LAW REPORT: Assignment of action for legal aid was lawful

Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd and others; Mayhew-Lewis v Westminster Scaffolding Group plc and others; Levy and another v ABN Amro Bank NV; Court of Appeal (Sir Thomas Bingham, Master of the Rolls, Lord Justice Hobhouse and Lord Justice Aldous); 24 November 1995

The assignment of a company's cause of action so as to enable the proceedings to be carried on by the assignee with the benefit of legal aid which would not have been available to the company was not contrary to public policy.

The Court of Appeal allowed an appeal by Clive and Pauline Rodgers and substituted them as plaintiffs in Norglen's action, allowed an appeal by Lenn Mayhew-Lewis and substituted him as plaintiff for the original plaintiff, Thermo Products Ltd, and dismissed an appeal by the bank and declined to strike out the claim by Andre and Mairade Levy.

In the first case, Norglen began an action against the defendants and then went into liquidation. The liquidator assigned the causes of actions to Mr and Mrs Rodgers, the shareholders and former directors of Norglen, on terms that the fruits of the action would be applied to settle Norglen's debts. The defendants criticised the assignment by the liquidator and contended that the assignment was a sham to enable the proceedings to be carried on with legal aid.

In the second case, Thermo Products began its action and then went into administrative receivership. Its cause of action was assigned by the receivers to Mr Mayhew-Lewis, its major shareholder.

In the third case the plaintiffs, Mr and Mrs Levy, brought a claim against the defendants, who claimed that the proper plaintiff was a company controlled by the plaintiffs and which had assigned its rights to the plaintiffs.

Charles Purle QC and David Stern (Betesh Fox & Co, Manchester) for Mr and Mrs Rodgers; David Stern (Abson Hall Loring, Macclesfield) for the liquidator; Peter W. Smith QC (Jones Maidment Wilson, Altrincham); John Greenbourne (James Chapman & Co, Manchester) for the defendants in the first case; Adrian Salter (Law & Co, Leicester) for Mr Mayhew-Lewis; the defendants in the second were not represented; Michael Beloff QC and Kenneth Maclean (Slaughter & May) for Amro; Stuart Isaacs QC and Alastair Walton (Cawdery Kaye Fireman & Taylor) for the Amro bank.

Sir Thomas Bingham MR, giving the court's judgment, said that the powers of a liquidator and the powers of trustees in bankruptcy to dispose of company property to anyone connected with the company were substantially the same. In relation to the Norglen case the court was in no position to pass judgment on the conduct of Mr and Mrs Rodgers and the liquidator.

In Stein v Blake [1995] 2 WLR 710 the House of Lords accepted that the effect of an assignment might be to enable a bankrupt assignee to sue with the benefit of legal aid which would not have been available to the trustee- assignor, to the prejudice of the party sued. It made no difference if the obtaining of such legal aid was the object of the assignment as well as its effect.

The rulings in the authorities were inconsistent with the view that the court should not give effect to an assignment made to enable the assignee to obtain legal aid. The proposition, for which Advanced Technology Structures Ltd v Cray Valley Products Ltd [1993] BCLC 723 was read as authority and which was accepted in Eurocross Sales Ltd v Cornhill Insurance plc [1995] 1 WLR 1517, that assignment of a right of action by a party not entitled to legal aid to a party so entitled was contrary to public policy and unlawful if the object and effect of the assignment was to enable the assignee to obtain legal aid and if the assignor continued to be substantially interested in the fruits of the assigned rights of the action, was unsound and should not have been accepted.

The fact that the company was ineligible for legal aid whereas Mr and Mrs Rodgers were prima facie eligible was a matter for consideration by the legal aid board but was not a ground for refusing to substitute them as plaintiff.

It followed that Mr and Mrs Rodgers should be substituted as plaintiff. In the second case, the assignment was not invalid. In the third case it was not possible without a trial to decide that Mr and Mrs Levy's claim for damages could not succeed, even if the company were the defendant's customer.

Ying Hui Tan, Barrister