The Court of Appeal has dismissed SPV Optimal SUS Limited’s appeal against a High Court ruling that its assignment of claims against two HSBC companies was contrary to public policy and unenforceable as champertous.
The appeal concerned a preliminary issue agreed by the parties: whether the assignment gave SPV the right to bring proceedings against HSBC Institutional Trust Services (Ireland) Limited and HSBC Securities Services (Ireland) Limited. The High Court had ruled that it did not, and dismissed SPV’s proceedings as bound to fail. The Court of Appeal upheld that decision.
The claims arose after the collapse of investments linked to Bernard Madoff. Optimal Strategic US Equity Limited had an Allowed Customer Claim of US$1.54 billion admitted in the BLMIS bankruptcy. In May 2011, it assigned that claim and associated rights to SPV. The assignment included claims against other parties. SPV later sued the HSBC companies, alleging breaches of contract, misrepresentation, negligence and breaches of fiduciary duty. Those allegations were not determined in this appeal.
SPV argued that the right to sue HSBC was part of an integrated commercial transfer of the bankruptcy claim, was incidental to that property right, and gave SPV a genuine commercial interest. HSBC argued that the third-party claim was a separate right to litigate, transferred for the benefit of investors who acquired SPV shares.
The Court of Appeal held that the bankruptcy claim and the claims against HSBC were legally distinct. Although they shared a historical background, they arose in different circumstances and did not depend on one another. Putting them in the same assignment did not create a legal connection. The HSBC claim was therefore a bare cause of action, unless an established exception to the rule against champerty applied.
The court found no such exception. SPV’s interest in suing HSBC arose from the assignment itself, rather than from an independent commercial interest. The claim was not incidental or subsidiary to the bankruptcy claim, and the court rejected the argument that it was an alternative means of recovering that claim. It also said an objector did not have to prove a specific threat to the administration of justice once an assignment was found to be champertous.
The court acknowledged that applying the rule restricted SPV’s access to the courts and could allow a potentially liable party to escape a claim. It said those consequences could not justify permitting a claim contrary to law. The appeal was dismissed, leaving the High Court’s order dismissing the proceedings in place. The court did not decide whether the assignment included the right to sue third parties under New York law; that question was being litigated in New York and was assumed in SPV’s favour for this appeal.