Investors Compensation Scheme v. West Bromwich Building Society

The House considered the proper construction of clause 3(b) of the Investors Compensation Scheme Claim Form and whether the Claim Form validly assigned investors' rights against third parties to Investors Compensation Scheme Ltd. (I.C.S.). The majority concluded that clause 4 effected a valid assignment of the investors' claims for damages and compensation to I.C.S., while clause 3(b) was intended only to preserve to the investor benefits that could not legally be assigned (notably equitable remedies of rescission and any abatement of mortgage debt arising from rescission). The court applied contemporary principles of contractual construction (the background or "matrix of fact" approach) and the established law on assignability of choses in action (including section 136 of the Law of Property Act 1925). It held that rescission and attendant abatements are not themselves assignable choses in action and therefore the Claim Form’s reservation did not reduce the scope of the assignment of damages to I.C.S.; investors retained rights to seek rescission but not to the assigned claims for damages and compensation.

The investors, who had suffered loss under home income plans promoted with building societies, signed a Claim Form prepared by I.C.S. on receipt of compensation. The form purported to assign to I.C.S. the investors' rights against the defaulting participant firm and "third party claims," with a provision (clause 3(b)) stating that any claim against the West Bromwich Building Society in which the investor claimed an "abatement" of sums payable under the mortgage would not be treated as a third party claim and that the benefits of such claims would "enure to you absolutely."

The litigation arose because I.C.S. sued building societies and solicitors as assignee of the investors' claims; investors had also sued the building societies themselves. The preliminary issues (directed by Evans-Lombe J.) asked whether, on construction of the Claim Form, particular claims had been assigned and whether any purported assignments were valid.

The questions for the House were (i) the construction of clause 3(b) of the Claim Form, (ii) whether the purported assignment of rights in clause 4 was valid, and (iii) whether the assignment could be defeated on grounds of public policy or uncertainty because it purported to split remedies.

The House applied modern principles of contractual interpretation, including attention to the background knowledge of the parties and the explanatory note, to conclude that clause 3(b) was drafted with lawyerly caution and intended to protect benefits arising from rescission (which cannot be assigned) rather than to limit the assignment of damages. On assignment law, the House held that choses in action (rights to recover money) are assignable in equity and under section 136 of the Law of Property Act 1925, and that an assignee acquires the chose and the remedies to recover it; by contrast, rescission and the abatement of a mortgage debt as part of restitutio in integrum are not assignable separate remedies attached to title in the land. Applying that analysis, the House held the Claim Form effectually assigned the investors' claims for damages and compensation to I.C.S.; investors retained only the unassignable right to seek rescission and any attendant abatement which, if obtained, would enure to the investor absolutely.

Relief sought: declaration of title to sue and effectiveness of assignment; issues framed: construction of the Claim Form (clause 3(b)), assignability of remedies and choses in action, and the consequent entitlement of I.C.S. to pursue claims against building societies and solicitors. The court's reasoning combined purposive construction grounded in the contract's factual matrix with established principles about assignability of choses in action and the non-assignability of rescission. The majority allowed the appeal and held that assignments of damages and compensation to I.C.S. were valid while preserving investors' rights to seek rescission of mortgages.

Appeal allowed. The majority held that on proper construction the Claim Form (taken with its explanatory note) effected a valid assignment to I.C.S. of the investors' claims for damages and compensation; clause 3(b) operated only to preserve to investors benefits flowing from rescission (not assignable), so investors retained the right to seek rescission and any abatement ensuing but not the assigned claims for damages. The assignment of claims against solicitors was also valid.

Preliminary issues were directed by Evans-Lombe J. at first instance (issues of construction and validity of assignment). The Court of Appeal considered the construction of clause 3(b) and reached its own conclusions. The matter was then taken to the House of Lords, which delivered the leading judgment in Investors Compensation Scheme v. West Bromwich Building Society [1997] UKHL 28; [1998] 1 All ER 98; [1998] 1 WLR 896, allowing the appeal in favour of I.C.S.