Ruttle Plant Ltd v Secretary of State for Environment Food & Rural Affairs No. 2 [2008] EWHC 238 (TCC)

[2008] EWHC 238 (TCC)

Case No HT-07-118

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

TECHNOLOGY AND CONSTRUCTION COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 30 April 2008

Before

THE HONOURABLE MR JUSTICE RAMSEY

Between

Ruttle Plant LimitedClaimant

Secretary of State for Environment Food and Rural AffairsDefendant

No. 2Defendant

Andrew Spink QC, Robert-Jan Temmink and Saul Margo (instructed by Yates Barnes) for Claimant

Jonathan Acton Davis QC and Rebecca Stubbs (instructed by Nabarro) for Defendant

Judgment

The Hon Mr Justice Ramsey :

[1]On 4 December 2007 I handed down judgment on the application by the Defendant (“DEFRA”) to strike out these proceedings and obtain summary judgment against Ruttle Plant Limited (“Ruttle”). It is accepted by Ruttle that without some form of amendment, the overall result of that judgment was that DEFRA should succeed in that application.

[2]When I handed down that judgment Ruttle indicated that it wished to amend the Claim Form and Particulars of Claim, essentially to seek to plead a case consistent with that judgment. I gave directions for a procedure by which such amendments would be produced and Ruttle’s application for permission to amend would be considered. That procedure led to the following steps:(1) Ruttle served a draft Amended Particulars of Claim;

(2) DEFRA served notice of objections to the amendments;

(3) Ruttle served submissions;

(4) DEFRA served submissions;

(5) Ruttle served submissions.

[3]This led to a hearing which was held on 25 January 2008. Although no formal application had been issued, it was evident from the submissions made by Ruttle that it sought to add Farm Assist Limited (“FAL”) as a Claimant and to make other amendments to the Particulars of Claim. That was how the matter proceeded, with a letter being produced from the Liquidator of FAL (“the Liquidator”) dated 13 December 2007 indicating consent to joinder, albeit that the form of the letter was open to criticism.

[4]I prepared a draft judgment which was sent to counsel representing the parties in advance of the handing down of the judgment on 15 February 2008. When I came to hand down the judgment, Ruttle sought to make further submissions on the question of whether I should exercise my discretion to allow FAL to be joined as Claimant. DEFRA did not object to that course and accordingly I gave directions as follows:(1) That Ruttle would serve further submissions on the exercise of the Court’s discretion to allow FAL to be joined as a Claimant;

(2) That DEFRA would respond to the submissions;

(3) That Ruttle would reply;

(4) The matter would be dealt with in writing and a further draft judgment would be handed down.

[5]At that hearing on 15 February 2008 the question of whether the application to add FAL as a Claimant might also be treated as an application by the Liquidator to add FAL was raised by Ruttle. The possibility of a formal Application being made by the Liquidator was discussed and it was indicated that any such application would evidently be a late application which would have to be considered on its merits.

[6]On 20 February 2008 Ruttle issued an Application Notice seeking permission to add FAL as a party. In addition, an Application Notice was also issued by the Liquidator seeking to add FAL as a party, supported by a witness statement from the Liquidator, Barry John Ward, dated 20 February 2008. Amended Claim Forms and further alternative draft Amended Particulars of Claim accompanied those applications. Although the Application Notices indicated that the applications were to be dealt with at a hearing, no party has sought to vary the previous order and, in my judgment, the matter can be dealt with in writing.

[7]Consistent with the two Application Notices, the submissions served by Ruttle were served “on behalf of Ruttle and FAL”. DEFRA served submissions dealing with both of the applications and objected to the new application made on behalf of the Liquidator.

[8]In those circumstances, it has been necessary to consider wider issues than those originally contemplated in the directions given on 15 February 2008. I propose to deal with the matter first by considering the original application made by Ruttle. Then I shall consider the Application Notices issued by Ruttle and the Liquidator before considering the appropriate order to be made on DEFRA’s application.

The original application

[9]Ruttle applied for permission to amend its Particulars of Claim. DEFRA opposed that application and, in particular, contended that the amendments, as drafted were objectionable on a number of grounds. I therefore first consider the various arguments raised on those original amendments.

[10]The original amendments which Ruttle sought to make may be summarised as follows:(1) The joinder of Farm Assist Limited (“FAL”) By paragraph 5 of the draft amended Particulars of Claim Ruttle sought to plead: “This action is brought in the name of, on behalf of and/or in the right of FAL by [Ruttle]”.

(2) The status of Ruttle By paragraph 61 of the draft amended Particulars of Claim Ruttle sought to plead the reasons why it remained as a Claimant.

(3) The pleading of damages By paragraph 31 and 62 of the draft amended Particulars of Claim Ruttle sought to postpone the pleading of its claim for damages.

[11]DEFRA objected to those amendments for the following reasons:(1) The joinder of FAL Whilst DEFRA accepted that FAL, itself, could bring proceedings, it submitted that these proceedings were not brought by FAL in its own right. For the reasons dealt with below DEFRA contended that Ruttle did not have the pleaded status and should not be permitted to amend. In any event DEFRA submitted that the Liquidator of FAL must consent and the consent should be filed with the Court. It was submitted that the letter of 13 December 2007 originally filed by the Liquidator was defective.

(2) The status of Ruttle. DEFRA submitted that the Deed of Assignment did not validly assign FAL’s rights to Ruttle because: (a) The rights to commence and conduct these proceedings and the entitlement to the fruits were an element of FAL’s property and could not be assigned by the Liquidator acting in his own name. FAL was not a party to the Deed of Assignment and the Liquidator had no entitlement to assign what he purported to do. (b) Even if the Liquidator did what he purported to do, then he would have abrogated his responsibilities in relation to an asset which was vested in and remained the property of FAL, by the assignment to Ruttle, a company outside the regime of the Insolvency Act 1986. DEFRA submitted that by divesting himself of the right to control proceedings the Liquidator surrendered his fiduciary power to control proceedings commenced in the name of the FAL. (c) Further, whilst an equitable assignment of the fruits of the action was unobjectionable, DEFRA submitted that, in purporting to assign the fruits of the action and also the right to prosecute the claim, the Liquidator had made an assignment which was champertous. (d) Further, DEFRA submitted that the assignment to Ruttle of the ability to enforce FAL’s right to payment contravened the non-assignment provision in clause 21.1 of the Contract between FAL and DEFRA.

(3) The pleading of damages DEFRA objected to the lack of particularisation of the claim for damages and the approach taken by Ruttle.

[12]As a preliminary matter Ruttle submitted that it was not open to DEFRA to seek to go behind my previous judgment and that this was the effect of DEFRA’s challenge to the status of Ruttle.

[13]In the earlier judgment I construed the Deed of Assignment and held that under the Deed of Assignment the Liquidator had assigned his rights to prosecute and carry on the proceedings and his rights to recover and receive the fruits of the proceedings. Further, I held that the cause of action was not assigned but remained the property of FAL, with the result that any proceedings had to be prosecuted and carried on in the name of FAL.

[14]In construing the terms of the Deed, I did not have submissions and was not concerned with questions of whether any such assignments would be objectionable on other grounds. The issue was whether FAL’s cause of action had been assigned and my findings went to the construction of the Deed. In those circumstances, I do not consider that there is anything in my earlier judgment which precludes me from dealing with the merits of the arguments which are now raised on Ruttle’s application to amend.

[15]I now turn to consider those substantive arguments.

FAL not a party to the Deed

[16]DEFRA submitted that the purported assignment under the Deed was not effective because the Liquidator could not assign FAL’s property acting in his own name. Therefore, DEFRA contended that Ruttle was not a proper party to the proceedings because the assignment by the Liquidator did not assign FAL’s rights.

[17]Ruttle submitted that a liquidator may assign an entitlement to any subsequently recovered fruits of a cause of action, pursuant to his power to sell the insolvent company’s property under paragraph 6 of Schedule 4 to the Insolvency Act 1986.

[18]It is necessary to consider these submissions in the context of the statutory position of a liquidator. The functions of a liquidator are to secure that the assets of the company are got in, realised and distributed: see s.143(1) of the Insolvency Act 1986. In order to do that a liquidator has certain powers some of which he may exercise without the sanction of either the Court or the Liquidation Committee and some which require that sanction. The powers of a liquidator include the power of sale of the property of the company and the power to bring a claim or other legal proceedings in the name and on behalf of the company: see s.167 and Schedule 4 para 4 to the Insolvency Act 1986.

[19]When it comes to the power of sale, the property of the company includes “things in action” and also “every description of interest whether present or future… arising out of, or incidental to, the property”.

[20]As a matter of entitlement, a liquidator can sell, by way of assignment, the fruits of proceedings which the company was entitled to bring against a third party. The decision of the Court of Appeal in Glegg v. Bromley

[1912] 3 KB 474

established that the fruits of a cause of action can be assigned separately from the assignment of the bare cause of action itself. In that case the question was whether a deed assigned a cause of action in slander, which could not be assigned, or whether it assigned the fruits of that action. It was held that the deed was a valid assignment of the fruits of the action.

[21]At 484 Vaughan Williams LJ said:

“First, it is said that the consideration of an assignment was a cause of action, and that the cause of action was a tort, namely, a slander. I think that all that was assigned was the fruits of an action. I know no rule of law which prevents the assignment of the fruits of an action. Such an assignment does not give the assignee any right to interfere in the proceedings in the action.”

[22]At 488 and 489 Fletcher Moulton LJ said:

“Finally it was urged that that which purported to be assigned to the husband was in substance a cause of action for personal wrong. What was assigned to him was whatever should come from an action of slander which had been brought by Mrs. Glegg against Lady Bromley, and it was urged that such an interest was incapable of being validly assigned. … It is clearly intended to assign the fruits of the action, so that whatever benefit comes from the action shall go to Mr Glegg by way of further security, but there is nothing which gives him the right to intervene in the action or which is in any way against public policy.”

[23]At 489 Parker J said:

“In the first place, I think that according to the true construction of the mortgage in question the subject-matter assigned is money or other property which might thereafter be acquired by means of the pending action for slander. It is not an existing chose in action, but future property identified by reference to an existing chose in action.”

[24]The fruits of the action are therefore assignable. In addition, in the case of a liquidator, the fruits of the action form part of the assets of the company which the liquidator must realise and he may do so by using his power of sale of the property of the company under the Insolvency Act 1986. In Grovewood v. James Capel & Co Ltd

[1995] Ch 80

Lightman J considered agreements which gave third parties, who funded an action to recover sums due to an insolvent company, one-half of the recoveries. He said at 87:

“If a transfer of a cause of action in return for financing an action and a share of the recoveries is a “sale” for the purpose of paragraph 6, so must, I think a transfer of a half beneficial interest in recoveries in return for financing the action.”

[25]In this case, therefore I do not consider that any difficulty is raised by the assignment of the fruits of the action by the Liquidator under this power of sale.

[26]For the reasons set out below I consider that there are difficulties in the assignment of “all those rights of the Liquidator to prosecute and carry on the Action”. However, it is evident that under the Insolvency Act 1986 the Liquidator does have the right to prosecute and carry on the Action. I do not therefore consider that the assignment can be objected to on the ground that FAL was not a party to the Deed of Assignment or that, subject to the other objections, the Liquidator had no entitlement to assign what he purported to do. It was the Liquidator who had the power of sale and the power to commence proceedings. The fact that the cause of action was FAL’s property does not, in my judgment, affect the position where the Liquidator was operating in relation to the statutory powers vested in him.

[27]I therefore do not consider that FAL was required to be a party to the Deed or that the amendments are objectionable on that ground relied on by DEFRA.

Surrender of Fiduciary Powers

[28]DEFRA submitted that the assignment is objectionable on the ground that the Liquidator assigned his rights to prosecute and carry on the Action and thereby abrogated his responsibilities as a liquidator under the statutory regime. DEFRA contended that, as Lightman J said in Grovewood at 89G, a liquidator cannot “surrender his fiduciary power to control proceedings commenced in the name of the company”.

[29]Ruttle submitted that the courts recognise the power of a liquidator to permit a party to whom the fruits of an action are assigned to conduct the litigation and that there is commercial sense or necessity in permitting a liquidator to allow a third party to conduct the liquidation. Ruttle relied on the first instance and Court of Appeal decisions in Re Oasis Merchandising Services Limited

[1995] BCC 911

and

[1998] Ch 170

. In the light of that analysis, Ruttle submitted that the obiter observations of Lightman J in Grovewood at 89G were wrong.

[30]In Re Oasis the court was concerned with a case where a liquidator commenced proceedings under s.214 of the Insolvency Act 1986 against five directors for wrongful trading. As the company had no assets the liquidator assigned the fruits of the action to a specialist liquidation support company (“LWL”), in return for the assignee agreeing to fund the action. Under the agreement, the liquidator was to instigate, carry on and prosecute the proceedings but there was a provision that the liquidator was to conduct the proceedings and any settlement negotiations in accordance with the requirements of LWL. Some of the directors sought to stay the proceedings on the grounds that that the agreements were champertous and that the funding of the proceedings by LWL was an abuse of process.

[31]At first instance Robert Walker J held that an agreement to dispose of the fruits of a claim under s.214 was not a sale of property of the company within the liquidator’s power of sale because such a claim was a claim by the liquidator under his statutory powers. In addition, an application under s.214 could not be regarded as civil litigation but had a public or penal element in which the court was entitled to expect to have the assistance of the liquidator. As a result he held that the claim could only be brought by the liquidator and even a partial loss of control of the litigation was objectionable

[32]In relation to the first aspect, concerning the assignment of rights of a liquidator under statute, reliance was placed on the judgment of Knox J in Re Ayala Holdings Ltd

[1996] 1 BCLC 467

. He referred at 483 B to:

“… the fundamental distinction between assets of a company and rights conferred upon a liquidator in relation to the conduct of the liquidation. The former are assignable by sale under para 6 of Sch 4, the latter are not because in my view they are an incident of the office of the liquidator. The conclusion is, in my view, supported by the special status of the liquidator in company law.”

[33]Knox J continued by referring to the powers of the liquidator under s.167 of the 1986 Act and said:

“Now, if Mr Menzies is right in submitting that a liquidator can assign any of his powers the assignee, who is not a liquidator, would be free from any such control and I find it very difficult to envisage that Parliament could have contemplated that that was a permissible state of affairs.”

[34]In Re Oasis Robert Walker J considered that the distinction drawn by Knox J between a company’s property and a liquidator’s powers was equally applicable to the s. 214 claim. At 919B-C he then dealt with a submission by counsel for LWL“that where a liquidator makes an outright legal assignment of the entirety of a cause of action, he loses any vestige of control over the future conduct of the litigation; whereas under an equitable assignment of fruits of litigation, his loss of control is not complete. Partial loss of control must, he submitted, be less objectionable than complete loss of control.”

[35]Robert Walker J then said:

“In the present case there is, it seems to me, a short answer to this point, that is that a claim under s.214 is simply incapable of outright legal assignment - it can only be made and pursued by a liquidator-and that even a partial loss of control is objectionable where the claim has a public or penal element. So my view on the office of the liquidator point - in the context of a s.214 - strongly reinforces my conclusion on the property point.”

[36]Robert Walker J went on to consider the general position. He said:

“Outside the context of a s.214 (or s.213) Mr Wright’s point is not without force, but is still open to debate. The basic principle underlying Seear v. Lawson and all the authorities that come after it may be seen as a recognition that there is a public interest in trustees in bankruptcy and liquidators being able to realise assets (including causes of action) expeditiously and economically, and that this warrants their statutory powers being construed widely rather than restrictively. I remind myself that Chitty J said in Guy v. Churchill (the first case where a liquidator covenanted to assist the assignee, and agreed to take a share of any recoveries as the only consideration) in a passage which I have already quoted (40 ChD at p 488), “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.”

It might perhaps have been argued that this would not be a strange or inconsistent result, since under an outright assignment for a non-contingent consideration the liquidator is relieved of any further involvement in the litigation, even as an assistant, and does receive some money as a ‘bird in the hand’ for early distribution to the company’s creditors; and so a situation in which a liquidator continues to be involved may in practice be less desirable than when he sells a cause of action outright for cash, and has no further involvement. However Guy v. Churchill has stood for over 100 years and was approved by the Court of Appeal in Ramsey v. Hartley. It will be a decision for future cases how Knox J’s observations in Ayala on s.167(3) are to be reconciled with the statutory power, which a liquidator undoubtedly has, to make an outright assignment, for cash of a bare cause of action in ordinary civil litigation” “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.”

[37]The Court of Appeal dismissed the appeal in Re Oasis. At 177 Peter Gibson LJ, giving the judgment of the Court, summarised the three ways analysed by Robert Walker J, by which one person might seek to dispose of and another person might seek to acquire the prospect of benefiting from current or future litigation by an assignment from a liquidator. The ways were: The first is the transfer of property carrying with it the right to prosecute any cause of action closely related to that property, such as the assignment of a debt. Such a transfer and any action brought by the transferee to enforce that right are not champertous: see for example, Camdex International Ltd v Bank of Zambia

[1996] 3 WLR 759

. The second is the assignment of a bare cause of action or a bare right to litigate. Such assignments offend public policy: see, for example Trendex Trading Corporation Credit Suisse

[1982] AC 679

. The third is the assignment of the damages or other monetary compensation that may be awarded in an action in which judgment has not yet been given. Such an assignment being an agreement to assign future property (damages, if and when awarded), operates in equity and if supported by consideration will be valid and no question of unlawful maintenance or champerty will arise, at any rate when the assignee has no right to influence the course of the proceedings: See Glegg v. Bromley

[1912] 3 KB 474

.”

[38]Peter Gibson LJ then referred to the decision in the Australian Federal Court In re Movitor Pty Ltd v. Sims (1996) ACSR 440 where Drummond J had said at 449:

“Whether he sells a bare right of action or the fruits of the action, the only authority a liquidator has to make any such sale is this statutory power. It has long been accepted that a trustee in bankruptcy can lawfully sell a bare right of action owned by an insolvent to a stranger with no interest in it, although that would involve maintenance or champerty but for the fact that he sells under the statutory authority. A liquidator has the same power. In my opinion, there is no reason why this statutory authority should not make lawful any sale of the insolvent company’s property by a liquidator, including the sale of a share in the proceeds of an action belonging to the company to a person with no interest in the litigation on terms that that person is to have control of the litigation, although that would involve champerty but for the transaction being made under that authority. This will be the position, provided only that the subject matter of the sale is ‘property of the company’ within the statutory power.”

[39]The conclusion of the Court of Appeal is summarised in the following passage:

“Like Robert Walker J we therefore conclude on its true construction “the company’s property” in paragraph 6 of Schedule 4 does not include the fruits of litigation brought by the liquidator under section 214. The judge also found that his conclusion was strongly supported by the consideration that the liquidator pursuing an application under s 213 or 214 was not conducting ordinary civil litigation but litigation with a public or penal element and any loss of control by the liquidator of that litigation was objectionable. For our part we regard that as relevant not to the question whether the fruits of such litigation are “the company’s property” within paragraph 6 of Schedule 4 but to the propriety of the liquidator’s act in entering into the agreement and the correctness of the Companies Court in authorising this act. As a matter of policy we think that there is much to be said for allowing a liquidator to sell the fruits of an action for the reasons given by Drummond J, provided that it does not give the purchaser the right to influence the course of or to interfere with the Liquidator’s conduct of the proceedings. The liquidator as an officer of the Court exercising a statutory power in pursuing proceedings must be free to behave accordingly. We are far from happy with the right of interference given to LWL by the agreement, which, as it now stands, does enable LWL to dictate how the liquidator is to conduct the action (see in particular clause 5). Indeed despite Mr Wright’s argument to the contrary, it seems to us to enable LWL to prevent the liquidator from exercising his statutory power under section 168(3) of the Act of 1986 to apply to the Court for directions in relation to litigation, though we should record Mr Wright’s offer on behalf of LWL that the agreement should take effect as if the liquidator retained that power. The proviso to clause 6 on which Mr Wright placed reliance is by its terms limited in its application. It is to be noted that the right of an Insurer under the funding agreement in In re Movitor Pty Ltd v. Sims, 19 ACSR 440 were considerably less than those of LWL under the agreement.”

[40]In the present case, in addition to assigning the fruits of the proceedings, the Liquidator also assigned the rights which he had to commence and conduct those proceedings. In my judgment, it is that provision which introduces an objectionable aspect to the transaction.

[41]If there is an assignment of the fruits of the proceedings then, generally, the proceedings will be brought by the liquidator under some type of funding arrangement. This then raises questions of the degree to which the party funding the proceedings can influence or control the liquidator’s conduct of the proceedings. In Re Oasis the Court of Appeal clearly considered that the degree of influence was too great.

[42]In this case the Liquidator’s rights to prosecute and carry out the Action are absolutely assigned and the last part of clause 1 of the Deed of Assignment demonstrates that the intent is to exclude the Liquidator from involvement in the Action. It provides that the assignment is “to the intent that hereafter the Assignee shall be enabled to prosecute the Action and all proceedings consequent thereon in as full a manner as the Company or the Liquidator could have done and free from all control [of] any interference by the Liquidator”.

[43]In my judgment the reason why the assignment is objectionable is because the Liquidator is assigning the rights he has under the 1986 Act and is thereby assigning a discretionary power which, being part of the statutory powers of a liquidator, is personal to the Liquidator, just as is his appointment: see Re Sankey Furniture Limited ex parte Harding

[1995] 2 BCLC 594

at 600g. The intention in this case, as demonstrated by the Deed, is that the Liquidator’s right to prosecute and carry on the action is passed to a third party so as to deprive the Liquidator of any control or “interference” in those proceedings. In such circumstances I respectfully adopt what Lightman J said in Grovewood at 89G:

“I cannot see how a Liquidator can properly or at all surrender his fiduciary power to control proceedings commenced in the name of the company.”

[44]There is an apparent inconsistency between the position where the bare cause of action is assigned and the position where the fruits of the action are assigned, with the control and the funding of the proceedings being carried out by the assignee. As raised at first instance in Re Oasis if a liquidator is entitled to sell a bare cause of action then he can by that route divest himself of all control. It is therefore argued that, if he could do so in the case of the assignment of a bare cause of action, why could he not do so on an assignment of the fruits of the action? I consider that there is a difference. When a bare cause of action is assigned as part of a sale of the property of a company, the liquidator is thereby exercising the power of sale granted to him and an intrinsic part of that sale is the right to commence or continue those proceedings. In the same way, a sale of property would include, as an intrinsic part of the sale, any cause of action together with a similar right to commence or continue proceedings.

[45]In this case, the assignment of the fruits of the action does not include either the bare cause of action or the right to commence or continue proceedings. Any rights in relation to proceedings are given separately by reference to the Liquidator’s powers.

[46]Another way of expressing the objection is to say that the Liquidator is not entitled to assign his personal powers under the power of sale. Just as the statutory claim in Re Oasis was not the “property of the company” so the Liquidator’s power to prosecute and carry on proceedings is not such property because the power of the Liquidator only arises after the liquidation. Whilst the company has a right to commence proceedings, the Liquidator’s right is not an asset of the company but a right conferred upon a Liquidator in relation to the conduct of the liquidation.

Champerty

[47]For the reasons set out above, the assignment of the fruits of the action in itself was a valid exercise of the power of sale by the liquidator but the assignment of the Liquidator’s right to prosecute and carry on the proceedings was not.

[48]In such circumstances, whilst the assignment of the fruits of the action alone would not be objectionable the additional elements outside the power of sale do, in my view, make this transaction objectionable as being champertous.

[49]This is not a case where the assignment of the cause of action is on terms as to funding or the control of the proceedings. Rather it is the assignment of the Liquidator’s rights outside the power of sale which means that the transaction being champertous is not authorised by the 1986 Act and therefore the objections that the assignment is champertous.

[50]If the assignment of the liquidator’s rights to prosecute and carry on the Action were not objectionable for the reasons that I have given, then the question would arise whether that the degree of control and funding given to Ruttle would independently be objectionable. I now consider that question.

[51]First, in my judgment, the degree of control in this case is objectionable as depriving the Liquidator of his statutory powers. I consider that the passage in the judgment of Lightman J in Grovewood at 89G reflects the policy considerations which are also set out in the judgment of Peter Gibson LJ in Re Oasis and the judgments in Glegg v. Bromley. In this case I do not need to consider the question of whether some degree of control might be unobjectionable, given the absolute nature of the control in this case.

[52]So far as the element of funding is concerned, the question is whether the existence of funding makes the assignment of the fruits of the action objectionable. In this respect I was referred to the passage in the judgment of Lightman J in Grovewood at 87 where he considered that although a transfer of half beneficial interest in recoveries in return for financing the action was a “sale” of company property within the statutory powers of the liquidator, the “statutory exemption” from the law of maintenance and champerty did not extend to the arrangement. That passage has since been the subject of obiter consideration in Re Oasis and has not been followed in two Australian decisions.

[53]As Robert Walker J observed in Re Oasis at 920 the decision in Glegg v. Bromley proceeded on the basis that the sale or charge of mere fruits of litigation, if not accompanied by any interference in the litigation, did not savour of maintenance and champerty. The basis for that decision is that Parliament must have intended the statutory powers of sale to be validly exercised without a breach of the rules of maintenance and champerty. He therefore said that he had difficulty with the analysis of Lightman J in Grovewood. In the Court of Appeal in Re Oasis at 180A Peter Gibson LJ said that there was considerable force in those observations.

[54]In the Australian decision in Re Movitor at 450 Drummond J was not prepared to draw the distinction that Lightman J had drawn in Grovewood between the sale of the cause of action and the sale of the fruits of the cause of action. However the power of sale included a power which allowed the liquidator to “otherwise dispose of, in any manner” any part of the property of the company. Lindgren J in the Australian Federal Court decision in Re Tosich Construction Pty Ltd; Ex parte Wily (1997) 23 ACSR 126 followed Re Movitor and did not follow Grovewood.

[55]In my judgment, where there is a sale of the fruits of the action there will necessarily be a price to be paid. An assignee who funds the action or provides other funds to the liquidator will generally be paying a sum which is inherent in the concept of a sale. In some circumstances the court might find the means of funding or payment objectionable on public policy grounds but I respectfully would agree with the observations of Robert Walker J in Re Oasis that it is difficult to see that the element of funding in itself necessarily renders the exercise of the otherwise valid statutory sale objectionable. I would not therefore base my decision on the element of funding raised by DEFRA.

[56]In those circumstances, I conclude that even if the assignment were not objectionable for the reasons given above, the assignment of the liquidator’s power to prosecute and carry on the Action itself and the degree of interference given to Ruttle in relation to the Action do add an objectionable element of champerty to the transaction which is not authorised by the statutory power of sale.

Clause 21.1 of the Contract

[57]DEFRA also submitted that, in any event, Clause 21.1 of the Contract prevented FAL’s right to payment and its ability to enforce that right from being assignable.

[58]Ruttle contended that the rights assigned by the Deed of Assignment in terms of a right to pursue the action and a right to share in the fruits of the action are not the subject matter of Clause 21.1.

[59]It is common ground between the parties that if FAL had enforced its rights to payment under the Contract then any disposal of the sums obtained would not be caught by Clause 21.1. Rather clause 21.1 is concerned with FAL’s rights of action against DEFRA.

[60]In Linden Gardens v. Lenesta Ltd

[1994] 1 AC 85

at 103 to 104 Lord Browne-Wilkinson considered a distinction drawn in the Court of Appeal between the assignment of the right to require future performance and an assignment of benefits arising under the Contract. He referred to an article “Inalienable Rights” by Professor Goode (1979) 42 MLR 533 in which Professor Goode had considered possible interpretations of a contract between A and B which prohibited assignment of contractual rights by A. One of those possible interpretations at (3) was “A is precluded not only from effectively assigning the contractual rights to C, but also from agreeing to account to C for the fruits of the contract when received by A from B.”In this respect Professor Goode said that construction (3) “to the extent that it purported to render void not only the assignment as between B and C but also as between A and C was contrary to law.” Lord Browne-Wilkinson said he accepted Professor Goode’s classifications and conclusions.

[61]However Lord Browne-Wilkinson added at 104:

“But Professor Goode’s classifications provides no warrant for the view taken by the majority of the Court of Appeal in the present case: he does not discuss or envisage a case where a contractual prohibition against assignment is to be construed as prohibiting an assignment by A to C of rights to future performance but does not prohibit the assignment by A to C of “the fruits of performance” eg., accrued rights of action or debts.”

[62]He then turned at 105 to consider the prohibition on assignment in Clause 17 which provided that “The contractor shall not without the written consent of the employer assign this contract”, similar to Clause 21.1 in this case, and said:

“The question is to what extent does clause 17 on its true construction restrict the rights of assignment which would otherwise exist? In the context of a complicated building contract, I find it impossible to construe clause 17 as prohibiting only the assignment of rights to future performance, leaving each party free to assign the fruits of the contract.”

[63]In this case I can see no objection to the assignment by the Liquidator to Ruttle of the fruits of any action rather than the fruits of performance. However the assignment of the Liquidator’s right to prosecute and carry on the action is a right to pursue an accrued right of action against DEFRA. I consider that the ability to enforce the right of action arises out of the existence of that right of action and that the prohibition in Clause 21.1 prevents both the assignment of the right of action and of the right to enforce it.

Pleading of damages

[64]Ruttle also sought to amend to plead FAL’s entitlement to damages against DEFRA in paragraphs 61(b) and 61(c) of the draft Particulars of Claim but pleaded “the value of such damages to be pleaded to following rescission of the settlement agreement.”

[65]DEFRA contended that the damages claim should be properly particularised. Ruttle submitted that the pleading of the damages claim should await a determination of the issue of rescission of the settlement agreement.

[66]I consider that some particularisation of the claim should be given and that the matter should not be left entirely to a later date. DEFRA are entitled to know the claim which is made against them, even if full particularisation and pleading to the case on quantum is delayed to a later date.

Conclusion

[67]As a result I find that Ruttle is not properly entitled to pursue these proceedings in the manner it sought to plead in the original draft amended pleading.

[68]It follows that in relation to the amendments which Ruttle sought to make that, apart from the question of joining FAL as a party:(1) The amendment to the first sentence of paragraph 5 of the original draft Amended Particulars of Claim, in the light of this judgment, is objectionable and the amendment should not be allowed.

(2) The amendment at paragraph 61(a) of the original draft Amended Particulars of Claim repeats those in the first sentence of paragraph 5 and is objectionable for that reason and the amendment should not be allowed.

(3) The amendment at paragraph 61(b) of the original draft Amended Particulars of Claim recites the right of Ruttle to receive the fruits of these proceedings. I do not consider that this would justify retaining Ruttle as a party and the amendment should not be allowed.

(4) The amendments at paragraphs 61(c) and 61(d) of the original draft Amended Particulars of Claim relates to possible costs orders being made in these proceedings in the event that FAL proceeds. Again, I do not consider that this would justify retaining Ruttle as a party to the proceedings at this stage and the amendments should not be allowed.

(5) The amendments at paragraphs 62(b) and 62(c) of the draft Amended Particulars of Claim seek to delay the pleading of FAL’s damages until after the determination of the issue of rescission of the settlement agreement. I consider that adequate particulars of that claim should be given and the amendments in their present form should not be allowed, without further particularisation being provided.

[69]Accordingly, I consider that those amendments originally sought by Ruttle should not be allowed. I now turn to consider the recent Application Notices.

The Application to join FAL

[70]I deal with both applications for permission to add FAL as a party: one by Ruttle and one by the Liquidator. It is submitted by Ruttle and the Liquidator that I should allow this amendment pursuant to CPR rule 19.2(2) which provides:

“The court may order a person to be added as a new party if – (a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or (b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.”

[71]Ruttle and the Liquidator also refer me to the Practice Direction to Part 19 which provides at para 1.1 that “Parties may be removed, added or substituted in existing proceedings either on the court’s own initiative or on the application of either an existing party or a person who wishes to become a party.”

[72]It is submitted that there is no guidance as to the principles to be applied by the court other than the need for it to be “desirable” to add FAL as a party and the principles set out in the overriding objective. I was referred to the decision of the Court of Appeal in Cobbold v. Greenwich LBC (Unreported, 9 August 1999) where Peter Gibson LJ (with whom Sedley LJ concurred) said:

[73]“The overriding objective is that the court should deal with cases justly. That includes, so far as practicable, ensuring that each case is dealt with not only expeditiously but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed.”

[74]Ruttle and the Liquidator submit that it is desirable that FAL should be joined as a party for a number of reasons. First, it is submitted that because I have determined that FAL and not Ruttle is the proper party to the claims advanced in this action it is desirable for FAL to be joined so that the substantive dispute can be determined between the proper parties in these proceedings. Secondly, if permission were not granted then it is submitted that FAL would commence another set of proceedings and it is desirable in terms of efficiency, time and costs for FAL to be joined and this would be consistent with the procedure in the Technology and Construction Court under the Civil Procedure Rules. Thirdly, there is no benefit in requiring the underlying dispute to be determined in a second action rather than in these proceedings. Fourthly, if there are any limitation issues arising in new proceedings then these should not preclude FAL from pursuing the claim. Fifthly, the effect of striking out the proceedings and not permitting FAL to be joined would potentially lead to an order for costs in favour of DEFRA when such costs would otherwise depend on the outcome of the proceedings which would be pursued by FAL in a new action. Sixthly, any prejudice to DEFRA can be dealt with by way of an order for costs in relation to DEFRA’s application to strike out or for summary judgment.

[75]DEFRA submits that FAL should not be joined as a party. First, it submits that in relation to the underlying proceedings, the law permits those who wish to act as Ruttle and the Liquidator have done to do so in circumscribed routes. Ruttle is not a proper party and has no locus standi to make any applications. The merits of the claim are irrelevant. Secondly, the efficient operation of the court requires that any action which is bound to fail, such as that brought by Ruttle, should be struck out leaving the Liquidator to bring proceedings if he thinks fit. Thirdly, the benefit of striking out the claim is that the Liquidator can independently assess whether to proceed. Fourthly, it would be wrong in principle to permit an amendment to avoid limitation defences. Fifthly, the cost consequences which follow from a strike out are as a result of Ruttle and the Liquidator having acted as they have done. There is no reason why DEFRA should bear the costs. Ruttle chose to intervene and must bear the risk. Sixthly, the fact that DEFRA is entitled to the costs of the application does not provide a reason for FAL to be joined in these proceedings.

[76]I consider first the position in relation to the application by Ruttle to join FAL as a party. In my judgment, whilst Ruttle as a party to the action has locus standi to make the application, the court should be slow to exercise its discretion to permit a party in Ruttle’s position to add a party. It is accepted that the effect of my judgment is that Ruttle’s claim should be struck out. In such circumstances, to permit Ruttle to add a party and then for the proceedings brought by Ruttle to be struck out would not, in my view, be an appropriate exercise of my discretion.

[77]For a party to add another party to proceedings requires the consent of that other party. The original letter of 13 December 2007 was defective in a number of respects. In particular, it indicated consent to be joined as a Claimant in “the above action” without identifying any action and it was not signed by the Liquidator. Whilst I accept that the Liquidator’s letter of 18 February 2008 now sufficiently signifies consent for the purpose of the application, I do not consider that the consent by the Liquidator affects the position where the court has found that the party seeking to join that other party should not have been a party.

[78]In relation to the new application by the Liquidator for FAL to be joined as a party, different considerations apply. First, the application by the Liquidator has been made at the last minute and in the knowledge that Ruttle faced difficulties in seeking to join FAL as a party. I consider that late applications should generally be discouraged but, if there is merit in the application and there is not significant additional prejudice caused to the other party, the general considerations under the overriding objective, as set out in Cobbold, have equal force in such circumstances. Subject to matters related to costs, I do not consider that any additional prejudice has been shown compared to the position had the Liquidator made the application last year. I therefore do not consider that the lateness of the application should preclude me from considering it. I now turn to the merits of that application.

[79]The proceedings so far have proceeded between Ruttle and DEFRA but it is evident that the court has been determining issues in which the Liquidator is interested, such as the meaning and effect of the Deed of Assignment and the ability of the Liquidator to assign rights to Ruttle. FAL could well have sought to be joined in the existing proceedings at an earlier stage. As it is, I have determined that FAL is the proper party to bring these proceedings. The Liquidator states in paragraph 6 of his witness statement that, subject to questions of funding, he wishes FAL to be joined as a party to these proceedings. In approaching that application, I do not consider that there are the same concerns in relation to the application by the Liquidator as apply in the case of the application by Ruttle. FAL is a proper party and is seeking permission to be joined so that the action can proceed in the name of the proper party. That, in principle, is an application which has merit.

[80]I do not consider that the impact of costs or on limitation should persuade me to allow FAL to be joined so as to avoid that impact. To exercise my discretion merely to allow FAL to be added to avoid what would otherwise be the cost or limitation consequences of not doing so does not seem to be a sound basis on which to act. In this case, I have to consider the position on costs and, as set out in the written submissions, neither party is asserting that there is a limitation defence which would be affected by giving permission to join FAL.

[81]Rather, in this case, I have to approach the question by reference to CPR rule 19.2(2)(a) and consider whether it is desirable to add FAL so that the court can resolve all the matters in dispute in the proceedings. The matters in dispute include the underlying claim. Taking account of the position of the Liquidator and my findings on the effect of the Deed of Assignment and of the rights assigned, I consider that it would be desirable for FAL to be a party so that the Liquidator can proceed with the claims against DEFRA. In my judgment this would be consistent with the overriding objective to deal with cases justly.

[82]The alternative would be to strike out these proceedings so that the Liquidator would have to issue a new claim form and start new proceedings despite the stage reached in these proceedings. I do not consider that this would deal with the case justly. It would not save expense or ensure that the case was dealt with expeditiously.

[83]I have therefore come to the conclusion that I should grant the Liquidator’s application and permit FAL to be added as a party.

The Application by DEFRA

[84]In relation to the application to strike out Ruttle’s claim and obtain summary judgment against Ruttle, there is and can be no dispute that the effect of this judgment and my previous judgment means that, so far as Ruttle is concerned, the proceedings must be struck out and summary judgment must be entered against them, as DEFRA sought in their application. The remaining area of dispute concerns the appropriate order for costs.

[85]Ruttle accepts that DEFRA should be entitled to the some of the costs of its application. However, Ruttle resists any order that it should pay DEFRA’s costs of the action up to the date of this judgment. In relation to the costs of DEFRA’s application Ruttle submits that given the issues on which DEFRA succeeded and the issues on which Ruttle succeeded, the appropriate costs order in relation to the application should be for DEFRA to be awarded, at most, 50 % of those costs.

[86]DEFRA submits that it should be entitled to all of its costs of the application on which it has succeeded and that, in addition, it should be entitled to the costs of the action to date.

[87]I deal first of all with the costs of DEFRA’s application. It is evident that DEFRA has succeeded on its application to strike out the proceedings by Ruttle and obtain summary judgment against Ruttle on the claim, both as originally pleaded by Ruttle and as it sought to amend the claim. Whilst I accept that some of the arguments put forward by DEFRA did not succeed, I do not consider that the lack of success is a matter which should cause me to make a different order from the general rule that the unsuccessful party should pay the costs of the successful party. The burden of DEFRA’s case was that Ruttle was not a proper party to these proceedings and it succeeded in that contention based on the main arguments which it put forward. I do not consider that the fact that certain arguments did not succeed should, in this case, affect the general rule under CPR Part 44.3.

[88]I therefore order that Ruttle shall pay DEFRA’s costs of DEFRA’s application to be assessed on a standard basis. DEFRA seeks a detailed assessment which I consider to be appropriate in this case. DEFRA also seeks a payment of £114,600 on account of costs, being 40% of its current estimate of costs of £286,500. I consider that DEFRA is entitled to have a payment on account of its costs and that the figure of 40% of its estimate provides an appropriate allowance. I therefore order a payment on account of £114,600.

[89]In relation to the costs of the action to date, it is evident that, absent the last minute application by the Liquidator to join FAL, which I have allowed, these proceedings would have been terminated. In such a case DEFRA would have been entitled to its costs.

[90]I have now given permission to the Liquidator for FAL to be joined as a party and as a result these proceedings will continue. Should there be a different order for costs in relation to Ruttle as a result of the joinder of FAL? I consider that there is strength in Ruttle’s submission that DEFRA’s costs in preparing its substantive defence to the proceedings will now be costs which are relevant to the proceedings being continued by FAL. If DEFRA were to obtain the costs of the proceedings to date from Ruttle and if DEFRA then fail in its defence then DEFRA would have recovered costs which on the merits of the underlying proceedings they would not be entitled to. This would not, in my judgment, be a just outcome. I accept Ruttle’s submission that an order that it should pay DEFRA’s costs to date would not be an appropriate exercise of my discretion in the circumstances of this case and could potentially lead to unfairness, depending on the outcome of the proceedings.

[91]The concern of DEFRA must, though be recognized. If it does not obtain an order for costs against Ruttle then if the matter proceeds and it succeeds in its defence, there could potentially be unfairness if DEFRA were not able to recover those costs from FAL.

[92]I am also conscious that as set out in paragraph 6 of Mr. Ward’s witness statement, his wish for FAL to be joined as a party is “subject to the conclusion of a suitable funding agreement to be entered into between myself as liquidator of the Company and Ruttle Plant Limited.”

[93]In my judgment, on the basis that I have given permission to FAL to be added as a party to these proceedings, I do not consider that an order for Ruttle to pay DEFRA’s costs of those proceedings to date, would deal justly with the situation. In essence, to decide on the liability for the costs of the proceedings to date at this stage is likely to be unjust to one party or the other. As the Liquidator states the future conduct of these proceedings will depend on the availability of funding from Ruttle. In those circumstances I see no reason why I should have to determine the costs of the proceedings to date at this stage. In my judgment, the appropriate way to proceed in the light of all those considerations is for DEFRA’s application for the costs of the proceedings to date to be adjourned, with liberty to apply.

[94]If the Liquidator obtains suitable funding and proceeds with the proceedings on the basis of the permission I have granted, then the liability for the costs to date will more conveniently be dealt with at a future date. There may also be questions which arise on any application for security for costs. If the Liquidator decides not to proceed then evidently the matter of costs can then be determined.

[95]I therefore consider that, subject to any further submissions, the appropriate orders to make at this stage are as follows:(1) That permission is granted to the Liquidator to add FAL as the Claimant to the proceedings;

(2) That FAL has permission to amend the Particulars of Claim in the form of “Variation B”, subject to further particularisation of damages at paragraphs 62(b) and 62(c).

(3) That so far as Ruttle is concerned, DEFRA has summary judgment against Ruttle and the proceedings by Ruttle are struck out;

(4) That DEFRA is to have the costs of its application dated 17 July 2007 such costs to be assessed on a standard basis if not agreed. Ruttle shall pay DEFRA £114,600 on account of costs within 14 days of the handing down of this judgment.

(5) That the application by DEFRA against Ruttle for the costs of the proceedings to date be adjourned with liberty to apply.