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Swine

     Every now and then, the archaic concepts of champerty and maintenance rear their ugly heads. The last time we saw them was in the case of Clark v. Werden 2011 CarswellOnt 10331, 2011 ONCA 619.

Parties

     Messrs. A, B, and C all had something in common: pigs. A & B were friends. A took B into A’s business, Maximum Swine Marketing (you have to love the name) brokering pig products. C was a pork producer.

After but a year, B decided to leave Maximum and opened his own competing business. To make matters worse, B took a number of clients from A, including C. A was not pleased. He obtained an injunction against B, preventing B from dealing with C for 90 days; A also obtained an order against B for $16,000 in costs. After that, A & B were not friends.

     Before the “troubles”, C had loaned $120,000 to A to allow A and his wife to buy a property. The loan was properly documented.

     After the troubles, A defaulted on the loan. C made a deal with B: C would assign the loan to B and when and if B collected, C and B would sit down and decide how to share the proceeds. Pursuant to that agreement, C assigned A’s debt to B and B notified A of the assignment.

     B then sued A for payment on the loan. A defended, claiming that the arrangement between B & C was champertous and therefore of no effect.

Definitions

     Maintenance occurs when a third party meddles into the litigation of others in which the maintainer has no interest whatever and where the assistance of the maintainer to one of the parties is without justification. Champerty is maintenance with an additional element: the maintainer shares in the profits of the litigation.

     In addition to the common law, champerty is forbidden under the Champerty Act R.S.O. 1897, c. 327. Over 110 years later, the Act is still around. The courts have interpreted the Act such that improper motive is a necessary component of champerty.

     The five-part test for champerty and maintenance is set out as follows: “element of officious intermeddling; no previous commercial connection; the assignee is speculating on a personal gain from the lawsuit; there is a stirring up of strife; the assignee initiates or promotes the commencement of the lawsuit.”

Decision

     The ability to assign a debt or chose in action is set out in section 53 the Conveyancing and Law of Property Act. It provides that a debt or chose in action is assignable, although the assignee takes the debt or chose in action subject to the equities between the original debtor and creditor. In this case, B & C followed the requirements of the section and legally assigned the debt.

     The court held, based on English and Canadian precedent, that an assignment of a debt is not a champertous transaction and that the normal criteria do not apply. Motive is irrelevant.

     A also claimed that the assignment was not absolute because B & C still had to agree on the division of the proceeds. The court disagreed with this contention also. The documentation was valid and what B & C were going to do subsequently was up to them.

     A might have thought B & C were pigs, but he was held liable to pay.