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Assignment of claims: Are there any constraints to assigning claims or seeking cost guarantees?

The following article discusses session three in the IR Global Virtual Series on 'Litigation Funding: Handling commercial and financial disputes

Germany – FW The assignment of claims to a third party for the purpose of their recovery is allowed without further ado, if the assignee bears the full financial risk of recovering the claims and acts for his own account (e.g. factoring).

If an assignee collects debts for the account of the assignor and if the debt collection is conducted as a stand-alone business, this is considered a collection service (Inkassodienstleistung) under the Legal Services Act (Rechtsdienstleistungsgesetz).

Pursuant to the latter, persons who provide such collection services (collection service providers) have to seek the permission of competent authorities and have to be registered with the Legal Services Register (Rechtsdienstleistungsregister). The assignment of claims to a collection service provider which is not registered is null and void; the unauthorised collection service provider lacks the capacity to sue.

With regard to certain types of litigation, e.g. consumer actions, the assignment of claims (to registered collection service providers) is common. In general, such assignments appear reasonable to pool small claims in order to benefit from synergy effects and to create a certain ‘balance of power’ vis-à-vis more financially powerful counter-parties. With regard to bigger claims, however, litigation funding will usually be the better, or even only, option to get financial support from third parties.

Spain – DJ The situation is similar in Spain, because the Spanish civil courts were inspired by the Napoleonic French Code. A lot of opportunistic funds arrived in Spain following the economic crisis, to buy bad credits and assets from banks. This has led to a lot of assignments of claims and the courts have established that they are valid and enforceable.

France – MCC Contractual assignment of claims is valid under French law with a condition and a limit. As a condition, the claim has to be fundamentally legitimate and conform to the public order. The debtor’s consent is not required unless the right was provided to be non-assignable.

Unless the debtor has already agreed to it, the assignment may be set up against him only if it was previously served to him by a Bailiff, or he has acknowledged it. The debtor may set up against the assignee defences inherent to the debt itself, such as nullity, the defence of non-performance, termination or the right to set off related debts.

He may also set up defences which arose from the relations with the assignor before the assignment became enforceable against him, such as the grant of a deferral, the release of a debt, or the set-off of debts which are not related. The assignor and the assignee are jointly and severally liable for any additional costs arising from the assignment which the debtor did not have to advance. Subject to any contractual term to the contrary, the burden of these costs lies on the assignee.

As a limit, if the claim subject to assignment is litigious, the debtor may obtain a release from the assignee by reimbursing him the actual price paid for the assignment, plus costs and reasonable expenses, plus interest calculated from the date on which the assignee paid the price of the assignment made to him. The claim then disappears.

Because of this rule called ‘retrait litigieux’, assignees have to be very careful and research what happened before the assignment.

US – ES There is no prohibition in the US against assigning a claim, or part of a claim, to a third party, but, of course, any third party taking an assignment of all or part of the claim is subject to all potential offsets and defences that exist against the primary holder of the claim.

Assigning claims is done fairly often, mostly in the intellectual property patent world. Patent trolls are big in the US, buying up patent claims and aggressively litigating and pursuing those claims.

Sweden – DE Almost any claim can be assigned in Sweden, the main rule is that the original claimant must have initiated a lawful claim, then it can be assigned. Claims based on unlawful contracts (Pactum Turpe) can neither be enforced by the first holder of the claim, nor its successor. Apart from that, there are no restrictions of any kind, or any constraints to assigned claims.

As far as cost guarantees are concerned, we have the same situation as any other European country in that EU citizens or companies founded in another country within the EU cannot be forced to provide a guarantee for legal costs in litigation proceedings in Sweden.

The same applies for claimants in a country that has entered into an international agreement with Sweden, such as The Hague Convention.

Austria – KO If you are representing a client from outside the EU, the opponent may ask the court to order a cost deposit covering all the procedural costs of the defendant.

US – ES Is there a limit on that?

Austria – KO No, if you have a multi million-dollar dispute, your client pays the court fees of 1.2 per cent, plus also the estimated court-related fees including legal fees for the defendant. The policy is clear – if someone is suing us from somewhere in the world and we, as a defendant in Austria, end up winning the case, we might not be able to enforce our cost award against this claimant. As a result, there is an interest of security deposit which has to be paid upon request by a claimant outside the EU.

US – ES Do you find that a successful application by a defendant to require a large security deposit will often end a case?

Austria – KO Yes, it’s one of the best strategies to fend off a claimant or to make them reduce the claim, and a common strategy for the defendant’s lawyer to ask for a huge security deposit. It’s at the discretion of the judge, but overall you will have to deposit a huge amount of money to get the case going. There is discussion going on about legislation to reduce that, but there are two interests to be weighed against each other.

It’s another argument for why third-party funding can be crucial to get cases going.

As to assignments, one single action containing several claims is permitted if the claims get assigned to another legal entity; such legal entity acts as the sole claimant if the claims rely on the same or similar legal and factual basis. The concept has been approved by the Supreme Court.

Hong Kong – NG An order for security for costs in litigation offers protection to a party from the risk of their opponent not being able to pay the party’s litigation costs if ordered to do so.

Applications for security for costs are a common feature of civil litigation before the first-instance courts in Hong Kong. Sometimes liability for security for costs and the amount can be agreed between the parties. As for the form of the security for costs, the most common method to give security is to make a payment into court. Other methods included an undertaking to pay, a bond, a bank guarantee or a charge.

Despite their abolition in some other common law jurisdictions, the crimes and torts of maintenance and champerty are still part of Hong Kong law. Third party funding is considered to infringe the doctrines of champerty and maintenance, so it is not generally permitted for litigation in the Hong Kong courts (except for specific cases).

Litigation funding is allowed in some insolvency cases, because debtors often siphon away assets when insolvent, yet liquidators or trustees in bankruptcy often find themselves without sufficient funds to recover assets or pursue other legitimate claims in the name of the debtor.

In light of this, the Hong Kong law has accepted litigation funding arrangements as a legitimate practice in liquidation proceedings. Such arrangements may include the sale and assignment by a liquidator or trustee in bankruptcy, of an action commenced in the bankruptcy, to a purchaser for value.

As far as arbitration is concerned, the Arbitration Ordinance or AO (Cap. 609) has recently been amended, such that the common law tort and offence of champerty and maintenance no longer apply to third party funding of arbitration and mediation.

Under the AO, a Code of Practice sets out the standards with which third party funders are ordinarily expected to comply in connection with arbitration funding. It states the requirements for funding agreements, the minimum amount of capital a third-party funder is required to have, the procedure for addressing conflicts of interest and whether third party funders will be liable to funded parties for adverse costs.


Klaus Oblin (KO) Oblin Melichar – Austria

Marie-Christine Cimadevilla (MCC) Cimadevilla Avocats – France

Daniel Jimenez (DJ) SLJ Abogados – Spain

Erwin Shustak (ES) Shustak Reynolds & Partners – US – California

Nick Gall (NG) Gall Solicitors – Hong Kong

Dan Engström (DE) Advokatfirman Nova AB – Sweden

Florian Wettner (FW) METIS Rechtsanwälte – Germany