7 May 2015Print This Post

Setting up special purpose vehicle to pursue debts “not champertous”, High Court rules

RCJ

Judge Baker: Ban on champerty to bolster rule of law

Setting up a company as a special purpose vehicle to pursue an individual and his family for debts, including through the courts, does not amount to champerty, the High Court has ruled.

Defining champerty as “the support of litigation by a stranger to the litigation for a financial interest in the outcome, usually a share”, Judge Simon Barker QC – sitting as a High Court judge – said it was often referred to as “an aggravated form of maintenance”.

He went on: “Lord Neuberger identified as the broad policy rationale for the prohibition of maintenance protection of the integrity of the legal process, a primary ingredient of which is equality before the law.”

The court heard in JEB Recoveries LLP v Binstock [2015] EWHC 1063 (Ch) that the claim concerned an “alleged debt said to be due under an alleged contract for services”.

Peter Wilson, Mark Hardy and Michael Stannard formed JEB Recoveries to help recover the debts said to be owed to them by Judah Eleazar Binstock.

Counsel for Mr Binstock argued that “bare assignments of a cause of action” were long regarded as “champertous and invalid” and JEB and its partners had engaged in “litigation trafficking”.

Judge Barker said counsel also argued that the formation of JEB and assignments of debts to it was “a scheme to cause maximum litigation inconvenience to Mr Binstock and to shield the members of the limited partnership from adverse costs orders”.

However, the judge agreed to hear evidence on behalf of JEB from Mr Hardy in his role as a partner.

Mr Hardy argued that Mr Binstock has made payments “on account or in respect of the alleged debt, which payments evidence the existence of both a contract and a debt”.

Judge Barker said the “correct analysis” of the situation was that JEB was “a special purpose vehicle having as its commercial objective recovery of debts and claims of its partners and their families against Mr Binstock and his family”.

He concluded that permitting the claim to proceed would not put the integrity of the legal process at risk or otherwise undermine the ends of justice.

“In my judgment, having regard to the circumstances of this case, the claim, based as it is on the assignment, does not offend the public policy aimed at protecting the integrity of the legal process including the principle of equality before the law.

“I therefore dismiss Mr Binstock’s application to strike out the claim as an abuse of the process of the court.”

In a separate High Court ruling this month, Mrs Justice Andrews dismissed a challenge by one of the partners of JEB Recoveries, Mr Stannard, to the terms of his confiscation order. Mr Stannard, a former barrister, was jailed for tax fraud in 2001.

He was represented in court by another JEB partner, Mr Hardy, described by Andrews J as a McKenzie Friend.

By Nick Hilborne

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