Clark v. Werden, 2011 ONCA 619
COURT OF APPEAL FOR ONTARIO
Doherty, Feldman and Epstein JJ.A.
BETWEEN
Patrick Peter Clark
Plaintiff (Respondent)
and
Leonard James Werden
Defendant (Appellant)
AND BETWEEN
Patrick Peter Clark
Plaintiff (Respondent)
and
Leonard James Werden and Maximum Swine Marketing Ltd.
Defendants (Appellants)
and
John Muller and J & C Muller Farms Inc.
Third Parties (Respondents)
Andrew C. Murray, for the appellant Leonard James Werden
J. Douglas Skinner, for the respondent Patrick Peter Clark
Heard: March 9, 2011
On appeal from the judgment of Justice Lynne Leitch of the Superior Court of Justice, dated March 19, 2010, with reasons reported at 2010 ONSC 1674.
Overview
1Peter Clark, James Werden and John Muller were once friends and business associates, before Peter Clark and James Werden had a falling out. John Muller had loaned James Werden $120,000 in 2001. The loan was in default when John Muller assigned it to Peter Clark in 2004 for him to collect. Peter Clark sued James Werden for the balance of the loan and obtained judgment.
2On this appeal, the only issue raised by Werden is his claim that the loan agreement was not enforceable by Peter Clark because of the law against champerty and maintenance. For the reasons that follow, I would dismiss the appeal.
Facts
3The three protagonists in the story of the events leading up to this action are the appellant, Werden, the respondent, Clark, and the third party, Muller, who is no longer a party on the appeal. All three were involved in the pork business, Clark and Werden as brokers, and Muller as a producer. Werden and Clark began as co-workers, became friends, and after Werden founded his own company, Maximum Swine Marketing Ltd., which Clark joined, Werden became Clark’s employer. At the time, Muller and his company were clients of Maximum.
4When Clark left Maximum to establish his own pork brokerage in 2003, he brought over a number of Maximum’s clients including Muller. This led to a successful action by Werden wherein he obtained a temporary injunction against Clark, preventing him from dealing with Muller for 90 days, as well as an order for $16,000 costs. It also led to the breakdown of their friendship. Although they re-established their relationship for a period in 2005-06, after that they were no longer friends.
5When Werden needed $120,000 to purchase a property with his wife, he borrowed the funds from Muller, and on March 1, 2001 they entered into a loan agreement calling for quarterly payments and an eight per cent interest rate. At trial, Werden claimed there was no loan and this was instead a refund of trust monies that Muller was holding as part of a fictitious tax-saving scheme. The trial judge rejected his evidence and found that the loan agreement evidenced a legitimate loan transaction.
6Clark and Muller had remained business associates. When Werden defaulted on two loan payments, Muller and Clark agreed that Muller would assign the Werden loan to Clark and that Clark would collect it from Werden. The loan was assigned by an agreement dated June 11, 2004, and notice was given to Werden on June 12, 2004. Although Clark paid nothing to Muller at the time of the assignment, they agreed that when Clark recovered the money, he and Muller would sit down and discuss how they would share the proceeds.
7The trial judge found that the assignment was valid and properly documented. She further found that the fact that no consideration was paid for the assignment did not detract from its validity. The trial judge referred to s. 6 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, which deals with the issue of consideration as between the assignor and the assignee, then observed that regardless of any issue of consideration between Clark and Muller, s. 53 of the Act made the assignment effective as against Werden. Finally, she concluded:
As a result, Patrick Clark is not a stranger to this litigation. He obtained a bonafide assignment of the loan and issues of champerty and maintenance do not arise.
Issue
8The sole issue raised on the appeal is whether the assignment of the loan and its enforcement by Clark were prohibited because they amounted to champerty and maintenance.
Analysis
9The history of the common law prohibitions against champerty and maintenance was discussed and explained in detail by O’Connor A.C.J.O. in McIntyre Estate v. Ontario (AG) (2003), 2002 CanLII 45046 (ON CA), 61 O.R. (3d) 257 (C.A.), a case concerning the propriety of lawyers’ contingency fees. At paragraph 26, he described the prohibited conduct:
Although the type of conduct that might constitute champerty and maintenance has evolved over time, the essential thrust of the two concepts has remained the same for at least two centuries. Maintenance is directed against those who, for an improper motive, often described as wanton or officious intermeddling, become involved with disputed (litigation) of others in which the maintainer has no interest whatsoever and where the assistance he or she renders to one or the other parties is without justification or excuse. Champerty is an egregious form of maintenance in which there is the added element that the maintainer shares in the profits of the litigation.
10In Ontario, champerty is also prohibited by the “Champerty Act” (An Act Respecting Champerty, R.S.O. 1897, c. 327), an unrepealed statute of Ontario. Despite the fact that the Act makes no reference to motive, this court has held, both in McIntyre and earlier in Buday v. Locator of Missing Heirs Inc. (1994), 1993 CanLII 961 (ON CA), 16 O.R. (3d) 257 (C.A.), at p. 267, that the Act was intended to reflect the common law concept of champerty and therefore must be read to include improper motive as a component.
11However, where the assignee of a cause of action, either in tort or contract, possesses a sufficient pre-existing financial interest in the cause of action that has been assigned, that negates the suggestion of maintenance and such assignments are viewed as valid. Similarly, it is recognized that a cause of action in debt can be validly assigned and that such an assignment does not violate the rule against champerty and maintenance: See Fredrickson v. I.C.B.C, 1986 CanLII 1066 (BC CA), [1986] 3 B.C.L.R. (2d) 145 (C.A.), at p. 160, affirmed with reasons adopted by the Supreme Court of Canada, 1988 CanLII 38 (SCC), [1988] 1 S.C.R 1089. See recently Plant Software Inc. v. 9123 Investments Ltd. (1999), 14 P.P.S.A.C. (2d) 281 (B.C.S.C.).
12In Fitzroy v. Cave, [1905] 2 K.B. 364 (C.A.), one of the cases relied upon by McLachlin J.A. in Fredrickson, Cozens-Hardy L.J. held at p. 373-74, that “[h]enceforth in all Courts a debt must be regarded as a piece of property capable of legal assignment in the same sense as a bale of goods.… It is not easy to see how the doctrine of maintenance can be applied to a case like the present [concerning the assignment of a debt].”
13The ability to assign a debt or legal chose in action is codified in s. 53 of the Conveyancing and Law of Property Act, which provides that a debt is assignable subject to the equities between the original debtor and creditor and reads as follows:
- (1) Any absolute assignment made on or after the 31st day of December, 1897, by writing under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action is effectual in law, subject to all equities that would have been entitled to priority over the right of the assignee if this section had not been enacted, to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor. R.S.O. 1990, c. C.34, s. 53 (1).
14In this case, the debt was assigned in accordance with s. 53.
15The appellant submits that this is a case where the court should apply the five-part test for the indicia of champerty and maintenance set out in the British Columbia Supreme Court case of NRS Block Brothers Realty Ltd. v. Minerva Technology Inc. (1997), 1997 CanLII 1274 (BC SC), 145 D.L.R. (4th) 448, 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. He asserts that there is evidence that Muller would not have pursued Werden on the debt, and that it was Clark who sought the assignment and the commencement of the lawsuit with no previous interest other than bad feeling toward him.
16The trial judge did not address these concerns directly, because she found that this was a valid assignment of a debt in accordance and in compliance with s. 53 of the Conveyancing and Law of Property Act. In my view, she made no error in her legal conclusion. The case law is clear that an assignment of a debt is not a champertous transaction and the otherwise applicable criteria do not apply to such an assignment. In Fitzroy similar arguments were made. In concluding that the assignments of debts were valid and not champertous, Cozens-Hardy L.J. commented:
It is said that the plaintiff does not really desire to be paid and can take nothing for his own benefit under the judgment. For the reasons above stated, I think this is of no moment. It is further urged that his only object is to obtain a judgment which may serve as the foundation of bankruptcy proceedings, the ultimate result of which will be the removal of the defendant from his position as director of a company in which the plaintiff is largely interested. But I fail to see that we have anything to do with the motives which actuate the plaintiff, who is simply asserting a legal right consequential upon the possession of property which has been validly assigned to him.[Emphasis added.]
17The appellant also submits that the trial judge erred in finding that the assignment constituted an absolute assignment because Clark and Muller intended to agree after the fact on the division of the proceeds. I do not agree. I infer from the decision of the trial judge and her thorough reasons that she was satisfied that the assignment was a valid absolute assignment in accordance with the documents.
Disposition
18I would dismiss the appeal with costs to the respondent fixed at $3,000 as agreed at the conclusion of oral argument.
Signed: “K. Feldman J.A.”
“I agree Doherty J.A.”
“I agree G. Epstein J.A.”
RELEASED: “DH” September 30, 2011
