SP v Optimal Osus Ltd v HSBC Institutional Trust Services (Ireland) Ltd & Ors

Factual and Procedural Background

This appeal arises from a judgment delivered by the High Court on 5th October 2015 concerning claims related to financial losses from investments with a United States entity involved in a notorious fraud. The Plaintiff is a Special Purpose Vehicle (SPV) which received an assignment of a large Allowed Customer Claim from a trading subsidiary of a financial group. The SPV instituted proceedings against two Defendant companies who acted as custodians and administrators of the investments, alleging negligence and other civil wrongs.

The Defendants challenged the assignment of the claim on grounds that it was contrary to public policy, void, and unenforceable as champertous because it transferred a "bare right to litigate" and constituted "trafficking in litigation." The High Court found in favor of the Defendants on these grounds and dismissed the proceedings. The Plaintiff appeals that decision.

The factual background involves investors placing funds into two investment funds, which were then invested with the fraudulent entity. Following the fraud's collapse and the appointment of a bankruptcy trustee under U.S. law, an Allowed Customer Claim was admitted for approximately US$1.54 billion. The Plaintiff SPV was established as a vehicle to hold this claim and to allow investors to trade their interests in it. The critical transaction at issue is the assignment of the Allowed Customer Claim, including the right to bring third party claims, from the original trading subsidiary to the SPV on 6th May 2011.

The High Court considered whether the assignment of the right to bring proceedings against the Defendants was lawful under Irish public policy, particularly with regard to the doctrines of maintenance and champerty.

Legal Issues Presented

1. Whether the assignment of third party claims to the Plaintiff constitutes the transfer of a bare cause of action, thereby offending public policy under Irish law.
2. If the assignment is a bare cause of action, whether it falls within any recognised exceptions that would render it enforceable.
3. Whether the assignment amounts to trafficking in litigation or champerty, and thus is void and unenforceable.
4. Whether the Plaintiff has a genuine commercial interest in the assigned claims sufficient to avoid the taint of champerty.
5. Whether the third party claims are ancillary or incidental to the Allowed Customer Claim, affecting their legal status.

Arguments of the Parties

Appellant's Arguments

• The High Court erred in applying an incorrect standard and burden of proof in dismissing the proceedings.
• The assignment was primarily for the Allowed Customer Claim, a property right, and the third party claims were ancillary and part of an integrated commercial transaction.
• The Plaintiff has a genuine commercial interest in enforcing the claims, as evidenced by expert affidavits and the nature of the distressed investment industry.
• The assignment does not constitute trafficking in litigation or champerty, as there was no intention to trade the cause of action as a commodity or to stir up litigation improperly.
• The doctrines of maintenance and champerty must be balanced against constitutional rights of access to justice and modern commercial realities.
• Precedents such as Massai Aviation Services and Brownton Ltd support the validity of the assignment in analogous circumstances.
• The third party claims protect and relate to the Allowed Customer Claim and represent alternative recovery methods for the same loss.

Respondent's Arguments

• The assignment is contrary to Irish public policy as it involves the assignment of a bare cause of action, which savours of champerty.
• The Plaintiff lacks any genuine commercial interest independent of the assignment itself, which is a critical requirement to avoid champerty.
• The assignment amounts to trafficking in litigation by enabling third parties with no legitimate interest to profit from litigation.
• The High Court correctly applied established principles from Irish and English law, including Fraser v. Buckle and Trendtex Trading Corporation v. Credit Suisse.
• The fact that the assignment is valid under New York law is irrelevant; Irish public policy governs enforceability.
• The third party claims are legally distinct and not incidental or ancillary to the Allowed Customer Claim.
• The assignment risks undermining the integrity of the administration of justice and is therefore void.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Fraser v. Buckle [1996] I.R. 1	Champerty and maintenance doctrines; public policy bars assignments of bare causes of action.	The court relied on this to affirm that assignments savouring of champerty are void regardless of absence of actual harm to administration of justice.
Trendtex Trading Corporation v. Credit Suisse [1982] AC 679	Assignment of cause of action to third party with no genuine interest is champertous.	Used to demonstrate that onward assignment for profit offends public policy and supports finding of champerty.
Brownton Ltd v. Edward Moore Inbucon Ltd [1985] 3 AER 499	Test for genuine commercial interest in assignment to avoid champerty.	The court applied this test to conclude Plaintiff lacked genuine independent commercial interest.
Massai Aviation Services & Anor v. The Attorney General & Anor (The Bahamas) [2007] UKPC 12	Distinction between intra-group assignments retaining genuine interest and assignments to unrelated parties.	Considered by Plaintiff as analogous but court found material differences limiting its applicability.
Simpson v. Norfolk NHS Trust [2012] QB 640	Champertous agreements affect conduct of proceedings and encourage improper motives.	Supported the court’s view that assignment could distort litigation and is void.
Greenclean Waste Management Ltd v. Leahy (No 2) [2014] IEHC 314	Modern approach to champerty; ATE insurance supports access to justice and is not champertous.	Distinguished from present case as it involved insurance, not assignment of cause of action.
Dawson v. Grade, Northern & City Railway Company [1905] 1 KB 260	Assignment of rights incidental or ancillary to property rights is not champertous.	Applied to reject Plaintiff’s claim that third party claims are incidental to Allowed Customer Claim.

Court's Reasoning and Analysis

The Court began by examining the assignment dated 6th May 2011, noting it transferred two distinct rights: the Allowed Customer Claim and a separate third party cause of action against the Defendants. The Court found these claims legally discrete, not dependent on each other, and thus the third party claim constituted a bare cause of action.

The Court reaffirmed the established principle that the assignment of a bare cause of action is void as it savours of champerty unless it falls within recognised exceptions. One such exception is where the assignee has a genuine commercial interest independent of the assignment itself. The Court found no such independent interest in this case, as the Plaintiff’s right to sue arose solely from the assignment.

The Court rejected the Plaintiff’s arguments that the assignment was an integrated transaction and that the third party claims were ancillary or incidental to the Allowed Customer Claim, holding that legal connection requires more than temporal or factual coincidence.

In addressing the constitutional right of access to courts, the Court acknowledged the tension but held that public policy prohibiting champerty aims to protect the integrity of litigation and must prevail even if it restricts certain claims.

The Court considered precedent and academic commentary, concluding that the assignment amounted to trafficking in litigation and unlawful stirring up of litigation, which is contrary to public policy. It dismissed the Plaintiff’s reliance on foreign law validity and distinguished cases cited by the Plaintiff on the basis of factual differences.

Ultimately, the Court found that the High Court correctly analyzed the facts and law, applying the doctrines of maintenance and champerty consistently with modern principles and Irish public policy.

Holding and Implications

The Court DISMISSED the appeal, affirming the High Court’s decision that the assignment of the right to bring third party claims was contrary to public policy, void, and unenforceable due to champerty.

The direct effect is that the Plaintiff’s proceedings against the Defendants are dismissed. The ruling maintains the established legal principles prohibiting the assignment of bare causes of action absent a genuine commercial interest. No new precedent was established; rather, the decision reinforces the protection of the integrity of litigation and the administration of justice under Irish law.