This case considered whether an assignment of the plaintiffs’ litigation rights to the Auckland City Council was void for being against public policy.
The substantive proceedings concerned leaky building litigation whereby the Body Corporate had sued the council, the architect and the builder for the repair costs to remediate a multi-unit complex known as the Fleetwood Apartments in the Auckland CBD.
Prior to trial, the plaintiffs/council entered into a settlement agreement whereby the council agreed to pay the plaintiffs $1.5m (less than half the High Court claim), but at the same time assigned their rights to recover damages from the other defendants.
This is a structure of settlement some time used in leaky building litigation (typically by councils), whereby the plaintiff and at least one defendant are willing to settle the claim to avoid trial costs.
In particular, this settlement structure had been ruled upon favourably by Justice Heath in the decision of Auckland City Council v Auckland City Council.
There has long been a prohibition in civil litigation against a party (without lawful justification) assisting a party to a civil action, bring or defend the action and, in turn, cause damage to the other party to that same litigation.
Champerty is that form of maintenance in which a person giving the assistance does so in consideration of his or her receiving a share of anything that may be gained as a result of the proceedings. This prohibition has been relaxed in recent years, at least in regards to litigation funders.
The other defendants argued that the plaintiffs’ assignment to council offended public policy. Counsel for the builder argued that the only litigation rights capable of assignment were contractual rights arising from a pre-existing commercial relationship between the parties.
He argued the claim being assigned in this instance was based in negligence not contract, and did not arise from some pre-existing commercial relationship between the plaintiffs/council.
Section 17(1) of the Law Reform Act 1936 was considered at length by the court, being the statutory provision governing the contribution assessment to be made by the court as between joint tortfeasors.
The judge noted that there were two aspects to the court deciding what a fair and just contribution ought to be as between co-defendants/joint tortfeasors in proceedings.
The first aspect was to consider how much the tortious conduct had contributed to the loss, and the second aspect was to consider their financial ability to contribute.
The court was troubled with the impact that the assignment would have on its ability to assess fair and just contributions from the co-defendants. It considered it an attempt by the parties to meddle with this statutory assessment.
Justice Fogarty concluded the following:
The assignment was rendered void as contrary to public policy by undermining the law of maintenance and champerty, as well as meddling with the trial process and with the statutory remedy of s17 of the Law Reform Act 1936.
It is clear that on the authority of this decision, plaintiffs will no longer have the flexibility to settle with one party alone, and then assign on the litigation rights to the settling defendant, at least in the context of claims in tort.
Note: This article is not intended to be legal advice (nor a substitute for legal advice). No responsibility or liability is accepted by Legal Vision or Building Today to anyone who relies on the information contained in this article.