[CHANCERY DIVISION]

GUY v. CHURCHILL.

[1884. G. 1016.]

Champerty - Maintenance - Trustee in Bankruptcy - Assignment by Trustee of the Subject-matter of an Action - Assignee - Creditor - Right of Assignee to continue Action - Bankruptcy Act, 1883 (46 & 47 Vict. c. 52), s. 50, sub-s. 5, s. 57, sub-s. 8, s. 168.

During the pendency of an action the Plaintiffs became bankrupt and K. was appointed trustee.

By deed dated the 10th of May, 1888, and made between K. (as such trustee in bankruptcy) of the one part, and F. (who was a creditor under the bankruptcy) of the other part, reciting that K. was not disposed to take on himself the risk and expense of continuing the action, the right of action was assigned upon the terms that F. should at his own expense continue the action free from control by K., who was, so far as the rules and practice of the Court would permit, to give all assistance and information in his power to assist F. to carry on the action, and F. agreed to carry on the action at his own expense with diligence, and to use his best endeavours to bring it to a successful issue, with power to compromise, and the money, which might be recovered or might be received by way of compromise after deducting actual disbursements not paid by the Defendants (but not including F.'s solicitor and client costs), was to be divided into four parts, three to belong to F., and one to K.

F. having obtained an order of course to carry on the proceedings in the action, the Defendants moved to discharge the order on the ground that the deed of the 10th of May, 1888, was champertous.

It appeared from the evidence that F. was acting as trustee for himself and other creditors under the bankruptcy, including the Plaintiffs' solicitors, who were also the solicitors of F.:-

Held, that the principle of the decision in Seear v. Lawson(1) applied, and that the fact that some of the creditors were to carry on the action at their own risk and expense, and to take a larger share of the fruits of the action than they otherwise would have done, did not bring the case within the law against champerty and maintenance, and that the transaction was one permitted by the bankruptcy laws.

The maintenance of the suit of another is lawful where the persons maintaining have an interest in the subject-matter of the action.

MOTION.

This action was brought by the Plaintiffs, Messrs. Guy & Co.,who were timber merchants, against the Defendants, who were their agents for the sale of timber, and the object of the action

(1) 15 Ch. D. 426.

was to open accounts and to recover the difference between two sales made by the Defendants. The Plaintiffs' case was that the first sale had been made to a debtor of the Defendants, and that the second sale had been made as for their debtor at a larger price, and that in the circumstances the Plaintiffs were entitled to recover the difference.

The action was tried before Mr. Justice Stirling, who dismissed it, refusing leave to amend, but on appeal leave was given to amend.

The Plaintiffs were afterwards adjudicated bankrupts, and Kemp was appointed trustee under their bankruptcy.

By an indenture dated the 10th of May, 1888, and made between Kemp of the one part and Ford of the other part, after reciting the above-mentioned facts, and that Kemp as trustee in bankruptcy was not disposed to take upon himself the risk and expense of the re-trial of the said action, and had proposed to sell and dispose of such right of prosecuting the same, and all possible benefit to be derived therefrom, to the said Ford upon terms by which Ford should take upon himself, in exoneration of Kemp, and all the estate of the bankrupts, the further prosecution of the action, and should in manner thereinafter set forth covenant and agree to pay as a consideration for the assignment thereinafter made one-fourth full part or share of the net moneys (if any) to be recovered or received from the Defendants upon the re-trial or final settlement of the said action, and that such bargain and agreement had been approved of by the committee of inspection, it was witnessed that in pursuance of the said agreement, and in consideration of the covenant of Ford thereinafter contained, Kemp as such trustee as aforesaid thereby assigned to Ford all that the right of him Kemp as such trustee of the estate of Guy & Co. to bring, prosecute, and carry on against the Defendants the action then pending or any other action which he might be advised to bring with the same object and intent, that is to say, to enable Ford to recover and receive from the Defendants all and every and such sum or sums of money (if any) as the High Court of Justice should award, that the Plaintiffs but for their bankruptcy were entitled to, or that he, Kemp, as such trustee and their estate would be entitled to against the Defendants in

respect of the contract the subject of the action, or the liability of the Defendants to the Plaintiffs in respect of their acts or omissions in reference to the contract, together with all the rights, powers, privileges and authorities which Kemp as such trustee could give or confer, and was by law and equity entitled to transfer to Ford in connection with such right and remedy as aforesaid, to the intent that Ford should be enabled in his own name and at his own risk in all things in exoneration of the estate of the Plaintiffs and of Kemp, to bring and prosecute any such action as aforesaid, and to receive any such moneys as should be awarded as aforesaid, in as full and ample a manner in all respects as Kemp could or might do as such trustee as aforesaid, if personally acting therein, and free from all control or interference by Kemp as to the form or manner of carrying on such proceedings, and with absolute right and power at his own discretion to compromise and settle the action or any other action in reference to the same subject-matter upon such terms as he, Ford, should think fit, and Kemp covenanted with Fordso long as he should be trustee of the estate of the Plaintiffs, and so far as the rules and practice of the Court would permit, to give to Ford all such assistance and information as should be in his power as such trustee, and also, so far as he should have it in his power to procure Ford the assistance of the Plaintiffs' firm, he, Ford, bearing and paying all usual and proper charges therefor. And Ford covenanted with Kemp that he would with all diligence, but without being subject to the control or interference of Kempprosecute and carry on the pending action or other action as aforesaid against the Defendants, and use his best endeavours to bring the same to a successful issue, whether prosecuting the same to final judgment or otherwise, or compromising the same as he might think fit, and further, that if and when he, Ford, should under and by virtue of any such final judgment or compromise recover and receive from the Defendants any sum or sums of money in respect of the claim of the Plaintiffs in such action or proceeding, he, Ford, would forthwith pay over to Kempas such trustee as aforesaid, or other the then trustee of the estate of the Plaintiffs, one-fourth part of the nett amount of such moneys after deducting and paying thereout all actual

disbursements and charges not paid by the Defendants under any such judgment or compromise, but not including therein the untaxable cost or costs as between solicitor and client of the Plaintiffs in such action not recoverable from the Defendants, but including in case of compromise for a lump sum to include costs, all such costs &c. as under a judgment should be properly recoverable, and Ford covenanted to furnish a full and proper account to Kemp, as such trustee as aforesaid, shewing the nett amount so distributable, and at all times to render to him all reasonable information as to the progress of the said action or proceeding, and as to the conduct, management, and result thereof. And it was provided that nothing in the agreement should entitle Ford to use the name of Kemp in the action so as to render Kemp liable to any costs in relation thereto, but the said action and all proceedings in relation thereto should be continued in the name of Ford as assignee thereof.

It appeared from the evidence, and in fact was admitted at the bar, that Ford was himself a creditor in the bankruptcy, and was acting in the matter as a trustee for himself and other creditors, including Messrs. Irvine & Hodges, the solicitors on the record for the Plaintiffs, Guy & Co., and who were also Ford's solicitors.

Ford having obtained an order as of course to carry on the proceedings in the action, this was a motion by the Defendants to discharge the order on the ground that the deed of the 10th of May, 1888, was champertous.

Romer, Q.C., and Ingle Joyce, for the motion:-

The deed is clearly champertous. The consideration for the assignment is part of the profit to arise out of the action if successful: Stevens v. Bagwell (1); Anderson v. Radcliffe (2); Stanley v. Jones (3); De Hoghton v. Money (4); Hill v. Boyle 2v(5); Hutley v. Hutley (6); Dickinson v. Burrell (7).

In Seear v. Lawson (8), upon which case the other side will no doubt rely, the assignment was out and out, but here the trustee

(1) 15 Ves. 139.

(2) E. B. & E. 806.

(3) 7 Bing. 369.

(4) Law Rep. 2 Ch. 164.

(5) Law Rep. 4 Eq. 260.

(6) Ibid. 8 Q. B. 112.

(7) Ibid. 1 Eq. 337.

(8) 15 Ch. D. 426.

in bankruptcy retains an interest in the subject-matter of the dispute. Even assuming that the Bankruptcy Act, 1883, gives the trustee a right to dispose of the right of action, there is nothing in the Act authorizing him to retain an interest in the thing assigned, and we contend that the fact of the trustee in this case retaining such an interest invalidates the transaction.

Maidlow, and Pyke, for Ford:-

Ford is a creditor under the bankruptcy, and as such he is entitled to carry on the action for his own benefit and that of the other creditors: Hunter v. Daniel (1); Findon v. Parker (2).

Under the Bankruptcy Act, 1883, s. 57, sub-s. 8, the trustee may, with the permission of the committee of inspection, make such compromise or other arrangement as may be thought expedient with respect to any claim arising out of or incidental to the property of the bankrupt, and by sect. 168 "property" includes things in action.

Seear v. Lawson (3) is entirely in our favour. The fact of the trustee in bankruptcy retaining an interest in the subject-matter of the litigation can make no difference. We submit that the deed is a good deed and not void for champerty.

Romer, in reply, referred to In re Attorneys and Solicitors Act,1870(4); Strange v. Brennan (5); Earle v. Hopwood (6).

CHITTY, J. :-

Apart from the bankruptcy law and the relation of the parties, the deed of the 10th of May, 1888, is plainly void for champerty. It recites that the assignor was not disposed to take upon himself the risk and expense of continuing the action. The right of action is then assigned on terms which may be shortly stated as follows. The assignee, Ford, is to continue the action at his own expense, free from control by the assignor. The assignor, so far as the rules and practice of the Court will permit, is to give all assistance and information in his power to assist Ford to carry on

(1) 4 Hare, 420.

(2) 11 M. & W. 675.

(3) 15 Ch. D. 426.

(4) 1 Ch. D. 573.

(5) 15 L. J. (Ch.) 389.

(6) 9 C. B. (N.S.) 566.

the action, but at Ford's expense. Ford agrees to carry on the action at his own expense with diligence, and to use his best endeavours to bring it to a successful issue, but has power to compromise. The money which may be recovered or may be received on a compromise, after deducting actual disbursements not paid by the Defendants (but not including Ford's solicitor and client costs), is to be divided into four parts, of which three are to belong to Ford, and one to the assignor.

The relation of the parties to the deed is this. The assignor Kemp is the trustee in bankruptcy of Messrs. Guy & Co., and Ford is a creditor in the bankruptcy. The other material circumstances are as follows. Messrs. Guy & Co., timber merchants, brought the action against the Defendants, who were their agents to sell timber. The object of the action is to open accounts and to recover the difference between two sales made by the Defendants. Messrs. Guy & Co.'s case was that the first sale had been made to a debtor of the Defendants, and that the second sale had been made as for their debtor at a larger price, and that in the circumstances Messrs. Guy & Co. were entitled to recover the difference. The action was tried before Mr. Justice Stirling, who dismissed it, refusing leave to amend; but on appeal leave to amend was given. Messrs. Guy & Co. were afterwards adjudicated bankrupts, and Kemp was appointed trustee under their bankruptcy.

Although on the face of the deed Ford appears to be taking the assignment for his own benefit, it is shewn by the evidence and the mutual admissions made by counsel at the bar that he was really acting as trustee for himself and other creditors, including Messrs. Irvine & Hodges, the solicitors on the record for the late Plaintiffs, Messrs. Guy & Co.

In the event, therefore, of the action being successful, these creditors will, in addition to their dividend in the one fourth which is to go to the trustee in bankruptcy, take a share in the three-fourths which are to go to Ford.

Two points are clear, and the argument for the motion proceeded on the admission of counsel that they were indisputable. The first is, that the right to continue the action passed to Kempas trustee in bankruptcy. The second is, that Kemp was entitled

to sell this right even to a stranger. Both points are covered by the decision of the Court of Appeal in Seear v. Lawson (1). There the bankrupt had executed a deed which purported to be an absolute conveyance, but which, as he claimed, ought to stand as a mortgage only. The trustee in bankruptcy sold and assigned to Chatterton (a stranger) all his right and interest in the property; and by virtue of this assignment Chatterton claimed to continue in his own name the action which had been commenced before the bankruptcy. The Court held that the right to continue the action passed to the trustee in bankruptcy, Sir G. Jesselobserving that the statute had made an assignment of the right in spite of the law of maintenance. On this point it was assumed, though not decided, that the bankrupt himself could not have assigned the right of action. The decision was founded upon the definition in the Bankruptcy Act then under consideration of the term "property," which included things in action. The Act of 1883, which applies to the case before me, is similar in terms(2). In regard to the assignment to Chatterton, which was also attacked on the ground that it was void for maintenance, the Court proceeded on a similar assumption, but held that, having regard to the provisions in the Bankruptcy Act, and particularly to the provisions empowering the trustee, with the sanction of the committee of inspection, to make arrangements, the assignment was valid. The Act of 1883 contains provisions to the same effect(3).

It is clear, then, that the deed of 1888, which was made with the sanction of the committee of inspection, cannot be impeached merely on the ground of maintenance. Any objections on that ground are removed by the Bankruptcy Act, 1883, quite apart from any considerations based on the relation of the parties.

But it was urged that it is void for champerty. It was said that the statutory powers conferred on the trustees by sect. 57, sub-sect. 8, to sell a chose in action, and to "make such compromise or other arrangement as may be thought expedient with respect to any claim arising out of or incidental to the property of the bankrupt, made or capable of being made on the trustee by any

(1) 15 Ch. D. 426.

(2) 46 & 47 Vict. c. 52, s. 50, sub-s. 5, s. 168.

(3) Sect. 57, sub-s. 8.

person or by the trustee on any person," empowered the trustee to make only a lawful sale or a lawful arrangement. But this is merely a repetition of the argument which was distinctly negatived in Seear v. Lawson (1). The argument, then, is far too wide to be sustained.

But it remains to be considered in its more limited form as confined to champerty. It is difficult to find any sufficient reason for saying that the statute which makes lawful an arrangement which, apart from its provisions, would be unlawful on the ground of maintenance, does not also make lawful an arrangement open to the objection of champerty. The policy of the statute appears to be to give power to the trustee, with the sanction of the committee, to make arrangements in reference to choses in action which are considered beneficial to the creditors. It would be a strange and inconsistent result to say that although the right of action may be sold out and out it cannot be disposed of on the terms that some part of the fruit of the action if successful shall come back to the bankrupt's estate for division among his creditors.

"Maintenance" and "champerty" are always treated together by the writers on the subject, both ancient and modern; such for instance as Coke, Hawkins' Pleas of the Crown, Blackstone, Russell on Crimes, Stephen's Digest of the Criminal Law, and Pollock on Contracts. Maintenance is called the genus of an offence of which champerty is a species. It will suffice to quote the definitions of champerty from Russell on Crimes(2). "Champerty is a species of maintenance, being a bargain with a plaintiff or defendant campum partire, to divide the land or other matter sued for between them, if they prevail at law; whereupon the champertor is to carry on the party's suit at his own expense." This definition, which is taken from Blackstone, was adopted by Vaughan Williams, J., in his judgment in Radcliffe v. Anderson (3). Russell continues: "It is defined in the old books to be, the unlawful maintenance of a suit, in consideration of some bargain to have part of the thing in dispute, or some profit out of it." This passage is taken from the judgment of

(1) 15 Ch. D. 426.

(2) 5th Ed. vol. i., p. 356.

(3) E. B. & E. 825.

Tindal, C.J., in Stanley v. Jones (1). Lush, J., in Hutley v. Hutley (2), speaks of champerty as "the most odious form of maintenance."

I have cited sufficient authority to shew that champerty is but a form of maintenance, though it be maintenance aggravated by an agreement to have part of the thing in dispute. Both maintenance and champerty are founded on the same principle or policy of law, viz., the tendency of the transactions to prevent the course of justice. But adopting the principle of the decision in Seear v. Lawson (3), I do not think I am carrying it beyond its true limits in holding that it covers the case before me. It would be too fine a distinction to hold that the arrangement shewn by the deed of May, 1888, is void merely because the bankrupt's estate gets back part of any money that may be recovered in the action.

I will add only a few words on the circumstance that the assignee of the chose in action and his cestuis que trust are creditors under the bankruptcy. Maintenance, when spoken of in the books, means unlawful maintenance. But the maintenance of the suit of another is lawful where the persons maintaining have an interest in the thing in variance. For instance, where a chose in action is vested in a trustee the beneficiaries may, by providing a fund for the expenses of the action, and by other means not in themselves unlawful, assist in maintaining the suit. So also may commoners maintain the action or the defence where one of their body is suing or being sued in respect of the common right. Unquestionably the creditors under a bankruptcy, or the creditors or contributories under a liquidation, may lawfully maintain the action or defence of the trustee or liquidator in his action or defence for the common benefit. I know of at least one case in my Chambers where Sir George Jesselsanctioned an arrangement whereby an action which the trustee was not inclined to institute, was to be brought solely at the risk and expense and solely for the benefit of some only of the beneficiaries, being those only who desired that the action should be brought. He must, therefore, have considered that the

(1) 7 Bing. 377.

(2) Law Rep. 8 Q. B. 114.

(3) 15 Ch. D. 426.

interest of the beneficiaries for whom the action was to be brought was sufficient ground for displacing any objection, not merely of maintenance, but of champerty. The substance of the transaction impeached by this motion is that some of the creditors are to carry on the action at their own risk and expense and to take a larger share of the fruits of the action than they otherwise would have taken. These facts appear to me to take the case out of the law against maintenance and champerty, or, at all events, to form an additional reason for holding that the transaction or arrangement is permitted by the bankruptcy law.

The case of Hutley v. Hutley (1) forms no exception to what I have stated in reference to the parties having a common interest. The case was one of maintenance and champerty, and it was held that the existence of what was termed a collateral interest was not sufficient to justify the transaction. In that case there were two wills, and the plaintiff, believing himself interested under the first will, sought to enforce against the defendant, the heir and one of the next-of-kin, an agreement to assist the defendant in upsetting the second will on the terms of his giving the plaintiff an interest in the property which would pass to the defendant on an intestacy. The agreement was based on the assumption of the plaintiff having no interest, the first will being obviously treated as a nullity. I know of no case where the actual interest of the parties being sufficient to justify maintenance the transaction has been avoided merely because they agreed to divide the subject-matter of the litigation among themselves, or some of themselves, in a manner not in accordance with their actual title.

Solicitors: Hollams, Son & Coward; Irvine & Hodges.

(1) Law Rep. 8 Q. B. 112.

G. M.