By: Shane Campbell

No one needs to be told litigation is expensive.  The cost of access to the courts is commonly seen as one of, if not the most, significant barriers to access justice.  This is true even for corporates.  The decision in PriceWaterhouseCoopers v Walker (PwC v Walker) was concerned with the validity of a litigation funding agreement between a company called SPF No. 10 Limited (SPF), the liquidators of Property Ventures Limited (PVL) and related companies, Messrs Robert Walker and John Marshall.[1]

SPF was funding litigation by the liquidators against PriceWaterhouseCoopers (PwC) and certain directors of PVL for breach of various obligations.  The case against PwC alleged tortious and contractual liability for various failings in discharging its role as auditor of, and adviser to, the PVL Group.[2] 

PwC had made an application for a stay of that proceeding on the grounds that the combined effect of the litigation funding agreement, and the fact that SPF had also taken assignment of a general security agreement over the assets and undertakings of PVL (Allied Assignment) and other respondents, amounted to an abuse of process.  In essence, PwC's position was that SPF had effectively taken an assignment of PVL's cause of action against PwC.  This application failed in the High Court and Court of Appeal, and was now being advanced in the Supreme Court.[3]    

After the hearing was argued in the Supreme Court, the parties settled.  The Court (with the exception of Elias CJ) nonetheless considered it appropriate to deliver judgment on the basis the "appeal involves important issues, on which the court heard full argument".[4]


Mr David Henderson is a well-known, perhaps infamous, property developer.  PVL and other companies Mr Henderson was involved with were developing a large site in Queenstown.[5]   The development failed.[6]   The remainder of the relevant facts can be stated succinctly:
  • Five Mile Holdings Limited (FMH) was a company associated with PVL.
  • FMH had borrowed large amounts of money from Hanover Finance Limited (Hanover).  This borrowing was secured by a general security agreement over the assets of FML, including the land on which the development was to occur (FML GSA).
  • PVL had guaranteed FMH's obligations to Hanover, which were secured by a general security agreement over the assets and undertakings of PVL (PVL GSA).
  • In 2009 Hanover assigned the PVL GSA to Allied Farmers Investments Limited (Allied).  At this time FML was in receivership and owed approximately $98,000,000 to Hanover.  After the sale of assets, approximately $39,000,000 was owed to Allied (after the assignment of the PVL GSA).
  • In March 2010 Allied appointed receivers to PVL and in July 2010 it was placed into liquidation owing approximately $69,300,000.
  • In October 2012 SPF and PVL entered into the funding agreement.  This agreement was conditional upon SPF entering into an arrangement with Allied and the receiver appointed by Allied.  The nature of this arrangement was to provide SPF with a first ranking security interest over PVL's assets and undertaking.
  • In November 2012 and April 2013 the proceedings were filed.
  • In March 2013 the Allied Assignment was executed.  In exchange for receiving an upfront sum of $100,000 and five per cent of any payment made to SPF by PVL in the event of a successful claim.  SPF's stated rationale for this acquisition was to prevent Mr Henderson taking control of the litigation as he was making efforts to acquire the rights.

The relevant documents

Funding agreement

Under the funding agreement SPF will provide various services to PVL in exchange for a fee which is calculated by reference to formulae and events provided in the agreement.  In terms of the degree of control SPF had over the proceeding, the following clauses of the agreement are relevant:
  • Clause 2.3: all final decisions are matters for PVL and not SPF, except for settlement decisions and proposed discontinuance to which clause 14 applies.
  • Clause 14: SPF can request that PVL make or accept an offer of settlement, but PVL is not obliged to act on such a request.  PVL cannot accept an offer of settlement or discontinue proceedings without SPF's proper written consent.  If agreement cannot be reached there is a procedure for resolving that dispute.
  • Clause 2.1: SPF has access to certain documents, and is authorised to obtain access to documents.
SPF also has full consultation rights under the agreement.  It is also entitled to advance notice if PVL intends to meet or communicate with any other party in respect of the settlement.  SPF also has a significant degree of control over the appointment of lawyers to act for PVL.

The agreement was conditional upon SPF undertaking satisfactory due diligence and on SPF entering into an arrangement with Allied by which it obtained a first ranking security interest over PVL's property.  Both conditions were satisfied in due course.

Allied Assignment

Under the terms of the Allied Assignment, Allied assigned all of its "rights" against PVL, its subsidiaries, and Mr Henderson, to SPF.   "Rights" was defined in a very broad manner to include all rights of action to SPF.  In substance it had the effect of assigning the PVL GSA to SPF.

Allied GSA (referred to as the PVL GSA here)

Clause 6.3 of the PVL GSA provided an enforcement power that Hanover could "bring, defend, submit to arbitration, negotiation, compromise, abandon or settle any claim or proceeding, or make any arrangement or compromise, in relation to the Secured Property".
SPF acquired this power under the terms of the Allied Assignment.  It is not subject to the control provisions in the funding agreement, including settlement and discontinuance.

Under the PLV GSA and as the first ranking creditor, SPF became entitled to the proceeds of any successful claim up to the amount of its indebtedness.  This would result in SPF receiving the lion's share of any judgment sum.

Dominion assignment – post Court of Appeal

Under a deed of transfer of debt and securities, SPF acquired all of Dominion Finance Group Limited's (Dominion) rights in relation to certain debts and securities, including those arising from a general security agreement.  This agreement was not before the Court.

Undertakings – post Court of Appeal

In written submissions, counsel for SPF provided confirmations that:
  • SPF has not at any point sought to rely on its powers of enforcement under cl 6.3 of the PVL GSA.
  • SPF considers itself bound by its contractual obligations under the funding agreement.
  • If SPF were to assert its power of enforcement under cl 6.3 of the PVL GSA in those circumstances, it would be a breach of good faith.
SPF agreed it would not rely on cl 6.3.  In an affidavit, evidence was given about the liquidators' fees to be recovered in the event the claim was successful.


Waterhouse v Contractors Bonding Ltd

PwC did not seek to argue that litigation funding by itself is an abuse of process, and conceded that it was permissible under the decision of the Supreme Court in Waterhouse v Contractors Bonding Ltd.[7]  

In that decision, the Court decided it was not its role to regulate litigation funding, but stated that it has jurisdiction to stay a proceeding for abuse of process.  Such proceedings include those that:[8]
  • deceive the court, are fictitious or a mere sham;
  • use processes of the court in an unfair or dishonest way or for some ulterior or improper purpose or in an improper way;
  • are manifestly groundless, without foundation or serve no useful purpose; and
  • are vexatious or oppressive.
The Court also found that if a funding agreement "effectively assigns the cause of action in circumstances where that is impermissible, that would also be an abuse of process".[9]

Was there assignment of a bare cause of action?

The Court started its analysis by noting that the assignment of a debt is no problematic event where it is foreseen that litigation will be necessary to effect a recovery, and the assignment of a distressed debt is not unusual.[10]   Even the assignment of a debt secured by a GSA can be uncontroversial, event where it allows the secured party to pursue claims if enforcement of the security becomes necessary.[11]   This is what happened in the present case.

What distinguishes this case is the fact that the assignment of the PVL GSA from Allied to SPF satisfied a condition of the litigation funding agreement.[12]   As such, without the assignment the funding agreement could not be effective.  The Court took the view that it would not be "realistic to view the Funding Agreement and the Allied Assignment as separate transactions that have happened in parallel with each other".[13]   The Court accepted that the two agreements must be looked at alongside each other.[14]   The Court also considered the following two aspects of the case to be important:[15]
  • First, the current proceedings were already on foot and being funded by SPF when the assignment occurred.
  • Secondly, all realisable assets of PVL and the PVL Group had been realised prior to the assignment.
When viewed and contextualised in this way, the Court considered it was "arguable that the SPF transaction constitutes assignment of the bare cause of action pursued by the liquidator against PwC and the other defendants".[16]   The basis for that argument rested upon two factors:
  • legal control of the liquidator's claim against PwC (Legal Control Issue); and
  • entitlement to all or substantially all the proceeds of a successful claim (Proceeds Issue).
Legal Control Issue

The Court accepted that the powers in cl 6.3 of the PVL GSA could not be considered in isolation; it must be viewed in the context of the GSA itself (including any requirements of good faith) and the Funding Agreement, the latter of which could constrain the power under cl 6.3.[17]   Clause 6.3 is an empowering provision, but importantly it does not compel any action.  Like any contractual power, it may be waived.[18]

Under the funding agreement, it is PVL that instructs lawyers, not SPF.  This may have been sufficient to temper SPF's power under the GSA.  However, because SPF confirmed it would not rely on cl 6.3, it was not necessary for the Court to reach a concluded view on this point.[19]

Proceeds Issue

Under the bare terms of the GSA, SPF would be entitled to all proceeds of a claim, up to the considerable and ever-increasing (via interest) amount secured by that GSA.[20]  This is because SPF undertook to pay a proportion of the proceeds to the liquidator for the benefit of the unsecured creditors.[21]

Conclusion on bare assignment

Because of the undertakings that SPF gave in relation to the utilisation of cl 6.3, and agreeing to pay a portion of the proceeds of any claim to the liquidator, the "concern that the SPF transaction may amount to an assignment of a bare cause of action is removed".[22]   This conclusion meant that the Court did not need to consider whether any of the exceptions to an impermissible assignment of a bare cause of action were available.[23]


The Supreme Court has once more confirmed that litigation funding agreements are not themselves objectionable.  There remain the traditional categories where they may amount to an abuse of process including those that:
  • deceive the court, are fictitious or a mere sham;
  • use processes of the court in an unfair or dishonest way or for some ulterior or improper purpose or in an improper way;
  • are manifestly groundless, without foundation or serve no useful purpose; and
  • are vexatious or oppressive.
The focus of this case was on the circumstances in which an impermissible assignment of a bare cause of action would render a proceeding an abuse of process.  This was a case close to the line.  Key points emerging from the judgment include:
  • Courts will look to the substance of a transaction to ascertain whether it amounts to a bare cause of action.  The form of the transaction is not determinative, and may not be persuasive.
  • The timing of the impugned transaction will be relevant.  In this case the assignment occurred after the litigation had commenced.
  • The utility of the transaction will also be the subject of scrutiny.  In the instant proceeding, at the time of the assignment all realisable assets had been realised.§   The level of control that the funder can exert is a highly cogent consideration.
  • The amount of the potential judgment sum, including the proportionate amount, will be relevant in assessing whether the assignment is permissible.

[1] PriceWaterhouseCoopers v Walker [2017] NZSC 151 [PwC v Walker].
[2] At [1] and [14].
[3] At [2].
[4] At [4].
[5] At [6].
[6] At [6].
[7] Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91.
[8] At [31].
[9] At [57].
[10] PwC v Walker at [78].
[11] At [78].
[12] At [80].
[13] At [80].
[14] At [81].
[15] At [81].
[16] At [82].
[17] At [84].
[18] At [85].
[19] At [88].
[20] At [89].
[21] At [90].
[22] At [91].
[23] At [92].

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