an overview. An assignor may wish to bear this in mind when negotiating consideration for the assignment. including an assignee or assignor who is not. if he retains an interest in the proceeds). WHO IS LIABLE FOR COSTS AWARDED IN FAVOUR OF THE DEFENDANT? The general rule for costs orders is that the unsuccessful party will be ordered to pay the costs of the successful party. The court may make a costs order against an assignor who was never a party to proceedings if both of the following conditions are met: The proceedings were commenced by the assignee after the assignment. This note considers the particular issues that arise when a cause of action has been assigned. COSTS INCURRED BY THE ASSIGNOR BEFORE THE ASSIGNMENT An assignment of a cause of action should include an assignment of any costs incurred by the assignor in the proceedings before assignment if the parties intend that the assignee should recover these from the defendant. a costs order puts himself in the position of a party and a costs order may be made against him in respect of the whole of the proceedings (Borneman v Wilson (1884) 28 ChD 53).

Schedule B1.For a more detailed discussion of the circumstances in which the court will order costs against a non-party. A liquidator. and he may refuse to assign if he is unable to satisfy himself the claim has merit (Cummings v Official Receiver [2002] EWHC 2894). if he gives notice of a disposition of any property to a person connected with the company to the creditors (sections 165 and 167 and paragraph 6. CLAIMS CAPABLE OF ASSIGNMENT BY AN OFFICE-HOLDER An insolvency office-holder can assign the following types of claim: Claims comprised in the company’s property at the date of liquidation (Re Oasis Merchandising). IA 1986). Schedule 5. IA 1986 respectively) (Hamilton v Official Receiver [1998] BPIR 602). An administrative receiver appointed under a debenture who is deemed to have the powers specified in Schedule 1 to the IA 1986 (that is. The court has refused to compel a trustee in bankruptcy to assign a claim where the proposed assignee could not offer the trustee an indemnity against any liability for costs (Osborne v Cole [1999] BPIR 251) (see Potential liability of office-holder). Schedule B1 and paragraph 2. On such an application. and realise the value of that property for the benefit of creditors. who acts agent of the company (Knowles v Scott [1891] 1 Ch 717). An office-holder may assign a cause of action because: He has insufficient funds to pursue it on behalf of the estate. bearing in mind the consequences to the other parties. The potential liability of an insolvency office-holder is considered in Potential liability of office-holder. see Practice note. A trustee in bankruptcy. Schedule 1. In considering whether to assign a claim an office-holder must exercise great circumspection. Litigation by insolvent companies: issues to consider before starting a claim. In liquidation or bankruptcy. (Note the exception in relation to personal claims identified in Claims not capable of assignment by an office-holder. The trustee has the power to sell any part of the property comprised in the bankruptcy estate and to make any arrangement as may be thought expedient with respect to any claim arising out of or incidental to the bankrupt’s estate (section 314 and paragraph 9 and 9B. see Practice note. a person seeking to take an assignment of a claim can apply for a court order requiring the liquidator or trustee to assign it (sections 168(4) and 303. see Practice note. Administrative receivership. a cause of action falls within the definition of property (section 436(1). Schedule 4.) 7 . liquidation and bankruptcy) involve the appointment of an insolvency office-holder whose primary duty is to get in the property of the company or individual. For more detail on an administrative receiver’s powers. In this context. IA 1986 ) and has the power to sell or dispose of property of the company (paragraph 60. the same powers as an administrator) (section 42. This is particularly the case where a trustee in bankruptcy intends to assign a claim to the bankrupt who is unlikely to have the means to satisfy adverse costs orders of proceedings (Re Papaloizu [1999] BPIR 106). IA 1986). Claims vested in a bankrupt’s estate under section 306 of the IA 1986. He does not consider it to be worth pursuing on behalf of the estate in light of the prospects of success or recovery. For more detail on the options available to an office-holder. It is an effective way to realise value for the insolvent estate. WHO MAY ASSIGN A CLAIM IN INSOLVENCY? A cause of action may be assigned by: An administrator who acts as agent of the company (paragraph 69. IA 1986). IA 1986). the assignee may be required to indemnify the office-holder for any costs incurred. It is appropriate for the office-holder to take steps to satisfy himself of the merits of the claim before proceeding with an assignment. Costs and non-parties to litigation. IA 1986). the factual complexity or the time required to pursue litigation. ASSIGNMENT OF CLAIMS IN THE CONTEXT OF INSOLVENCY WHEN MIGHT AN OFFICE-HOLDER ASSIGN A CLAIM? Insolvency procedures (such as administration.

Hybrid claims vest in the trustee. in an appropriate case. “Hybrid claims” which combine personal damages with a claim relating to the assets in the bankruptcy (Ord v Upton [2000] 2 WLR 755). These include claims based on avoidance of property dispositions under section 127 and wrongful trading under section 214 of the IA 1986. There appear to be no reported cases in which a trustee in bankruptcy has been made liable for costs after assignment. Ward v Aitken and others [1995] 2 BCLC 493). and without immediate reference to his rights of property nature” (Beckham v Drake (1849) 2 HL Cas 579). there remains the possibility that the office-holder will continue to be potentially liable for costs incurred after the assignment. but any proceeds of the personal claim will be held on trust for the bankrupt. 8 .) For a more detailed discussion of when the court will order costs against a non-party. POTENTIAL LIABILITY OF OFFICE-HOLDER An office-holder who assigns a cause of action. Hybrid claims may be assigned. an insolvency office-holder may not assign the following: Office-holder claims. although there are several in which the court has considered the possibility that he might be liable in the contexts of attempts to make him assign. Adverse cost risk for trustees in bankruptcy who assign claims (Court of Appeal) and Practice note. the court may consider ruling in advance on whether the trustee would in fact be liable so as to permit him to assign safe in the knowledge that he will not be made liable (see Hunt v Harb. an office-holder may be entitled to refuse to assign a cause of action if the proposed assignee cannot offer an indemnity against any liability for costs (Osborne v Cole [1999] BPIR 251).Assignment of a claim or cause of action Proceedings which are already on foot at the date of administration or liquidation (Re Edennote [1995] 2 BCLC 248). (for example. the assignor would remain potentially liable for the costs before assignment. that is statutory claims an office-holder is entitled to pursue under the terms of the IA 1986. see Practice note. It is thought likely that where such an assignment occurs after the proceedings have been issued. although the Court of Appeal was unwilling to rule as such in that case). may be found liable to pay the adverse costs of the defendant to an unsuccessful action brought by the assignee in the following circumstances: Where an assignment is for a sum of money such that the insolvent estate retains no interest in the outcome of the proceedings ordinarily no order for costs will be made where the proceedings are issued after the assignment. In Ruttle Plant Hire. a share of the proceeds of the litigation). Causes of action which do not vest in trustee. such as a right of action by a bankrupt for damages of a personal nature.) (See also Legal update. a liquidator tried to evade a contractual prohibition on the assignment of a cause of action belonging to the company by relying on the assignment of his right as liquidator to pursue the cause of action (see Legal update. Food and Rural Affairs (No3) [2008] EWHC 730 (TCC) and Re Oasis Merchandising Services Ltd. Does a non-assignment clause survive liquidation?). Litigation by insolvent companies: issues to consider before starting a claim: Assignment. This includes damages “estimated by immediate reference to pain felt by the bankrupt in respect of his body mind or character. Claims under a contract which expressly prohibits the assignment (Ruttle Plant Hire Ltd v Secretary of State for the Environment and Rural Affairs [2007] EWHC 2870 at paragraph 67). CLAIMS NOT CAPABLE OF ASSIGNMENT BY AN OFFICE-HOLDER In addition to the general types of claim that are not capable of assignment (see Claims capable of assignment by an office-holder). Where the assignment is on terms that the insolvent estate has a continuing interest. If there is a potential costs liability. in the outcome of the proceedings. Presumably this would also apply to the right of an administrator or administrative receiver to pursue proceeding in the name of the company under paragraph 5 of Schedule 1 to the IA 1986. Costs and non-parties to litigation. Office-holder claims are personal and cannot be assigned (Ruttle Plant Hire Ltd v Secretary of State for Environment. It is possible that. but the assignee (if someone other than the bankrupt) will take the claim subject to the bankrupt’s right to a share of the proceeds. A liquidator’s right to commence or continue proceedings in the name of the company under paragraph 6 of Schedule 4 to IA 1986 (Ruttle Plant Hire). (See Hamilton v Official Receiver [1998] BPIR 602 and Hunt v Harb [2011] EWCA Civ 1239.

The assignee is entitled to bring proceedings in his own name. for example: providing witness statements. or preserving evidence etc. also include consideration. Specify whether the assignment includes the assignee’s right to recover litigation costs incurred pre-assignment. commenting on evidence produced by the other side. attending court to give oral evidence. Schedule 5. PROCEDURAL ISSUES FOLLOWING AN ASSIGNMENT LEGAL ASSIGNMENT Following a valid legal assignment on notice to the defendant: The assignor ceases to have an interest in the action. Indemnities may need to be included to protect the assignor from adverse costs. see Standard document. IA 1986). Deed of assignment of contract. because an assignment of this nature is a future claim (that is. assistance with disclosure. If proceedings are already on foot.DRAFTING AN ASSIGNMENT OF A CAUSE OF ACTION Issues to address when drafting any assignment of a claim include: Is the right to bring the proceedings capable of assignment? (See Ruttle Plant Hire Ltd v Secretary of State for Environment. or otherwise assist the assignee in the conduct of the litigation? Include the necessary co-operation or further assurance provision. adding the assignee as a party to the proceedings as mentioned in Procedural issues following an assignment. if necessary. the right to the proceeds of the claim if it is successful) (see Re Oasis Merchandising and What claims may be assigned?). An insolvency office-holder should check in each case whether there is a requirement for sanction. EQUITABLE ASSIGNMENT Where the assignee takes pursuant to an equitable assignment.) It is common practice to provide for some form of nominal consideration so that the assignment may take effect as an equitable assignment in the event that it is defective as a legal assignment (see Effect of consideration). If drafting an assignment of the right to recover costs or the proceeds of the claim. Proceedings brought without joining the assignor will not be a nullity. the assignor should be a party to the proceedings. ideally as co-claimant. To what extent will the assignor be expected or entitled to be involved in. The particulars of claim should plead the details of the assignment and the date notice was given to the defendant. The assignee may be required to indemnify the assignor against costs. consider what steps will be necessary to resolve the procedural difficulties namely. and the defendant may be prepared to waive the requirement to join the assignor (Central Insurance Co Ltd v Seacalf Shipping Corporation (The Alios) [1983] 2 Lloyd’s Rep 25 and Brandt’s Sons & Co v Dunlop Rubber Co [1905] AC 454). 9 . for example in bankruptcy where the consideration for the assignment is deferred (see paragraph 3. For example. Food and Rural Affairs (No 3) [2008] EWHC 730 (TCC). ASSIGNING PROCEEDINGS THAT HAVE BEEN COMMENCED The assignment of a cause of action after proceedings have been commenced is likely to cause procedural difficulties.

there is automatic set off of mutual credits. the assignee issued a claim form the day before expiry of the limitation period and hours before completing a legal deed of assignment. The court may even permit an such an amendment (that is. This is the case even where the set off rights have crystallised in a judgment prior to the notice of assignment (Lawrence v Hayes [1927] 2KB 111). to plead an assignment that post-dates the commencement of proceedings) after the relevant limitation period has expired. However. it will be necessary to amend proceedings to join the assignee under CPR 19. in the hope of obtaining an assignment at a later date (Pickthall v Dickinson LLP [2009] EWHC Civ 543). In practical terms. The court held that. For guidance on the assignment of a claim during arbitration proceedings. Although the assignee will not have been entitled to the cause of action at the date of issue. Set-off and netting: Insolvency set-off. have standing to bring the claim. Where the assignment takes effect as an equitable assignment. As a consequence of the automatic set off.2(2). Court allows amendment to plead post-claim form assignment. For more detail.2(4).90. at the time of issue. The resultant claim for the net balance is itself a chose in action assignable by the office-holder (Stein v Blake [1996] QC 324). When does an arbitration agreement bind a third party in English law?. the court may refuse to permit amendment after the expiration of a limitation period where the claim was issued by a party with full knowledge that they did not. The procedure for adding a party to proceedings is considered in more detail in Practice note. the court has a discretion to permit an amendment to plead the assignment as a fresh cause of action notwithstanding that it arose after the issue of the proceedings (Hendry v Chartsearch Ltd [1998] CLC 1382 and Maridive & Oil Services (SAE) and another v CMA Insurance Co (Europe) Ltd [2002] EWCA Civ 369).Assignment of a claim or cause of action The assignee will need to seek to be joined (in the case of an equitable assignment) or substituted (in the case of a legal assignment) as the claimant and will need to amend the particulars of claim to plead the assignment accordingly. Amendments to statements of case. COUNTERCLAIMS WHERE A CLAIM HAS BEEN ASSIGNED An assignee takes a cause of action subject to any rights of set-off that have accrued before notice of assignment. 10 . it will be necessary for the assignee to seek to be substituted for the assignor under CPR 19. For more detail. see Practice note. debts or other dealings between a creditor and either a company in liquidation or bankrupt (rule 4. this means that the assignee cannot be in a better position than the assignor and an assigned debt or other claim may be severely impaired if the debtor has a claim. provided the evidence on which the assignee relies is already substantially in issue (Finlan v Eyton Morris Winfield). see Practice note. IA 1986 respectively). Despite this finding. when the claim was issued. there had been no assignment. In the context of insolvency. Where the assignment takes effect as a legal assignment. the original claim and cross claim are extinguished and replaced with a claim for the net balance. see Legal update. the court was prepared to grant permission to amend the claim enabling the assignee to plead the assignment. Insolvency Rules 1986 (SI 1986/1925) and section 323. In Finlan. Before taking an assignment of a debt the potential assignee would be well advised to obtain confirmation that there are no cross-claims from the assignor or ideally the debtor. merely an agreement to assign the claim.