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• Terminology
• History
• When Subsidisation Is Justified
• English Legislation
• Australian Legislation
• The Present New Zealand Law – Criminal Liability
• The Present New Zealand Law – Tort
• The Present New Zealand Law – Contract
• Contingency Fees: For And Against
• Assignment Of Right To Sue
• Difficulties In Insolvency Situations

Subsidising Litigation

Terminology

1 WHERE A PAYS OR CONTRIBUTES to the cost to B of the institution of or continued prosecution of or resistance to civil legal proceedings to which B is a party the technical name for the wrong that such action by A may constitute is maintenance. If B is the claimant and the arrangement is that as a quid pro quo for A’s support A is entitled to share in the fruits of B’s claim the technical name for this particular variety of maintenance, “a particularly obnoxious form of it” according to Lord Denning,¹ is champerty. Of great practical importance is the particular form of champerty that can be committed where A is a lawyer (or as we will see a para-lawyer) and performs legal work on the basis that his remuneration entitlement is dependent on the owtcome of the litigation. In this paper we will refer to all such arrangements as ones for contingency fees, but it will need to be remembered that this is not a precise legal term, that the nomenclature is not settled² and that as our discussion proceeds we will need to distinguish among various classes of contingency arrangements.

History

2 In late medieval England unruly nobles whom judges were reluctant to defy frequently employed as a method of oppressing the vulnerable the systematic promotion of lawsuits, “suits fomented and sustained by unscrupulous men of power” as Lord Mustill has described them.³ Even after the stronger central government of the Tudors had brought the barons to heel the procuring of litigation against an enemy continued to be a popular and effective method of inflicting harm. It was to counter these evils that there were developed maintenance and its subset champerty as both crimes and as torts (that is as grounds for a civil claim).⁴ With changing times these remedies became less and less resorted to.

While both remained crimes and independent torts until abolished by the Criminal Law Act 1967, their domain has steadily shrunk over the centuries. Conduct which would once have been objectionable would not now raise an eyebrow. With the growth over time of developed legal institutions and a specialised legal profession, the requirements of public policy in this field have been radically transformed.⁵

The principal modern significance of the old rules is in the context of contingency fees and of the rule prohibiting the assignment of a bare cause of action, that is of a right to sue.⁶

When subsidisation is justified

3 It is only unjustified subsidisation that constitutes maintenance and champerty.

Maintenance is directed against wanton and officious inter-meddling with the disputes of others in which the [maintainer] has no interest whatever and where the assistance he renders to one or the other party is without justification or excuse.⁷

The definition by the courts of the circumstances in which public policy requires subsidisation to be classified as unjustifiable has altered to reflect changing social realities:

My Lords, it is clear, when one looks at the cases of maintenance in this century and indeed towards the end of the last that the courts have adopted an infinitely more liberal attitude towards the supporting of litigation by a third party than had previously been the case.⁸

Justification may be found in a genuine commercial interest.

Thus persons engaged in a particular trade or profession or linked by some proprietary or other legitimate common bond may lawfully associate themselves with a view to protecting, if necessary by litigation, the interests of each in the common field at the expense of all. For example, it is perfectly proper for manufacturers to combine in defending an infringement action by a patentee against one of their number, for a mutual protection society of fishery owners to support proceedings by some of its members against a factory accused of polluting a river, or for an employer to maintain an employee who had been libelled in relation to his duties. Likewise, insurance and indemnity contracts may provide a sufficient business interest. Thus, there is no objection to a manufacturer securing business from customers of a rival on terms that he would indemnify them in respect of liability arising from a transfer of their custom, or to a workers’ compensation insurer [instigating] proceedings by an injured worker against a third party.⁹

Or the justification may be a charitable motive. The facts that the rule is founded on public policy and that public policy can change with the passage of time and may not be identical in every jurisdiction are neatly illustrated by the cases in which a lawyer undertakes work on the basis that the lawyer will charge a fee (but only a normal fee) if the claim succeeds and not otherwise. Such an arrangement (called acting on a speculative basis) has long been permitted in Scotland.¹⁰ In 1935 in the New Zealand case of Sievewright v Ward & Others Ostler J regarded such an arrangement as “consistent with the highest professional honour”.¹¹ A similar conclusion was reached 25 years later in Australia.¹² But recently in England (at a time when the law permitted certain classes of contingency fee arrangements into which the transaction under consideration did not fall) the Court of Appeal classified such an agreement as champertous.¹³

English legislation

4 In 1966 the Law Commission for England and Wales reported that maintenance and champerty as crimes were a dead letter.¹⁴ As to their efficacy as torts, the decision of the House of Lords in Neville v London Express Newspaper Ltd¹⁵ was that while an unsuccessful defendant had a right of action against one who had maintained the plaintiff’s action it was necessary to prove special damage and that special damage did not include costs.

It cannot be regarded as damage sufficient to maintain an action that the plaintiff [sc in a claim against a maintainer] has had to discharge his legal obligations or that he has incurred expense in endeavouring to evade them.¹⁶

As to a successful defendant the Commission noted that:

In the case of Wm. Hill (Park Lane) v Sunday Pictorial (“Times” newspaper April 15th 1961) it was decided that where the maintained action had failed, a claim for damages for maintenance also failed, unless it could be shown that the maintained action would not have been brought or continued without the assistance of the maintainer.¹⁷

The Commission concluded that:

Obviously the factor of damage is almost impossible of proof. In the light of the cases on lawful justification and proof of damage, our conclusion is that the action for damages for maintenance is today no more than an empty shell.¹⁸

The Commission’s recommendation that maintenance and champerty be abolished as crimes and torts was adopted by the Criminal Law Act 1967¹⁹ but, as also recommended by the Commission, that statute carefully preserved the rule that maintenance could render unenforceable a contract between maintainer and maintained. The provision reads:

The abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal.²⁰

So in a jurisdiction that lacks any equivalent to New Zealand’s Illegal Contracts Act 1970 section 7 a maintainer remains debarred from enforcing a champertous agreement.

5 Twenty or so years later in a reversal of policy made with the acknowledged intention of providing greater access to justice while avoiding the cost to the public purse of widening eligibility for legal aid²¹ the United Kingdom legislature enacted the Courts and Legal Services Act 1990 section 58. This provision was by the Access to Justice Act 1999 section 27(1) replaced by new sections 58 and 58A. These sections came into force on 1 April 2000 and are set out in Appendix A. The sections permit written conditional fee agreements (that is agreements providing that the provider of the legal services will be paid the provider’s fees and expenses, including an increment based on success, only in specified circumstances) in any proceedings whether in court or not,²² subject to compliance with certain requirements contained in the sections, or in subordinate legislation the promulgation of which is to be preceded by specified consultation. These sections do not apply to family and criminal proceedings. There is a requirement of disclosure as a percentage of a normal fee of the amount by which a normal fee is in terms of the agreement to be increased by reason of the fact that the payment obligation is conditional, and fixing the upper limit of such a percentage (currently 100 per cent)²³ as one to be specified by subordinate legislation. Remuneration on the basis of a percentage of the recovered amount is not permitted.

There was a clear consensus that it would not be right in principle, and would be likely to have a number of undesirable side effects, for a lawyer to be permitted to undertake a case in return for some percentage of whatever damages might be received. ²⁴

The current Conditional Fee Agreements Regulations²⁵ are reproduced in Appendix B.

Australian legislation

6 In Victoria, maintenance and champerty were abolished as torts by the Abolition of Obsolete Offences Act 1969, but abolition was accompanied by a provision copied from the United Kingdom Criminal Law Act 1967 section 14(2).²⁶ The Legal Practice Act 1996 permits on certain terms agreements with legal practitioners called conditional costs agreements permitting liability for some or all costs to be contingent on success. A success uplift not exceeding 25 per cent of the costs otherwise payable is permitted. Fees calculated as a percentage of the recovered amount are not permitted. Conditional costs agreements are not permitted in Family Law Act cases. The relevant sections of the statute are set out in Appendix C. References in section 103 to “the Tribunal” are to the Legal Professional Tribunal, a body made up of a “chairperson” who must be a judge or former judge, plus lawyer and lay members and having various disciplinary and other functions.

7 The legislative history in New South Wales is similar. The torts were abolished by the Maintenance, Champerty and Barratry Abolition Act 1993. Section 6 of that statute is copied from the United Kingdom Criminal Law Act 1967 section 14(2). There is a similar provision for conditional costs agreements as in Victoria, but there is provision for regulations providing for variation of the maximum success uplift percentage “Different percentages may be prescribed for different circumstances”.²⁷ There have to date been no such regulations.

8 In South Australia the torts were abolished in 1993. There is a similar reservation relating to illegal contracts and a further reservation of “any rule of law relating to misconduct on the part of a legal practitioner who is party to or concerned in a champertous contract or arrangement”.²⁸ It is not clear whether the tort is to that extent preserved. The Legal Practitioners Act section 42(6)(c) permits contingency fees subject to any limitations imposed by The Law Society of South Australia and to the power of the Supreme Court to rescind or vary a contingency fee agreement “if it considers that any term of the agreement is not fair and reasonable” (section 42(7)). A copy of Rule 8.10 and Attachment 1 to The Law Society of South Australia’s Professional Conduct Rules is annexed as Appendix D.

The present New Zealand law – criminal liability

9 There are in New Zealand no statutory provisions corresponding to the common law offences of maintenance and champerty. Since the criminal law was consolidated by statute in 1893 the sole source of New Zealand criminal law has been statutory.²⁹

The present new zealand law – tort

10 Apart from differences between the two jurisdictions as to the circumstances in which public policy justifies subsidisation,³⁰ the New Zealand law as to maintenance and champerty as torts is probably identical to that of England before the various statutory changes referred to in paragraph 4. So a no win no fee arrangement where on success only a normal fee was payable might be able to be justified as charitable, but any other contract between a supplier and a litigant making the supplier’s entitlement contingent on success, particularly one involving a success uplift, whether or not calculated as a proportion of the amount recovered, is champertous. There is much to be said for Professor Todd’s view that little would be lost by abolishing maintenance and champerty as torts in New Zealand.³¹ There has been no reported New Zealand case in which a claim in tort has succeeded³² and with the abolition of the tort in England and in New South Wales, Victoria and South Australia, there is no longer available the assistance of precedents from those sources.

11 On the other hand it is less clear to us than it was to the Law Commission that “the factor of damage is almost impossible of proof”. One would have thought that a successful defendant in a maintained action could recover as special damage from the maintainer costs awarded against the plaintiff that proved irrecoverable from the plaintiff, and the difference between party-and-party and solicitor-client costs. Although in New Zealand such a claim could be determined under the powers of the courts to award costs against a non-party and to award full costs,³³ this procedure works effectively only where the maintainer is readily ascertainable. It does not work if the maintainer keeps out of sight and it is necessary for the party seeking to pursue the maintainer to invoke such procedural processes as discovery. There are also other situations in which damage can be proved. Abolitionists should ponder the Queensland case of JC Scott Constructions v Mermaid Waters Tavern Pty Ltd ³⁴ in which the opponent (Scott Constructions) of maintained plaintiffs recovered against the maintainer as special damages the increased cost of alternative finance necessitated by Scott Constructions’ banker withdrawing accommodation by reason of the existence of the maintained litigation. In that case it was established that the maintainer’s purpose was to procure the winding-up of Scott Constructions in order to dispose of a different claim against the maintainer by Scott Constructions, presumably on the basis that there are more ways of killing a claim than battling it out in Court.

12 A third possibility is that the torts of maintenance and champerty should be codified, but if this were to be done it would be a challenge to the draftsman to employ a language that on the one hand made it unnecessary to refer to the ancient cases, and on the other hand preserved the flexibility in relation to justifiability which has been such a feature of the modern development of the tort. The first issue on which comment is invited is as to whether the torts of maintenance and champerty should be abolished, codified or left untouched.

The present New Zealand law – contract

13 Assuming the abolition of maintenance and champerty as torts concerned with claims against the maintainer by the maintained party’s opponent, it would be irresponsible for the reforming measure to fail to regulate the position as between maintainer and maintained. There ought to be put beyond doubt the answer to the question whether it remains the rule that agreements for maintenance and champerty are illegal and void on the basis of breach of public policy. If the answer is yes (which we believe that in the absence of express provision to the contrary it clearly would be) the questions that then arise are whether the law should be changed to permit some contingency fee arrangements and if yes, what types of arrangement and in what circumstances. All these questions involve consideration of the policy issues to which in the next part of this report we turn. In this paragraph we have not overlooked the power conferred on courts by the Illegal Contracts Act 1970 section 7 to validate illegal contracts, but such a discretionary power is it seems to us no substitute for a definite rule.

Contingency fees: for and against

14 Some (perhaps excessively obvious) points need to be made by way of a preface to a more detailed consideration of the pros and the cons of contingency fees. We do not imagine that anything set out in this paragraph is controversial.

• In comparing New Zealand with other jurisdictions certain differences need to be kept clearly in mind. In the United States of America the great bulk of litigation pursued on a contingency basis is for damages for personal injury, a class of litigation excluded in New Zealand of course by the Accident Compensation legislation. Such claims still exist in the United Kingdom and Australia also.
• A further difference between New Zealand and the United States of America is the absence in that republic of the almost automatic practice of awarding costs against unsuccessful claimants usual in Commonwealth countries. So the plaintiff litigating on the basis of being liable to the plaintiff’s lawyer only if the claim succeeds risks nothing. There is moreover no New Zealand counterpart to the extensive American use of juries for civil claims and such phenomena as anti-trust law provisions for trebling damages, the wide availability of punitive damages and of class actions and the statutory provision for attorneys’ fees in certain classes of litigation.³⁵
• Eligibility for legal aid is currently set so low (so low as to exclude even some social welfare beneficiaries) that those who are neither rich nor very poor are in practice denied access to legal services. But it may be doubted whether contingency fees could ever replace legal aid totally or even substantially. About 85 per cent of civil legal aid expenditure is for Family Court work.³⁶ Under a contingency fee arrangement a lawyer provides services and possibly pays various out-of-pocket amounts on the basis of the chance that the claim will yield sufficient fruit to enable recouping of those costs. Lawyers like everyone else prefer to bet on what they believe to be certainties or near certainties. So while a contingency fee regime helps those who are likely to recover something, for example those claiming capital assets on marriage breakdown or (in other jurisdictions) those who have suffered personal injuries (where the success rate is in practice high) such a regime is of no use at all to defendants or to those plaintiffs whose chances of recovery are nearer to 50/50, or to those plaintiffs who want to litigate matters that will not yield any cash return at all, such as custody cases, access cases, domestic violence cases and habeas corpus applications.
• Total reliance cannot be placed on professional disciplinary rules to curb abuses were a contingency regime to be introduced, partly because of problems that Law Societies have in policing, but also because it is not only lawyers who might provide assistance on a champertous basis. Probably (there are no available statistics) most personal grievance claims under the Employment legislation are conducted by non-lawyer agents to whom the legislation gives rights of audience and who are remunerated on a contingency basis.
• An unsuccessful plaintiff suing with the aid of a contingency fee arrangement is likely to incur a substantial costs liability to the successful defendant. In the United Kingdom it is possible to insure against such risk, but it is not clear that such cover would be available in New Zealand where the average rate of success compared with the United Kingdom underwriting experience would be substantially affected by the exclusion of personal injury claims.
• Even without contingency arrangements recovery is likely in practice to be reflected in the level of charging.³⁷

15 What then are the arguments? In this paragraph we essay strong, even provocative, statements on each side of the dispute. We should make it clear that none of the propositions set out below represents the concluded or even the tentative view of the Law Commission. Our purpose in this paper is simply to endeavour to assist submitters in their decision-making by setting out contentions pro and con.

• Contingency fee arrangements enable litigation that would not otherwise proceed. Opinions differ as to whether this is good or bad. On one view such increase in litigation provides access to justice to those to whom it might otherwise be denied. The liability of a plaintiff to pay costs to a successful defendant will remain and be a sufficient deterrent to baseless claims. The opposing belief is that it is naive to regard encouraging legal claims as necessarily in the public interest. The cost in terms of money and executive time of a legal claim to a defendant is such that a defendant despite the availability of a good defence often finds that it makes economic sense to buy off the claimant to be rid of the matter. So to allow contingency fees is to facilitate something akin to extortion by the institution of low merit claims against deep pocket clients. In the words of a Scottish judge, it can be that “the raising of the action was done deliberately for the purpose of concussing the defendant into settling”.³⁸ Proponents of each opposing view would seek support from the experience of personal grievance claims against employers and ex-employers (which is the only class of case in which, in apparent defiance of the law, contingency fee arrangements are common in New Zealand today).
• An advocate’s responsibility is to provide a client with disinterested advice, “a clear eye and an unbiased judgment” as Buckley LJ put it.³⁹ If the advocate’s remuneration depends on the outcome of a claim, the advocate is no longer disinterested. This reasoning as a matter of logic applies even where the contingency arrangement does not involve any more than normal fees, in other words where there is no arrangement for a fee higher than normal in the event of success.⁴⁰
• This problem it is said is particularly acute where the lawyer has to advise whether to settle a claim by accepting a proffered bird in the hand. The certainty of remuneration without further effort may well be permitted to override the possible benefit to the client of battling the matter out. There is a possibility of a clear conflict of interest if the lawyer (whose obligation is a fiduciary one) and the client disagree.
• The contrary view is that realism requires a rather more down-to-earth and less precious approach. Practising lawyers even in the absence of a contingency fee regime regularly confront and successfully surmount difficulties arising from conflicts between self-interest and the interest of the client, not least in the very context of advising on the acceptance or rejection of settlement proposals. Fashionable counsel may prefer to settle a potential cause célèbre rather than be publicly seen to lose it and must withstand any temptation to permit that preference to outweigh duty to the client. The judgment of any lawyer runs the risk of being influenced by the unlikelihood of further work from a substantial client if the lawyer advises rejection of a settlement offer and the matter is then fought and lost. “The solicitor who acts for a multinational company in a heavy commercial action knows that if he loses the case his client may take his business elsewhere”.⁴¹ (If the lawyer advises acceptance of the settlement and that advice is accepted no one ever knows what would have happened had the matter been fought.) Any lawyer in recommending settlement must take care not to be influenced by the fact that settlement will free the lawyer to do something else. One result of large city firms pricing themselves out of the market for small knock-about cases in the District Court, is that many who call themselves litigation lawyers in fact have very little experience on their feet in court with a consequent shyness about getting involved in court appearances. This can lead to an over-readiness to settle which must in the client’s interests be overcome.
• A conflict between duty and interest is common enough in other commercial contexts. Consider for example a commission agent entitled to a commission calculated as a percentage of the price urging a seller to accept a particular offer, $x, rather than hold out for $x+$y. From the seller’s point of view the additional $y that the seller hopes to get may be important. From the agent’s point of view on the other hand the percentage of $y that the agent will get if the higher price is achieved may be not such a large amount as to make it sensible to risk losing the sale. This is an everyday situation in real estate transactions.
• There are situations in which an advocate’s duty to the court and to the administration of justice overrides the advocate’s duty to the advocate’s client. The advocate must for example abide by certain ethical rules difficult in practice to police. The temptation to breach such rules is greater if the lawyer has a financial interest in the outcome.

The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses.⁴²
The lawyer’s direct interest in the outcome might lead him to indulge in undesirable practices designed to enhance his client’s chances, such as coaching witnesses, withholding inconvenient evidence or failing to cite legal authorities which damage his client’s case.⁴³
But there are many callings in which persons can be led into misbehaviour (insider trading for example) by hope of gain. There is no reason to believe that lawyers have a greater propensity to stray from the straight and narrow path than those in other walks of life.

• Contingency fees shift certain financial risks from litigant to lawyer. The lawyer is likely to increase the lawyer’s fees to balance the assumption of such risks.

The lawyer is able to spread those risks over a number of cases and is therefore in a better position to bear them.⁴⁴
On this premise, one economic consequence of a regime of contingency charging is that the lawyer’s other clients are subsidising the contingency fee clients. The New Zealand legal profession abandoned the belief that cross-subsidisation was a legitimate method of charging when it accepted that a swings-and-roundabout approach was not a sufficient justification for the now long abandoned regime of scale charging for conveyancing. On the other hand such an argument carried to its logical extreme would mean the outlawing of all pro bono work, and in any event the proportion of work done on a contingency basis is likely to be so slight that the feared economic consequences are unlikely.

16 Assuming a legislative scheme broadly along the lines of the English and Australian statutes, one formulation of the issues on which we invite comment arising out of this part of our paper is as follows:

(a) Should any legislation spell out that agreements amounting to maintenance or champerty are contrary to public policy and so illegal with the consequences provided by the Illegal Contracts Act 1970?

(b) Are there any classes of champertous arrangement that should be an exception to that rule?

(c) If yes, should there be excepted from the general illegality rule agreements under which the client’s liability for fees is dependent on success (a term to be defined in the agreement) and under which:

• normal fees only will be payable; or
• normal fees with a success uplift will be payable; or
• the provider of the legal services is entitled to some fraction of the recovered amount?

(d) If remuneration is based on a share of the recovered amount should that entitlement be capped?

(e) If a success uplift not calculated as a share of the recovered amount is to be permitted, should it to be capped in any and if so in what way?

(f) What should be provided to the client by way of disclosure of the amount by which the agreed fee exceeds a normal fee?

(g) Should any classes of litigation be excluded from what is proposed?

(h) Should detailed regulation of such agreements be laid down:

• by the statute;
• by the Attorney-General or Minister of Justice, in which event should there be a statutory obligation to consult and if so whom;
• by the New Zealand Law Society;
• by some other person or body?

(i) Should a form of agreement between the provider of the services and the client be prescribed and if no, should there be a requirement of writing and should there be disclosure requirements other than as already mentioned in (f)?

(j) Should there be a cooling off provision?

(k) Should there be a power to vary or overrule such agreements and if yes, in whom should such power be vested?

(l) Should such an agreement be required to contain a machinery to resolve disagreements between lawyer and client in relation to settlement proposals?

(m) Assuming a case to be made out for permitting some sorts of contingency fee arrangements subject to some sorts of safeguards, does the likely number of such arrangements warrant the law change that would be required?

Assignment of right to sue

17 In paragraph 2 we noted that the principal modern significance of the torts of maintenance and champerty is in the contexts of contingency fees and of the rule prohibiting the assignment of a bare cause of action (by a bare cause of action we mean a simple right to sue, that of a person seeking exemplary damages for sexual abuse for example). It would be an easy way around the rules against maintenance if a maintainer instead of funding an action by A against B were permitted to take an assignment of A’s right of action and sue B in the maintainer’s own name. So the common-law declines to recognise an assignment of a bare cause of action (a term which does not include a liquidated debt) if the assignment savours of maintenance or champerty. But it is quite clear that:

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 had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, [there is] no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.⁴⁵

The commercial interest must be an interest other than the mere acquisition of the right of action in question. “That no doubt is the interest of any assignee.”⁴⁶ There is however no objection to the assignment of the fruits of an action on terms that do not give the assignee any right to interfere with the way in which the action is conducted. The reasoning is that as a consequence of the absence of any right of interference there is (bearing in mind the historical raison d’être of such torts) no element of maintenance or champerty.⁴⁷

Difficulties in insolvency situations

18 The rule denying effect to the assignment of a bare right of action can cause difficulties in insolvency situations. A right to sue (except in respect of claims of a personal nature) will either be part of the bankrupt’s property that passes to the assignee,⁴⁸ or part of the company’s property in respect of which a liquidator has rights and obligations. But commonly the assignee or liquidator lacks the funds to prosecute the claim, and wishes to sell it. In the case of claims existing at the commencement of the bankruptcy or liquidation the problem has been solved by judicial sleight of hand. In Seear v Lawson⁴⁹ (a case of bankruptcy) and Re Parkgate Waggon Works Co⁵⁰ (a liquidation) it was held that the statutorily conferred power of sale of the cause of action overrode the general prohibition.⁵¹ As Robert Walker J has put it:

What has happened is that since 1880 the court has repeatedly held, and Parliament in successive reviews of the insolvency legislation must be taken to have accepted, that the statutory powers of sale conferred on liquidators and trustees in bankruptcy may be validly exercised without any breach of the rules of public policy covering maintenance and champerty.⁵²

The same view has been expressed in Australia:

This view was debatable when it originated, and susceptible of more detailed consideration and exposition; conferral of a power to do something does not necessarily overcome all problems of the legality of agreeing to perform it, and supposed illegality would usually require detailed consideration of the intended effect of the statutory authorisation. However it has become well established that dispositions of rights of action under powers in statutes dealing with bankruptcy and liquidation are effective.⁵³

It is clear on the authorities that an assignee or liquidator can sell a right of action on terms that entitle the assignor to a share of the ultimate fruits of the litigation.⁵⁴

19 But it is necessary to note a distinction between on the one hand claims existing at the commencement of the bankruptcy or liquidation enforceable by ordinary action to which the rules set out in the previous paragraph apply, and on the other claims enforceable by the exercise of the liquidator or assignee’s statutory powers which are outside those rules. The judgment in the case of In Re Oasis Merchandising Services⁵⁵ refers to:

... the distinction which we would draw between the property of the company at the commencement of the litigation (and property representing the same) and property which is subsequently acquired by the liquidator through the exercise of rights conferred on him alone by statute and which is to be held on the statutory trusts for distribution by the liquidator.⁵⁶

and approves the judgment of Knox J in In re Ayala Holdings Ltd (No 2) which describes

... the fundamental distinction between assets of a company and rights conferred upon a liquidator in relation to the conduct of the litigation. The former are assignable by sale under paragraph 6 Schedule 4, the latter are not because they are an incident of the office of liquidator.^{57 58}

There would seem to be sound policy reasons to permit, perhaps with the approval of the High Court, the funding of claims in the Oasis category on terms that would otherwise be champertous, provided that the liquidator or assignee kept control of powers that by the legislation are vested in the liquidator or assignee, not in some financier. Such arrangements are possible in Australia as an accidental consequence of the terms of its uniform legislation, and an examination of the reported cases from that jurisdiction gives an indication of the arrangements commercially available.⁵⁹ So the final issue on which comment is invited is whether as part of the current review of the insolvency legislation such champertous arrangements should be authorised and if so on what terms.