Northern Australia Land & Agency Co & Ors v Sheahan

Northern Australia Land & Agency Co & Ors (appellants) appealed to the High Court of Australia against a decision of the Supreme Court of Queensland concerning the validity of a mortgage over certain land. The dispute centred on whether the mortgage, granted by the first appellant to the second appellant, was void for champerty. The respondents, who were the liquidators of the first appellant, sought to have the mortgage set aside.

The High Court was required to determine whether the mortgage agreement was tainted by champerty, rendering it void and unenforceable. Specifically, the court had to consider whether the terms of the mortgage, which provided for the mortgagee to receive a share of any damages recovered in litigation concerning the mortgaged land, constituted an unlawful champertous agreement.

The Court held that the mortgage was not void for champerty. The majority reasoned that the agreement did not involve the mortgagee assisting in litigation in return for a share of the proceeds, but rather the mortgagee taking security over the land and, in the event of litigation, receiving a portion of any recovery as part of the repayment of the secured debt. This was distinguished from a pure champertous agreement where the financier has no pre-existing interest in the subject matter of the litigation. The legal principle applied was that a contract for the assignment of a bare right to litigate is void for champerty, but a contract where a party with a legitimate interest in the subject matter of litigation agrees to fund that litigation in return for a share of the proceeds is not necessarily champertous.

The appeal was allowed, and the orders of the Supreme Court of Queensland were set aside.