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Bakewell v. Anchorage

Bakewell v Anchorage Capital Master Offshore Ltd: Can Ancillary Rights and Claims Be Sold?

In Short

The Background: An assignee of loans owed by the Arrium Group sued certain officers of the Arrium Group, alleging they had made negligent misstatements or misrepresentations in drawdown and rollover notices issued prior to the assignment. Arrium's former chief financial officer ("CFO") argued that the proceedings were doomed to fail, as a bare chose of action is not assignable. The primary judge rejected that argument. The CFO sought leave to appeal.

The Question: The issue on appeal was whether it was arguable that the rights of the original lenders to bring ancillary claims in relation to the facility agreements could be assigned.

The Outcome: The New South Wales Court of Appeal found that it was at least arguable that the assignment of the ancillary claims was valid, but left the ultimate determination to be made at the final hearing.

Looking Ahead: The decision supports the widely held view that an assignment of debt can carry with it an assignment of a cause of action, but illustrates that the law in the area continues to evolve. The decision also highlights some of the potential risks in the secondary debt market and some of the creative arguments that may be raised against assignees.

Background

In the recent decision in Bakewell v Anchorage Capital Master Offshore Ltd [2019] NSWCA 199, the New South Wales Court of Appeal considered whether it was arguable that ancillary rights and claims could be sold alongside a loan.

During 2013 to 2015, the Arrium Group entered into facility agreements with a number of financiers, including Deutsche Bank. After Arrium entered voluntary administration in 2016, certain debts under those facilities were assigned to Anchorage. Deutsche Bank was also assigned debts owed to other original financiers.

Anchorage brought proceedings against officers of the Arrium Group, alleging they had made negligent misstatements or misrepresentations in drawdown and rollover notices issued under the facility agreements. Anchorage sought orders joining other assignees as plaintiffs and joining Arrium's former CFO Robert Bakewell as a defendant, alleging he had given the instruction or direction to draw down on all available amounts under the facilities.

The CFO resisted, arguing the proceedings were doomed to fail as a bare chose of action is not assignable, and as a result, any ancillary claim the original lenders may have had could not be assigned to Anchorage. The primary judge rejected this argument and joined the CFO as a defendant. The CFO sought leave to appeal.

Issues for Determination

The issues for determination on appeal were whether the primary judge erred in finding it was arguable that:

  • Existing authorities left open the possibility that a cause of action is assignable where it is part of a larger transaction for an assignment of property rights, if the assignee has a legitimate commercial interest in both sets of rights. In this case, this meant that Anchorage's right to bring an action against the officers of the Arrium Group came with the assignments of the debts.
  • Anchorage and other assignees had a legitimate commercial interest in taking an assignment of property rights and an ancillary assignment of a cause of action.

The Decision

Justice Bell, with Justices Macfarlan and White agreeing, did not grant leave to appeal on the basis that:

  • The CFO would be an active defendant in the proceedings in any event, as the arguments he made against Anchorage would not apply to Deutsche Bank, which was also a plaintiff and an original financier. There was no case for severing the actions of Anchorage and Deutsche Bank.
  • It was, at the very least, arguable that the existing authorities left open the possibility that Anchorage could bring a valid action against officers of the Arrium Group.
  • The principle relating to the prohibition against the assignment of bare causes of action was not immune to development, modification or even elimination, and its public policy underpinnings were not so secure as to justify summary dismissal on the basis of existing authority.

Two Key Takeaways

  1. The full extent of the prohibition against the assignment of bare causes of action is not settled and continues to evolve. Assuming the CFO continues to press his position, the court will have the opportunity in the final hearing to provide further clarity on the exceptions to the prohibition, and the public policy underpinning it. Watch this space.
  2. Regardless of what the court may decide at a final hearing, the case illustrates some of the inherent risks in the secondary debt market and the creative arguments that assignees may face when attempting to enforce rights.

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