Sale Of Litigious Rights:Beware Of The Redemption Right

Author:Mr Bruno Verdon
Profession:Lavery De Billy
 
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A recent decision of the Superior Court1 reminds us that one must be prudent when the rules applicable to litigious rights may apply. The Civil Code2 provides that when litigious rights are sold, the person from whom they are claimed is discharged by paying to the buyer the sale price, the costs and interest on the price computed from the day on which the payment was made.

Although this rule is not new, it still causes difficulties when, for example, a transfer of enterprise occurs as a result of the sale of assets which includes the rights of the seller in judicial proceedings which have already been undertaken. This right, conferred on the person against whom a claim exists, is called the redemption right.

When the rights of the seller in an action are sold, the defendant may be entirely discharged of the recourse against him by repaying the purchaser the price the purchaser paid to acquire these litigious rights. The Civil Code provides for several exceptions to this rule. The right of redemption may not be exercised:

where the sale is made to a creditor in payment of what is due to him, to a coheir or co-owner of the rights sold or to the possessor of the property subject to the right; where a court has rendered a judgment affirming the rights sold; or where the rights have been established and the case is ready for judgment.3 Attempts have been made to circumvent the application of the right of redemption by adding to the sale price a percentage of the amount to be collected at the end of the judicial proceedings. However, under case law, the price of the redemption right must be equal to the price actually paid by the purchaser at the time of the sale, which excludes, according to Madam Justice Pierrette Rayle, of the Superior Court in the Mendel4 case and confirmed by the Court of Appeal5, the commitment to pay a percentage of the amount obtained as a result of the claim:

"With respect to the 5% to...

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