In proceedings conducted by our law firm, the Princely Supreme Court ruled on the question of a ban on the assignment of compensation claims against trustees.

In the underlying case, a founder mandated a trustee to establish, amend and administer a foundation and instructed him to perform various legal acts. The trustee did not or incorrectly implement the instructions, which resulted in considerable damage for the founder. Since the founder no longer had the necessary financial means to enforce his claims, he assigned all his damages claims to a litigation funder, who subsequently asserted the claims in his own name and on his own account. The assignment was made without the consent or knowledge of the trustee.

Among other things, the trustee objected that an assignment of the claims of the client to the funder was inadmissible from the outset.

Referring to a decision from 1991, the Princely District Court ruled that there was a prohibition of assignment because rights and obligations could not be assigned to third parties without the consent of the other party in accordance with the principles of trust law due to the special mutual trust of the contracting parties and the associated protection requirements. Accordingly the transfer was inadmissible due to the highly personal legal relationship between the client and the trustee.

The Princely Court of Appeal and also the Princely Supreme Court clearly overruled the legal view of the Princely District Court and clarified that the legal relationship between a founder and the trustee did not constitute a trust relationship within the meaning of Art. 879 f PGR, but was to be qualified as a mandate relationship pursuant to §§ 1002 ABGB. Accordingly, the Supreme Court ruled that there is no prohibition of assignment which could make the transfer of claims for damages of the client against a trustee inadmissible.

Irrespective of the clear decision, the Supreme Court however has shown that in the case of genuine trust relationships according to Art. 879 f PGR, there could indeed be prohibitions of assignment which could make an assignment of claims to a litigation funder impermissible and invalid.

Accordingly, caution is always advised when assigning claims to a litigation funder.