Commercial Law 2018-19 Assignment of Choses in Action-2 PDF

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ASSIGNMENT OF CHOSES IN ACTION A. INTRODUCTION 1. Chose in action

 Torkington v Magee [1902] 2 KB 427 “[The] legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession.”

2. The importance of assignment

 Re Bank of Credit and Commerce International SA (No 8) [1996] 2 WLR 631 “The discovery in comparatively modern times that the right to receive payment of a debt is a saleable commodity has been of enormous commercial and economic importance; it hugely expanded the opportunities for obtaining credit by permitting the recycling of receivables and their use as security for financing.”

3. Assignment of choses in action at common law

 Lampet’s Case (1613) 10 Co Rep 46b “[T]he great wisdom and policy of the sages and founders of our law, who have provided, that no possibility, right, title, nor thing in action, shall be granted or assigned to strangers, for that would be the occasion of multiplying of contentions and suits.”

4. Assignment today

 Assignments under s136 Law of Property Act 1925 (formerly s25(6) Judicature Act 1873)  Equitable assignments

B. PRESENT / FUTURE PROPERTY 1. Distinguishing the tree and the fruit

 Shepherd v FCT (1965) 113 CLR 385 By majority the High Court of Australia held that the intended assignment had been of 90% of the tree. A minority thought it had been of 90% of the fruit of that tree. The assignment:

“[I] do hereby assign absolutely and unconditionally to the persons hereinafter named and described and in the proportions hereinafter specified all my right title and interest in and to an amount equal to ninety per centum of the income which may accrue during a period of three years from the date of this assignment from royalties payable by Mark Cowen … manufacturer under a Deed made on the twelfth day of March 1954 between myself the said George Frederick Shepherd and the said Mark Cowen in respect of a license granted by me to the said Mark Cowen to make use exercise and vend castors.”

“If… the deed purports to assign the stated proportion of the royalties as after-acquired property the assignment would be ineffective in equity for want of consideration. The question therefore, in my opinion, is a narrow one, namely, whether upon its true construction the deed purports to assign part of the right to the royalties or of the royalties themselves as after-acquired property…. The difficulty in the case arises in the description of the subject matter of the gift. That description begins with the words "all my right title and interest in and to" which words are appropriate to the assignment of a chose in action as distinct from its ultimate produce. But the words that follow create the problem, "an amount equal to ninety per centum of the income which may arise during a period of three years from the date of this assignment".” – Barwick CJ

“The tree, though not the fruit, existed at the date of the assignment as a proprietary right of the appellant of which he was competent to dispose; and he assigned ninety per centum of the tree.” – Kitto J

 Norman v FCT (1963) 109 CLR 9 A slightly earlier case, also from the High Court of Australia. The following assignment was held to be of the fruit, not the tree: “Doth hereby transfer and assign all his right title and interest in and to [interest on a loan due to the assignor and repayable at will].”

 The difference? See Kitto J in Shepherd: “To understand the ground of decision [in Norman] it is necessary to remember that in respect of the future year the loan agreement recorded the terms which should apply to the relationship of borrower and lender so long as such a relationship should exist, but it left the borrower free to decide whether such a relationship should exist in the relevant year. It gave the lender no right in any possible event to insist upon there being a loan in existence in that year. In the present case the situation at the date of the assignment was exactly the opposite. There existed at that time a contractual relationship between the appellant and Cowen which by its terms must continue throughout the ensuing three years, whether Cowen should wish it to continue or not. The appellant, therefore, had a vested right in respect of those three years. … It is true that what the appellant's right under the licence agreement would yield in royalties in those years - indeed, whether it would yield any royalties at all in those years - no doubt depended upon contingencies partly within the control of Cowen. It was for him to decide how many castors, if any, he would manufacture in accordance with the appellant's inventions and try to sell. Market conditions would then determine how successful his efforts to sell would be. But whatever he might do or desire to

do, the existence of the appellant's contractual right would be unaffected, though the quantum of its product might be.” – Kitto J 2. For-value assignments of future property

 Holroyd v Marshall (1862) 10 HLC 191 “[I]n equity a contract which engages to transfer property, which is not in existence, cannot operate as an immediate alienation merely because there is nothing to transfer. But if a vendor or mortgagor agrees to sell or mortgage property, real or personal, of which he is not possessed at the time, and he receives the consideration for the contract, and afterwards becomes possessed of property answering the description in the contract, there is no doubt that a Court of Equity would compel him to perform the contract, and that the contract would, in equity, transfer the beneficial interest to the mortgagee or purchaser immediately on the property being acquired. This, of course, assumes that the supposed contract is one of that class of which a Court of Equity would decree the specific performance.” – Lord Westbury LC

 Tailby v Official Receiver (1888) 13 App Cas 523 “It has long been settled that future property, possibilities and expectancies are assignable in equity for value. The mode of form of assignment is absolutely immaterial provided the intention of the parties is clear. To effectuate the intention an assignment for value, in terms present and immediate, has always been regarded in equity as a contract binding on the subject-matter of the contract when it comes into existence, if it is of such a nature and so described as to be capable of being ascertained and identified.” – Lord Macnaghten

C. NON-ASSIGNABLE CHOSES IN ACTION 1. Public Pay

 Social Security Administration Act 1992, s187: 187 Certain benefit to be inalienable (1) Subject to the provisions of this Act, every assignment of or charge on [a benefit] and every agreement to assign or charge such benefit shall be void; and, on the bankruptcy of a beneficiary, such benefit shall not pass to any trustee or other person acting on behalf of his creditors.

 Arbuthnot v Norton (1846) 5 Moo PC 219 2. Personal Service Contracts

 Nokes v Doncaster Amalgamated Collieries [1940] AC 1104

“It is said that one company does not differ from another: and why should not a benevolent judge of the Chancery Division transfer the services of a workman to another admirable employer just as good and perhaps better. The answer is two-fold. The first is that however excellent the new master may be it is hitherto the servant who has the choosing of him, and not a judge. The second is that it is a complete mistake in my experience to suppose that people, whether they are servants or landlords or authors do not attach importance to the identity of the particular company with which they deal. It would possibly hurt the feelings of financial gentlemen with large organizing powers and ambitions to know how strongly some people feel about big combinations, and especially amalgamations of small trading concerns. But it is said how unreasonable this is: for the big company can buy the majority of the shares in the old company: replace the directors and managers: change the policy and produce the same result. Be it so: but the result is not the same: the identity of the company is preserved: and in any case the individual concerned, while he must be prepared to run the one risk, is entitled to say that he is not obliged to run the other.” - Lord Atkin  cf Transfer of Undertakings (Protection of Employment) Regulations 2006, reg 4  Peters v General Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 3. Bare rights to litigate

 ‘Savouring of maintenance or champerty’  Assigning fruits of litigation (rather than right to litigate) o

Glegg v Bromley [1912] 3 KB 474

“[T]he said Florence Elizabeth Glegg doth hereby assign unto the said Edward Maxwell Glegg all that the interest, sum of money, or premises to which she is or may become entitled under or by virtue of the said action of Glegg v. Bromley, or under or by virtue of any verdict, compromise, or agreement which she may obtain or to which she may become party in or consequent upon the said action or otherwise howsoever under or by reason of the same.”

“I think that all that was assigned was the fruits of an action. I know no rule of law which prevents the assignment of the fruits of an action. Such an assignment does not give the assignee any right to interfere in the proceedings in the action. The assignee has no right to insist on the action being carried on; in fact, the result of a compromise is actually included as a subject of the assignment. There is in my opinion nothing resembling maintenance or champerty in the deed of assignment.” – Vaughan Williams LJ

 Genuine commercial interest o

Trendtex Trading Corp v Credit Suisse [1982] AC 679

4. Non-Assignment Clauses

What if a contract between A and B stipulates that the benefit of that contract cannot be assigned to C, or cannot be assigned to C without the permission of the other party?

 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 “It is trite law that it is, in any event, impossible to assign ‘the contract’ as a whole, i.e., including both burden and benefit. The burden of a contract can never be assigned without the consent of the other party to the contract in which event such consent will give rise to a novation.” - Lord Browne-Wilkinson

“Nothing was urged in argument as showing that such a prohibition was contrary to the public interest beyond the fact that such prohibition renders the chose in action inalienable. Certainly in the context of rights over land the law does not favour restrictions on alienability. But even in relation to land law a prohibition against the assignment of a lease is valid. We were not referred to any English case in which the courts have had to consider restrictions on the alienation of tangible personal property, probably because there are few cases in which there would be any desire to restrict such alienation. In the case of real property there is a defined and limited supply of the commodity and it has been held contrary to public policy to restrict the free market. But no such reason can apply to contractual rights: there is no public need for a market in choses in action.” – Lord BrowneWilkinson

 cf the position in the USA (UCC) and Australia (PPSA 2009, ss78-81)  The Business Contract Terms (Assignment of Receivables) Regulations 2018 (for contracts made after 31 December 2018) Reg 2.—(1) Subject to regulations 3 and 4, a term in a contract has no effect to the extent that it prohibits or imposes a condition, or other restriction, on the assignment of a receivable arising under that contract or any other contract between the same parties.  R Calnan (2018) JIBFL 541

5. Other options?

 Assign the proceeds of the unassignable rights, rather than the rights themselves o Raiffeisen Zentralbank Osterreich AG v Five Star General Trading LLC [2001] QB 825  Declare a trust over the benefit of the contract, rather than assigning it. o Don King Productions Inc v Warren [2000] Ch 291

D. ASSIGNMENT ITSELF

 Assignments under s136 Law of Property Act 1925 (formerly s25(6) Judicature Act 1873)  Equitable assignments 136 Legal assignments of things in action. (1) Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice— (a) the legal right to such debt or thing in action; (b) all legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor: Provided that, if the debtor, trustee or other person liable in respect of such debt or thing in action has notice— (a) that the assignment is disputed by the assignor or any person claiming under him; or (b) of any other opposing or conflicting claims to such debt or thing in action; he may, if he thinks fit, either call upon the persons making claim thereto to interplead concerning the same, or pay the debt or other thing in action into court under the provisions of the Trustee Act, 1925.

1. Assignment

 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454: “[An assignment] may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain.” – Lord Macnaghten  Re Gillott’s Settlements [1934] Ch 97 2. Absolute

 Absolute v partial  Absolute v conditional  Durham Bros v Robertson [1898] 1 QB 765 “we hereby assign our interest in the above-named sum until the money with added interest be repaid to you”

3. By writing

4. Under the hand of the assignor

 Technocrats International Inc v Fredic Ltd [2004] EWHC 692 (QB) 5. Not purporting to be by way of charge

 Significance of ‘charge’ as opposed to ‘security’  Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190  Tancred v Delagoa Bay & East Africa Railway Co (1889) 23 QBD 239 “[A] document given ‘by way of charge’ is not one which absolutely transfers the property with a condition for re-conveyance, but is a document which only gives a right to payment out of a particular fund or particular property, without transferring that fund or property … [T]he proviso for re-conveyance does not prevent it from being absolute, or make it purport to be by way of charge only.”

6. Debt or other legal thing in action

7. Express notice in writing

 James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592 “To facilitate our accountancy and banking arrangements, it has been agreed that this invoice be transferred to and payment in London funds should be made to James Talcott Ltd.”

“[I]t is not enough that the notice should be capable of being understood to mean that the debt is assigned. It must be plain and unambiguous, and not reasonably capable, when read by an intelligent business man, of a contrary construction.” – Du Parcq LJ

 WF Harrison & Co Ltd v Burke [1956] 1 WLR 419  Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607

E. PRIORITY OF COMPETING ASSIGNMENTS 1. The rule in Dearle v Hall

 Dearle v Hall (1823) 3 Russ 1  Foster v Cockerell (1835) 3 Cl & Fin 456  Compaq Computer Ltd v Abercorn Group Ltd [1991] BCC 484

F. EFFECTS OF ASSIGNMENT 1. Legal title to the debt (or other chose)?

 Statutory assignments – see s136  Equitable assignments  Three Rivers District Council v Bank of England [1996] QB 292 “[B]efore the Judicature Act 1873, a cause of action on a debt which had been assigned remained in the assignor. Equity would compel him to allow his name to be used by the assignee; and no doubt equity would also require the assignor to hold the proceeds of the action in trust if they came into his hands. But the assignor retained a right to sue.” – Peter Gibson LJ  Roberts v Gill & Co [2011] 1 AC 240 “[I]n the case of an equitable assignment [of a legal chose] the assignee is the true owner and the assignor is a bare trustee.” – Lord Collins

2. Who has the power to give a good receipt?

 Statutory assignments – see s136  Equitable assignments o

Durham Bros v Robertson [1898] 1 QB 765

o

Skelwith (Leisure) Ltd v Armstrong [2016] Ch 345

“While older authority would suggest that an equitable assignee cannot give a valid discharge for the debt unless expressly empowered to do so (see Durham Bros …), the Kapoor case shows that it is nowadays the equitable assignee who is considered to have the ‘substantive legal right to sue for the assigned debt’.” – Newey J  Partial equitable assignments o

Kapoor v National Westminster Bank plc [2011] EWCA Civ 1083

“There is no good reason of policy or principle for the courts to refuse to recognise the title of the undisputed equitable assignee of part of a debt.” – Etherton LJ

3. Cross-claims / Set-of

 Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578 “The result of the relevant authorities is that a debt which accrues due before notice of an assignment is received [by the debtor], whether or not it is payable before that date, or a debt which arises out of the same contract as that which gives rise to the assigned debt, or is closely connected with that contract, may be set off against the assignee. But a debt which is neither accrued nor connected may not be set off even though it arises from a contract made before the assignment.” – Templeman J  Young v Kitchin (1878) 3 Ex D 127...