The High Court was faced with a case relating to the assignment of rights under Civil Procedure Rules (CPR) 19.2(4), subrules (a) and (b) where there is a contractual restriction.
Background:
Chillblast was incorporated under the name Wilder Bidco Ltd. in February 2024. The directors of Tactus Holdings Ltd. are also directors of Bidco/Chillblast. Another former director and former shareholder of Tactus has "a personal stake in Chillblast of 3.7%" and was, until 31st March 2024, a director of Chillblast. Bidco was renamed Chillblast in April 2024.
Chillblast Ltd. sought an order – pursuant to CPR rules 19.2 and 19.4 – that it be substituted for Tactus Holdings Ltd. as the claimant in the proceedings. Tactus was placed in administration in May 2024. Before then, Tactus had invested, as a holding company, in several companies operating in the technology retailing and wholesaling sectors.
The application is based on a Deed of Assignment dated 13th May 2024 by which Tactus purported to assign to Chillblast its rights, title, and interest arising in respect of the Share Purchase Agreement (SPA) dated 18th February 2022. The SPA was concluded between Tactus and the fifth defendants (the sellers) for the purchase and sale of shares in a company called Box Holdings (BHAM) Ltd. – which was placed into administration in January 2024.
In March 2024, Chillblast had previously acquired debts owed by Tactus to Santander UK plc via the Santander Assignment initially signed by Tactus and Santander in December 2021.
The defendants objected to the application because the assignment was ineffective as it was prohibited by the SPA. They also claimed that it amounted to champerty as the substitution was contrary to public policy.
Decision:
The High Court dismissed the claim. The Court first analysed the requirements of CPR rule 19.2(4) which allows the substitution of a new party for an existing one. The Judge ruled that subrules (a) and (b) were not cumulative but rather disjunctive – shifting from his original opinion based on the omission of the ‘and’ in rule 12(2) of the Civil Procedure (Amendment) Rules (CPAR) 2023 (SI 2023/105). It is, therefore, sufficient for either subrule to be satisfied.
Peter MacDonald Eggers KC noted that “there is a meaningful difference between an application for an order for substitution pursuant to CPR rule 19.2(4) and an order to join an additional party pursuant to CPR rule 19.2(2).” The Judge ruled that the substitution applicant had to demonstrate, on the balance of probabilities, that it had acquired the existing party's interest. The Court explained why the balance of probabilities was the adequate standard by noting that “If the standard to be applied were merely that of a good arguable case or a real prospect of success that there had been a transfer of interest from the existing party to the applicant, the existing party would lose any right it has – at least in this action – to pursue its claim based on an inappropriately low standard.”
Regarding the anti-assignment clause in the sale and purchase agreement, the Court adopted a very narrow interpretation. Since the clause referred to a ‘lender’, Peter MacDonald Eggers KC noted that “Chillblast is not a "lender" to Tactus (…) as it did not advance funds to Tactus by way of a loan.”
Finally, the Court reviewed the law relating to champerty. The Judge first provided a definition “Champerty occurs where there is an agreement by which one person undertakes to maintain or support litigation by another person, whether by an assignment or other means, in exchange for a share of the proceeds of that litigation where the maintainer has no legitimate interest in the claim being litigated and where the maintenance occurs without just cause or excuse.” As the assignment was regarded as ineffective, there was no need to look at this point but the Court felt it was important and concluded that had the assignment been effective it would have been void on the grounds of public policy.
Implications:
This decision clarifies that the subrule in CPR rule 19.2(4) is disjunctive and not cumulative as a consequence of the 2023 amendment.
It is also clear that courts are not willing to look past a valid anti-assignment clause in the sale and purchase agreement. It is also clear that it is not sufficient for a company to acquire a right of action under the facility (and associated finance documents) to make it a lender.
The Court also offered a thorough analysis of champerty and the fact that Chillblast was controlled by former directors of Tactus which resulted in Chillblast lacking a sufficient independent interest in the claim. The company lacked a legitimate commercial interest which is necessary for the assignment of a bare right of action.