The funding of litigation is a very difficult subject. Litigants who do not have deep pockets, seek to fund litigation in many ways. Thus you have contingency fee agreements with lawyers. There are also corporations who will fund litigation in the an appropriate case. Parties may not realize that many such schemes are, in fact, illegal. They offend the rule against maintenance and champerty.
In civil litigation, maintenance and champerty are ancient words which describe, in crude terms, pursuing a legal action for reasons other than compensation for a genuine loss. Maintenance refers to intermeddling in a lawsuit. It is hard to define but basically refers to giving assistance or encouraging litigation by someone who is disinterested in the actual lawsuit and who has no lawful justification to do so. Champerty is a subset of maintenance and occurs when a party to the lawsuit agrees to give a share of the proceeds of the action to the maintainer.
The law has always been hostile to both maintenance and champerty. This is more than just a rule against ambulance chasing. In fact, it is one of the reasons why lawyers could not take matters based on contingency fees (the contingency can be seen as champertous as it encourages litigation and the lawyer get a part of the final proceeds of the litigation). So hostile was the law to these actions, that maintenance and champerty were made into criminal actions. In the 14th century, England had a law that said:
“champertors be they that move pleas or suits or cause to be moved either by their own procurement or by others and sue them at their proper costs for to have part of the land in variance or part of the gains”.
In Ontario, this law was adopted in 1897, with the additional provision that â€œall champertous agreements are forbidden, and invalid.â€
However, this strict application of the law was seen as archaic. As originally stated, maintenance and champerty may have been necessary in different times, but in today’s world it can cause injustice. Genuine attempts to right a wrong will be lost if this ancient law is applied strictly. In one sense, this law can be seen as discriminating against the poor. Schemes such as legal aid would probably be caught under strict application of these rules. Contingency fee agreements were once illegal under these principles.
The courts have been slowly buckling to the pressure of modernizing the law and has been lowering the bar on what constitutes maintenance and champerty. The legislature has basically been doing the same as well. For example, contingency fees are now legal under the Solicitors Act of Ontario. One should note though, that the law is still hostile to maintenance and champerty, and agreements will still be made invalid in an appropriate case. For instance, contingency fees are not allowed in criminal matters not family law matters. Indeed, the courts sometimes are not sure whether a particular case savours of maintenance. Now, though, the Court of Appeal has lowered the bar even lower while seeking to clarify the rules.
In an interesting case, Ma v Ma, 2012 ONCA 408 the Court of Appeal had to deal with a situation where a litigator did not have the means to pursue litigation. A minority shareholder of a corporation sued the corporation alleging that the corporation was acting oppressively towards him as a minority shareholder. He lives in Shanghai and is elderly and found it difficult to pursue the litigation. He made an absolute assignment of his shares in writing to the appellant of his shares. The appellant was a former employee of the company and was also the sister of the majority shareholder. The assignment also included his interest in the litigation.
The lower court held that the assignment was invalid. This decision was upheld on appeal to the Divisional Court. The reason for the dismissals was that the action was now being pursued by a shareholder who was not a shareholder at the time actions complained of had taken place.
The Court of Appeal overturned this decision. The court followed the British Columbia Court of Appeal case of Fredrickson v. Insurance Corporation of British Columbia which held that an â€œassignment of a cause of action for non-personal tort is generally valid if the assignee has a sufficient pre-existing interest in the litigation to negate any taint of champerty or maintenance.â€ The Court also adopted the House of Lordâ€™s decision in Trendtex Trading Corporation and Another v. Credit Suisse,  Q.B. 629 where it was held that the court should look at the totality of the transaction. In the assignment is of a right or a proprietary interest and the cause of action is ancillary to that right or proprietary interest, then the assignment should be upheld.
Ultimately, the question is whether the transaction â€œsavours of maintenanceâ€.
In this present case, where there was an assignment of the all the plaintiffâ€™s interest in the company along with his interest in the cause of action, there assignment was valid. The cause of action was ancillary to the actual assignment of the shares. Since the transfer was only for $1, if the action is successful, it may look as if the assignee obtained a windfall. But the shares may actually be worthless since the shares will not be worth more than $1 if legal action is not taken. Also, the assignee is accepting the risks of litigation. It is not for the court to look into whether the bargain was appropriate.
So, can you transfer your cause of action to another person? Each case has to be looked at individually. However, if there is some other proprietary interest or right that is being transferred, then you may be able to do so. It is likely though, that the assignment is simply to allow litigation, it may well savour of maintenance and be invalid.
What to do if you wish to assign your interests in litigation? The best that can be said is that if what is being transferred is simply a cause of action, it may very well be illegal. However, if there is some legitimate reason for the transfer, other than the cause of action, then the transfer may be upheld under scrutiny.