The Assignment of Contractual Rights 9781472559890, 9781841135861
Assignment is a crucial topic in commercial law, and this new work by Gregory Tolhurst is the most comprehensive work on
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For Elisabeth, Joshua, Samuel, Benjamin and Michael
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PREFACE
This book is based on my PhD dissertation and remains a thesis-based work. However, I hope practitioners will find it useful. The thesis is conservative; it attempts to explain the well known rules governing the assignment of contractual rights by reference to the legal notion of “transfer”. Much material has been included in the text that falls outside the thesis. The book is structured to deal with those questions that tend to get asked when assigning contractual rights, namely, “what is meant by ‘assignment’”? (Chapter 3); “what is the nature of equitable and legal assignments”? (Chapters 4 and 5); “have I got an assignable right”? (Chapter 6); “what have I got to do to assign an assignable right”? (Chapter 7) and “what are the various rights and remedies of the parties to an assignment”? (Chapter 8). I would like to thank my supervisers, Professors Christopher Rossiter and Denis Harley of the University of New South Wales for all their support during the writing of the dissertation. I also owe thanks to my examiners, Professors JW Carter, Charles Rickett and Norman Palmer, all of whom have been helpful in turning the dissertation into a book. I would like to single out Professor Carter who has given me an enormous amount of support and time and coffee in writing the book. I also owe an enourmous debt to Justice McPherson AO of the Court of Appeal, Supreme Court of Queensland, for reading and commenting on a draft of the book. I would also like to thank Richard Wilson of the Victorian Bar for reading and commenting on some of the early chapters and for providing me with a copy of his dissertation, “Alienation of Income by Assignment”. I should add to this list Dr Simon Evans, who read a draft of the initial PhD dissertation. There have been many other people who encouraged me to write the dissertation and book or have given of their time to discuss aspects of this subject or who have kept me in mind when some interesting case or article has crossed their desks or have been helpful in tracking down books, articles or papers that were not easy to get hold of. Within this broad group I would particularly like to thank Sir Jack Beatson, Justice Keith Mason, President of the New South Wales Court of Appeal, The Honourable RP Meagher QC, Professor DW McLauchlan, Professor Michael Furmston, Professor Lee Aitken, Professor Andrew Burrows, Professor Malcolm Clarke, Richard Nolan, Elise Bant, Richard Potok, Gerald Ng and Peter Turner. I would also like to thank my colleagues at Freehills, particularly Matthew Stutsel and John Angus, for the wonderful variety of assignment-related facts they have thrown at me. I could never have thought of them all on my own and many have never and probably will never appear in a judgment.
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I would also like to thank Kelly Ngo and Helen Saunders for their helpful research assistence in the latter, “what have I missed” part of the process. I would also like to thank the University of Sydney, Research Institute for Humanities and Social Sciences, for providing a small writing fellowship that afforded me with some teaching relief to finalise the book. Some of the contents of Chapters 4, 6 and 8 were originally published in the Law Quarterly Review and the Sydney Law Review. I would like to thank the editors for permission to reproduce that work. I would also like to thank the band for occasionally dragging me away from this. And also thanks to Gerd and Dylan for their artistic recommendations. I must also mention and thank Richard Hart and his team at Hart Publishing Ltd for agreeing to publish this book and for making the publication process a smooth one. Finally, and most importantly, I would like to thank Elisabeth for all her love and support. GJ Tolhurst 10 October 2005
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TABLE OF CASES References are to paragraph number Abbey National Building Society v Cann [1991] 1 AC 56 ..................................6.47 Abbott v Philbin [1961] AC 352 ..........................................................................6.88 Abjornson v Urban Newspapers Ltd (No 2) [1989] WAR 191 .................7.26, 7.30 Aboussafy v Abacus Cities Ltd [1981] 4 WWR 660 ............................................8.64 Abraham v Thompson [1997] 4 All ER 362 ........................................................6.63 Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773 ...6.10, 8.04 Acorn Computers Ltd v MCS Microcomputer Systems Pty Ltd (1984) 57 ALR 389.......................................................................................3.11, 4.18, 4.27 Actien-Gesellschaft für Cartonnagen Industrie AG v Tenler (1899) 16 RPC 447.........................................................................................................4.13 Adams and the Kensington Vestry, Re (1883) 24 Ch 199 ..................................8.30 Adamson v Hayes (1973) 130 CLR 276 ...............................................................7.26 Adcock v Jolly (1893) 19 VLR 609 ............................................4.14, 4.15, 4.25, 7.21 Aectra Refining & Manufacturing Inc v Exmar NV [1994] 1 WLR 1634...............................................................................................8.64, 8.76 Aetna Insurance Co v Smith, McKinnon & Son (1918) 78 So 289 ....................6.87 AF Grant Pty Ltd v MacDonald [1960] Qd R 465 ..............................................3.07 AG v Swan & Fuller (1877) SALR 85 ...................................................................7.07 AGIP (Africa) Ltd v Jackson [1991] Ch 547........................................................3.11 Agnew & Bearsley v Commissioner of Inland Revenue [2001] 2 AC 710...................................................................................................3.17, 6.44 Agnew v Commissioner of Inland Revenue [2001] 2 AC 710...................3.16, 6.56 Agra Bank, ex parte (1868) LR 3 Ch App 555 .....................................................7.18 Agra and Masterman’s Bank, Re (1867) LR 2 Ch App 391 ................................8.26 Aiolos, The [1983] 2 Lloyd’s Rep 25 ...........................................................3.10, 4.18 Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477................................7.16, 7.44 Aktion, The [1987] 1 Lloyd’s Rep 283 .................................................................3.06 Alabaster v Harness [1895] 17 Ch D 49...............................................................6.59 Alderson v White (1858) 2 De G & J 97 ..............................................................3.16 Alexander & Alexander v Koelz (1987) 722 SW 2d 311 .....................................6.08 Alexander v Steinhardt, Walker & Co [1903] 2 KB 208 ...................6.15, 7.06, 7.07 Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 ..............8.03
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Allgemeine Versicherungs-Gesellschaft Helvetia v Administrator of German Property [1931] 1 KB 672 .................................................................................7.40 Allhusen v Caristo Construction Corp (1952) 103 NE 2d 891..................6.87, 6.88 Allied Carpets Group plc v MacFarlane [2002] EW HC 1155 QBD (TCC)......7.06 Altarama Ltd v Camp (1980) 5 ACLR 513 ..........................................................8.91 Amalgamated General Finance Co Ltd v CE Golding & Co Ltd [1964] 2 Lloyd’s Rep 163....................................................................6.73, 7.35, 7.38, 7.40 Amcor Ltd v Construction, Forestry, Mining and Energy Union (2005) 214 ALR 56...........................................................................................6.101 American Colortype Co v Continental Colortype Co (1903) 188 US 104 ........6.73 American Smelting & Refining Co v Bunker Hill & Sullivan Mining & Concentrating Co (1918) 248 F 172 .................................................................6.71 Amicable Assurance Co v Bolland (1830) 4 Bligh NS 194; 5 ER 70...................8.63 AMP Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326 ..............8.70 ANC Ltd v Clark, The Times , 31 May 2000 ...............................................6.87, 6.88 Anderson v Commercial Union Assurance Company (1885) 55 LJQB 146 .....8.25 Anderson v Peldan (2005) 220 ALR 565..............................................................3.11 Anderson v Radcliffe (1858) EL BL & EL 806; 120 ER 710 ................................6.59 Androma Pty Ltd, Re [1987] 2 Qd R 134 ...............2.14, 4.31, 6.15, 7.13, 7.16, 7.44 Anning v Anning (1907) 4 CLR 1049 ...............................................4.14, 4.19, 6.87, 6.89, 7.20, 7.21, 7.38, 8.04 Aplin v Cates (1860) 30 LJ Ch 6..................................................................8.06, 8.48 Application by Marly Laboratory Ltd, Re [1952] 1 All ER 1057 ........................7.43 Arbuthnot v Norton (1846) 5 Moore 219; 13 ER 474 ........................................6.58 Archibold Howie Pty Ltd v Commissioner of Stamp Duties (1948) 77 CLR 143.........................................................................................................6.20 Arden v Arden (1885) 29 Ch D 702 ............................................................4.20, 7.18 Argo Fund Ltd v Essar Steel Ltd [2005] 2 Lloyd’s Rep 203........................6.71, 6.87 Aries Tanker Corp v Total Transport Ltd [1977] 1 WLR 185..........8.64, 8.78, 8.90 Arjon Pty Ltd v Commissioner of State Revenue (2003) 8 VR 502 ...................7.18 Arkansas Valley Smelting Co v Belden Mining Co (1888) 127 US 379 ..............................................................................6.68, 6.70, 6.73, 6.79 Aron v Miall [1929] 98 LJKB 204 6.59m .............................................................6.73 Ashby Warner & Co Ltd v Simmons [1936] 2 All ER 697 ............................................................................3.15, 3.17, 4.27, 6.49, 7.39 Ashmore v Corporation of Lloyd’s (No 2) [1992] 2 Lloyd’s Rep 620................6.78 Ashwin v Burton (1862) 7 LT 589........................................................................8.67 Asphaltic Wood Pavement Co, Re (1885) 30 Ch D 216 .....................................8.96 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588.....................................................................................................3.16, 6.84 Atkins v Dawbury (1714) Gilb Eq Rep 88; 22 ER 835 ........................................8.18 Atlantic & NCR Co v Atlantic & NC Co (1908) 61 SE 185 ..............................6.121
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Atlantic Lines & Navigation Co Inc v The Ship “Didymi” and Didymi Corp (The Didymi) [1988] 1 Lloyd’s Rep 97...................................................8.78 Attika Hope, The [1988] 1 Lloyd’s Rep 439 ........................................................7.01 Attwood and Reid Ltd v Stephens Excavators Ltd [1932] NZLR 1332 ..............................................................................6.87, 6.88, 6.89, 7.12 Auckland City Council v Union House Ltd 11/8/2004 New Zealand Court of Appeal 162/03.....................................................................................6.87 Australian Capital Television Pty Ltd v Commonwealth (No 2) (1992) 177 CLR 106.......................................................................................................2.06 Australian Elizabethan Theatre Trust, Re (1991) 30 FCR 491 ...........................7.07 Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 ...................................................6.14, 6.20, 6.37, 6.39, 6.42, 6.43, 6.45 Australian Olympic Committee Inc v Big Fights Inc [1999] FCA 1042 ...6.84, 6.88 Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 .........................................................................................................7.38 Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 172 ALR 702, affd (2001) 110 FCR 157 ..........................................6.86, 6.87, 6.88 Australian Workers Union v Bowen (1946) 72 CLR 575 ...................................4.27 Australis Media Holdings Pty Ltd v Telstra Corp Ltd (1998) 43 NSWLR 104 ..............................................................................................6.69, 6.79 Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 ......................6.28 Automobile Association (Canterbury) Inc v Australasian Secured Deposits Ltd [1973] 1 NZLR 417......................................................................3.16 Automobile Carriage Builders Ltd v Sayers (1909) 101 LT 419 .........................6.08 Awwad v Geraghty & Co [2001] QB 570.............................................................6.59 Ayala Holdings Ltd (No 2) [1996] 1 BCLC 467 ..................................................6.67 Babson v Village of Ulysses (1952) 52 NW 2d 320 .............................................8.41 Bacon v Yatchaw Irrigation and Wagter Supply Trust (1898) 23 VLR 485.....................................................................................................5.06, 5.18 Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399.....................................................................................................3.17, 4.27 Baines v Geary (1887) 35 Ch D 154 .....................................................................6.08 Baird v Baird [1990] 2 AC 548 .............................................................................7.33 Baker v Adam [1908-10] All ER 632....................................................................8.88 Baker v Merckel [1960] 1 QB 657 ........................................................................8.03 Bakewell v Deputy Federal Commissioner of Taxation (South Australia) (1937) 58 CLR 743....................................................................................6.37, 6.45 Balder London, The [1980] 2 Lloyd’s Rep 489..................................7.16, 7.40, 8.95 Ball v Warwick (1881) 50 LJQB 382 ....................................................................6.59 Baloglow v Konstantinidis (2001) 11 BPR 20 ............................................7.28, 7.29 Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344.....................................................................................6.26, 6.28, 8.33
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Banco Central SA and Trevelan Navigation Inc v Lingoss & Falce Ltd v BFI Line ltd (The Raven) [1980] 2 Lloyd’s Rep 266 ...............................8.83, 8.94 Banco Santander SA v Bayfern Ltd [2000] 1 All ER (Comm) 776.....................6.14 Bandwill Pty Ltd v Spencer-Laitt (2000) 23 WAR 390 .....................6.59, 6.61, 6.63 Bank of Australasia v Annie Hertz (1937) 54 WN(NSW) 179 ..................................................................................4.14, 4.15, 7.07, 7.12, 7.37 Bank of Boston Connecticut v European Grain and Shipping Ltd [1989] 1 AC 1056.............................................................................8.64, 8.85, 8.90 Bank of Credit and Commerce International SA (No 8), Re [1998] AC 214.......................................................................................................3.17, 6.14 Bank of Liverpool & Martins Ltd v Holland (1926) 43 TLR 29 .......4.26, 7.39, 7.40 Bank of Melbourne Ltd v HPM Pty Ltd (1997) 26 ACSR 110 ...........................6.67 Bank of New South Wales v Brown (1983) 151 CLR 514...................................6.49 Bank of New South Wales v Northern British and Mercantile Insurance Co (1882) 3 NSWLR (L) 60 ..............................................................................6.73 Bank of New South Wales v The King [1918] NZLR 945.................3.17, 7.09, 7.40 Bank of New Zealand v Harry M Miller & Co Ltd (1992) 26 NSWLR 48.........8.64 Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [1990] 1 QB 818 .............................6.12, 6.101 Bank of NY Butterfield and Son Ltd v Golinsky [1926] AC 733........................4.15 Bank of Victoria Ltd v Langlands Foundry Co Ltd (1898) 23 VLR 230 ............3.09 Barclays Bank v Willowbrook International Ltd [1986] BCLC 45.....................8.04 Barker v Stickney [1919] 1 KB 121.................................................6.88, 6.106, 6.110 Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170................6.76 Barrow v Isaacs & Son [1891] 1 QB 417 ..............................................................6.87 Batchelor v Murphy [1926] AC 63.......................................................................8.30 Bateman Television Ltd v Coleridge Finance Co Ltd [1969] NZLR 794 ...........7.37 Bateman v Hunt [1904] 2 KB 530...............................................................7.38, 8.60 Bawejem Ltd v MC Fabrications Ltd [1999] 1 All ER (Comm) 377..................6.88 Bay of Plenty Electricity Ltd v Natural Gas Corporation Energy Ltd [2002] 1 NZLR 173.................................................................................6.120, 8.83 Baytur SA v Finagro Holding SA [1992] 1 QB 610 ................4.26, 6.73, 6.132, 8.29 Bayview Quarries Pty Ltd v Castley Development Pty Ltd [1963] VR 445 .......8.85 Beatty v Brashs Pty Ltd [1998] 2 VR 201 ...........................................2.05, 6.61, 6.62 Beaumont, Re [1902] 1 Ch 889 ............................................................................7.04 Beckett v Tower Assets Co Ltd [1891] 1 QB 1.....................................................3.16 Beecham v Pater (1890) 16 VLR 13 .....................................................................7.07 Belize Motor Supply Company v Cox [1914] 1 KB 244 .....................................6.87 Bell Bros Pty Ltd v Sarich [1971] WAR 157 ........................................................3.07 Bell v London & North Western Railway Co (1852) 15 Beav 548; 51 ER 651 ................................................................................4.15, 7.04, 7.05, 7.07 Bell Wholesale Co Ltd v Gated Export Corp (1984) 52 ALR 176 ......................6.63
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Bence v Shearman [1898] 2 Ch 582 ............................................................7.18, 8.06 Bennett v White [1910] 2 KB 643 ......................................................3.27, 5.06, 8.83 Bergmann v MacMillan (1881) 17 Ch D 423 ......................................................4.27 Berliner Foods Corp v Pilsbury Co (1986) 633 F Supp 557 ...............................6.80 Bevan Ashford v Geoff Yeandle (Contractors) Ltd [1999] Ch 239....................6.59 BICC plc v Burndy Corporation [1985] 1 Ch 232 ..............................................8.04 Bickerton v Walker (1885) 31 Ch D 151 .............................................................8.60 Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93 .............................4.27, 8.51, 8.83 Bingham v 7-Eleven Stores Pty Ltd [2002] QSC 209 ..........................................6.88 Birchal v Birch, Crisp & Co [1913] 2 Ch 375 ......................................................8.70 Birmingham Breweries Ltd v Jameson (1898) 67 LJ Ch 403 .....................6.70, 6.76 Blacklocks v JB Developments (Godalming) Ltd [1982] 1 Ch 183....................6.09 Blacktown Municipal Council v Doneo [1971] 1 NSWLR 157 .........................6.88 Blackwood’s Ltd v Chartres (1931) 31 SR(NSW) 619 ..............................6337, 6.20 Blakely Ordnance Co, Re (1867) LR 3 Ch App 154 ............................................8.26 Blankenstein, The [1985] 1 WLR 435.........................................................3.06, 3.07 Board of Education of the Borough of Flemington v State Board of Education (1911) 81 A 163 ...............................................................................6.73 BOC Group plc v Centeon LLC [1999] 1 All ER (Comm) 53............................8.26 Bond, Re (1940) 35 Tas LR 96.....................................................................6.87, 7.12 Bond Worth Ltd, Re [1980] Ch 228 ....................................................................3.17 Bone v Commissioner of Stamp Duties [1972] 2 NSWLR 651..........................7.37 Booth v Commissioner of Taxation (1987) 164 CLR 159 .........................................................................3.09, 3.22, 4.31, 6.10, 6.20, 6.38 Booth v Williams (1909) 9 SR (NSW) 421 ..........................................................2.12 Boston Ice Co v Potter (1877) 25 Am Rep 9 .....................................6.69, 6.76, 6.77 Bourne v Colodense Ltd [1985] ICR 291 ............................................................6.61 Bovis International Inc v Circle Ltd Partnership (1995) 49 Con LR 12...............................................................................6.73, 6.79, 7.41, 8.10, 8.13 Bradford Banking Co Ltd v Henry Briggs, Son & Co (1886) LR 12 App Cas 29 .........................................................................................................8.13 Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833 .........................................6.100 Bradlaugh v Newdegate (1883) 11 QBD 1...........................................................6.59 Bray v Commissioner of Taxation (1968) 117 CLR 349.....................................7.37 Brede, The [1974] 1 QB 233 ........................................................................8.64, 8.78 Brennan v Pitt Son & Badgery Ltd (1889) 20 NSWR 179 ..................................8.83 Breskvar v Wall (1971) 126 CLR 376...................................................................6.09 Brew v Whitlock [1967] VR 449 ..........................................................................6.59 Briargate Developments Ltd v Newprop Co Ltd [1990] 1 EGLR 283 ...........................................................................................................6.08 Brice v Bannister (1878) 3 QBD 569...............................2.02, 4.20, 4.27, 6.07, 6.88, 7.07, 7.12, 8.06, 8.38, 8.45, 8.46, 8.48
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Bridge v Wholesale Acceptance Corp (Aust) v Burnard (1992) 27 NSWLR 415 ..................................................................................................6.58 Britain & Overseas Trading (Bristles) Ltd v Brooks Wharf & Bull Wharf [1967] 2 Lloyd’s Rep 51 .......................................................................6.117 Britain v Rossiter (1879) 11 QBD 123 .................................................................5.04 British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 ...................................................................................8.47 British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 ...............................................................................................6.59 British Fuels Ltd v Baxendale [1999] 2 AC 52...................................................6.101 British Gas Trading Ltd v Eastern Electricity Plc, unreported, English Court of Appeal, 18 Dec 1996...........................................................................6.87 British Homes Assurance Corp Ltd v Paterson [1902] 2 Ch 404.......................3.06 British Union & National Insurance Co v Rawson [1916] 2 Ch 476 ........6.08, 8.13 British Waggon Co and Parkgate Waggon Co v Lea (1880) 5 QBD 149..............................................................3.08, 6.74, 6.77, 6.79, 6.80, 6.101 Broad v Commissioner of Stamp Duties [1980] 2 NSWLR 40 ..........................6.14 Broadcast Australia Pty Ltd v Minister Assisting the Minister for Natural Resources (Lands) (2004) 204 ALR 46 ....................................................6.84, 6.88 Brookfield v Davey Products Pty Ltd (1996) 14 ACLC 303 ...............................6.67 Brown & Gregory Ltd, Re [1904] 1 Ch 627 .........................................................8.26 Brown, Re [1954] 1 Ch 39 ....................................................................................6.76 Brown, Shipley & Co v Kough (1885) 29 Ch D 848 ..................................7.07, 7.09 Brown v Bank of Australasia [1915] VLR 453.....................................................7.38 Brown v Heffer (1967) 116 CLR 344 ...................................................................7.16 Brown v Metropolitan Counties Life Assurance Society (1859) 28 LJQB 236 ............................................................................................................6.15 Browne & Company v John P Sharkey Company (1911) 115 P 156 .................6.78 Brown’s Estate, Re [1893] 2 Ch 300...................................................................6.100 Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499 ..............................................................................................6.61, 6.62, 6.64 Bruce v Tyley (1916) 21 CLR 277.................................6.73, 6.84, 6.88, 6.113, 6.122 Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555 ...................................7.20 Brush Aggregates Ltd, Re [1983] BCLC 320...............................................4.27, 6.44 Bruynius, Re [1995] 1 Qd R 492 ..........................................................................7.07 Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142..................8.25 Buck v Robson (1878) 3 QBD 686 ..............................................................7.07, 7.08 Buckland v Papillon (1866) LR 1 Eq 477.............................................................8.07 Buiscex Ltd v Panfida Foods Ltd (1998) 28 ACSR 357 .......................................6.67 Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd R 712...................7.17 Burck v Taylor (1894) 152 US 634 ............................................6.68, 6.87, 6.88, 6.89 Burdett, ex parte Byrne, Re (1888) 20 QBD 310 .................................................6.50
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Buring and Chapman, Re (1941) 13 Australian Bankruptcy Cases 72 ............................................................................................6.15, 6.88, 7.07 Burlinson v Hall (1884) 12 QBD 347.................................................3.17, 5.05, 7.40 Burn v Carvalho (1839) 4 Myl & Cr 690; 41 ER 265.........................6.15, 7.07, 7.09 Burr v Wimbledon Local Board (1887) 35 WR 404 ...........................................8.07 Burrows v Gradin (1843) 12 LJQB 333................................................................8.67 Burston Finance Ltd v Spierway Ltd [1974] 1 WLR 1648 ..................................3.10 Burton v Camden London Borough Council [2000] 2 AC 399 .......3.11, 6.86, 7.32 Burton v Great Northern Railway Co (1854) 9 Exch 507; 156 ER 216..............6.73 Burwood Land, Building, and Investment Co Ltd v Berridge (1893) 19 VLR 630................................................................................................4.20, 6.83 Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd (1999) 9 Butterworths Property Reports 97801 ......................6.08, 6.84, 6.88 Business Computers Ltd v Anglo-African Leasing ltd [1977] 1 WLR 578....................................................................................................8.83, 8.85 Butler v Capel (1823) 2 B & C 251; 107 ER 377 ..................................................3.04 Button’s Lease, Re [1964] Ch 263 ........................................................................6.08 Byrne v Reid [1902] 2 Ch 735 ..............................................................................3.07 Bysouth v Shire of Blackburn & Mitcham (No 2) [1928] VR 562 .....................6.86 CA Stewart & Co v PHS Van Ommeren (London) Ltd [1918] 2 KB 560 .........8.33 Caboche v Ramsay (1993) 119 ALR 215.....................................................6.84, 6.85 Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 117 ALR 253 ...................................................................6.63 Caddy v Beattie (1908) VLR 17............................................................................8.18 Caerns Motor Services Ltd v Texaco Ltd [1995] 1 All ER 247 ...........................6.76 Calaby Pty Ltd v Ampol Pty Ltd (1990) 71 NTR 1....3.27, 6.71, 6.101, 6.123, 6.133 Caldy Manor Estates ltd v Farrell [1974] 1 WLR 1303 .......................................6.84 Cambrian Mining Co, Re (1882) 48 LT 114 .......................................................6.59 Camden & Burton v London Borough Council [2000] 2 AC 399 .....................3.09 Camdex International Ltd v Bank of Zambia [1996] 1 WLR 864.............6.59, 6.64 Camfield Pastoral Co v Dixon [1972] Qd R 289.................................................4.18 Camp v King (1887) 14 VLR 22 ..................................................................7.12, 7.38 Campbell, Re [1997] Ch 14 ..................................................................................6.06 Canadian Admiral Corp Ltd v LF Dommerich & Co Inc (1964) 43 DLR (2d) 1 ....................................................................................................8.83 Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321..............................................................................6.48 Cantrell v Lemons (1948) 200 P 2d 911 ..............................................................6.08 Care Shipping Corp v Latin American Shipping Corp [1983] 1 QB 1005 ...........................................................................................................4.02, 7.41 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 .............................................3.07 Carpenter v Boyce (1896) 22 VLR 248 ................................................................6.59
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Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207.......3.15 Carter v Hyde (1923) 33 CLR 115........................................................................6.08 Castellain v Preston (1882) 8 QBD 617 ......................................................6.59, 8.25 Cathay Developments Pty Ltd v Laser Entertainment Pty Ltd [1998] NSWSC 82 .........................................................................................................6.88 Cathedral Place Pty Ltd v Hyatt Australia Ltd [2003] VSC 385 .........................6.87 Cator v Burke (1785) 1 Brown’s Ch 434; 28 ER 1222.........................................4.05 Cave v Cave (1880) 15 Ch D 639 .........................................................................6.09 Cavendish v Geaves (1857) 24 Beav 163; 53 ER 319 .........................7.18, 8.94, 8.99 CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 ............................................6.70, 6.71, 6.72, 6.73, 6.76, 6.78, 6.79, 7.19 Cellulose Products Pty Ltd v Truda (1970) 92 WN (NSW) 561 ........................8.75 Central Insurance Co Ltd v Seacalf Shipping Corp (The Aiolos) [1983] 2 Lloyd’s Rep 25...................................................................3.10, 4.04, 4.18 Central Trust & Safe Deposit Co v Snider [1916] 1 AC 266...............................3.23 Centre Insurance International Co v Freakley [2005] 2 All ER (Comm) 65.....6.73 Century 21 (South Pacific) Pty Ltd v Century 21 Real Estate Corp (1996) 136 ALR 687.........................................................................................6.101 Chadwick v Clarke (1845) 1 CB 700; 135 ER 717 ...............................................7.37 Chang v Regsitrar of Titles (1976) 137 CLR 177.................................................7.17 Chapman v Luminis Pty Ltd (No 5) (2002) ATPR (Digest) 46 .........................6.05 Charge Card Services Ltd, Re [1987] Ch 150 .............................................3.17, 6.14 Charlotte Thirty Ltd and Bison Ltd v Croker Ltd (1990) 24 Con LR 46 .........................................................................................................6.73, 6.79 Chase Manhattan Asia Ltd v Official Receiver and Liquidator of First Bangkok City Finance Ltd [1990] 1 WLR 1181 ...............................................3.16 Chatsworth Investments Ltd v Cussins (Contractors) Ltd [1969] 1 WLR 1 .....3.06 Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291...................3.10 Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171.........................................8.83 Chick v Blackmore (1854) 2 Sm & Giff 274; 65 ER 398 .....................................8.83 Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 ..............................................................................................7.17, 7.18 Child v Dynes [1985] 2 NZLR 554..............................................................6.09, 6.10 China Steamship Co, Re (1869) LR 7 Eq 240......................................................8.83 Chow Yoon Hong v Choong Fah Rubber Manufactory [1962] AC 209 ...........3.16 Christie v Taunton, Delmard, Lane & Co [1893] 2 Ch 175 ...............................8.83 Chung Kwok Hotel Co Ltd v Field [1960] 1 WLR 1112.....................................7.14 Cinema Plus Ltd v Australia and New Zealand Banking Group Ltd (2000) 49 NSWLR 513 ......................................................................................6.14 Circuit Systems Ltd v Zuken-Redac (UK) Ltd [1997] 1 WLR 721, affd [1999] 2 AC 1.....................................................................................................6.87 Cirillo v Citicorp Australia Ltd [2004] SASC 293 ...............................................6.10
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Citibank Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168..........................8.67 City Life Assurance Ltd Co, Re [1926] Ch 191.........................4.14, 4.15, 7.18, 8.96 City of London Corp v Fell [1994] 1 AC 458 ......................................................8.70 City of Omaha v Standard Oil Co (1898) 75 NW 895 ...............................6.87, 6.88 Clairs Keeley v Treacy (2003) 28 WAR 139..............................6.59, 6.61, 6.63, 6.64 Clairs Keeley (No 2) v Treacy (2004) 29 WAR 479.........6.59, 6.61, 6.63, 6.64, 6.66 Clairs Keeley v Treacy [2005] WASCA 86 .......................6.59, 6.61, 6.63, 6.64, 6.66 Clark v Dedvukaj [1993] 2 Qd R 10...................................................................6.100 Clark v Lonergan [1961] NSWR 313 ...................................................................3.07 Clarke, Re (1887) 36 Ch D 348..................................................6.50, 7.11, 7.13, 7.41 Clark’s Refrigerated Transport Pty Ltd , Re [1982] VR 989 ...............................6.71 Clayman v Goodman Properties Inc (1973) 518 F 2d 1026 ...............................6.08 Clearance Nominees Pty Ltd v Discount Acceptance Corp Pty Ltd (1997) 25 ACSR 531 ..........................................................................................7.38 Clegg v Hands (1889) 44 Ch D 503......................................................................6.76 Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1..............................................................................1.06, 6.45, 8.55, 8.83, 8.86 Clyne v New South Wales Bar Association (1960) 104 CLR 186 .......................6.59 Coba Industries Ltd v Millie’s Holdings (Canada) Ltd [1985] 6 WWR 14 .......8.64 Coca-Cola Financial Corp v Finstat International Ltd [1998] QB 43................8.26 Cockell v Taylor (1851) 15 Beav 103; 51 ER 475...............................6.59, 8.04, 8.59 Coker and Bellamy v Richey (1922) 204 P 945 ...................................................6.08 Cole v Booker (1913) 29 TLR 295........................................................................6.59 Cole v Wellington Dairy Farmers Co-op Association Ltd [1917] NZLR 372..................................................................................................6.73, 6.95 Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728 ................3.11 Collyer v Isaacs (1881) 19 Ch D 342 ....................................................................4.32 Colonia Verscherung AG v Amoco Oil Co (1997) 1 Lloyd’s Rep 261 ......6.16, 8.25 Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1987] 1 Lloyd’s Rep 239...............................................6.37, 8.86, 8.88, 8.90, 8.92 Colonial Bank v Whinney (1885) 30 Ch D 261........................2.02, 2.04, 2.05, 2.06 Colonial Mutual General Insurance co Ltd v ANZ Banking Group (New Zealand) Ltd [1995] 1 WLR 1140...........................................................3.17 Comfort v Betts [1891] 1 QB 737 ...............................................................6.59, 7.40 Commercial Bank of Tasmania v Jones [1893] AC 313 .....................................3.06 Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724 ................................................................................4.18, 7.15, 7.40, 8.71 Commissioner of Stamp Duties (NSW) v Perpetual Trustee Co Ltd (1926) 38 CLR 272....................................................................................3.11, 7.18 Commissioner of Stamp Duties (NSW) v Yeend (1929) 43 CLR 235............................................................................................2.06, 3.11, 6.84 Commissioner of Stamp Duties (Qld) v Fulliffe (1920) 28 CLR 178 ................7.29
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Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694..............................................................................................3.11, 3.23, 3.24 Commissioner of State Revenue (Victoria) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651....................................................................7.18 Commissioner of Taxation v Betro Harrison Constructions Pty Ltd (1978) 37 FLR 150 ................................................6.33, 6.34, 7.09, 7.15, 7.16, 7.17 Commissioner of Taxation v Linter Textiles Australia Ltd (2005) 215 ALR 1...........................................................................................................6.15 Commissioner of Taxation v Myer Emporium Ltd (1986) 163 CLR 199.....................................................................................................6.20, 6.49 Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 ..........................6.101 Commissioner of Taxes (Queensland) v Camphin (1937) 57 CLR 127 ............3.11 Commonwealth Quarries (Footscray) Pty Ltd v Federal Commissioner of Taxation (1938) 59 CLR 111 ........................................................................6.49 Commonwealth v Ling (1993) 118 ALR 309..............................................6.61, 6.62 Compania Columbiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 ..................................2.02, 4.11, 5.12, 5.18, 5.20, 6.59, 7.38, 8.13 Compania Sud-Americana de Vapares v Shipmair BV (The Teno) [1977] 2 Lloyd’s Rep 289...................................................................................8.64 Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 .........................................................................3.16, 3.17, 4.27, 5.05, 5.23, 7.07 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 ................................................................4.14, 7.04, 7.05, 7.06, 7.23, 7.27, 7.29 Condliffe v Hislop [1996] 1 WLR 753 ........................................................6.59, 6.63 Congreve v Evetts (1854) 10 Exch 298; 156 ER 457............................................7.11 Conlan v Carlow County Council [1912] 2 Ir 535..............................................7.39 Conley v Barclays Bank Ltd, Re (1938) 2 All ER 127 ..........................................6.50 Connolly, Re [1931] GLR 551 ............................................................4.16, 6.15, 7.07 Conquest’s case (1875) 1 Ch D 334 .....................................................................3.06 Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 ......6.100, 7.34, 7.37, 7.38 Contemporary Cottages (NZ) Ltd v Margin Traders Ltd [1981] 2 NZLR 114........................................................................................................3.16 Coombe v Carter (1888) 36 Ch D 348.................................................................7.11 Cooney v Burns (1922) 30 CLR 216 ....................................................................3.23 Cooper v Micklefield Coal and Lime Co Ltd (1912) 107 LT 457....................................................................................6.73, 6.79, 6.95, 6.134 Cooper v Reilly (1829) 2 Sim 560; 57 ER 897......................................................6.58 Coorey v Bolous (1933) 50 WN(NSW) 187 ........................................................8.82 Cope v Keene (1968) 118 CLR 1 ..........................................................................7.20 Corin v Patton (1990) 169 CLR 540 .......................4.05, 4.14, 4.27, 6.71, 7.15, 7.20 Corson v Lewis (1906) 109 NW 735 ....................................................................6.79 Cory v Gertcken (1816) 2 Madd 40; 56 ER 250 ..................................................8.82
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Cossill v Strangman [1963] NSWR 1695....................................................5.17, 7.37 Cosslett (Contractors) Ltd, Re [1998] Ch 495 ....................................................7.07 Cottage Club Estates Ltd v Woodside Estates Co (Amersham) Ltd [1928] 2 KB 463 ......................................................................................6.73, 6.118 Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238 ..............................................................................................6.05, 6.67 Cotton v Heyl [1930] 1 Ch 510 ........................................6.19, 6.46, 7.07, 7.44, 8.04 Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460...................................................................................3.27, 6.07, 7.04, 7.07 Coulter v Chief Constable of Dorset Police [2004] 1 WLR 1425; affd [2005] 1 WLR 130 ......................................................................................7.05 Countess of Bective v FCT (1932) 47 CLR 417 .................................................6.135 County Hotel and Wine Co Ltd v London and North Western Railway Co [1918] 2 KB 251; affd [1919] 2 KB 29.......................................2.02, 6.08, 6.59 Court Line Ltd v Aktiebolaget SpA v G¢taverken (The Halycon the Great) [1984] 1 Lloyd’s Rep 283 ..............................................................6.73, 7.40 Cousins, Re (1885) 30 Ch D 203.................................................................6.08, 6.69 Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605 ..................................6.88 Cozens, Re [1913] 2 Ch 478 ........................................................................7.04, 7.06 CPT Custodian Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 ..............................................................................................3.18, 7.18 Crane Ice Cream Co v Terminal Freezing & Heating Co (1925) 128 A 280..........................................................................................................6.68, 6.70 Crichton v Crichton (1930) 43 CLR 536 .............................................................7.26 Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1.......................................................................................................6.73, 6.101 Cronk v M’Manus (1892) 8 TLR 449 .........................................................3.12, 5.08 Crothers, Re [1930] VLR 49 ..................3.04, 3.26, 4.05, 4.07, 4.10, 4.14, 4.19, 8.99 Crouch v Credit Foncier of England Ltd (1873) LR 8 QB 374...........................4.05 Crouch v Martin (1707) 2 Vern 595; 23 ER 987 .................................................6.58 Crouch v Victorian Railways Commissioners [1907] VLR 80 ...........................6.58 Crowe v Price (1889) 22 QBD 429.......................................................................6.58 Crowfoot v Gurney (1832) 9 Bing 372; 131 ER 655..........................4.23, 6.15, 7.07 CSR Ltd v New Zealand Insurance Co Ltd (1993) 7 ANZ Insurance Cases 61-193 ....................................................................................................6.134 Cummings v Johnson (1913) 4 WWR 543..........................................................8.70 Cunningham, Re [1965] WAR 115......................................................................4.27 Curran v Newpark Cinemas Ltd [1951] 1 All ER 295.......................7.04, 7.07, 7.18 Currey v The Federal building Society (1929) 42 CLR 421 ................................3.26 Curtain Dream plc v Churchill Merchanting Ltd [1990] BCC 341 ...................3.16 Curtis Moffat Ltd v Wheeler [1929] 2 Ch 224 ....................................................8.07 D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10.....8.64, 8.86, 8.88, 8.91
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Daley, ex parte National Australia Bank Ltd (1992) 8 ACSR 395 ...........................................................................................6.59, 6.61, 6.62, 6.64 Dallas, Re [1904] 2 Ch 385 ..........................................................................7.38, 8.83 Damon Compania Naviera SA v Hapag-Lloyd International SA (The Blankenstein) [1985] 1 WLR 435 ...................................................3.06, 3.07 Daniel Erat Consulting Services Pty Ltd , Re (1999) 162 ALR 429 ....................6.67 Danish Bacon Co Ltd, Staff Pension Fund Trusts, Re [1971] 1 WLR 248....................................................................................................7.04, 7.33 Dansk Rekylriffel Syndikat Aktieselskab v Snell [1908] 2 Ch 127....................6.106 Darlington Borough Council v Wiltshire Northern Ltd [1995] 1 WLR 68.............................................................................................8.03, 8.13, 8.15 Davenport Central Service Station Ltd v O’Connell [1975] 1 NZLR 755 .........8.30 David Jones Ltd v Lunn (1969) 91 WN(NSW) 468 ...................................6.08, 6.69 David v Malouf (1908) 5 CLR 749 .......................................................................6.45 Davies v Collins [1945] 1 All ER 247 .............................3.08, 6.69, 6.77, 6.86, 6.101 Davies v Davies (1887) 36 Ch D 359...........................................................6.08, 6.58 Davies v Rees (1886) 17 QBD 408........................................................................6.50 Davis & Co, Re (1888) 22 QBD 193............................................................6.15, 8.45 Davis v Duke of Marlborough (1818) 1 Swan 74; 36 ER 303.............................6.58 Davis v Freethy (1890) 24 QBD 519 ....................................................................4.15 Davis v Hedges (1871) LR 6 QB 687....................................................................8.75 Dawson v Great Northern and City Railway Co [1905] 1 KB 260 ............................................................................2.02, 6.06, 6.15, 6.59, 8.13 DCT v Lanstel Pty Ltd (1996) 22 ACSR 314........................................................7.34 De Beers Consolidated Mines Ltd v British South Africa Co [1912] AC 52......7.16 De Hoghton v Money (1866) 2 LR Ch App 164 ........................................6.09, 6.59 De Lisle v Union Bank of Scotland [1914] 1 Ch 22 ............................................8.81 De Marney, Re [1943] Ch 126..............................................................................6.15 De Nicholls v Saunders (1870) LR 5 CP 589 .......................................................8.46 De Pothonier v De Mattos (1858) El Bl & El 461; 120 ER 581 ..................4.24, 8.83 Dear v Reeves [2002] Ch 1 .................................................................2.05, 2.06, 6.08 Dearle v Hall (1828) 3 Russ 1; 38 ER 475 ..........................................4.20, 5.05, 5.23 Deaton v Lawson (1905) 82 P 879 .......................................................................6.79 Defries v Milne [1913] 1 Ch 98 ............................................................................6.59 Delaware County Commissioners v Diebold Safe and Lock Company (1890) 133 US 473 ...........................................................................6.49, 6.68, 7.12 Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 FCR 474......6.61, 6.62 DeMattos v Gibson (1858) 4 De G & J 276; 45 ER 108..........................6.106, 6.127 Dempsey & The National Bank of New Zealand Ltd v Traders’ Finance Corp Ltd [1933] NZLR 1258.............................................................................7.15 Denham Bros Ltd v W Freestone Leasing Pty Ltd [2004] 1 Qd R 500 ...........................................................................................6.50, 6.69, 6.71, 8.30
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Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437..........6.73 Denney, Gasquet & Metcalfe v Conklin [1913] 3 KB 177 ..................................7.38 Dent, Re [1923] 1 Ch 113 .....................................................................................4.32 Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367 ..........................................................4.05, 4.08, 4.11, 4.27, 6.98, 8.06, 8.18 Deposit Protection Board v Dalia [1994] 2 AC 367 ...................................................................4.05, 4.08, 4.11, 4.27, 8.06, 8.18 Deputy Commissioner of Taxation v Government Insurance Office of New South Wales (1993) 117 ALR 61 .................................................4.32, 6.06 Deputy Commissioner of Taxation v Lanstel Pty Ltd (1996) 22 ACSR 314 ...........................................................................................................1.06 Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 .................................................................6.72, 6.83, 6.84, 6.86, 6.87, 6.88 DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 3 All ER 462 .............................................................................7.28 Dickinson v Burrell (1866) LR 1 Eq 337.....................................................6.09, 6.59 Didymi, The [1988] 1 Lloyd’s Rep 97..................................................................8.78 Dillon, Re (1890) 44 Ch D 76...............................................................................7.09 Diplock v Hammond (1854) 2 Sm & Giff 141; 65 ER 339 .................................7.07 Diptford Parish Lands, Re [1934] Ch 151 ...........................................................7.37 Dixon v Winch [1900] 1 Ch 736 ........................................................7.38, 8.81, 8.83 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 ...............................................................................3.18, 7.18 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431..............................................................................3.11 Doe v Reid (1830) 10 B & C 849; 109 ER 664 .....................................................6.76 Dominique, The [1987] 1 Lloyd’s Rep 239......................6.37, 8.86, 8.88, 8.90, 8.92 Domson Pty Ltd v Zhu [2005] NSWSC 1070 ...................................6.66, 6.67, 7.07 Don King Productions Inc v Warren [2000] Ch 291.........................................1.01, 3.18, 6.50, 6.70, 6.79, 6.84, 6.87, 6.90, 7.22 Donaldson v Donaldson (1854) Kay 711; 69 ER 303.................................4.14, 4.19 Dorman v Rodgers (1982) 148 CLR 365 .............................................................3.19 Douglas v Culverwell (1862) 4 De GF & J 20; 45 ER 1089 .................................3.16 Downes v Bank of New Zealand (1895) 13 NZLR 723 .......................................8.83 Downie v Lockwood [1965] VR 257....................................................................7.14 Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker and Sons (1897) 77 LT 180...................................................6.70, 6.74, 6.77, 6.79, 6.81, 6.88 Drew & Co v Josolyne (1887) 18 QBD 590 .........................................................6.15 Drummond’s Trusts, Re (1907) 4 Tas LR 9 ........................................................6.58 Duck Jarm, Re (1924) 24 SR (NSW) 521.............................................5.05, 6.15, 7.0 Dunnicliff & Bagley v Mallett (1859) 7 CB(NS) 209; 141 ER 795 .........................................................................................................7.39
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Durham Bros v Robertson [1898] 1 QB 765 ...........................3.17, 4.04, 4.25, 4.27, 5.06, 5.18, 7.07, 7.38, 7.39, 7.40, 7.41, 8.06 E Brown Pty Ltd v Florence [1966] SASR 214.....................................................6.77 E Pellas & Co v Neptune Marine Insurance Co (1879) 5 CPD 34 .....................8.94 E Pfeiffer WeineinKauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150........................................................................................5.05, 6.17, 8.58 Earl of Egremont v Smith (1877) 6 Ch D 469 .....................................................3.07 Earl of Lucan, Re (1890) 45 Ch D 470 ........................................................3.17, 7.27 Earle’s Shipbuilding and Engineering Company v Atlantic Transport Company (1899) 43 Sol Jo 691 .........................................................................2.02 Eastern Telegraph Co Ltd v Dent [1899] 1 QB 835 ............................................6.87 Edinburgh United Breweries Ltd v Molleson [1894] AC 97 ..............................6.10 Edmunds v Edmunds [1904] P 363 ...................................................6.36, 7.18, 8.04 Edward Nelson & Co Ltd v Faber & Co [1903] 2 KB 367 ..................................8.81 Edward Ward & Co v McDougall [1972] VR 433...............................................8.85 Edwards v Newland & Co [1950] 2 KB 534..............................6.77, 6.78, 6.79, 6.81 Elders Pastoral Ltd v Bank of New Zealand [1991] 1 NZLR 385 ..............3.17, 7.07 Electronic Rentals Pty Ltd v Anderson (1971) 124 CLR 27................................7.37 Elgar Heights Pty Ltd Ltd [1985] VR 657 ............................................................6.45 Ellenborough, Re [1903] 1 Ch 697..............................................................6.17, 7.44 Ellerman Lines Ltd v Lancaster Maritime Co Ltd (The Lancaster) [1980] 2 Lloyd’s Rep 497..........................................................................5.05, 5.23 Ellis and Company’s Trustee v Dixon-Johnson [1924] 2 Ch 451 ....................6.128 Ellis v Torrington [1920] 1 KB 399 ...........................................2.02, 6.09, 6.59, 6.61 Elton v Cavill (No 2) (1993) 34 NSWLR 289 ......................................................6.84 Elves v Croffs (1850) 10 CB 241; 138 ER 98 ........................................................6.08 EM Bowden’s Patents Syndicate Ltd v Herbert Smith & Co [1904] 2 Ch 86 .............................................................................................4.13, 4.25, 7.15 Equus Financial Services Ltd v Glengallen Investments Pty Ltd (unreported Queensland CA , 19 May 1994)..........................................4.18, 7.16 ER Ives Investment Ltd v High [1967] 2 QB 379 ...................................6.108, 6.135 Esanda Finance Corp Ltd v Jackson (1993) 11 ACLC 138 .................................6.14 Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 ...............................................................................................6.87 Esso Petroleum Co Ltd v Hall & Russell & Co Ltd [1989] AC 643....................3.10 Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279 ...................................................................................................6.08, 6.50 Evans v Rival Granite Quarries Ltd [1910] 2 KB 979..........................................3.17 Evelpidi Era, The [1981] 1 Lloyd’s Rep 54 .................................................8.38, 8.71 Fanti, The [1991] 1 AC 1 ....................................................................................6.118 Farm Products Co-operative (Tararua) Co Ltd v Inland Revenue Commissioner (NZ) (1969) 1 ATR 85 .............................................................3.11
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Farmer v Mosley Holdings Ltd [2001] 2 BCLC 572 ...........................................6.63 Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450 ...........6.100, 6.108 Fashion v Atwood (1688) 2 Chan Cas 37; 32 ER 835 ................................4.08, 8.18 Fasken v Minister of National Revenue [1949] 1 DLR 810 ................................3.11 FCT v Everett (1980) 143 CLR 440 ........................3.11, 4.03, 4.19, 4.27, 4.32, 5.07, 6.20, 6.48, 7.39, 7.44, 8.16, 8.29 Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] 1 QB 927..... 8.64, 8.66 Federal Commissioner of Taxation v Galland (1986) 162 CLR 408 ..................6.48 Federal Commissioner of Taxation v Murry (1998) 193 CLR 605 ....................6.48 Feistel v King’s College Cambridge (1847) 10 Beav 491, 50 ER 671 ...........................................................................................................6.58 Felix v Hadley & Co v Hadley [1898] 2 Ch 680..........................................8.06, 8.82 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32......................................................................................................6.27 Field v Battye [1939] SASR 235............................................................................6.58 Field v Megaw [1869] LR 4 CP 660......................................................................7.07 Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 1 AC 1......................................................................6.118, 8.13 First City Corporation v Downsview Nominees Ltd [1989] 3 NZLR 710.........................................................................................6.59, 6.61, 6.62 First National Bank of Chicago v West of England Shipowners Mutual Protection and Indemnity Association (Luxembourg) (The Evelpidi Era) [1981] 1 Lloyd’s Rep 54....................................................................8.38, 8.71 Fisher v Harrison [2003] EWCA Civ 1047 ..........................................................6.58 Fitzgerald v Stewart (1831) 2 Russ & M 457; 39 ER 467.....................................7.04 Fitzroy v Cave [1905] 2 KB 364.....................2.05, 2.07, 2.14, 3.10, 4.07, 4.08, 4.24, 5.06, 6.59, 6.64, 6.69, 6.71, 6.77, 6.86, 6.98, 7.40 Fleming v Loe [1901] 2 Ch 594; rvsd [1902] 2 Ch 359 .......................................8.34 Flint v Walker (1847) 5 Moore 180; 13 ER (PC) 459..........................................7.07 Flood v Shand Construction Ltd (1996) 54 Con LR 125 ..................................................................................6.45, 6.51, 6.54, 6.87, 8.29 Foamcrete (UK) Ltd v Thrust Engineering Ltd [2002] BCC 221..............6.87, 6.88 Foloquet v Woodburn Public School (1934) 29 P 2d 554 .........................6.68, 6.79 Forbes v NSW Trotting Club Ltd (1979) 25 ALR 1 ............................................6.88 Forster v Baker [1910] 2 KB 636 .................................................................4.27, 7.39 Fortescue v Barnett (1834) 3 MY & K 36; 40 ER 14............................................7.21 Forth v Stanton (1681) 1 Wms Saund 210; 85 ER 217 .......................................4.23 Fortunato v Patten (1895) 41 NE 572................................................6.87, 6.88, 6.89 Foster v Cockerell (1835) 3 Cl & Fin 456; 6 ER 1508..........................................4.20 Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 218 ALR 166...................................................................................6.59, 6.60, 6.63, 6.66
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Francis v NPD Property Developments Pty Ltd [2005] 1 Qd R 240........................................................................................3.15, 3.18, 7.17, 7.18 Fraser v Buckle [1996] 2 ILRM 34 .......................................................................6.65 Fratelli Sorrentino v Buerger [1915] 1 KB 307................3.08, 6.78, 6.79, 6.81, 8.03 Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150 .......6.59, 6.63 Freeman v Joiner (2005) 219 ALR 136 ................................................................6.67 Freeway Mutual Pty Ltd v Taylor (1978) 22 ALR 281 ........................................7.07 French v Queensland Premier Mines Pty Ltd [2004] VSC 294..........................6.50 Freshfields’ Trust, Re (1879) 11 Ch D 198 ..........................................................4.20 Friary Holroyd and Healey’s Breweries Ltd v Singleton [1899] 1 Ch 86, rvsd [1899] 2 Ch 261; (1899) 81 LT 101......................................6.87, 8.30 Fricker v Uddo & Taormina Co (1957) 312 P 2d 1085.......................................8.48 Front Comor, The [2005] 2 Lloyd’s Rep 257 ....................................................6.118 Fry, Re ]1946] 1 Ch 312........................................................................................7.40 Fuller v Happy Shopper Markets Ltd [2001] 1 WLR 2853.................................8.66 G & N Angelakis Shipping SA v Compagnie National Algerienne de Navigation (The Attika Hope) [1988] 1 Lloyd’s Rep 439 ...............................7.01 G H Myers & Co v Brent Cross Service Co [1934] 1 KB 46 ...............................6.79 G and T Earle Ltd v Hemsworth Rural District Council (1928) 44 TLR 758 .................................................................6.07, 6.16, 6.21, 6.34, 7.39, 7.40 Gallagher v Rainbow (1994) 179 CLR 624 .............................................6.108, 6.132 Gardiner v Chief Commissioner of State Revenue (2004) 59 NSWLR 549.......7.20 Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1966] 1 QB 650 ...........3.16 Garnham, Harris & Elton Ltd v Alfred W Ellis (Transport) Ltd [1967] 1 WLR 940..........................................................................................................6.79 Garrison Pty Ltd v The Solicitors’ Trust [2004] TASSC 139.....................3.27, 6.71 Gathercole v Smith (1880) 27 Ch D 1.........................................................3.09, 6.82 Gatoil Anstalt v Omennial Ltd (The Balder London) [1980] 2 Lloyd’s Rep 489.............................................................................................7.16, 7.40, 8.95 GE Crane Sales Pty ltd v FCT (1971) 126 CLR 177.........3.23, 4.07, 7.19, 7.22, 8.04 General Estates Co, Re (1868) LR 3 Ch App 758 ................................................8.26 General Horticultural Company, Re (1886) 32 Ch D 512..................................4.14 Geo Thompson (Australia) Pty Ltd v Vittadello [1978] VR 199 .......................7.34 George Inglefield Ltd, Re [1933] Ch 1 .................................................................3.16 George Wimpey & Co Ltd v IRC [1975] 2 All ER 45..........................................3.11 Geroff v CAPD Enterprises Pty Ltd [2003] QCA 187 .....6.34, 6.36, 6.44, 6.50, 8.45 Gibson v Overbury (1841) 7 M & W 555; 151 ER 887 .......................................7.07 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689....................................................................................................8.76 Giles v Thompson [1994] 1 AC 142........................6.59, 6.60, 6.61, 6.62, 6.64, 6.65 Gill v Gill (1921) 21 SR (NSW) 400...................................................................6.135 Gill v Lewis [1956] 2 QB 1....................................................................................6.08
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Gillott’s Settlement, Re [1934] 1 Ch 97 .............................................4.32, 7.05, 7.07 Glegg v Bromley [1912] 3 KB 474 ....................................6.20, 6.55, 6.59, 7.15, 7.19 Glencore International AG v Metro Trading International Inc [1999] 2 All ER (Comm) 899..........................................................................6.118 Global Minerals v Valerica (2000) Butterworths Property Reports 18, 463 ......................................................................................................................6.09 Goldsborough Mort & Co Ltd v Commonwealth Agricultural Service Engineers Ltd [1930] SASR 201 ........................................................................7.07 Goldsborough Mort & Co Ltd v Tolson (1909) 10 CLR 470 ....................2.05, 7.14 Goldschmidt & Loewenick v Diamond Fibre Co (1919) 174 NYS 800; affd (1921) 130 NE 918 ............................................................................6.68, 6.73 Good Luck, The [1990] 1 QB 818 .............................................................6.12, 6.101 Goodman v Napier Harbour Board (1939) NZLR 97 ........................................7.16 Gore v Justice Corporation Pty Ltd (2002) 189 ALR 712 ..........................6.61, 6.63 Gorringe v Irwell India Rubber and Gutta Percha Works (1886) 34 Ch D 128 ...............................................................4.14, 4.15, 7.05, 7.07, 7.08, 7.18 Goss v Chilcott [1996] AC 788.............................................................................6.49 Gough v Timbalok New Zealand Ltd [1997] 1 NZLR 303 .................................8.75 Gould v Skinner [1983] QdR 377 ...............................................................6.55, 7.43 Government Insurance Office (NSW) v KA Reed Services Pty Ltd [1988] VR 829 ................................................6.61, 6.103, 6.127, 6.132, 6.133, 6.135, 8.30 Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199 .....................................................8.59, 8.64, 8.85, 8.87, 8.90, 8.91 Goy & Co Ltd, Re [1900] 2 Ch 149 ......................................................................8.26 Gray v UDC Finance Ltd [2003] 3 NZLR 192............................................8.06, 8.32 Great Northern Railway Co v Witham (1873) 29 LT 471 ..................................6.73 Green v Ingham [1867] LR 2 CP 525...................................................................7.07 Greig v National Amalgamated Union of Shop Assistants (1906) 22 TLR 274..............................................................................................................6.59 Grein v Imperial Airways Ltd [1937] 1 KB 50............................................6.51, 8.09 Grenfell v The Dean and Canons of Windsor (1840) 2 Beav 544; 48 ER 1292 .........................................................................................................6.58 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669........................................................7.07, 7.18, 7.31, 7.38, 7.40, 7.41 Grey v IRC [1958] Ch 690 .........................................................3.11, 7.26, 7.29, 7.30 Griffin, Re [1899] 1 Ch 408 .........................................................................6.87, 6.89 Griffin v Weatherby (1868) LR 3 QB 753............................................................2.13 Griffith v Pelton [1958] Ch 205 .........................................................6.08, 6.50, 8.30 Griffith v Tower Publishing Company Ltd and Moncrieff [1897] 1 Ch 21 .............................................................................................6.73, 6.74, 6.79 Griffiths v Commonwealth Bank of Australia (1994) 123 ALR 111 ..................6.14 Griffiths v Secretary of State for Social Services [1974] QB 468.........................6.74
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Gross v Lewis Hillman Ltd [1970] 1 Ch 445 .......................................................6.09 Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80 .............6.64, 6.67 Gunsborough, Re (1919) 88 LJKB 479 ................................................................7.12 Gurfunkel v Bentley Pty Ltd (1966) 116 CLR 98 ................................................3.16 GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd [1982] SLT 533 ..................................................................................................8.13 Guy v Churchill (1888) 40 Ch D 481..........................................................6.59, 6.67 Gwelo (Matabeleland) Exploration and Development Co Ltd, Re [1901] 1 IR 38 ....................................................................................................8.53 H Dengate and Son, Re (1921) 21 SR(NSW) 619 ...............................................7.07 Hadlee v Commissioner of Inland Revenue [1991] 3 NZLR 517 .............6.20, 6.48 Hagan v Waterhouse (1991) 34 NSWLR 308.............................................6.90, 7.29 Hain Steamship Co Ltd v Tate & Lyle Ltd (1936) 41 Com cas 350....................6.11 Hall, ex parte (1878) 10 Ch D 615 .......................................................................7.04 Hall v Busst (1960) 104 CLR 206 .......................................................6.84, 6.85, 6.88 Halley v The Law Society [2003] EWCA Civ 97.........................................6.09, 8.62 Halsall v Brizell [1957] Ch 169...............................6.106, 6.108, 6.119, 6.125, 6.130 Halycon the Great, The [1984] 1 Lloyd’s Rep 283 .....................................6.73, 7.40 Hambleton v Brown [1917] 2 KB 93 ..........................................................6.20, 6.39 Hamilton, Re (1921) 124 LT 737 ................................................................7.06, 7.27 Hamilton v Letherbridge (1912) 14 CLR 236.............................................6.73, 7.07 Hammond v Messenger (1838) 9 Sim 327; 59 ER 383 .....................4.05, 4.08, 8.18 Hanak v Green [1958] 2 QB 9.....................................................................8.72, 8.85 Handley Page Ltd v Commissioners of Customs and Excise and Rockwell Machine Tool Co Ltd [1970] 2 Lloyd’s Rep 459..............................................8.83 Hannan’s Hill Amalgamated No Liability v Barbican Corporation Ltd (1939) 13 ALJ 255 ..............................................................................................3.07 Haq v Singh [2001] 1 WLR 1594 .........................................................................6.06 Haque v Haque (1965) 114 CLR 98 ............................................................3.26, 7.16 Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1992] 1 Lloyd’s Rep 81; rvsd [1993] QB 701....................................6.118 Harbour Estates Ltd v HSBC Bank plc [2005] 2 WLR 67...................................6.11 Harding Carpets Ltd v Royal Bank of Canada [1980] 4 WWR 149.........................................................................................5.05, 5.22, 7.38 Harding v Harding (1886) 17 QBD 442 .................4.26, 5.09, 7.04, 7.07, 7.27, 7.36 Harrison v Harrison (1888) 13 PD 180 ...............................................................6.58 Harry Simpson & Co Ltd and Companies Act [1964-5] NSWR 603.................8.53 Hart v Porthgain Harbour Co Ltd (1903) 1 Ch 690 ...........................................7.16 Hartley v Russell (1825) 2 Sim & St 244; 57 ER 339 ...........................................6.59 Harvard Securities Ltd, Re [1997] 2 BCLC 369..........................................4.27, 7.29 Haseldine v Hosken [1933] 1 KB 822 ..................................................................6.59 Hauber v Halifax Fire Insurance Co Ltd [1940] SASR 341 ................................6.59
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Haycock’s Policy, Re [1876] 1 Ch D 611 .............................................................8.06 Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd (1968) 121 CLR 584 ......8.75, 8.79 Helby v Matthews [1895] AC 471........................................................................3.16 Helou v PD Mulligan Pty Ltd (2003) 57 NSWLR 74 ..........................................6.45 Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262..................................................................................................6.87, 6.88 Hendry v Chartsearch Ltd, The Times, 16 September 1998..............6.83, 6.87, 6.88 Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] 1 QB 233.......................................................................................................8.64, 8.78 Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 ...........................4.12, 4.14, 5.06, 6.54, 6.87, 6.118, 7.38, 7.40, 8.06, 8.29 Herman v Mount Lyell Mining and Railway Co Ltd (1903) 29 VLR 550 .........7.07 HG Harper & Co v J Bland & Co Ltd (1914) 84 LJKB 738.................................7.04 Higgs v Northern Assam Tea Co Ltd (1870) LR 10 Eq 458................................8.26 Hiley v Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468............4.15, 8.96 Hilger Analytical Ltd v Rank Precision Industries Ltd [1984] BCLC 301 .........8.26 Hill v Caillovel (1748) 1 Ves Sen 122; 27 ER 931 ................................................8.60 Hill v Ziymack (1908) 7 CLR 352 ........................................................................8.64 Hilliard, Re [1907] VLR 375.................................................................................6.58 Hirachand Punamchand v Temple [1911] 2 KB 330..........................................3.08 HJ Wigmore & Co Ltd v Rundle (1930) 44 CLR 222 .......................6.20, 6.42, 6.45 Hoare v Dresser (1859) 7 HL Cas 290 .................................................................4.27 Hockley and Papworth v Goldstein (1920) 90 LJKB 111 ...................................7.38 Hodder & Tolley Ltd v Cornes [1923] NZLR 876....................6.86, 6.87, 6.88, 6.89 Hodges v State of New South Wales (1988) 77 ALR 1........................................6.63 Holden v Thompson [1907] 2 KB 489.................................................................6.59 Hole v Bradbury (1879) 12 Ch D 886 .........................................................6.73, 6.74 Holli Managed Investments Pty Ltd v Australian Securities Commission (1998) 160 ALR 409.........................................................................................6.132 Holmes, In re [2005] 1 WLR 1857 .......................................................................3.10 Holroyd v Marshall (1862) 10 HLC 191; 11 ER 999 .......6.17, 7.13, 7.15, 7.19, 7.44 Holt v Heatherfield Trust Ltd [1942] 2 KB 1...........................4.05, 4.08, 4.14, 4.15, 4.24, 5.10, 7.19, 7.36, 7.38, 8.04 Holt’s Settlements, Re [1969] 1 Ch 100...............................................................7.28 Hong Kong and Shangai Banking Corp v Kloeckner & Co AG [1989] 2 Lloyd’s Rep 323...............................................................................................8.26 Hooper v Smart (1875) LR 1 Ch D 90 .................................................................8.59 Hopkins v Hannah Tatchell (1893) 15 ALT 148.................................................7.07 Horwood v Millar’s Timber and Trading Co Ltd [1917] 1 KB 305 .......................................................................................................6.37, 6.58 Hospital for Sick Children (Board of Governors) v Walt Disney Productions Inc [1966] 1 WLR 1055.......................................................6.87, 6.88
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Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157.....................................................................................................6.118 Housing Guarantaee Fund Ltd v Yusef [1991] 2 VR 11 ............................6.73, 8.24 Howard v Fanshawe [1895] 2 Ch 581..................................................................6.08 Howard v Miller [1915] AC 318 ..........................................................................7.16 Huggins, Re (1882) 21 ChD 85 ...................................................................2.02, 6.58 Hughes v Fresh-Pack Fruit & Vegetable Market Pty Ltd [1965] WAR 199.....6.100 Hughes v Kingston Upon Hull City Council [1999] QB 1193...........................6.59 Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190 .........................................................................4.27, 6.07, 6.43, 6.45, 7.41 Humble v Hunter (1848) 25 Am Rep 9 ......................................................6.77, 6.79 Hume v Monro (No 2) (1943) 67 CLR 461................................................4.22, 4.25 Hunter v Moss [1994] 1 WLR 452 ..............................................................4.27, 7.29 Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 ..............6.49, 6.100 Hutley v Hutley (1873) LR 8 QB 112...................................................................6.59 Hyde v Johnson [1836] 2 Bing NC 776; 132 ER 299...........................................7.37 Hyne & Sons v Podosky [1905] QSR 147 ............................................................7.07 Hyundai Heavy Industries Co Ltd v Papdopoulos [1980] 1 WLR 1129......................................................................................6.21, 6.31, 8.61 IMI Cornelius (UK) Ltd v Bloor (1991) 57 BLR 108..........................................8.03 Independent Automatic Sales Ltd v Knowles and Foster [1962] 1 WLR 974.................................................................................................6.20, 6.37 Inglis, Re (1932) 5 Australian Bankruptcy Cases 255 ................................6.15, 7.07 Inland Revenue Commissioners v John Lewis Properties plc [2003] Ch 513 .......................................................................................................3.11, 6.20 Insurance Australia Ltd, Re (2004) 139 FCR 450..............................................6.101 Inter-Southern Life Insurance co v Humphrey (1919) 84 So 625 .....................6.87 International Leasing Corp (Vic) Ltd v Aicken [1967] 1 NSWLR 669 ..............7.07 International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427........................................................3.27, 6.15, 6.100, 7.18, 7.31, 7.38 International Polymers Pty Ltd v Custom Credit Corp Ltd (1995) 8 ANZ Insurance Cases 61-234.......................................................6.84, 6.86, 6.89 Interstate Investment Co Ltd v Mobbs (1928) 28 SR(NSW) 572 .............7.39, 7.40 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896...........................................................2.04, 2.05, 3.10, 6.10, 6.112, 8.04 Investors in Industry Commercial Properties Ltd v South Bedfordshire District Council [1986] 1 All ER 787.......................................................3.08, 6.79 Ipswich Permanent Money Club Ltd v Arthy [1920] 2 Ch 257 .........................7.18 IRC v Oswald [1945] AC 360 ...............................................................................6.49 Irving, Re (1877) 7 Ch D 419 ...............................................................................7.07 Israel v Douglas (1789) 1 H Bl 239; 126 ER 139..................................................4.23 J Miller Ltd v Laurence and Bardsley [1966] 1 Lloyd’s Rep 90.......6.69, 6.73, 6.127
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Jackson v Richards [2005] NSWSC 630 ..............................................................7.07 Jacobs v Larkin (1892) 13 NSWR (Eq) 62 .......................................6.08, 6.69, 6.113 Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352.........................6.67 James Nelson & Sons Ltd v Nelson Line (Liverpool) Ltd [1906] 2 KB 217 ...........................................................................................3.10, 4.08, 7.39 James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592 ........7.18, 7.38, 8.06 James v Commonwealth Bank of Australia (1992) 37 FCR 445 ...........................................................................................8.64, 8.85, 8.86, 8.91 Jartay Developments Ltd (1983) 22 Build LR 134 ..............................................6.16 JC Scott Constructions v Mermaid Waters Tavern Pty Ltd [1984] 2 Qd R 314 ................................................................................................6.61, 6.64 JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 .........................4.22 Jeffree v NCSC (1989) 15 ACLR 217 ..........................................................6.61, 6.64 Jeffrey v Agra & Masterman’s Bank (1866) LR 2 Eq 674 ....................................8.83 Jeffs v Day (1866) LR 1 QB 372..........................................................4.05, 4.09, 8.06 Jenkins v Visualeyes Pty Ltd [2005] VSC 218......................................................7.38 Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 .....................4.17 Jerome v Kelly [2004] 1 WLR 1409....................................................3.11, 7.16, 7.17 John Nitschke Nominees Pty Ltd v Hahndorf Golf Club Inc (2004) 88 SASR 334 .......................................................................6.84, 6.85, 6.108 John Rigby (Haulage) Ltd v Reliance Marine Insurance Co Ltd [1956] 2 QB 468.................................................................................................3.08 John Young & Co Kelvinhaugh Ltd v Rugby Group Plc, QBD, HT 00/337, 19 Dec 2000....................................................................................6.88 Johnson v Agnew [1980] AC 367 .........................................................................6.21 Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 ................6.74, 6.77, 6.78, 6.79 Johnson v Vickers (1909) 120 NW 837 ...............................................................6.68 Johnstone v Commissioner of Inland Revenue [1966] NZLR 833 ....................7.44 Jones v Farrell (1857) 1 De G & J 208; 44 ER 703 ...............................................8.06 Jones v Gibbons (1804) 9 Ves Jun 407; 32 ER 659.....................................4.14, 6.50 Jones v Humphreys [1902] 1 KB 10...................................................4.27, 7.39, 7.40 Jones v Jones (1838) 8 Sim 633; 59 ER 251 .........................................................4.20 Jones v Thompson (1858) EB & E 63; 120 ER 430..............................................6.45 Jordan Nicolav, The [1990] 2 Lloyd’s Rep 11.........................6.08, 6.73, 6.118, 7.38 Joseph v Lyons (1884) 15 QBD 280 .....................................................................7.11 Josselson v Borst [1938] 1 KB 723......................................................7.05, 7.07, 7.38 JWH Group Pty Ltd v Kimpura Pty Ltd [2004] WASC 39.................................6.86 Kaukomarkkinat O/Y v “Elbe” Transport-Union GmbH (The Kelo) [1985] 2 Lloyd’s Rep 85...................................................................6.61, 6.62, 7.37 Kauter v Kauter [2003] NSWSC 741 .................................................................6.106 Keith v Butler & Foster (1866) 1 QSCR 141........................................................8.04 Kekewich v Manning (1851) 1 De GM & G 176; 42 ER 519 ..............................7.27
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Kelly, Re (1932) 4 Australian Bankruptcy Cases 258 .........................707, 3.09, 7.07 Kelly v Inland Revenue Commissioner (NZ) (1969) 1 ATR 380 .......................6.48 Kelo, The [1985] 2 Lloyd’s Rep 85 .....................................................6.61, 6.62, 7.37 Kemp v Baerselman [1906] 2 KB 604 ..........................6.70, 6.73, 6.88, 6.121, 6.134 Kenneth Wright Distributors Pty Ltd, Re [1973] VR 161 .......3.27, 6.59, 7.38, 8.36 Kennewell v Dye [1949] Ch 517...........................................................................6.08 Kent and Sussex Sawmills Ltd, Re [1947] Ch 177 ...........3.16, 3.17, 4.27, 7.07, 7.08 Kern Corp Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164 .................7.17 Kijowski v New Capital Properties Ltd (1990) 15 Con LR 1 .....................7.04, 7.06 King v Brown (1912) 14 CLR 17 ..........................................................................7.34 King v David Allen & Sons, Billposting Ltd [1916] 2 AC 55 ..............................8.03 King v Michael Faraday and Partners Ltd [1939] 2 KB 753 ...............................6.58 King v Victoria Insurance Co Ltd (1895) 6 QLJ 202; [1896] AC 250..............................................................................................5.12, 5.13, 6.59 King v West Coast Grocery Co (1913) 129 P 1081 ....................................6.68, 6.70 Kitson v Hardwick (1872) LR 7 CP 473 ..............................................................6.67 KL Tractors, Re [1954] VLR 505..........................................................................8.85 KLDE Pty Ltd v Commissioner of Stamp Duties (1984) 155 CLR 288 .............7.17 Knight v Burgess (1864) 33 LJ Ch 727.................................................................6.68 Kollerich & Cie SA v State Trading Corp of India [1980] 2 Lloyd’s Rep 32......6.79 Konstas v Southern Cross Pumps and Irrigation Pty Ltd (1996) 217 ALR 409............................................................................................................6.132 Kova Establishment v Sasco Investments Ltd [1998] 2 BCLC 83 ......................6.71 Krasner v Dennison [2001] Ch 76 ..............................................................6.58, 6.82 La Rue v Groezinger (1890) 24 P 42 ...........................................................6.70, 6.76 Lakatoi Express, The (1990) 103 FLR 32 .............................................................3.06 Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34..............................................................................................6.17, 6.36, 6.38 Lambe v Orton (1860) 1 Dr & Sm 125; 62 ER 325 .............................................7.05 Lampet’s case (1612) 10 Co Rep 48b; 77 ER 994 ................................................2.09 Lancaster, The [1980] 2 Lloyd’s Rep 497....................................................5.05, 5.23 Landau v Barclays Bank plc [2004] 2 All ER (Comm) 16...................................7.15 Lang v James Morrison & Co Ltd (1911) 13 CLR 1............................................3.07 Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265................6.09 Latham, Re (1857) 1 De G & J 152; 44 ER 681....................................................7.12 Laurent v Sale & Co [1963] 1 WLR 829.............................................6.59, 6.61, 6.64 Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1993] 1 WLR 138................................................................3.27, 6.51, 6.108, 6.129, 6.132 Law Institute of Victoria v Cowan [1973] VR 293..............................................5.07 Law v Coburn [1972] 1 WLR 1238 .............................................................6.42, 6.75 Lawrence v Hayes [1927] 2 KB 111....................................................8.62, 8.64, 8.83 Lawsons Construction Pty Ltd , Re [1942] SASR 201................................4.27, 7.40
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Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 .................6.08, 6.88, 6.101 Leage, The [1984] 2 Lloyd’s Rep 259 ...............................................6.08, 6.73, 6.118 Leask v Scott Brothers (1877) 2 QBD 376 ...........................................................8.49 Lechmere v Hawkins (1798) 2 Esp 626; 170 ER 477...........................................8.26 Lee v Simmons (1999) ANZ Conveyancing Reports 372 .................................6.100 Lee-Parker v Izzet [1971] 1 WLR 1688 ................................................................8.46 Legh v Legh (1799) 1 Bos & Pul 447; 126 ER 1002 ....................................4.24, 8.06 Leonard George Munday v ACT [1998] SCACT 62 ...........................................6.88 Lett v Morris (1831) 4 Sim 607; 58 ER 227 ................................................7.07, 8.06 Letts v IRC [1957] 1 WLR 201 ..................................................4.02, 4.03, 6.52, 7.07 Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728 .........................3.10 Lidden v Composite Buyers Ltd (1996) 67 FCR 560 ..........................................4.22 Lind, Re [1915] 2 Ch 345...........................................................4.31, 4.32, 4.33, 7.44 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 ..............................................................6.50, 6.52, 6.73, 6.79, 6.84, 6.85, 6.86, 6.87, 6.88, 6.101, 8.03, 8.05 Ling v Commonwealth Australia (1994) 123 ALR 65.........................................2.12 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.......................................2.05, 6.05 Liquidation Estates Purchase Co Ltd v Willoughby [1898] AC 321 .........8.04, 8.06 Liverpool & London and Globe Insurance Co Ltd v Hartley & Ford [1927] VR 523...........................................................................................6.42, 7.07 Liversidge v Broadbent (1859) 4 H & N 603; 157 ER 978 .........................2.13, 7.15 Lloyds & Scottish Finance Ltd v Cyrill Lord Carpets Sales Ltd [1992] BCLC 609 ...........................................................................................................3.16 Lloyds Bank plc v Rosser [1989] Ch 350 .............................................................6.47 Lloyd’s TSB Bank plc v Clarke [2002] 2 All ER (Comm) 992 ............................7.07 Lloyds v Banks (1868) LR 3 Ch App 488 .............................................................7.18 Loan Investment Corp of Australasia v Bonner [1970] NZLR 724 ...................7.16 Lockhart, Re (1894) 15 NSWR (B & P) 80 ..........................................................7.04 London & Yorkshire Bank Ltd v White (1895) 11 TLR 570......................4.14, 7.15 London County and Westminster Bank Ltd v Tomkins [1918] 1 KB 515 ........3.17 Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11.......4.05, 4.17, 4.18, 4.27 Lonsdale Sand and Metal Pty Ltd v FCT (1998) 162 ALR 220...........................7.38 Lord Cateret v Paschal (1733) 3 P WMS 197; 24 ER 1028 .................................8.18 Lord Southhampton’s Estate, Re (1880) 16 Ch D 178........................................8.83 Lord Strathcona SS Co v Dominion Coal Co [1926] AC 108 ..........................6.106 Lovell v Western Australian Police Union of Workers [1991] Aust Torts R 68 ..................................................................................................6.61 Loxton v Moir (1914) 18 CLR 360.....................................................2.05, 3.10, 6.07 Lucas v Lucas [1943] P 68 ....................................................................................6.58 Lumley v Gye (1853) 2 E & B 216; 118 ER 759 ...................................................6.69 Lunn v Thornton (1845) 1 CB 379; 135 ER 587 .................................................7.11
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Lyon v Creati (1892) 18 VLR 629 ...............................................................6.73, 6.78 Lysaght v Edwards (1876) 2 Ch D 499.................................................................7.17 Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 ................................................................................................6.16, 6.106 McArdle, Re [1951] Ch 669.....................................7.05, 7.07, 7.09, 7.19, 7.27, 7.28 McCallum, Re [1933] VLR 35..............................................................................8.06 McClure, In the Estate of (1947) 48 SR (NSW) 93 ....................................6.14, 6.30 McDermott v Black (1940) 63 CLR 161 ..............................................................4.24 McDonald, Re [1918] NZLR 626.........................................................................7.12 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 ...............6.21, 6.25, 6.26, 6.27, 6.28, 6.29, 6.31, 8.33, 8.34, 8.37, 8.61 McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612 ...................6.33, 8.07 MacDonald v Robins (1954) 90 CLR 515..........................................3.07, 6.88, 8.30 McDonnell & East Ltd v McGregor (1936) 56 CLR 50............8.64, 8.84, 8.86, 8.91 McElroy v Flynn [1991] ILRM 294......................................................................6.65 McFadden v Public Trustee for Victoria [1981] 1 NSWLR 15...........................7.33 McFarlane v E E Caledonia Ltd (No 2) [1995] 1 WLR 366.......................6.61, 6.63 MacFarlane v Lister (1887) 37 Ch 88...................................................................7.07 McIntosh v Shashoua (1931) 46 CLR 494 ..................................................7.38, 8.06 McIntyre v Gye (1994) 122 ALR 289 ........................................4.27, 7.17, 7.21, 7.39 Mackender v Feldia AG [1967] 2 QB 590............................................................8.62 Mackenzie v City Bank (1876) 14 SCR (NSW) 1 ................................................7.07 McKerrell, Re[1912] 2 Ch 648 .............................................................................4.27 Mackusick v Fleming [1904] WN 44; (1904) 90 LT 101 ....................................8.34 McLean (deceased), Re (1904) 23 NZLR 504......................................................2.02 McLeay, Re (1875) LR 20 Eq 186 .........................................................................6.76 McLeay v Commissioner of Inland Revenue [1963] NZLR 711 ..............................................................3.18, 6.20, 6.39, 6.49, 7.40, 7.41 McMahon v Docker (1945) 62 WN(NSW) 155..................................................6.87 McMahon v Gilberd & Co Ltd [1955] NZLR 1206....................................4.18, 7.09 McMahon v Swan [1924] VLR 397......................................................................8.30 McPherson, Thom & Co , Re [1929] VLR 295...........................................7.07, 8.06 McRae v Coulton (1986) 7 NSWLR 644 .............................................................7.37 McWilliam v McWilliams Wine Pty Ltd (1964) 114 CLR 656...........................7.16 Madison Pictures Inc v Chesapeake Industries Inc (1955) 147 NYS 2d 50...........................................................................................6.50, 6.69 Magee v UDC Finance Ltd [1983] NZLR 438............................................7.18, 7.38 Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 142 ALR 198.......................................................................................................6.63 Mail-Well Envelope Co v Saley (1972) 497 P 2d 364..........................................6.08 Majestic Homes Pty Ltd v Wise [1978] Qd R 225...............................................6.09 Malcolm v Scott (1843) 3 Hare 39; 67 ER 288 ...........................................7.04, 7.07
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Mallyons Ltd v South Australian Harbours Board [1933] SASR 166 ..........................................................................................6.73, 6.76, 6.79 Malory Enterprises Ltd v Chesire Homes (UK) [2002] Ch 216 .........................6.09 Manchester Brewery Co v Coombs [1901] 2 Ch 608 ................................................................4.18, 4.22, 5.12, 6.73, 6.76, 8.07 Manchester, Re [1925] VLR 670 ..........................................................................7.07 Manchester, Sheffield and Lincolnshire Railway Co v North Central Wagon Co (1888) 13 App Cas 554......................................................3.16 Mangles v Dixon (1852) 2 CR & M 231; 149 ER 745........................7.18, 8.60, 8.71 Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 ..........................................................................................6.50 Marathon Electrical Manufacturing Corp v Mashreqbank PSC [1997] 2 BCLC 460 ...................................................................................6.34, 6.43 Marchant v Morton, Down & Co [1901] 2 KB 829 ..........................5.05, 7.15, 7.37 Mark Sensing (Aust) Pty Ltd (1986) 68 ALR 367 .............................................6.100 Marr v The Admiralty (1926) SC 842 ..................................................................6.58 Martell v Consent Iron Co Ltd [1955] 1 Ch 363 ......................6.59, 6.61, 6.62, 6.64 Master v Miller (1791) 4 TR 320.................................................................2.16, 4.23 Matahina Rimu Co Ltd, Re [1941] NZLR 490 ..................................7.15, 7.19, 7.34 Mathews v Wallwyn (1798) 4 Ves 118; 31 ER 62 ................................................8.81 Matson v White (1950) 220 P (2d) 864 ......................................................6.70, 6.73 Matthews v Usher [1900] 2 QB 535.....................................................................8.67 May v Lane (1894) 64 LJQB 236 ......................................6.06, 6.43, 6.59, 6.75, 8.45 Meek v Port of London Authority [1918] 2 Ch 96 .............................................3.06 Mellowes Archital Ltd v Bell Products Ltd (1997) 87 BLR 26............................8.74 Mercantile Bank of London Ltd v Evans (1899) 2 QB 613........................3.16, 7.41 Mercantile Finance Corp Ltd v New Zealand Insurance Co Ltd [1932] NZLR 1107.............................................................................................6.87 Merrill v Merrill (1825) 3 Me 463........................................................................7.07 Metal Distributors (UK) Ltd v ZCCM Investment Holdings plc [2005] 2 Lloyd’s Rep 37.....................................................................................8.64 Meux v Bell (1841) 1 Hare 73; 66ER 955.............................................................4.20 M’Gillivray v Simson (1826) 2 C & P 320; 172 ER 145.......................................8.26 MH Smith (Plant Hire) Ltd v DL Mainwaring (T/A Inshore) [1986] 2 Lloyd’s Rep 244...................................................................................3.10 Middleton v Pollock (1876) 2 Ch D 104..............................................................7.29 Mikhail Lermontov, The (1993) 176 CLR 344 ..................................6.26, 6.28, 8.33 Milan Tramways Co, Re (1884) 25 Ch D 587 .....................................................8.95 Miller Construction Co v First Industrial Technology Corp (1991) 576 So 2d 748 .........................................................................................6.79 Miller’s Case (1876) 3 Ch D 391 ..........................................................................3.06 Milroy v Lord (1862) 4 De GF & J 264; 45 ER 1185..........................7.20, 7.21, 7.27
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Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 214 ALR 24............................................................6.101 Minister for Land and Water Conservation v NTL Australia Pty Ltd [2002] NSWCA 149 ...........................................................................6.88, 6.92 Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] 2 All ER (Comm) 823.................................................................................................6.21 Minnetoka Oil Co v Cleveland Vitrified Brick Co (1910) 111 P 326.................6.73 Minucoe v London and Liverpool and Globe Insurance Co Ltd (1925) 36 CLR 513....................................................................................6.73, 6.87 Mirams, Re [1891] 1 QB 594................................................................................6.58 Misner v Australian Capital Territory (2000) 146 ACTR 1................................6.09 Mitchell v Purnell Motors Pty Ltd [1961] NSWR 165......................8.49, 8.64, 8.72 MK and JA Roche Pty Ltd v Metro Edgley Pty Ltd [2004] NSWSC 744 ...........6.87 Modern Weighbridge and Scale Services Pty Ltd v Australian National Railways Commission (Supreme Court, Sth Australia, 6 Sept 1995) ....6.84, 6.86 Mondel v Steel (1841) 8 M & W 858; 151 ER 1288....................................8.75, 8.79 Monk v ANZ Banking Corp Ltd (1994) 34 NSWLR 148.........6.59, 6.61, 6.62, 6.64 Montedipe SpA v JTP-RO Jugotanker (The Jordan Nicolav) [1990] 2 Lloyd’s Rep 11...............................................6.08, 6.73, 6.118, 7.38, 8.29 Montgomery v De Picot (1908) P 305 ........................................................6.71, 6.79 Moore v Collins [1937] SASR 195 ..............................................................6.70, 6.73 Moresk Cleaners Ltd v Hicks [1966] 2 Lloyd’s Rep 338 .....................................6.79 Morgan v Larivière [1875] LR 7 HL 423..............................................................7.04 Morley v Morley (1858) 25 Beav 253; 53 ER 633 ..............................................6.100 Morrell v Wootten (1852) 16 Beav 197; 51 ER 753...............................................................2.13, 4.12, 7.04, 7.06, 7.07, 7.18 Morrison v Young (1872) 3 VR (L) 35 ................................................................6.59 Moschi v Lep Air Services Ltd [1973] AC 331...................................................6.100 Moseley v Cressey’s Co (1865) LR 1 Eq 405........................................................7.07 Moss Bay Hematite Iron and Steel Co Ltd (1892) 8 TLR 63; affd 8 TLR 475 ...................................................................................................8.71 Moss, Ex parte (1884) 14 QBD 310 .....................................................................6.15 Moss v Barnett (1862) 1 SCR(NSW) 313 ............................................................7.14 Motel Marine Pty Ltd v IAC (Finance) Pty Ltd (1964) 110 CLR 9 ....................7.37 Moulsdale v Birchall (1772) 2 Black W 820; 96 ER 483......................................4.23 Mountain Road (No 9) Ltd v Michael Edgley Corp Ltd [1999] 1 NZLR 335 ....................................................................4.10, 4.11, 4.13, 4.14, 7.16 Movitor Pty Ltd v Sims, Re (1996) 19 ACSR 440 .....................................................6.59, 6.61, 6.62, 6.63, 6.64, 6.65, 6.67 Mowry v Todd (1815) 12 Mass 281 .....................................................................7.07 Moxon v Berkeley Mutual Benefit Building Society (1890) 62 LT 250............................................................................................................8.99
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MS Fashions Ltd v Bank of Credit and Commerce International SA (No 2) [1993] Ch 425 ................................................................................6.100 MSP Nominees Pty Ltd v Commissioner of Stamps (1999) 198 CLR 494 ........3.11 Mulkerrins v PricewaterhouseCoopers [2003] 1 WLR 1937.....................6.98, 8.04 Muntz v Smail (1909) 8 CLR 262.........................................................................7.07 Muscat v Smith [2003] 1 WLR 2853...........................................................8.66, 8.69 Mutual Export Corp v Asia Australian Express Ltd (The Lakatoi Express) (1990) 103 FLR 32 ..............................................................................3.06 Mutual Pools & Staff Pty Ltd v Commonwealth of Australia (1994) 179 CLR 155..............................................................................................6.61, 6.62 N Joachimson v Swiss Bank Corp [1921] 3 KB 110............................................6.37 Napier v Williams [1911] 1 Ch 361 .....................................................................6.09 Natal Investment Co, Re (1868) LR 3 Ch App 355.............................................8.26 National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41.......................................................................6.69, 6.70, 6.79, 6.99, 8.09 National Express Group Australia (Swanston Trams) Pty Ltd (2004) 209 ALR 694.......................................................................................................6.36 National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1........................................3.17, 4.1, 4.18, 4.27, 7.40 National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514..........................6.05, 6.58, 6.61, 6.62, 6.64, 6.65 National Provincial & Union Bank of England v Lindsell [1922] 1 KB 21........6.50 National Provincial Bank Ltd v Ainsworth [1965] AC 1175 ............2.06, 6.09, 8.79 National Provincial and Union Bank v Charnley [1924] 1 KB 431 ...................3.17 Neave v Neave [1926] GLR 254 ..................................................................4.05, 4.12 Nettleton v Molineaux (1889) 15 VLR 13 ...........................................................7.14 Neville v London “Express” Newspaper Ltd [1919] AC 368..............................6.59 Neville v Wilson [1997] Ch 144 .........................................................7.16, 7.28, 7.29 New Bullas Trading Ltd, Re [1994] 1 BCLC 485 ................................................6.56 New England Cabinet Works v Morris (1917) 115 NE 315 ......................6.77, 6.79 New Redhead Estate & Coal Co Ltd v Scottish Australian Mining Co Ltd (1919) 20 SR(NSW) 12 .......................................................................6.121 New York Bank Note Company v Hamilton Bank Note Engraving and Printing Company (1905) 73 NE 48 .........................................................6.08 New York Underwriters Insurance Company v Central Union Bank of South Carolina (1933) 65 F 2d 738 ..............................................................6.73 New Zealand Factors Ltd v Farmers Trading Co Ltd [1992] 3 NZLR 703 ........7.38 New Zealand Payroll Software Systems Ltd v Advanced Management Systems Ltd [2003] 3 NZLR 1 ..................................................................6.87, 6.88 Newbolt v Bingham (1895) 72 LT 852.................................................................6.08 Newcrest Mining (WA) Ltd v Commonwealth of Australia (1997) 190 CLR 513.......................................................................................................3.11
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Newman v Cook [1963] VR 659 .................................................................8.75, 8.79 Ngyen: Ex Parte Official Trustee in Bankruptcy (1992) 120 ALR 424...............6.67 Nichols, ex parte (1883) 22 Ch D 782..................................................................6.15 Nioa v Bell (1901) 27 VLR 82...............................................................................8.06 Nirens v Fowler Asphalt Pty Ltd (1966) 9 FLR 255 ............................................4.27 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 ....................................3.08, 3.09, 6.73, 6.74, 6.79, 6.88, 6.92, 6.95, 6.101 Nolan v King and Cook [1931] QSR 342 ...................................................4.18, 7.07 Noonan v Martin (1987) 10 NSWLR 402...................................................7.04, 7.40 Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 ..............6.84 Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1 .............................................................................6.59, 6.63, 6.64, 6.67, 6.82 Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 .........................................2.05, 2.18, 3.04, 3.14, 3.23, 3.25, 4.04, 4.05, 4.07, 4.09, 4.16, 4.27, 6.17, 6.19, 6.20, 6.49, 6.90, 7.15, 7.20, 7.21, 7.22, 7.27, 7.28, 7.39, 7.44 Norrish v Marshall (1821) 5 Madd 475; 56 ER 977 ............................................8.81 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146.....7.37 NT Power Generation Pty Ltd v Trevor (2000) 23 WAR 482 ............................7.16 Nullagine Investments Pty Ltd Western Australian Club Inc (1993) 177 CLR 635.......................................................................................................6.85 NW Robbie & Co Ltd v Witney Warehouse Co Ltd [1963] 1 WLR 1324 .........8.83 Oakdale (Richmond) Ltd v National Westminster Bank plc [1997] 1 BCLC 63 ..........................................................................................................6.86 Oasis Merchandising Services Ltd, Re [1998] Ch 170 ......................6.06, 6.64, 6.67 OBG Ltd v Allan [2005] 2 WLR 1174 ..................................................................8.11 O’Brien v Benson’s Hosiery (Holdings) Ltd [1980] AC 562 ............2.05, 3.11, 6.73 Official Manager of the Athenoeum Life Assurance Society v Pooley (1858) 3 De G & J 294; 44 ER 1281...................................................................8.58 Ogdens Ltd v Weinberg (1906) 95 LT 567 ...............................6.06, 6.15, 6.52, 6.54 Old Grovebury Manor Farm Ltd v W Seymour Plant Sales & Hire Ltd (No 2) [1979] 1 WLR 1397.........................................................................6.87 Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11 .........................................................................................................6.87 Oldham v Oldham (1867) LR 3 Eq 404 ...............................................................7.05 Olds Discount Co Ltd v Cohen [1938] 3 All ER 281n ........................................3.16 Olds Discount Co Ltd v John Playfair Ltd [1938] 3 All ER 275 .........................3.16 Olsson v Dyson (1969) 120 CLR 365 ......................2.14, 3.06, 7.05, 7.15, 7.20, 7.21 Orakpo v Manson Investments Ltd [1978] AC 95..............................................3.09 Ord v White (1840) 3 Beav 357; 49 ER 140 .........................................................8.83 Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78 .................................................................................................3.16, 3.17
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Orion Finance Ltd v Crown Financial Management Ltd (No 2) [1996] 2 BCLC 78 ..............................................................................................3.16 Orlando Orange Groves Co v Hale (1935) 161 So 284.......................................6.92 Oshlack v Richmond River Council (1998) 193 CLR 72 ....................................4.05 Ostabridge Pty Ltd v Stafford [2001] NSWCA 335 ............................................8.82 O’Sullivan v Commissioner of Stamp Duties [1984] 1 Qd R 212......................3.18 OT Computers Ltd, Re [2004] Ch 317 ................................................................6.73 Oughtred v IRC [1960] AC 206 .........................................................7.26, 7.28, 7.29 Overall v Victoria Insurance Co Ltd [1929] GLR 69 ..........................................6.73 Owen, Re [1894] 3 Ch 220 ...................................................................................3.17 Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288..................................................................................................6.11 Padre Island, The [1984] 2 Lloyd’s Rep 408.............................................6.08, 6.118 Padre Island, The (No 2) [1990] 2 Lloyd’s Rep 259..........................................6.118 Paige v Faure (1920) 127 NE 898 .......................................................6.68, 6.71, 6.73 Pain, Re [1919] 1 Ch 38 ....................................................4.03, 5.09, 5.13, 5.18, 5.27 Paine v Meller (1801) 6 Ves jun 349; 31 ER 1088 ...............................................7.17 Pakenham Upper Fruit Ltd v Crosby (1924) 35 CLR 386 ..................................3.26 Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 ...............3.10, 4.07, 4.31, 4.32, 6.05, 6.33, 6.34, 7.07, 7.09, 7.15, 7.16, 7.44 Palmer v Bate (1821) 2 Brad & B 673; 129 ER 1125............................................6.58 Palmer v Carey [1926] AC 703.........................................3.17, 4.27, 7.07, 7.09, 7.12 Palmer v Culverwell Brooks & Co (1902) 85 LT 758..........................................7.07 Palmer v Locke (1881) 18 Ch D 381 ....................................................................5.05 Palmer’s Decoration & Furniture Co, Re [1904] 2 Ch 743 ................................8.62 Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161............................................................3.12, 5.05, 6.22, 6.29, 6.38, 6.41, 6.104, 8.01, 8.31, 8.33, 8.34, 8.37 Paper Products Mach Co v Safepack Mills (1921) 131 NE 288.................6.68, 6.69 Paquine v Snary [1909] 1 KB 688 ........................................................................6.58 Paradise Motors Co Ltd, Re [1968] 1 WLR 1125.......................................7.15, 7.31 Paragon Finance plc v Pender [2005] 1 WLR 3412 ............................................4.05 Paris Skating Rink Co, Re (1877) 5 Ch D 959.....................................................6.59 Park Gate Waggon Works Co, Re (1881) 17 Ch D 234 ......................................6.67 Park v Allied Mortgage Corp Ltd (1993) ATPR (Digest) 46 ..............................6.05 Parker v Jackson [1936] 2 All ER 281 ..................................................................8.81 Parramatta Design & Developments Pty Ltd v Concrete Pty Ltd (2005) 219 ALR 373...........................................................................................6.69 Parsons v Sovereign Bank of Canada [1913] AC 160 .........................................8.64 Partnership Pacific Securities Ltd , Re [1994] 1 Qd R 410...............................................................................7.40, 8.26, 8.67, 8.69, 8.86 Paterson v Murphy (1853) 11 Hare 88; 68 ER 1198 ..................................7.27, 7.29
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Patience, ex parte (1940) 40 SR (NSW) 96..........................................................6.58 Paton v IRC [1938] AC 341..................................................................................6.49 Patrick, Re [1891] 1 Ch 82..................................................................4.15, 7.21, 8.04 Patrick Smythe, Re Trust of [1970] ALR 919 ....................................7.07, 7.16, 7.19 Patten v Thomas (1965) 66 SR (NSW) 458; [1965] NSWR 1457 ......................6.46 Paul & Frank Ltd v Discount Bank [1967] Ch 349 .............................................6.44 Paul v Constance [1977] 1 All ER 195 .................................................................7.29 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221......................................2.10 Pawlett v AG (1667) Hard 465; 145 ER 550 ........................................................4.24 Pearcy, In re (1871) LR 13 Eq 309 .......................................................................6.45 Pearson v Commissioner of Taxation [2001] FCA 1427 ....................................4.22 Peden Iron & Steel Co v McKnight (1910) 128 SW 156.....................................8.48 Pendal Nominees Pty Ltd v Lednez Industries (Australia) Ltd (1996) 40 NSWLR 282 ..................................................................................................8.13 Pennington v Waine [2002] 1 WLR 2075............................................................7.15 Pennsylvania R Co v Huston (1936) 81 F 2d 704.......................................6.68, 6.78 Percival v Dunn (1885) 29 Ch D 128..........................................................7.12, 7.40 Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1.............................................................................4.13, 4.16, 4.25, 5.23 Perkins, Re [1898] 2 Ch 182.................................................................................8.13 Perpetual Executors Trustees and Agency Co (WA) Ltd v Maslen [1952] AC 215....................................................................................................7.14 Perpetual Trustee Co Ltd v Smith (1938) 39 SR (NSW) 19 ...............................7.07 Perryer v Halifax (1677) Rep Temp Finch 299; 23 ER 164.................................8.18 Peter v Shipway (1908) 7 CLR 232.......................................................................7.19 Peters v General Accident Fire & Life Assurance Corp Ltd [1937] 4 All ER 628; [1938] 2 All ER 267 (CA).............................................6.72, 6.73, 6.88 Peters v Soame (1701) 2 Vern 428; 23 ER 164 ....................................................8.18 Pettit & Johnson v Foster Wheeler Ltd [1950] 2 DLR 42 .................5.05, 7.07, 8.06 Phillips v Alhambra Palace Co [1901] 1 QB 59..........................................6.74, 6.79 Phillips v Clagett (1843) 11 M & W 84; 152 ER 725 ...........................................4.24 Phillips v Phillips (1861) 4 De GF & J 208; 45 ER 1164......................................6.09 Phoenix Assurance Co Ltd v Earl’s Court Ltd (1913) 30 TLR 50 ......................8.26 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 ...6.31, 6.51, 8.61 Pickering v Sogex Services (UK) Ltd (1982) 20 BLR 66 .....................................6.61 Pinches (No 2), Re (1932) 4 Australian Bankruptcy Cases 200 .........................7.07 Pincott v Moorstons Ltd [1937] 1 All ER 513 .....................................................6.90 Pino v Spanish Broadcasting System of Florida Inc (1990) 564 So 2d 186 .......6.08 Pinto Leite and Nephews, Re [1929] 1 Ch 221....................................................8.83 Plater v Meng (1887) 30 Fed Rep 308..................................................................7.07 Plating Co v Farquharson (1881) 17 Ch D 49.....................................................6.59 Pooley v Goodwin (1835) 4 Ad & E 94; 111 ER 722 ...........................................7.40
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Portuguese-American Bank of San Francisco v Welles (1916) 242 US 7 ..................................................................................................3.10, 6.87, 6.89 Post Office v Norwich Union Fire Insurance Society [1967] 2 QB 363 .............................................................................................................6.22, 6.73 Poulton v Commonwealth (1953) 89 CLR 540..........................................6.59, 6.61 PP Consultants Pty Ltd v Finance Sector Union (2000) 201 CLR 648 ............6.101 Precious Metals Australia Ltd v Xstrata (Schweiz) AG [2005] NSWSC 141 .....................................................................................................6.100 Premetis v 260 Oxford Street Pty Ltd [2005] NSWSC 904.................................6.48 President of the Shire of Benalla v Turner (1881) 7 VLR 200 ...................6.50, 7.14 Price v Murray [1970] VR 782 .............................................................................8.30 Price v Seaman (1825) 4 B & C 525; 107 ER 1155 ..............................................4.09 Primelife (Glendale Hostel) Pty Ltd v Commissioner of State Revenue (2004) 9 VR 665.................................................................................................6.48 Pritchard v Racecage Pty Ltd (1997) 142 ALR 527 .............................................6.05 Proctor v Union Coal Co (1923) 137 NE 659 .................................6.70, 6.88, 6.121 Project 28 Pty Ltd v Barr [2005] NSWCA 24 ..................6.59, 6.61, 6.62, 6.63, 6.66 Prosser v Edmonds (1835) 1 Y & C Ex 481; 160 ER 263 ...........................6.10, 6.59 Provident Finance Corp Pty Ltd v Hammond [1978] VR 312.........8.70, 8.85, 8.86 Pryors Tours Pty Ltd v Minister for Transport [2003] WASCA 129 .......................................................................................................6.87 PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241....................6.100, 7.26 Public Trustee v Mortleman [1928] NZLR 337 ................................................6.128 QPSX Ltd v Ericsson Australia Pty Ltd (2005) 219 ALR 1 ........................6.59, 6.66 Quach v Huntof Pty Ltd (2000) Motor Vehicle Reports 263 ...........6.59, 6.63, 6.65 Queensland Insurance Co Ltd v Australian Mutual Fire Insurance Society Ltd (1941) 41 SR (NSW) 195 ...............................................................8.07 R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381............................................................6.59 R v Australian Broadcasting Tribunal (1980) 144 CLR 13 .................................7.17 R v Chester & North Wales Legal Aid Area Office (No 12) [1998] 1 WLR 1496..................................................................................................6.87, 6.88 R v Justices of Kent [1873] LR 8 QB 305 .............................................................7.37 R v Licensing Justices for the Licensing District of Charleville [1902] St R Qd 111 ........................................................................................................7.37 R v Preddy [1996] AC 815....................................................................................3.10 R v Sofroniou [2004] QB 1218.............................................................................3.10 R v Toohey, ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 .......2.06, 3.19 RA Brierley Investments Ltd v Landmark Corporation Ltd (1974) 132 CLR 224..............................................................................................6.08, 6.93 Radstock Co-operative and Industrial Society v Norton-Radstock UDC [1967] Ch 1094; [1968] Ch 605.............................................................6.104
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Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825................................................................3.19, 4.12, 4.16, 6.76, 8.25 Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443 .......6.63 Ralston v South Greta Colliery Co (1912) SR(NSW) 6 ......................................8.06 Ramsey v Hartley [1977] 1 WLR 686........................................6.63, 6.67, 7.38, 7.40 Ranken v Alfaro (1877) 5 Ch D 786.....................................................................7.07 Rasbora Ltd v JCL Marine Ltd [1977] 1 Lloyd’s Rep 645 ...................................3.06 Ratcliffe v Oceanic Life Ltd [1998] NSWSC 31.................................................6.100 Raven, The [1980] 2 Lloyd’s Rep 266 .........................................................8.83, 8.94 Rawson v Samuel (1841) Cr & Ph 161; 41 ER 451..............................................8.64 Raynor v Preston (1881) 18 Ch D 1..........................................6.76, 7.15, 7.17, 8.25 Read v Brown (1888) 22 QBD 128.....................................................3.27, 5.06, 5.18 Reade v Bentley (1857) 3 K & J 271; 69 ER 1110........................................6.74, 6.79 Redman v Permanent Trustee Co of NSW Ltd (1916) 22 CLR 84.....................................................................................4.02, 7.15, 8.16, 8.57 Reed Publishing Holdings Ltd v Kings Reach Investments Ltd, unreported, 25 May 1983, English Court of Appeal........................................6.88 Rees v De Bernady [1896] 2 Ch 437............................................................6.59, 6.65 Reeve v Whitmore (1863) 33 LJ Ch 63 ................................................................7.44 Reeves v Barlow (1884) 12 QBD 436 ...................................................................7.16 Reeves v Pope [1914] 2 KB 284 ..........................................................8.67, 8.68, 8.69 Reid v McIntyre (1905) 11 ALR 159 ....................................................................7.07 Rekstin v Severo Sibirsko Gosudarstvennoe Akcionernoe Obschestvo Komseverputj and the Bank for Russian Trade Ltd [1933] 1 KB 47 .....7.04, 7.06 Rendall v Morphew (1914) 84 LJ Ch 517 ............................................................6.08 Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1988) 6 ACLC 1................................................................................................3.11 Reuthlinger v MacDonald, unreported, New South Wales Court of Appeal, 20 Oct 1976 .............................................................................6.84, 6.85 Rhodesia Goldfields Ltd, Re [1910] 1 Ch 239 .....................................................8.26 Rhone v Stephens [1994] 2 AC 310...............3.27, 6.107, 6.108, 6.119, 6.124, 6.130 Riccard v Prichard (1855) 1 K & J 277; 69 ER 462..............................................7.07 Richards v Delbridge (1874) LR 18 Eq 11 ..................................................7.21, 7.29 Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 1041.....6.61, 6.62 Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd [1998] 2 VR 70 ..........................................................................7.09, 7.15, 7.40 Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462 ....................................................................6.88, 8.66, 8.85 Robbins v Federal Commissioner of Taxation (1973) 1 ALR 13 .......................7.37 Robertson v Grigg (1932) 47 CLR 257.............................4.14, 4.20, 4.27, 6.15, 7.07 Robinson, Re (1884) 27 Ch D 160 .......................................................................6.58 Robinson v Podosky [1905] QSR 118.........................................................6.15, 7.07
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Robinson v The State of South Australia [1928] SASR 42..................................5.03 Robson v Drummond (1831) 2 B & Ad 303; 109 ER 1156........................6.74, 6.79 Rodger v Comptoir d’Escompte De Paris (1869) LR 2 PC 393..........................7.19 Rodick v Gandell (1852) 1 De GM & G 763; 42 ER 749........................................................................3.17, 4.27, 7.07, 7.09, 7.12 Rogers v Challis (1859) 27 Beav 175; 54 ER 68 ..........................................6.75, 7.16 Rolls-Royce Ltd v Jeffrey [1962] 1 All ER 801.....................................................2.04 Rolston v South Greta Colliery Co (1912) 13 SR (NSW) 6 ................................6.14 Rolt v White (1862) 3 De GJ & S 360; 46 ER 674................................................8.60 Rose, Re [1952] Ch 499............................................4.07, 7.15, 7.17, 7.20, 7.21, 8.04 Rose v Clark (1842) 1 Y & C 534; 62 ER 1005.....................................................8.06 Rosenthal & Sons Ltd v Esmail [1965] 1 WLR 1117...........................................6.50 Rosher, Re (1884) 26 Ch D 801............................................................................6.76 Ross T Smythe & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60 .................6.50 Ross v Blackham (1875) 1 VLR (E) 220...............................................................4.08 Rothwells Ltd v Nommack (No 100) Pty Ltd (1988) 13 ACLR 421 .........2.13, 7.16 Roux v Australian Broadcasting Commission [1992] 2 VR 577 ..................................................................................6.59, 6.61, 6.62, 6.63 Row Dal Constructions Pty Ltd , Re [1966] VR 249.......4.31, 6.15, 6.45, 7.07, 7.44 Row v Dawson (1749) 1 Ves 331; 27 ER 1064............................................7.07, 8.18 Rowell, ex parte (1878) 39 LT 259, affd (1879) 10 Ch D 615 .............................6.15 Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516...............................6.49 Roxburghe v Cox (1881) 17 Ch D 520......................................8.38, 8.52, 8.81, 8.83 Royal Exchange Assurance v Hope [1928] Ch 179 .............................................8.38 Royal Insurance Co Ltd v Mylius (1926) 38 CLR 477 ........................................6.73 Royal London Mutual Insurance Society Ltd v Barrett [1928] Ch 411 ................................................................................................................8.63 Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581...........................................................................................6.73 Ruddenklau v Charlesworth [1925] NZLR 161 ..................................................6.28 Rufa Pty Ltd v Cross [1981] Qd R 365...............................................................6.132 Rumput (Panama) SA v Islamic Republic of Iran Shipping Lines (The Leage) [1984] 2 Lloyd’s Rep 259..........................................6.08, 6.73, 6.118 Rural & Agricultural Management Ltd v West Merchant Bank Ltd (1995) 128 FLR 440........................................................................6.132, 6.135 Russell and Co Ltd v Fryers (1909) 25 TLR 414.........................................6.68, 7.41 Russell, Re [1968] VR 285 ...........................................................................6.20, 7.04 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 ..........................................................................................6.100 Sacks v Neptune Meter Co (1932) 258 NYS 254......................6.58, 6.83, 6.85, 6.88 Saffron Walden Second Benefit Building Society v Rayner (1880) 14 Ch D 406 .......................................................................................................7.38
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St Hilliers (Developments) Pty Ltd v Radmanovich [2002] NSWSC 524; (2002) Butterworths Property Reports 20 .................................6.87 St Mary’s Bank v Cianchette (1951) 99 F Supp 994............................................8.48 Salemi v Mackellar (1977) 137 CLR 396..............................................................7.37 Saliterman v Finney (1985) 361 NW 2d 175 .......................................................6.08 Sally Beauty Co Inc v Nexxus Products Co Inc (1986) 801 F 2d 1001 .............................................................................................6.74, 6.79, 6.80 Salmon Lake Seed Co v Frontier Trust Co (1931) 153 A 671 ............................6.68 Salter v Gilbertson (2003) 6 VR 466 ....................................................................3.07 Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137 ..........................................................3.15, 4.27, 6.42, 7.07, 7.19, 7.39, 7.40 Sargent Glass Company v Matthews Land Company (1904) 72 NE 474 ..........6.70 Saunderson & Co v Clark (1913) 29 TLR 579.....................................................3.16 Scarf v Jardine (1882) 7 App Cas 345 ..................................................................3.06 Schalit v Joseph Nadler Ltd [1933] 2 KB 79 ........................................................8.67 Schlessinger v Forest Products Co (1910) 76 A 1024..........................................6.68 Schmaling v Thomlinson (1815) 6 Taunt 147; 128 ER 989................................3.08 Schneidman v Barnett [1951] NZLR 301 ..........................................4.18, 6.15, 6.34 Schroeder v Central Bank of London Ltd (1876) 34 LT 735 .....................6.37, 7.04 Schultz v Ocean Accident & Guarantee Corp Ltd (1923) 23 SR (NSW) 153 .........................................................................................................6.59 Schupack v McDonald’s System Inc (1978) 264 NW 2d 827 .............................6.79 Schweiger v Hoch (1969) 223 So 2d 557 .............................................................6.92 Scientific Investments Pension Plan Trusts [1999] Ch 53..................................6.85 Scribes West Ltd v Relsa Anstalt (No 3) [2005] 1 WLR 1847....................8.18, 8.67 Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 Intellectual Property Reports 315.........................................................................................3.06 Secretary, Department of Social Security v James (1990) 95 ALR 615 ..............7.29 Secretary of State for Trade and Industry v Frid [2004] 2 AC 506.....................6.36 Seear v Lawson (1880) 15 Ch D 426 ....................................................................6.67 Shackwell v Howe, Thornton & Palmer (1909) 8 CLR 170................................7.07 Shalson v Russo [2005] 2 WLR 1213 ...................................................................8.62 Shamia v Joory [1958] 1 QB 448..........................................................................2.13 Sharp v The Union Trustee Co of Australia Ltd (1944) 69 CLR 539.................6.08 Shaw v Foster (1872) LR 5 HL 321............................................7.16, 7.17, 7.18, 8.83 Shaw v Harris (No 2) (1992) 3 Tas R 167...................................................3.07, 8.04 Shayler v Woolf [1946] 1 Ch 320 ............................................6.69, 6.73, 6.77, 6.118 Shea v Moore [1894] 1 IR 158..............................................................................4.27 Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 ..3.17, 4.27, 7.07 Shearer v Wilding (1915) 15 SR(NSW) 283 ........................................................6.08 Sheehan, In the Marriage of (1990) 97 FLR 190 .................................................6.61 Sheers v Thimbleby & Son (1897) 76 LT 709....................................................6.100
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Shellard, ex parte (1873) 17 Eq 109 .....................................................................7.07 Shepherd v Federal Commissioner of Taxation (1965) 113 CLR 385 ...............................................4.27, 6.17, 6.19, 6.20, 6.38, 7.05, 7.12, 7.39 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548..................................................3.27, 4.05, 4.12, 4.17, 4.27, 6.88, 7.38 Shropshire Union Railways & Canal Co v The Queen (1875) LR 7 E & I App 496............................................................................................7.15 Sickles v Lauman (1918) 169 NW 670.................................................................6.08 Sidney Raper Pty Ltd v Commonwealth Trading Bank of Australia [1975] 2 NSWLR 227 ........................................................................................8.78 Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142 .........................................................................3.15, 3.16, 6.56, 6.82, 6.88, 7.40 Sim v Rotherham Metropolitan Borough Council [1986] 3 All ER 387 ................................................................................................................8.79 Simmons v Harvey [1965] Tas SR 84.................................................2.04, 6.07, 6.85 Sinclair v British Telecommunications plc [2001] 1 WLR 38 ...................6.63, 6.98 Singh v Observer Ltd [1989] 2 All ER 751...........................................................6.63 Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp [2000] 1 All ER (Comm) 474............................................................................8.26 Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 ..............................6.73 Skipper & Tucker v Holloway & Howard [1910] 2 KB 630 ...............................7.39 Skipskredittforeningen v Emperor Navigation SA [1997] 2 BCLC 398 ...........................................................................................................8.26 Smit Tak International Zeesleepen Bergingsbedriff BV v Selco Salvage Ltd [1988] 2 Lloyd’s Rep 398 ............................................................................8.99 Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1990) 95 ALR 87 .......................................3.23 Smith v ANL Ltd (2000) 204 CLR 493........................................................2.05, 3.11 Smith v Board of Education of City of Liberal (1924) 222 P 101..............6.74, 6.79 Smith v Bridgend County Borough Council [2002] 1 AC 336.........3.16, 7.07, 7.16 Smith v Corry & Co (1909) 28 NZLR 672...........................................................7.38 Smith v Jones [1954] 1 WLR 1089 .....................................................7.14, 8.67, 8.79 Smith v Parkes (1852) 16 Beav 115; 51 ER 720 ........................7.18, 8.87, 8.88, 8.89 Smith v Perpetual Trustee Co Ltd (1910) 11 CLR 148.................................................................6.87, 7.04, 7.05, 7.06, 7.07, 7.08 Smith v Smith (1833) 2 Cr & M 231; 149 ER 745 ...............................................7.18 Smits v Roach (2004) 60 NSWLR 711 .................................................................6.59 Snape v Kiernan (1988) 13 NSWLR 88 ...............................................................6.08 Snyder’s Ltd v Furniture Finance Corp Ltd [1931] 1 DLR 398.................5.05, 6.47 Société des Ateliers et Chantiers de France [1919] AC 1 ....................................6.87 Society of Lloyds v Leighs (1997) 6 Re LR 289....................................................8.26 Society of Lloyds v Wilkinson (No 2) (1997) 6 Re LR 214.................................8.26
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Socony Mobil Oil Co Inc v West of England Ship Owners Mutual Insurance Association (London) Ltd (The Padre Island) [1984] 2 Lloyd’s Rep 408....................................................................................6.08, 6.118 Socony Mobil Oil Co Inc v West of England Ship Owners Mutual Insurance Association (London) Ltd (The Padre Island No 2) [1990] 2 Lloyd’s Rep 191.................................................................................6.118 South Australian Management Corp v Sheahan (1995) 16 ACSR 45 .......6.61, 6.62 South East Thames Regional Health Authority v Y J Lovell (London) Ltd (1985) BLR 127 ..................................................................................6.61, 6.64 South, ex parte (1818) 3 Swanst 392; 36 ER 907 ........................................7.06, 7.07 Southern British National Trust Ltd v Pither (1937) 57 CLR 89 ......................8.04, 8.26, 8.53, 8.55, 8.58, 8.59, 8.62, 8.70, 8.83, 8.94, 8.95 Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213.......................................................................6.45 Southway Group Ltd v Wolff (1991) 57 Building Law Reports (BLR) 33 ..................................................................................3.08, 6.68, 6.74, 6.79 Southwell v Scotter (1880) 49 LJQB 356 .............................................................8.36 Specialised Transport Pty Ltd v Dominiak (1989) 16 NSWLR 657 ..........6.84, 6.88 Spectrum Plus Ltd, Re [2005] 3 WLR 58.........................3.15, 3.16, 4.32, 6.56, 6.88 Spellman v Spellman [1961] 1 WLR 921 ....................................................6.87, 6.90 Squires v SA Steel & Sheet Pty Ltd (1987) 45 SASR 147 ...................4.12, 7.18, 8.06 SSL Realisations (2002) Ltd, Re [2005] 1 BCLC 1 ..............................................6.56 Standard Chautaugua System v Gift (1926) 242 P 145.......................................6.79 Standing v Bowring (1885) 31 Ch D 282....................................................7.29, 7.31 Stanley v English Fibres Industries Ltd (1899) 68 LJQB 839..............................7.38 Stansbery v Medo-Land Dairy (1940) 105 P 2d 86 .............................................8.48 Steel Wing Co Ltd, Re [1921] 1 Ch 349 ...........................4.05, 4.07, 4.18, 4.27, 7.39 Stein v Blake [1996] AC 243...............................................................6.06, 6.15, 6.67 Stephens v Venables (No 1) (1862) 30 Beav 625; 54 ER 1084...................8.06, 8.83 Stern v McArthur (1988) 165 CLR 489..............................................3.26, 7.16, 7.17 Stevens v Benning (1855) 6 De G M & G 223; 43 ER 1218 .......................6.73, 6.74 Stevens v Keogh (1946) 72 CLR 1 ........................................................................6.59 Stevenson & Sons v Maule & Co (1920) SC 335 .................................................6.79 Stewart v Reavell’s Garage [1952] 2 QB 545...............................................3.08, 6.79 Stocks v Dobson (1853) 4 De GM & G 11; 43 ER 411 ......................4.12, 4.20, 8.83 Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574.......................................................6.21, 6.25, 6.28, 6.31, 8.33, 8.37, 8.61 Stoddart v Union Trust Ltd [1912] 1 KB 181....................................8.59, 8.64, 8.70 Stokes v Liverpool & London and Globe Insurance Co (1925) 126 SE 649 ......6.87 Stone v Lidderdale (1795) 2 Anst 533; 145 ER 958 .............................................6.58 Stump v Gaby (1852) 2 De GM & G 623; 42 ER 1015 ........................................6.09 Sturt & Co, ex parte (1871) LR 13 Eq 309 ...........................................................6.45
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Sun Candies Pty Ltd v Polites (1991) 24 NSWLR 326 ...............................8.70, 8.85 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 ....................................6.100 Sunrise Restaurants, Re (1991) 135 BR 149; [1991] Bankr Lexis 1841..............6.79 Sutton’s Trusts, Re [1879] 12 Ch D 175 ..............................................................8.06 Suttor v Gundowda Pty Ltd, Re (1950) 81 CLR 418...........................................6.87 Swan and Cleland’s Growing Dock and Slipway Co v Maritime Insurance Co [1907] 1 KB 116........................................................4.19, 6.34, 6.73 Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672.............................................................................................................6.10 Swarts v Narragansett Lighting Co (1904) 59 A 77..................6.69, 6.71, 6.78, 6.79 Sweet v Cater (1841) 16 RPC 447 ........................................................................4.13 Swift v Dairywise Farms Ltd [2000] 1 WLR 1177 ......................................2.05, 6.90 Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 .....3.11, 3.17, 6.106, 7.07, 7.16 Syrett v Egerton [1957] 3 All ER 331 ........................................6.50, 6.58, 6.86, 7.13 T Choithram International SA v Pagarani [2001] 1 WLR 1...............................7.15 Tailby v Official Receiver (1888) 13 App Cas 523...................2.14, 3.26, 4.31, 6.15, 6.17, 6.45, 7.11, 7.13, 7.15, 7.16, 7.17, 7.19, 7.44 Taita Hotel Ltd v Spelman [1963] NZLR 206 .....................................................6.08 Tancred v Delagoa Bay and East Africa Railway Co (1889) 23 QBD 239...............................................................................................3.17, 7.41 Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 .....3.26, 4.22, 6.86, 7.17 Taylor v Blakelock (1886) 32 Ch D 560......................................................8.55, 8.68 Taylor v DCT (1969) 123 CLR 206 ......................................................................7.20 Taylor v Okey (1806) 13 Ves Jun 180; 33 ER 263 ...............................................8.26 Taylor v Sanders [1937] VLR 62 .................................................................8.13, 8.14 Telewest Communications plc v Telewest Communications (Publications) Ltd [2003] EWHC 3176 (Ch).................................................6.123 Telford v Holt (1987) 41 DLR (4th) 385 ....................................................8.64, 8.83 Temsign Pty Ltd v Bisen Pty Ltd (1998) 157 ALR 83..........................................6.67 Teno, The [1977] 2 Lloyd’s Rep 289 ....................................................................8.64 Thai Trading Co v Taylor [1998] QB 781 ...........................................................6.59 Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557...........6.108, 6.119, 6.126 Tharros Shipping Co Ltd v Bias Shipping Ltd (1995) 1 Lloyd’s Rep 541......................................................................................................6.61, 6.63 Thayer v Lister (1861) 30 LJ Ch 427 ....................................................................7.12 Theodore v Mistford Pty Ltd (2005) 219 ALR 296 ....................................4.22, 7.07 Thomas & Co v Thureau (1905) 1 Tas LR 58 .....................................................7.40 Thomas Jacquess v Thomas, Re [1894] 1 QB 747...............................................6.59 Thomas v Harris [1947] 1 All ER 444 ................................................3.17, 4.27, 7.40 Thomas v National Australia Bank Ltd [2000] Qd R 448.................4.14, 4.16, 4.18 Thomas v National Farmer’s Union Mutual Insurance Society Ltd [1961] 1 WLR 386.......................................................................................6.76
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Thomas v Silvia (1994) 14 ACSR 446 ..................................................................6.71 Thompson v McInnes (1911) 12 CLR 562 ..........................................................7.37 Thornley v Lang [2004] 1 WLR 378 ....................................................................6.59 Three Rivers District Council v Bank of England [1996] QB 292 .......................................................3.11, 4.04, 4.07, 4.12, 4.16, 4.25, 8.03, 8.06 Tibbits v George (1836) 5 AD & E 107; 11 ER 1107 ...........................................7.07 Tichener, Re (1865) 35 Beav 317; 55 ER 918.......................................................7.18 Timothy’s Pty Ltd and Companies Act, Re [1981] 2 NSWLR 706 ....................................................................................................6.59, 6.61, 6.62 Timpson’s Executor’s v Yerbury [1936] 1 KB 645 ............................7.06, 7.18, 7.27 Tito v Waddell (No 2) [1977] 1 Ch 106...........................6.103, 6.106, 6.108, 6.119, 6.120, 6.126, 6.132, 6.133, 6.135 Todd Petroleum Mining Co Ltd v Shell (Petroleum Mining) Co Ltd [2005] NZCA, CA 155/05, 23 Sept 2005 .................................................6.87, 8.79 Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 .............................................3.08, 4.18, 4.22, 4.25, 5.05, 6.07, 6.69, 6.70, 6.73, 6.75, 6.76, 6.79, 6.86, 6.87, 6.96, 6.99, 6.121, 6.123, 6.124, 6.134, 8.06, 8.07 Tom Shaw and Co v Moss Empires Ltd (1908) 25 TLR 190 ............6.88, 7.04, 7.07 Tomlinson v Cut Price Deli Pty Ltd (1992) 38 FCR 490 ....................................8.70 Toms v Cuming (1845) 7 M & G 88; 135 ER 38 .................................................7.37 Tony Lee Motors Ltd v M S MacDonald & Son (1974) Ltd [1981] 2 NZLR 281............................................................................................8.83 Tooth v Brisbane City Council (1928) 41 CLR 212 ...............................................3.17, 4.20, 6.21, 6.22, 7.07, 7.09, 8.06, 8.59 Tooth v Hallett (1869) LR 4 Ch App 242 ........................6.07, 6.15, 6.22, 8.07, 8.46 Torkington v Magee [1902] 2 KB 427.............................2.02, 2.04, 2.05, 4.11, 5.05, 5.11, 5.13, 6.07, 6.59, 8.20 Toronto-Dominion Bank v Block Bros Contractors Ltd (1980) 118 DLR (3d) 311 ..............................................................................................8.71 Torrington Creamery v Davenport (1940) 12 A 2d 780.....................................6.08 Tosich Construction Pty Ltd, Re (1997) 23 ACSR 126.......................................6.67 Total Liban SAL v Vitol Energy SA [1999] 2 Lloyd’s Rep 700...................6.61, 6.62 Townsend v Jarman [1900] 2 Ch 698 ..................................................................6.08 Transphere Pty Ltd, Re (1986) 5 NSWLR 309 ....................................................3.11 Trendtex Trading Corp v Credit Suisse [1982] AC 679 ............................................................................6.59, 6.61, 6.62, 6.64, 6.65 Trent v Hunt (1853) 9 Ex 14; 156 ER 7 ...............................................................8.67 Trepca Mines Ltd (No 2), Re [1963] 1 Ch 199...........................................6.59, 6.61 Trident Beauty, The [1994] 1 WLR 161..........................3.12, 5.05, 6.22, 6.29, 6.38, 6.41, 6.104, 8.01, 8.31, 8.33, 8.34, 8.37 Trubenizing Process Corp v John Forsyth Ltd [1943] 4 DLR 577 ............5.05, 7.09
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Trytel, Re [1952] 2 TLR 32 ..................................................21, 6.15, 6.17, 6.22, 6.42 Turcan, Re (1888) 40 Ch D 5 ....................................................6.86, 6.88, 6.90, 7.22 Turner Corp Ltd (in liq), Re (1995) 17 ACSR 761.....................................6.84, 6.86 Turner v Smith [1901] 1 Ch 213..........................................................................8.81 Turquand & The Capital and Counties Bank v Fearon (1879) 4 QBD 280 ......4.05 Turton v Benson (1718) 1 P WMS 496; 24 ER 488.............................................8.62 Tweddle v Atkinson (1861) 1 B & S 393; 121 ER 762 .........................................2.12 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673...........6.48 United Dominions Trust (Commercial) Ltd v Parkway Motors [1955] 1 WLR 719, overruled [1967] 1 WLR 295............................................6.88 United States Shoe Corp v Hackett (1986) 793 F 2d 161...........................6.73, 6.74 Universal Management Ltd, Re [1983] NZLR 462 ...........................3.16, 3.17, 7.41 Upson, Re (1941) 12 Australian Bankruptcy Cases 147 .....................................3.17 UTC Ltd v NZI Securities Australia Ltd (1991) 4 WAR 349 ..........................................................................................4.27, 7.16, 7.27 UTSA Pty Ltd v Ultra Tune Australia Pty Ltd [1997] 1 VR 667; affd (1996) 21 ACSR 440...................................................................................6.67 Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607.............................................................................................................7.38 Vandervell v IRC [1967] 2 AC 291..............................................................7.26, 7.30 Vangale Pty Ltd v Kumugai Gumi Co Ltd [2002] QSC 137...............................6.84 VGM Holdings Ltd, Re [1942] Ch 235................................................................3.11 Victoria Insurance Co v King (1895) 6 QLJ 202, affd [1896] AC 250 ...............5.05 Victorian Producers’ Co-operative Co Ltd v Leng [1918] ALR 35 ....................7.37 Voyle v Hughes (1854) 2 Sm & G 18; 65 ER 283 ................................................7.28 Waghorn v Linden Manufacturing Pty Ltd [1970] 3 NSWLR 559 ....................3.08 Waitomo Wools (NZ) Ltd v Nelsons (NZ) Ltd [1974] 1 NZLR 484 .................3.17 Wakefield and Barnsley Banking Corp v Nomanton Local Board (1881) 44 LT 697; affd (1881) 44 LT 697...............................8.58, 8.60, 8.64, 8.71 Walker Electric Company v New York Shipbuilding Company (1917) 241 F 569 .......................................................................................6.78, 7.69 Walker v Bradford Old Bank Ltd (1884) 12 QBD 511....2.02, 4.19, 5.05, 6.34, 7.38 Walker v Department of Social Security (1995) 129 ALR 198 ...........................8.86 Walker v Phoenix Assurance Co of Australia Ltd (1980) 1 ANZ Ins Cas 60-045 .......................................................................................8.13 Walker v Rostron (1842) Ex 173; 152 ER 174 .....................................................7.07 Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584.........................................................................4.04, 4.27, 7.07, 7.39, 8.06 Walton v Lavater (1860) 8 CB(NS) 162; 141 ER 1127........................................7.39 Ward, Re (1984) 3 FCR 112 .................................................................................6.14 Ward, Re (1984) 55 ALR 395 ...............................................................................7.22 Ward v Duncombe [1893] AC 369 ................4.15, 4.20, 5.23, 7.15, 7.18, 7.38, 8.16
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Warner Bros Records Inc v Rollgreen Ltd [1976] 1 QB 430.....................................................................................3.27, 4.07, 4.12, 8.30 WASA International (UK) Insurance Co Ltd v WASA International Co Ltd [2003] 1 All ER (Comm) 696 .............................................................6.101 Waterson’s Trustees v St Giles Boys Club (1943) SC 369...................................7.37 Watkins v Watkins [1896] P 222..........................................................................6.58 Watson v Duke of Wellington (1830) 1 Russ & M 602; 39 ER 231....................7.12 Watson v Mid-Wales Railway Co (1867) LR 2 CP 593.....................8.71, 8.83, 8.88 Watson v Shepherd (1904) QWN 57...................................................................7.38 Way’s Trusts, Re (1864) 2 De GJ & S 365; 46 ER 416 .........................................4.14 Webb v National Australia Bank (1990) 2 Butterworths Property Reports 11 ..........................................................................................................6.71 Webb v Smith (1885) 30 Ch D 192......................................................................8.99 Webb v Stenton (1883) 11 QBD 518 ..........................................................6.42, 6.45 Weddell v JA Pearce & Major [1988] Ch 26.............................4.11, 4.13, 7.18, 7.38 Wells v Foster (1841) 8 M & W 149; 151 ER 987................................................6.58 Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270...........3.16 Welstead v Hadley (1904) 21 TLR 165 ................................................................6.08 Werderman v Société Générale d’ Eletricité (1881) 19 Ch 246 ...............4.13, 6.106 West Tankers Inc v RAS Riunione Adriatica Di Sicurta (The Front Comor) [2005] 2 Lloyd’s Rep 257 ..................................................................6.118 West v Newing (1900) 82 LT 260.........................................................................7.07 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669.............................................................................3.11, 4.22 Western Wagon & Property Company v West [1892] 1 Ch 271 .....6.42, 6.75, 7.16 Westerton, Re [1919] 2 Ch 104 ......................4.05, 4.14, 5.17, 6.89, 7.07, 7.09, 8.04 Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396 ................................................................................6.08, 6.84, 6.86, 6.88 Westminster Bank Ltd v Lee [1956] 1 Ch 7.........................................................6.09 Westminster Estates Pty Ltd v Calleja (1970) 91 WN (NSW) 222.....................3.07 Westralian Farmers Co-operative Ltd v Southern Meat Packers Ltd [1981] WAR 241 ................................................................................6.05, 6.54 Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361............................................................6.36, 6.37 Wetherall Bros Co v United States Steel Co (1952) 200 F 2d 761......................6.74 WF Harrison & Co Ltd v Burke [1956] 1 WLR 419............................................7.38 Whale v Viasystems Technograph Ltd [2002] EWCA Civ 480 ..........................6.47 Wharf St Pty Ltd v Amstar Learning Pty Ltd [2004] QCA 256 ........................6.100 White v Southern Hotel Co [1897] 1 Ch 767......................................................6.76 Whiteley Ltd v Hilt [1918] 2 KB 808 ........................................................6.08, 6.127 Whiteley v Hill [1918] 2 KB 808 ..........................................................................6.73 Whithorn Brothers v Davison [1911] 1 KB 463..................................................8.62
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Whittingstall v King (1882) 46 LT 520 ................................................................7.18 Whitton v ACN 003 266 886 Pty Ltd (1996) 42 NSWLR 123 ............................6.56 Wickham Holdings Ltd v Brooke House Motors Ltd [1967] 1 WLR 295....................................................................................................6.85, 6.87 Wigan v English & Scottish Life Assurance Association [1909] 1 Ch 291.........8.63 Wild v Simpson [1919] 2 KB 544.........................................................................6.59 Wilding v Richards (1845) 1 Coll 655; 63 ER 584...............................................7.04 Wilkinson v Wilkinson (1819) 3 Swan 515; 36 ER 958 ......................................7.07 Willcock v Terrell (1878) 3 Ex D 323...................................................................6.58 Willes v Greenhill (1861) 4 De G F & J 147; 45 ER 1139 ....................................7.18 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 ..................................................................4.09, 4.11, 4.13, 4.18, 5.10, 7.05, 7.06, 7.07, 7.08, 7.18, 7.19, 7.21, 8.06, 8.18 William C Attwater & Co Inc v Terminal Coal Corporation (1940) 115 F 2d 887.........................................................................................6.121 William Felton Co Pty Ltd (1998) 28 ACSR 228.................................................6.67 William v Pickersgill & Sons Ltd v London and Provincial Marine & General Insurance Co Ltd [1912] 3 KB 614 .................................................8.07 Williams, Re [1917] 1 Ch 1 .........................................................................7.04, 7.34 Williams, Re [1930] 2 Ch 378 ..............................................................................6.20 Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81 ..................................................................4.27, 6.76, 7.34, 7.38, 7.39, 7.40 Williams v Commissioner of Inland Revenue [1965] NZLR 395 ......................6.20 Williams v Frayne (1937) 58 CLR 710.................................................................6.87 Williams v Lloyd (1934) 50 CLR 341...................................................................7.21 Williams v Nicoski [2003] WASC 131........................................................6.68, 6.69 Williams v Owens (1840) 5 My & Cr 303; 41 ER 386.........................................3.16 Williams v Protheroe (1829) 5 Bing 309; 130 ER 1080.......................................6.59 Williams v Sorrell (1799) 4 Ves Jun 389; 31 ER 198 ...........................................8.83 Wilmot v Alton [1897] 1 QB 17...........................................................................6.15 Wilson v Commissioner of Probate Duties (Vic) (1978) 8 ATR 799........6.08, 6.72 Wilson v Gabriel (1863) 4 B & S 243; 122 ER 450 ............................8.52, 8.60, 8.83 Wilson v Ragosine & Co Ltd (1915) 84 LJKB 2185.............................................4.18 Wilson v St Helens Borough Council [1999] 2 AC 52........................................6.73 Wilson v Wallani (1880) 5 Ex D 155 ...................................................................7.37 Wilsons (NZ) Portland Cement Ltd v Gatx-Fuller Australasia Pty Ltd (No 2) [1985] 2 NZLR 33 ...........................................................................8.70 Wily v St George Partnership Banking Ltd (1999) 161 ALR 1 ...........................3.23 Winch v Keeley (1787) 1 TR 619; 99 ER 1284..........................2.17, 4.05, 4.23, 4.24 WJ Adams & Co Ltd v Blencowe (1929) 46 WN(NSW) 150 ....................7.07, 7.12 Wong Mee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38 .................6.78 Wood v Downes (1811) 18 Ves 120; 34 ER 263 ..................................................6.59
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Wood v Freehold United Quartz Mining Co Registered (1870) 1 VR (Eq) 168 ....................................................................................................6.59 Wood v Griffith (1818) 1 SW 43..........................................................................6.59 Woodhams v Anglo-Australian & Universal Family Assurance Co (1861) 3 Giff 238; 66 ER 397 .......................................................................8.55 Worthington, Re [1914] 2 KB 299 .......................................................................8.04 Wreckair Pty Ltd v Emerson [1992] 1 Qd R 700......................4.27, 6.14, 6.37, 7.40 Wright v Morgan [1926] AC 788 .........................................................................6.08 Wright v Wright (1749-50) 1 Ves Sen 410; 27 ER 1111......................................4.05 Yeandle v Wynn Realisations Ltd (1995) 47 Construction LR 1.................................................................................1.01, 6.45, 6.54, 6.87, 8.29 Yellow Cab of Cleveland Inc v Greater Cleveland Regional Transit Authority (1991) 595 NE 2d 508 ......................................................................6.79 Young v Kitchin (1878) 3 Ex D 127 ........................8.49, 8.64, 8.72, 8.87, 8.88, 8.89 Young v Matthew Hall Mechanical & Electrical Engineers Pty Ltd (1988) 12 ACLR 399 ..........................................................................................3.17 Young v Queensland Trustees Ltd (1956) 99 CLR 560.......................................2.10 Zeil Nominees Pty Ltd v VACC Insurance Co Ltd (1975) 180 CLR 173...........8.25 Zhu v Treasurer of New South Wales (2004) 211 ALR 159 ...............................6.07 Zigurds, The (1931) 47 TLR 525..........................................................................7.07 Zigurds, The [1932] P 113; [1933] P 87; [1934] AC 209 ...........................7.07, 7.18 Zuks v Jackson McDonald (1996) 132 FLR 317..................................................1.06
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References are to paragraph number ENGLAND Army Act 1955 s 203(1) ..............................................................................................................6.58 Bankruptcy Act 1869 ............................................................................................7.37 Bills of Exchange Act 1882 s 11 .....................................................................................................................7.40 s 38(2) ................................................................................................................8.49 Bills of Sale Act (1878) Amendment Act 1882 s 8 .......................................................................................................................7.01 Carriage of Goods by Sea Act 1992 s 2 .......................................................................................................................7.34 s 3(1) ................................................................................................................6.119 s 3(3) ................................................................................................................6.101 Civil Liability (Contribution) Act 1978 ..............................................................6.62 Common Law Procedure Act 1854 s 85 ............................................................................................................4.09, 4.24 Companies Act 1985 s 36A(4) .............................................................................................................7.37 s 182 ...................................................................................................................7.34 s 395(1) ..............................................................................................................7.35 s 427(3)(a) .......................................................................................................6.101 Contracts (Rights of Third Parties) Act 1999 .....................................................6.73 Copyright Design and Patents Act 1988 s 90 .....................................................................................................................7.34 Criminal Law Act 1967 s 13(1) ................................................................................................................6.59 s 13(2) ................................................................................................................6.59 Financial Services and Markets Act 2000 s 111 .................................................................................................................6.101 Insolvency Act 1986 s 130(2) ..............................................................................................................8.98
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s 153(3) ..............................................................................................................4.32 s 167 ...................................................................................................................6.67 s 248 ...................................................................................................................4.32 s 281(1) ..............................................................................................................4.32 s 281(2) ..............................................................................................................4.32 s 285(3) ..............................................................................................................8.98 s 314 ...................................................................................................................6.67 s 344 ...................................................................................................................7.35 s 345(4) ..............................................................................................................7.38 s 436 ...................................................................................................................6.67 Sch 4...................................................................................................................6.67 Sch 5...................................................................................................................6.67 Judicature Act 1873.............................................................................2.11, 5.17, 5.20 s 25 ............................................................................................................5.11, 5.19 s 25(6) ...................................................................2.17, 4.09, 5.04, 5.11, 5.27, 7.34 s 25(7) ................................................................................................................5.19 s 25(11) ..............................................................................................................5.11 Landlord and Tenant (Covenants) Act 1995 ......................................................8.30 Law of Property Act 1925 s 53(1) ................................................................................................................7.26 s 53(1)(a) ...........................................................................................................7.29 s 53(1)(b)...........................................................................................................7.29 s 53(1)(c) ..................................................................................................5.10, 7.29 s 53(2) .......................................................................................................7.26, 7.28 s 56 ...................................................................................................................6.108 s 136 ...............................................................................................5.03, 5.10, 6.118 s 136(1) ..............................................................................................................5.03 s 205 ...................................................................................................................7.26 Law of Property (Miscellaneous Provisions) Act 1989 s 2 .......................................................................................................................7.26 Marine Insurance Act 1906 s 50 .....................................................................................................................7.34 Mercantile Law Amendment Act 1856 s 5 .......................................................................................................................6.58 Patents Act 1977 s 30 .....................................................................................................................7.34 Pensions Act 1995 s 91 .....................................................................................................................6.58 Policies of Assurance Act 1867 ............................................................................6.90 s 1 .......................................................................................................................7.34 Sale of Goods Act 1979 s 20A ..................................................................................................................7.11
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s 53(1)(a) ...........................................................................................................8.73 Social Security Administration Act 1992 s 187 ...................................................................................................................6.58 Superannuation Act 1972 s 5(1) ..................................................................................................................6.58 Third Parties (Rights Against Insurers) Act 1930 ..............................................6.73
AUSTRALIA Commonwealth Bankruptcy Act 1966 s 5 ..............................................................................................................4.32, 6.67 s 58(3) ................................................................................................................8.98 s 62 .....................................................................................................................7.38 s 134 ...................................................................................................................6.67 s 153(1) ..............................................................................................................4.32 s 153(3) ..............................................................................................................4.32 Bills of Exchange Act 1909 s 16 .....................................................................................................................7.40 s 43(1)(b)...........................................................................................................8.49 Cheques Act 1986 s 12(1) ................................................................................................................7.40 Commonwealth Employees Rehabilitation and Compensation Act 1988 s 112(1) ..............................................................................................................6.58 Copyright Act 1968 s 196 ...................................................................................................................7.34 s 196(4) ............................................................................................................6.101 s 197 ...................................................................................................................7.34 Corporations Act 2001 Pt 7.11 ................................................................................................................7.34 s 9 .......................................................................................................................6.67 s 127 ...................................................................................................................7.37 s 266 ...................................................................................................................7.35 s 413 ........................................................................................................6.73, 6.101 s 471B.................................................................................................................8.98 s 477(2) ..............................................................................................................6.67 Design Act 2003 s 11 .....................................................................................................................7.34 Financial Sector (Transfers of Business) Act 1999 s 22 ...................................................................................................................6.101 Insurance Act 1973 ............................................................................................6.101
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Insurance Contracts Act 1984 s 48 .....................................................................................................................6.73 s 50 .....................................................................................................................6.73 Life Insurance Act 1995 s 200 ...................................................................................................................7.34 s 200(3) ............................................................................................................6.101 s 201 ...................................................................................................................7.34 s 202 ...................................................................................................................7.34 s 203 ...................................................................................................................7.34 Marine Insurance Act 1909 s 56 .....................................................................................................................7.34 Patents Act 1990 s 13 .....................................................................................................................7.34 s 103(1) ..............................................................................................................7.34 Reserve Bank Act 1959 s 25(c) ................................................................................................................6.58 Social Security (Administration) Act 1999 s 60 .....................................................................................................................6.58 Trade Marks Act 1995 s 106(1) ..............................................................................................................7.34 Trade Practices Act 1974 s 52 .....................................................................................................................6.67 s 82 .....................................................................................................................6.05 s 87 .....................................................................................................................6.05 Veterans Entitlements Act 1986 s 125 ..........................................................................................................6.58, 6.86 Australian Capital Territory Civil Law (Wrongs) Act 2002 s 151A ................................................................................................................6.59 Law Reform (Miscellaneous Provisions) Act 1955 ............................................7.26 s 51(1) ................................................................................................................7.26 s 51(1)(a) ...........................................................................................................7.29 s 51(1)(b)...........................................................................................................7.29 s 54(1) ................................................................................................................7.26 s 68 .....................................................................................................................6.59 Sale of Goods Act 1954 s 56 .....................................................................................................................8.73 New South Wales Bills of Sale Act 1898 s 5c(1) ................................................................................................................7.01
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Civil Procedure Act 2005 s 21(1) ................................................................................................................8.83 Conveyancing Act 1919 s 2 .......................................................................................................................7.26 s 7 .......................................................................................................................7.26 s 12 ...................................................................................................5.03, 5.06, 5.25 s 12(4) ................................................................................................................5.25 s 23C(1) .............................................................................................................7.26 s 23C(1)(c) ........................................................................................................7.26 s 23C(2) .............................................................................................................7.26 s 36C ................................................................................................................6.108 s 54A ..................................................................................................................7.37 s 54A(1) .............................................................................................................7.26 Insurance Act 1902 ss 14-16 ..............................................................................................................6.73 Law Reform (Miscellaneous Provisions) Act 1965 s 3 .......................................................................................................................6.58 Limitation Act 1969 ..............................................................................................4.17 Maintenance, Champerty and Barratry Abolition Act 1993 s 3 .......................................................................................................................6.59 s 4 .......................................................................................................................6.59 Sale of Goods Act 1923 s 54 .....................................................................................................................8.73 Sea-Carriage Documents Act 1997 s 8 .......................................................................................................................7.34 Northern Territory Bills of Lading Act 1859 SA s 1 .......................................................................................................................7.34 s 3 .......................................................................................................................7.34 Law of Property Act 2000 s 4 .......................................................................................................................7.26 s 10 .....................................................................................................................7.26 s 12 ...................................................................................................................6.108 s 56(3)(b).........................................................................................................6.108 s 62 .....................................................................................................................7.26 s 182 ...................................................................................................................5.03 Sale of Goods Act 1972 s 54 .....................................................................................................................8.73 Queensland Property Law Act 1974
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s 3 .......................................................................................................................7.26 s 11 .....................................................................................................................7.26 s 13 ...................................................................................................................6.108 s 55(3)(b).........................................................................................................6.108 s 59 .....................................................................................................................7.26 s 199(1) ..............................................................................................................5.03 s 199(2) ..............................................................................................................5.03 Sale of Goods Act 1896 s 54 .....................................................................................................................8.73 Sea-Carriage Documents Act 1996 s 6 .......................................................................................................................7.34 South Australia Law of Property Act 1936 s 7 .......................................................................................................................7.26 s 15 .....................................................................................................................5.03 s 29 .....................................................................................................................7.26 s 34(1) ..............................................................................................................6.108 Law of Property Act 1938 s 26(1) ................................................................................................................7.26 Sale of Goods Act 1895 s 52 .....................................................................................................................8.73 Tasmania Conveyancing and Law of Property Act 1884 s 2 .......................................................................................................................7.26 s 36(1) ................................................................................................................7.26 s 60(2) ................................................................................................................7.26 s 61(c) ..............................................................................................................6.108 s 86(1) ................................................................................................................5.03 s 86(2) ................................................................................................................5.03 Sale of Goods Act 1896 s 57 .....................................................................................................................8.73 Sea-Carriage Documents Act 1997 s 7 .......................................................................................................................7.34 Victoria Crimes Act 1958 s 322A ................................................................................................................6.59 Goods Act 1958 s 59 .....................................................................................................................8.73
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Instruments Act 1958 s 126 ...................................................................................................................7.26 Property Law Act 1958 s 18 .....................................................................................................................7.26 s 53 .....................................................................................................................7.26 Sea-Carriage Documents Act 1998 s 8 .......................................................................................................................7.34 Wrongs Act 1958 s 32 .....................................................................................................................6.59 Western Australia Property Law Act 1969 s 7 .......................................................................................................................7.26 s 11(1) ..............................................................................................................6.108 s 11(3)(c) .........................................................................................................6.108 s 20 .....................................................................................................................5.03 s 20(3) ............................................................................4.27, 4.29, 5.20, 7.22, 7.39 s 34 .....................................................................................................................7.26 Sale of Goods Act 1895 s 52 .....................................................................................................................8.73 Sea-Carriage Documents Act 1997 s 8 .......................................................................................................................7.34 Statute of Frauds 1677 (Imp) s 4 .......................................................................................................................7.26 s 9 .......................................................................................................................7.26
NEW ZEALAND Contractual Remedies Act 1979 s 11(1) ................................................................................................................8.32 s 11(2) ................................................................................................................8.32 Property Law Act 1952 ........................................................................................5.07
UNITED STATES Restatement of Contracts 2d s 317(2) ..............................................................................................................6.69 s 322 .................................................................................................6.85, 6.87, 6.89 s 322(2)(a) ................................................................................................6.69, 6.86 s 322(2)(b).........................................................................................................6.88
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s 333 ...................................................................................................................8.04 s 336(2) ..............................................................................................................8.92 s 338(2) ..............................................................................................................8.39 s 338(3) ..............................................................................................................8.38 Uniform Commercial Code s 2-210..............................................................................................6.85, 6.96, 6.98 s 2-210(4) ........................................................................................................6.134 s 2-306................................................................................................................6.96 s 2.210(2) ...........................................................................................................6.69 s 9-318(4) ..........................................................................................................6.87 s 9-405................................................................................................................8.39 s 9-406................................................................................................................6.85
TABLE OF STATUTORY INSTRUMENTS
References are to paragraph number Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794) reg 4A.................................................................................................................6.73 reg 5(1) ..............................................................................................................6.73 reg 5(2) ............................................................................................................6.101
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References are to paragraph number ENGLAND Army Act 1955 s 203(1) ..............................................................................................................6.58 Bankruptcy Act 1869 ............................................................................................7.37 Bills of Exchange Act 1882 s 11 .....................................................................................................................7.40 s 38(2) ................................................................................................................8.49 Bills of Sale Act (1878) Amendment Act 1882 s 8 .......................................................................................................................7.01 Carriage of Goods by Sea Act 1992 s 2 .......................................................................................................................7.34 s 3(1) ................................................................................................................6.119 s 3(3) ................................................................................................................6.101 Civil Liability (Contribution) Act 1978 ..............................................................6.62 Common Law Procedure Act 1854 s 85 ............................................................................................................4.09, 4.24 Companies Act 1985 s 36A(4) .............................................................................................................7.37 s 182 ...................................................................................................................7.34 s 395(1) ..............................................................................................................7.35 s 427(3)(a) .......................................................................................................6.101 Contracts (Rights of Third Parties) Act 1999 .....................................................6.73 Copyright Design and Patents Act 1988 s 90 .....................................................................................................................7.34 Criminal Law Act 1967 s 13(1) ................................................................................................................6.59 s 13(2) ................................................................................................................6.59 Financial Services and Markets Act 2000 s 111 .................................................................................................................6.101 Insolvency Act 1986 s 130(2) ..............................................................................................................8.98
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s 153(3) ..............................................................................................................4.32 s 167 ...................................................................................................................6.67 s 248 ...................................................................................................................4.32 s 281(1) ..............................................................................................................4.32 s 281(2) ..............................................................................................................4.32 s 285(3) ..............................................................................................................8.98 s 314 ...................................................................................................................6.67 s 344 ...................................................................................................................7.35 s 345(4) ..............................................................................................................7.38 s 436 ...................................................................................................................6.67 Sch 4...................................................................................................................6.67 Sch 5...................................................................................................................6.67 Judicature Act 1873.............................................................................2.11, 5.17, 5.20 s 25 ............................................................................................................5.11, 5.19 s 25(6) ...................................................................2.17, 4.09, 5.04, 5.11, 5.27, 7.34 s 25(7) ................................................................................................................5.19 s 25(11) ..............................................................................................................5.11 Landlord and Tenant (Covenants) Act 1995 ......................................................8.30 Law of Property Act 1925 s 53(1) ................................................................................................................7.26 s 53(1)(a) ...........................................................................................................7.29 s 53(1)(b)...........................................................................................................7.29 s 53(1)(c) ..................................................................................................5.10, 7.29 s 53(2) .......................................................................................................7.26, 7.28 s 56 ...................................................................................................................6.108 s 136 ...............................................................................................5.03, 5.10, 6.118 s 136(1) ..............................................................................................................5.03 s 205 ...................................................................................................................7.26 Law of Property (Miscellaneous Provisions) Act 1989 s 2 .......................................................................................................................7.26 Marine Insurance Act 1906 s 50 .....................................................................................................................7.34 Mercantile Law Amendment Act 1856 s 5 .......................................................................................................................6.58 Patents Act 1977 s 30 .....................................................................................................................7.34 Pensions Act 1995 s 91 .....................................................................................................................6.58 Policies of Assurance Act 1867 ............................................................................6.90 s 1 .......................................................................................................................7.34 Sale of Goods Act 1979 s 20A ..................................................................................................................7.11
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s 53(1)(a) ...........................................................................................................8.73 Social Security Administration Act 1992 s 187 ...................................................................................................................6.58 Superannuation Act 1972 s 5(1) ..................................................................................................................6.58 Third Parties (Rights Against Insurers) Act 1930 ..............................................6.73
AUSTRALIA Commonwealth Bankruptcy Act 1966 s 5 ..............................................................................................................4.32, 6.67 s 58(3) ................................................................................................................8.98 s 62 .....................................................................................................................7.38 s 134 ...................................................................................................................6.67 s 153(1) ..............................................................................................................4.32 s 153(3) ..............................................................................................................4.32 Bills of Exchange Act 1909 s 16 .....................................................................................................................7.40 s 43(1)(b)...........................................................................................................8.49 Cheques Act 1986 s 12(1) ................................................................................................................7.40 Commonwealth Employees Rehabilitation and Compensation Act 1988 s 112(1) ..............................................................................................................6.58 Copyright Act 1968 s 196 ...................................................................................................................7.34 s 196(4) ............................................................................................................6.101 s 197 ...................................................................................................................7.34 Corporations Act 2001 Pt 7.11 ................................................................................................................7.34 s 9 .......................................................................................................................6.67 s 127 ...................................................................................................................7.37 s 266 ...................................................................................................................7.35 s 413 ........................................................................................................6.73, 6.101 s 471B.................................................................................................................8.98 s 477(2) ..............................................................................................................6.67 Design Act 2003 s 11 .....................................................................................................................7.34 Financial Sector (Transfers of Business) Act 1999 s 22 ...................................................................................................................6.101 Insurance Act 1973 ............................................................................................6.101
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Insurance Contracts Act 1984 s 48 .....................................................................................................................6.73 s 50 .....................................................................................................................6.73 Life Insurance Act 1995 s 200 ...................................................................................................................7.34 s 200(3) ............................................................................................................6.101 s 201 ...................................................................................................................7.34 s 202 ...................................................................................................................7.34 s 203 ...................................................................................................................7.34 Marine Insurance Act 1909 s 56 .....................................................................................................................7.34 Patents Act 1990 s 13 .....................................................................................................................7.34 s 103(1) ..............................................................................................................7.34 Reserve Bank Act 1959 s 25(c) ................................................................................................................6.58 Social Security (Administration) Act 1999 s 60 .....................................................................................................................6.58 Trade Marks Act 1995 s 106(1) ..............................................................................................................7.34 Trade Practices Act 1974 s 52 .....................................................................................................................6.67 s 82 .....................................................................................................................6.05 s 87 .....................................................................................................................6.05 Veterans Entitlements Act 1986 s 125 ..........................................................................................................6.58, 6.86 Australian Capital Territory Civil Law (Wrongs) Act 2002 s 151A ................................................................................................................6.59 Law Reform (Miscellaneous Provisions) Act 1955 ............................................7.26 s 51(1) ................................................................................................................7.26 s 51(1)(a) ...........................................................................................................7.29 s 51(1)(b)...........................................................................................................7.29 s 54(1) ................................................................................................................7.26 s 68 .....................................................................................................................6.59 Sale of Goods Act 1954 s 56 .....................................................................................................................8.73 New South Wales Bills of Sale Act 1898 s 5c(1) ................................................................................................................7.01
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Civil Procedure Act 2005 s 21(1) ................................................................................................................8.83 Conveyancing Act 1919 s 2 .......................................................................................................................7.26 s 7 .......................................................................................................................7.26 s 12 ...................................................................................................5.03, 5.06, 5.25 s 12(4) ................................................................................................................5.25 s 23C(1) .............................................................................................................7.26 s 23C(1)(c) ........................................................................................................7.26 s 23C(2) .............................................................................................................7.26 s 36C ................................................................................................................6.108 s 54A ..................................................................................................................7.37 s 54A(1) .............................................................................................................7.26 Insurance Act 1902 ss 14-16 ..............................................................................................................6.73 Law Reform (Miscellaneous Provisions) Act 1965 s 3 .......................................................................................................................6.58 Limitation Act 1969 ..............................................................................................4.17 Maintenance, Champerty and Barratry Abolition Act 1993 s 3 .......................................................................................................................6.59 s 4 .......................................................................................................................6.59 Sale of Goods Act 1923 s 54 .....................................................................................................................8.73 Sea-Carriage Documents Act 1997 s 8 .......................................................................................................................7.34 Northern Territory Bills of Lading Act 1859 SA s 1 .......................................................................................................................7.34 s 3 .......................................................................................................................7.34 Law of Property Act 2000 s 4 .......................................................................................................................7.26 s 10 .....................................................................................................................7.26 s 12 ...................................................................................................................6.108 s 56(3)(b).........................................................................................................6.108 s 62 .....................................................................................................................7.26 s 182 ...................................................................................................................5.03 Sale of Goods Act 1972 s 54 .....................................................................................................................8.73 Queensland Property Law Act 1974
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s 3 .......................................................................................................................7.26 s 11 .....................................................................................................................7.26 s 13 ...................................................................................................................6.108 s 55(3)(b).........................................................................................................6.108 s 59 .....................................................................................................................7.26 s 199(1) ..............................................................................................................5.03 s 199(2) ..............................................................................................................5.03 Sale of Goods Act 1896 s 54 .....................................................................................................................8.73 Sea-Carriage Documents Act 1996 s 6 .......................................................................................................................7.34 South Australia Law of Property Act 1936 s 7 .......................................................................................................................7.26 s 15 .....................................................................................................................5.03 s 29 .....................................................................................................................7.26 s 34(1) ..............................................................................................................6.108 Law of Property Act 1938 s 26(1) ................................................................................................................7.26 Sale of Goods Act 1895 s 52 .....................................................................................................................8.73 Tasmania Conveyancing and Law of Property Act 1884 s 2 .......................................................................................................................7.26 s 36(1) ................................................................................................................7.26 s 60(2) ................................................................................................................7.26 s 61(c) ..............................................................................................................6.108 s 86(1) ................................................................................................................5.03 s 86(2) ................................................................................................................5.03 Sale of Goods Act 1896 s 57 .....................................................................................................................8.73 Sea-Carriage Documents Act 1997 s 7 .......................................................................................................................7.34 Victoria Crimes Act 1958 s 322A ................................................................................................................6.59 Goods Act 1958 s 59 .....................................................................................................................8.73
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Instruments Act 1958 s 126 ...................................................................................................................7.26 Property Law Act 1958 s 18 .....................................................................................................................7.26 s 53 .....................................................................................................................7.26 Sea-Carriage Documents Act 1998 s 8 .......................................................................................................................7.34 Wrongs Act 1958 s 32 .....................................................................................................................6.59 Western Australia Property Law Act 1969 s 7 .......................................................................................................................7.26 s 11(1) ..............................................................................................................6.108 s 11(3)(c) .........................................................................................................6.108 s 20 .....................................................................................................................5.03 s 20(3) ............................................................................4.27, 4.29, 5.20, 7.22, 7.39 s 34 .....................................................................................................................7.26 Sale of Goods Act 1895 s 52 .....................................................................................................................8.73 Sea-Carriage Documents Act 1997 s 8 .......................................................................................................................7.34 Statute of Frauds 1677 (Imp) s 4 .......................................................................................................................7.26 s 9 .......................................................................................................................7.26
NEW ZEALAND Contractual Remedies Act 1979 s 11(1) ................................................................................................................8.32 s 11(2) ................................................................................................................8.32 Property Law Act 1952 ........................................................................................5.07
UNITED STATES Restatement of Contracts 2d s 317(2) ..............................................................................................................6.69 s 322 .................................................................................................6.85, 6.87, 6.89 s 322(2)(a) ................................................................................................6.69, 6.86 s 322(2)(b).........................................................................................................6.88
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s 333 ...................................................................................................................8.04 s 336(2) ..............................................................................................................8.92 s 338(2) ..............................................................................................................8.39 s 338(3) ..............................................................................................................8.38 Uniform Commercial Code s 2-210..............................................................................................6.85, 6.96, 6.98 s 2-210(4) ........................................................................................................6.134 s 2-306................................................................................................................6.96 s 2.210(2) ...........................................................................................................6.69 s 9-318(4) ..........................................................................................................6.87 s 9-405................................................................................................................8.39 s 9-406................................................................................................................6.85
TABLE OF STATUTORY INSTRUMENTS
References are to paragraph number Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794) reg 4A.................................................................................................................6.73 reg 5(1) ..............................................................................................................6.73 reg 5(2) ............................................................................................................6.101
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INTERNATIONAL CONVENTIONS AND LAWS
References are to paragraph number Principles of European Contract Law Art 11:103 ..........................................................................................................6.50 Art 11:204 ..........................................................................................................8.04 Art 11:301 ..........................................................................................................6.85 Art 11:303(2) ............................................................................................7.38, 8.06 Art 11:304 .................................................................................................7.38, 8.06 Art 12:201 ........................................................................................................6.134 UN Convention on Assignment of Receivables in International Finance Art 11 .................................................................................................................6.85 Art 20(1) ............................................................................................................8.34 Art 20(2) ............................................................................................................8.34 Art 20(3) ............................................................................................................8.34 Art 22(1) ............................................................................................................8.39 Art 22(2)(a) ......................................................................................................8.39 Art 22(2)(b).......................................................................................................8.39 Art 22(3) ............................................................................................................8.39 Unidroit Convention on International Factoring Art 6 ..................................................................................................................6.85 Art 8(1)(a) .........................................................................................................8.06 Art 9 ...................................................................................................................8.92 Art 10(1) ............................................................................................................8.34 Art 10(2)(a) .......................................................................................................8.04 Art 11 .................................................................................................................8.94 Unidroit Principles of International Commercial Contracts Art 9.1.3 ....................................................................................................6.93, 6.98 Art 9.1.4 .............................................................................................................6.50 Art 9.1.8 .............................................................................................................6.93 Art 9.1.9(1) ........................................................................................................6.85 Art 9.1.9(2) ........................................................................................................6.86 Art 9.1.12 ..................................................................................................7.38, 8.06 Art 9.1.15 ...........................................................................................................8.04 Art 9.3.1-9.3.7..................................................................................................6.134
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1 Introduction (a) General [1.01] Subject matter of the book. The subject matter of this book is the rules governing the voluntary inter vivos assignment of contractual rights.1 Such transactions involve the transfer of a contractual right from the owner (assignor) to the transferee (assignee). The person bound to perform the correlative obligation is either (in the case of a debt) the debtor or (in the case of some other contractual performance obligation) the obligor. Assignments of contractual rights form an important area of commercial practice. Despite this, in terms of legal publications, the assignment of contractual rights is an area that has received little attention.2 Recently it was described as “undeveloped”.3 1 Often this is referred to as assigning the benefit of a contract. Statements can be found that seek to distinguish the assignment of the “benefit” of a contract from the assignment of rights under a contract, eg Yeandle v Wynn Realisations Ltd (1995) 47 Construction LR 1. However, under the property model of assignment (see [3.19]) this distinction cannot be maintained. Only contractual rights may be assigned, and for the most part these flow from contractual terms. The class of contractual rights and duties that do not flow from the terms of a contract is small: see E Peden, Good Faith in the Performance of Contracts (Sydney, Butterworths, 2003) para 1.5. References to the assignment of the “benefit” of a contract should be taken to refer to an assignment of all the rights under a contract rather than any specific rights under a contract. 2 This is despite statements such as, “modern capitalism begins with the assignment and negotiability of contracts”: see JR Commons, Legal Foundations of Capitalism (New York, Macmillan, 1924) at 253. It has also been said: “If we were asked—Who made the discovery which has most deeply affected the fortunes of the human race? We think, after full consideration, we might safely answer—The man who first discovered that a Debt is a Saleable Commodity”: see H Dunning Macleod, The Theory and Practice of Banking (5th edn, London, Longmans, Green, Reader & Dyer, 1892) i, at 200. There have been a number of publications dealing with the more general topic of the assignment of choses in action: see WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899); FCT Tudsbery, The Nature, Requisites and Operation of Equitable Assignments (London, Sweet & Maxwell, 1912); OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950); JG Starke, Assignment of Choses in Action in Australia (Sydney, Butterworths, 1972). See also J Barr Ames, Lectures on Legal History (Cambridge, Mass, Harvard University Press, 1913) at 210; SJ Bailey, “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1931) 47 LQR 516, (1932) 48 LQR 248, 547; WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, at 515). Textbooks have also considered in some detail the position of a trustee where a beneficiary assigns its interest: see generally B Marks, Alienation of Income (2nd edn, Sydney, CCH Australia, 1982) para 224. In addition,
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In the result, the assignment of contractual rights is made up of a number of rules which overlap, make little sense as statements in their own right and appear to lack any general underlying and unifying principle. These rules are as follows: 1. An assignor can assign no greater right than it has nor can an assignee obtain a right greater than that held by the assignor. 2. Only non-personal contractual rights may be assigned. 3. It is not possible by assignment to increase or vary the obligations or burdens of an obligor. 4. It is possible to assign only rights and not obligations. 5. After receiving notice of an assignment, the obligor may not do anything to diminish the rights of the assignee. 6. An assignee can be in no better position than the assignor was prior to the assignment. 7. An obligor should be no worse off by virtue of an assignment. 8. An assignee takes subject to the equities. [1.02] Objects and themes of the book. This book seeks to explain the existence, meaning and operation of these rules in Anglo-Australian law by proving two points.4 First, that most of these rules can be explained by reference to what is termed (in this book) “the principle of transfer”. Case law dictates that an assignment involves a transfer of rights. This prompts an investigation into the legal concept of transfer. It is shown that the principal effect of a legal transfer flows from the fact that it is governed by the nemo dat rule. This rule forms the basis of “the principle of transfer”. The principle of transfer holds the key to understanding the rules governing the assignment of contractual rights as it is the fundamental principle governing such assignments. Most of the “rules” are merely different ways of expressing this principle. The reason for having different expressions of the one principle is that each rule attempts to express the operation of the principle of transfer at different stages of an assignment. Therefore, the principle of transfer explains the existence, meaning and operation of these rules. In short, an assignment does not merely involve a transfer; assignment is transfer. Secondly, in investigating the case law to show its compliance with the principle of transfer, it will be seen that there are some deviations. It is suggested that those deviations are explicable by recognising that a formal legal relationship exists there are a number of specialist works that have dealt with receivables financing and the alienation of income: see F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991); F Salinger, Factoring: The Law and Practice of Invoice Financing (3rd edn, London, Sweet & Maxwell, 1999); PM Biscoe, Credit Factoring (London, Butterworths, 1975); B Marks, Alienation of Income (2nd edn, Sydney, CCH Australia, 1982). See also LW Melville, Precedents on Industrial Property and Commercial Choses in Action (London, Sweet & Maxwell, 1965). 3 Don King Productions Inc v Warren [2000] Ch 291 at 318 per Lightman J (affirmed [2000] Ch 291). 4 Despite this emphasis use is made of instructive cases from a number of jurisdictions.
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5
between the assignee and obligor which is policed by equity to prevent unconscionable conduct. The content of rules 5 and 8, to the extent that they focus on the obligor/assignee relationship rather than the assignor/assignee relationship, are explicable on this basis rather than the principle of transfer.5 [1.03] Application of theme to the rules governing the assignment of contractual rights. The conclusions that are reached in the book as regards the application of the principle of transfer to the rules governing the assignment of contractual rights are as follows. Rule 1: An assignor can assign no greater right than it has nor can an assignee obtain a right greater than that held by the assignor. This rule is a clear adoption of the nemo dat rule which is the hallmark of all legal transfers. As an assignment involves a transfer, the principle of transfer dictates the existence of this rule and provides the meaning of this rule. Rule 2: Only non-personal contractual rights may be assigned. The personal rights rule on its face would appear to be the most difficult rule to explain by reference to the principle of transfer. However, it is suggested that because contractual rights owe their existence to the intention of the parties then it must follow that that intention moulds the character of contractual rights not only as personal rights but also as choses in action. This point makes it clear why the principle of transfer would dictate the existence of a rule that gave such prominence to party intention and autonomy. That is, if the parties rob a chose in action of its inherent assignability by evidencing an intention that the obligor should only perform for the other party to the contract, then to allow the assignment of that right would be to allow the assignment of a right greater than and different from the one vested in the assignor, which would breach the principle of transfer. The same reasoning explains both the efficacy of contractual provisions prohibiting assignment and provisions that make rights assignable that would otherwise be construed as personal.
5 The explanatory nature of this book by no means exhausts the issues that face the law of assignment. For example, the current law, reflecting the history of this area, views assignment as involving the transfer of a proprietary right. Whether this fixation with property rights should continue is questionable. In addition, to a large extent, the present law determines the assignability of contractual rights by reference to the intention of the parties, and there is a legitimate view that assignability should be further promoted and that this could be achieved by allowing for assignment regardless of party intention where there is no good objective reason for limiting assignment: see LA DiMatteo, “Depersonalization of Personal Service Contracts: The Search for a Modern Approach to Assignability” (1994) 27 Akron LR 407. Finally, it may be questioned whether Anglo-Australian law should continue to maintain both an equitable and legal system of assignment.
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Rule 3: It is not possible by assignment to increase or vary the obligations or burdens of an obligor. Like rule 1 above, this rule is a clear adoption of the nemo dat rule. If the assignor cannot assign a right different from or greater than the one vested in him or her, then the effect of that assignment must be that the correlative obligation of the obligor is also not capable of variation by reason of the assignment. It may be noted that “variation” here concerns variations of legal obligations rather than factual changes to performance. So long as the obligor is being asked to perform for the assignee the exact same legal obligation as that promised to the assignor, then the obligor cannot complain that there has been a variation to its obligation. It is accepted that there may be some increased inconvenience in fact by reason of an assignment. This rule is also used to state the conclusion (or sub-rule) that the assignee can recover by way of damages for breach of contract no more than the assignor could have recovered. It is suggested that the principle of transfer dictates that the assignee should recover for its own personal loss. Nevertheless, the potential loss of the assignor should operate as a cap on liability, because the right to performance does not change its character when assigned but remains a right to an obligation promised to the assignor. This impacts on the value of the right vested in the assignee, and this result is dictated by the principle of transfer. Rule 4: It is possible to assign only rights and not obligations. When dealing in choses in action, it is only possible to transfer something one owns. At the time when a contract is formed a party does not own an obligation that it owes to the other party. To recognise the assignment of a chose in action which the assignor does not own would be at odds with the nemo dat rule. The principle of transfer cannot recognise the transfer of such obligations and therefore there is necessarily a rule governing the assignment of contractual rights that such obligations cannot be assigned. There is still a debate whether a party to a contract can take from the other party an assignment of the right to the performance of the obligation that the first party owes that second party, and whether such an assignment would result in an extinction of the obligation or allow for the first party to deal further with the “right” to the obligation it owes the second party. In any case, because the character of a contractual right as a chose in action is shaped by the intention of the parties to the contract, it is theoretically possible to make an obligation an intrinsic part of a right. In such a case, the principle of transfer would dictate that any transferee taking the right must also accept the obligation. If this were not the case, a right greater than and different from, that vested in the assignor would have been transferred, which is at odds with the principle of transfer. Rule 5: After receiving notice of an assignment, the obligor may not do anything to diminish the rights of the assignee. It is suggested in Chapter 8 that this rule is not a rule dictated by the principle of transfer. This rule is concerned with the
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obligor/assignee relationship which is not the relationship under which the transfer takes place. The “transfer relationship” is that of the assignor/assignee. In practice, this rule has been used in Anglo-Australian law to prohibit the assignor and obligor from varying the contract after notice of the assignment. It is suggested that the principle of transfer would not prohibit such variations. Thus, in taking the assignment of a contractual right, the assignee must accept that that right in its nature as a chose in action may be varied by the obligor and assignor, because this power is vested in the parties to a contract. Such an act may put the assignor in breach of contract with the assignee, but that alone does not call into question the inherent power of the assignor to agree to such variations in its capacity as party to the contract with the obligor. It follows that the rule can be explained only by recognising a formal legal relationship between the obligor and assignee which allows the assignee to resist such variations to the contract when the obligor’s agreement to the variation amounts to unconscionable conduct. Rule 6: An assignee can be in no better position than the assignor was prior to the assignment. The notion that an assignee can be in no better position than the assignor is a clear adoption of the nemo dat rule as recognised in rule 1 above. However, rule 6 is more often referred to when the question being asked concerns the extent of performance the assignee can demand from the obligor. Rule 7: An obligor should be no worse off by virtue of an assignment. This rule is often used to express the reason why the damages awarded to an assignee for breach of contract by the obligor cannot exceed those which would have been awarded to the assignor. This is clearly a result dictated by the principle of transfer, as the discussion of rule 3 above shows. Rule 8: An assignee takes subject to the equities. It is suggested in Chapter 8 that although the origins of this rule probably lie in the early procedure adopted for enforcing assignments, the rule is also dictated by the principle of transfer. That is, the nemo dat rule demands that an assignee take subject to all the inherent weaknesses or infelicities of the subject right. Thus, in the case of a contractual right, the assignee must take subject to such things as the obligor’s right to terminate the contract for breach or repudiation by the assignor or to rescind the contract by virtue of some misrepresentation, duress, undue influence or unconscionable conduct on the part of the assignor. In addition, the principle of transfer dictates that the assignee takes subject to substantive defences the obligor has against the assignor such as a right to substantive equitable set-off. It is also suggested in Chapter 8 that part of the operation of the subject to equities rule can be explained by recognising a formal legal relationship between the obligor and assignee which is policed to prevent unconscionable conduct. This would then explain why the assignee would be subject to such things as statutory
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set-offs, payments to the assignor and releases given by the assignor where these arise or occur prior to the obligor receiving notice of the assignment.
(b) Structure of the Book [1.04] Order of the book. The book is divided into four parts. This first part introduces the subject matter of the book, its objects and theme, and provides a brief history of the subject. Part 2 investigates the meaning of “assignment” and the nature of equitable and legal assignments. This part explains the legal concept of transfer. The major propositions flowing from this part are that it is sensible to speak of a transfer in the context of assignment only if the assignee becomes the owner of the subject right and such a transfer is governed by the nemo dat rule. Part 3 is concerned with the process of assigning contractual rights and investigates the rules most relevant to this aspect of an assignment. It will show that the existence, meaning and operation of these rules is explicable by the principle of transfer. This part also addresses the formalities of an assignment. Part 4 is concerned with the relationships between the assignor, assignee and obligor and investigates the rules most relevant to these relationships. It will be shown that the existence, meaning and operation of these rules yields to the principle of transfer. However, in this part it is also necessary to introduce the notion of a formal relationship existing between the assignee and obligor to explain some of the content of the rules. Although the object of this book is to investigate the rules governing the assignment of contractual rights, the rules are not dealt with in separate chapters. Such a structure would result in repetition as the rules overlap. As noted above, each of the rules reflects a different stage of an assignment. An assignment may be broken down into the following steps, (1) assignability, (2) formalities, and (3) position of the assignor, assignee and obligor as regards enforcement and remedies. The approach of the book is to deal with the rules within the context of such a transaction. Generally, rules 1, 2 and 4 (and to some extent rule 3) are concerned with assignability. Rules 5, 6, 7 and 8 (and again to some extent rule 3) concern the position of the parties. Of course, the formalities for an assignment cannot be explained by reference to the rules governing the assignment of contractual rights, but are nevertheless important to any such transaction and are discussed in Chapter 7.
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(c) Some Limitations [1.05] Main limits of the book. The abovementioned object of this book sets some important limitations. First, this book attempts to explain the law of assignment of contractual rights and therefore seeks to work within the case law. That is, the aim is to explain as many of the important authorities as possible while keeping suggestions that leading cases should be overruled to a minimum. Secondly, because the methodology is analytical, the current property model of assignment is adopted without question.6 The concern is how contractual rights are integrated within that system. [1.06] Other limitations. The focus of this book is on the assignment of contractual rights to receive performance.7 Although such performance often involves the payment of money, the book is not a complete statement of the law governing the assignment of debts. A debt does not require a contract for its existence, and many debts arise outside contract. Moreover, debts, whether accruing under a contract or not, have always been considered to be a distinct chose in action. In addition, because this is a book dealing with general principles of law and because of its focus on assignment of contractual rights, there is no discussion of other legal or commercial matters that may have to be addressed in the planning of such transactions. For example, there is no discussion of the various legal and commercial issues that arise in determining the form of a financing of receivables or the best structure to be adopted in a securitisation. Such matters are dealt with in specialised works on such topics. In addition, whether or not an assignment should be set aside upon the bankruptcy or insolvency of the assignor is left to specialised works.8 6 It is unlikely that this model will be jettisoned at any time soon, and it is adopted in the United Nations Convention on Assignment of Receivables in International Trade: see Uncitral, Analytical Commentary on the Draft Convention on Assignment of Receivables in International Trade, A/CN. 9/489, 13 Mar 2001, paras 85, 127. 7 The book does not deal with the involuntary assignments that occur by operation of law upon death, bankruptcy and the replacement of trustees: these are dealt with in standard works on these topics. In addition to these, it may be noted that many contractual rights, particularly debts, may be assigned by force of statute: see generally Deputy Commissioner of Taxation v Lanstel Pty Ltd (1996) 22 ACSR 314; Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 26–7 per Brennan J; Zuks v Jackson McDonald (1996) 132 FLR 317. 8 The book also does not consider the unique issues that arise in determining the nature and transfer of indirectly held investment securities. This is an area of law that is now the subject of specialised works: see AO Austen-Peters, Custody of Investments (Oxford, OUP, 2002); J Benjamin and M Yates, The Law of Global Custody (2nd edn, London, Butterworths, 2002) J Benjamin, Interests in Securities (Oxford, OUP, 2002); R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) ch 6; R Goode, “The Nature and Transfer of Rights in Dematerialised and Immobilsied Securities” in F Oditah (ed), The Future for the Global Securities Markets (Oxford, Clarendon Press, 1996). See also Financial Markets Law Committee, Issue 3—Property Interests in Investment Securities
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In relation to assignments by way of security, because the book is limited to the issue of assignment, it is not concerned with that stage of a security transaction that deals with the perfection of security interests (that is, the efficacy of the security as between third parties such as liquidators or other creditors9) and the priority of security interests (that is, the rules for resolving competing interests in the property). In addition, because this book is principally concerned with assignments of rights to performance, the language of the book tends to be language that describes an outright assignment rather than an assignment by way of security. Basically this results in references being made to “assignors”, “assignees” and “transfer” rather than “mortgagors”, “mortgagees” and “attachment”.10
(2004) at www.fmlc.org. See further Unidroit, Preliminary Draft Unidroit Convention on Harmonised Substantive Rules Regarding Securities Held with an Intermediary (2004). 9 In the case of an outright assignment the transfer (that is, attachment) will protect the assignee from most third parties claiming through the assignor. In the case of an assignment of a debt, notice to the debtor may be viewed as a perfection requirement. For reasons set out fully in paras [4.10]–[4.20], unless a statutory provision dictates to the contrary, notice to the debtor is not a requirement for an equitable assignment of a legal right. The transfer or attachment can take place prior to notice. Notice is required to bind the conscience of the debtor, and the assignee can expect a personal accounting by the debtor only if notice is given. However, this does not mean that prior to notice the assignment is operative only as between the assignor and assignee: see [4.20]. See further R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 2.17. 10 However, the general principles governing attachment and transfer are the same. For a discussion of attachment: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) chapters 2–5.
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2 A Brief History of Assignment (a) Introduction [2.01] Purpose of the chapter. The purpose of this chapter is to provide an overview of the history of this area of law. This historical section is brief as the ultimate concern of the book is with the assignment of contractual rights, and not the broader topic of the assignment of choses in action. The chapter begins with a look at the meaning of “choses in action”.
(b) Choses in Action [2.02] Meaning of “choses in action”.1 A chose in action is regarded today as a personal right of property.2 When the term “chose in action” is used it may be referring to a right enforceable by action or to the right of action itself. Choses in action are distinct from choses in possession as they are a form of intangible property. The law distinguishes between two types of choses in action, namely legal choses in action and equitable choses in action. A legal chose in action is a right created by the common law which is enforceable at common law, such as a legal debt. An equitable chose in action is a right created by equity and enforced in equity, for example, an interest in a partnership or an interest under a trust. Although the matter is not entirely free from doubt, perhaps originally the term “chose in action” was recognised at common law as an expression used to describe a right to sue for the purposes of recovery and was generally used to describe a
1 For examples of judicial descriptions of choses in action see Halsbury’s Laws of England (4th edn, London, Butterworths, 1991) vi, para 1; OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 5–8; WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 1–8. In addition, a statute may provide its own meaning. 2 See [2.05] below.
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personal right to sue for a debt or damages.3 Thus, the phrase was originally used to describe a right that could be asserted only by action and not by taking possession.4 Although medieval lawyers had no problem with the concept of incorporeal property, these rights were considered personal.5 In time, the phrase was extended to include rights of action that did not involve the recovery of money.6 Early descriptions can be found which capture rights of action in respect of tangible objects where the claimant did not have possession of the object.7 For example, Blackstone wrote:8 Having thus considered the several divisions of property in possession, which subsists there only, where a man hath both the right and also the occupation of the thing, we will proceed next to take a short view of the nature of property in action, or such where a man hath not the occupation, but merely a bare right to occupy the thing in question; the possession whereof may however be recovered by a suit or action at law: from whence the thing so recoverable is called a thing or chose in action.9
The inclusion of such rights of action within the class of choses in action may have partly flowed from the merger that occurred between choses in action real10 and choses in action personal.11 Although originally a distinction was drawn between these, with the former readily lending itself to the inclusion of rights to recover assets, at some point these groups were merged and simply entitled 3 See Colonial Bank v Whinney (1885) 30 Ch D 261 at 282 per Lindley LJ, cf at 286 per Fry LJ and Colonial Bank v Whinney (1886) 11 App Cas 426 at 439 per Lord Blackburn. See also C Sweet, “Choses in Action” (1894) 10 LQR 303 at 304; WR Warren, The Law Relating to Choses in Action (London, Sweet and Maxwell, 1899) at 1; OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 36–45. Such a description meant that the only obligations to pay that fell within the category were debts that were payable, or at least payable at a certain date. It was only much later that it could be conclusively said that existing but conditional or contingent obligations to pay were included in the class of “choses in action” and the class of “assignable choses in action”: see Brice v Bannister (1878) 3 QBD 569; Walker v The Bradford Old Bank Ltd (1884) 12 QBD 511. See also Re Huggins (1882) 21 Ch D 85 at 91 per Jessel MR. 4 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 998 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 517). 5 Ibid, at 1000, 1012 (article), 518, 528 (book); JV Orth, “Contract and the Common Law” in HN Scheiber (ed), The State and Freedom of Contract (Cal., Stanford, Stanford UP, 1998) at 45–6. 6 C Sweet, “Choses in Action” (1894) 10 LQR 303 at 304. 7 See HW Elphinstone, “What is a Chose in Action?” (1893) 9 LQR 311; C Sweet, “Choses in Action” (1894) 10 LQR 303 at 304; S Brodhurst, “Is Copyright a Chose in Action?” (1895) 11 LQR 64 at 69; C Sweet, “Choses in Action” (1895) 11 LQR 238. See also OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 8–27. 8 W Blackstone, Commentaries on the Laws of England (Oxford, Clarendon Press, 1766) ii, at 396. 9 See further S Brodhurst, “Is Copyright a Chose in Action?” (1895) 11 LQR 64 at 66. 10 This class emerged around the sixteenth century. 11 The action in debt, which was readily accepted as a chose in action, was always viewed as an action to recover detained property, that is, the recovery of a thing transferred under the transaction. Given this, it perhaps would not have seemed illogical to extend the class to include rights of action in respect of tangible assets. See further AWB Simpson, A History of the Common Law of Contract (Oxford, Clarendon Press, 1987) at 75–80.
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“choses in action”.12 The expression “chose in action real” fell into disuse.13 Once rights to recover possession fell within the class it might have been a logical development for the class to take on the character of proprietary rights and then assignable rights. Certainly courts recognised the proprietary interest such actions protected. The reasons why this did not occur are discussed later.14 Another reason why such rights fell within the class of choses in action was the view that anything not assignable was considered to be a chose in action.15 [2.03] Some inclusions in the class of choses in action appear to have simply followed from others. For example, in the sixteenth century the class was extended to include documents that evidenced a right to bring an action, such as a bond.16 In later centuries, and partly because of this inclusion, the class was readily extended to include such things as negotiable instruments, shares, insurance policies and bills of lading.17 [2.04] Another important development in the class of choses in action concerned classification. Between the seventeenth century and the late nineteenth century much weight was placed on the distinction between choses in possession and choses in action. This classification was not new,18 but there was a growing view, which was firmly in place by the late nineteenth century, that all personal things must be either choses in possession or choses in action as there was no middle ground.19 This view, 12 C Sweet, “Choses in Action” (1894) 10 LQR 303 at 305; WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1002 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 520). See also Re McLean (deceased) (1904) 23 NZLR 504. See further [2.09]. 13 C Sweet, “Choses in Action” (1894) 10 LQR 303 at 308. 14 [2.09]. 15 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 16–17. In May v Lane (1894) 64 LJQB 236 at 238, Rigby LJ in suggesting that a “legal chose in action is something which is not in possession, but which must be sued for in order to recover possession of it”, appeared to be of the view that the inclusion of rights of possession into the class actually narrowed the field of choses in action. Cf the explanation of this case in Torkington v Magee [1902] 2 KB 427 at 433–4. See also Earle’s Shipbuilding and Engineering Company v Atlantic Transport Company (1899) 43 Sol Jo 691; Dawson v Great Northern and City Railway Co [1905] 1 KB 260 at 270; County Hotel & Wine Company Ltd v London & North Western Railway Co [1918] 2 KB 251 at 259–60; Ellis v Torrington [1920] 1 KB 399 at 413; Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at 116. 16 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 997–8 and 1011 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 516, 527). 17 Ibid. at 997–8, 1011 (article), 516, 527 (book). 18 T Cyprian Williams, “Is a Right of Action in Tort a Chose in Action?” (1894) 10 LQR 143 at 143–4; WR Warren, The Law Relating to Choses in Action (London, Sweet and Maxwell, 1899) at 9. 19 See Colonial Bank v Whinney (1885) 30 Ch D 261 at 285 per Fry LJ. Fry LJ’s dissenting opinion was upheld on appeal: see (1886) 11 App Cas 426 esp at 439 per Lord Blackburn. However, it would appear that in earlier times not only was there acceptance of a middle ground but also a mixed ground: see OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 2.
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together with the notion that choses in action were not transferable, made it much easier to increase the class of choses in action, or at least more readily to accept some inclusions that had crept into the class which was now clearly not limited to rights to sue for debts or damages.20 It was beyond doubt that the class included rights that were clearly linked to tangible property, as well as rights that did not depend on enforcement for their enjoyment and rights that were not capable of enforcement.21 It was also readily accepted that the class included existing conditional and contingent obligations to pay.22 Descriptions of “choses in action” from this time reflect this broad categorisation. For example, Williams, writing in 1895, said:23 A thing in action, then is properly the benefit of an obligation arising from the breach of an antecedent duty. It would also appear to be the benefit of some real, mixed or personal action, that is, of an action brought for the realisation of some right, which is valuable as tending to result in the ownership of land, goods or money. . . . [These are] not included in property in the strict sense of the word, because that is confined to the ownership with possession of tangible things, but comprehended in property in its widest sense, because valuable as being possibilities of property in the narrow sense. The term chose in action has, however, been extended to other things arising from some cause of action. Thus it has been applied to the benefit of an obligation arising from contract . . . [even though] no action can be maintainable before breach of the obligation. . . . [In this] extended sense of the word, [it] would seem to be a thing which, if wrongfully withheld, you must bring an action to realise; a thing which you cannot take but must go to law to secure.
The classification of personal things into choses in possession and choses in action perhaps had both positive and negative effects. On the positive side it meant that it was acceptable to include in the class rights that did not depend on enforcement for their enjoyment. This remains the case today.24 This was important 20 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons, 1950) at 3; S Brodhurst, “Is Copyright a Chose in Action?” (1895) 11 LQR 64 at 68. See further T Cyprian Williams, “Property, Things in Action and Copyright” (1895) 11 LQR 223. 21 WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 8–18 and WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 997–8, 1011, 1013 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 516, 527, 529). See also OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 21–2, 28–32. Cf Re Huggins (1882) 21 Ch D 85 at 90–1 per Jessel MR. 22 Elphinstone suggested that it was easier to bring contract rights and debts within the term “choses in action” because, although they were capable of enjoyment without action and gave rise to actionable rights only upon infringement, they consisted of rights against other persons rather than being rights in respect of a thing, and were ultimately capable of enforcement: see HW Elphinstone, “What is a Chose in Action?” (1893) 9 LQR 311 at 313. 23 T Cyprian Williams, “Property, Things in Action and Copyright” (1895) 11 LQR 223 at 230–1, 232. 24 See further Torkington v Magee [1902] 2 KB 427 at 431 per Channell J (reversed on another point [1903] 1 KB 644) (but compare the definition of “chose in action” he used which is set out below: see [2.05]). See also Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 915 per Lord Hoffmann. Cf Simmons v Harvey [1965] Tasmanian State Reports (Tas SR) 84 at 94 per Neasey J.
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because if the assignment of contractual rights were to be eventually governed by the rules relating to the assignment of choses in action, it was necessary that contractual rights to performance were securely positioned in the class of choses in action. Clearly they were considered choses in action prior to this strict classification, but the classification put the issue beyond doubt.25 On the negative side, this classification required the law to fit within one of the categories subject matter that did not fit easily into either, most notably the developing intellectual property rights such as patents, copyrights and trade marks. Today, the law readily accepts the existence of sui generis interests.26 [2.05] Choses in action as property. It is difficult to determine when lawyers began to think of choses in action as being property. Although by the twentieth century equity had long recognised the assignment of legal rights, it had originally done this by recognising an agreement to assign between the assignor and assignee and took steps to hold the assignor to its promise.27 This methodology does not depend on there being a transfer of property. The most authoritative statement that equity had moved on and recognised such rights as property for the purposes of transfer occurred in 1905.28 However, that development must have occurred well before then.29 Perhaps the factor that put this issue beyond doubt was the enactment of certain statutory provisions, most notably bankruptcy legislation. From early times “goods and chattels” in bankruptcy legislation included choses in action,30 thus being recognised as capable of being owned. It was this (together with some examples of other legislation) that led Lindley LJ in Colonial Bank v Whinney 31 to conclude that “whatever its original meaning may have been, [the term ‘chose in action’ had] come to be used as denoting a certain class of property”. Lindley LJ, writing in 1885, took the view that the law had come to recognise the existence of incorporeal personal property and having no term to describe such property
25
Colonial Bank v Whinney (1885) 30 Ch D 261 at 286–7 per Fry LJ. Eg Rolls-Royce Ltd v Jeffrey [1962] 1 All ER 801. 27 [4.05]. 28 See Fitzroy v Cave [1905] 2 KB 364 at 372–3 per Cozens Hardy LJ. 29 See Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 34 per Windeyer J (“Before 1873 a chose in equity and a chose in action were both transferable in equity”). 30 Colonial Bank v Whinney (1885) 30 Ch D 261 at 280, 283 per Lindley LJ. 31 (1885) 30 Ch D 261 at 283 (in this case the majority of the Court of Appeal, Lindley LJ being in that majority, held that shares did not fall within the expression “choses in action” as used in the reputed ownership provisions, and therefore passed to the trustee in bankruptcy; under these provisions a chose in action not owned by the bankrupt could not be in the reputed ownership of the bankrupt so as to pass to the trustee; this point was later overruled by the House of Lords: see Colonial Bank v Whinney (1886) 11 App Cas 426). See further WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 297–302. 26
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simply extended the meaning of “choses in action” to denote it.32 Today, the term “chose in action” appears to be solely used to describe certain property rights, that is, “personal property of an incorporeal nature”.33 There appears to be no separate class of personal choses in action.34 Authoritative judicial descriptions from the early twentieth century onwards all appear to agree on this point. For example, in Torkington v Magee,35 “choses in action” were described by Channell J as:36 [A]ll personal rights of property which can only be claimed or enforced by action, and not by taking physical possession.
In Loxton v Moir,37 Rich J said:38 The phrase “chose in action” is used in different senses, but its primary sense is that of a right enforceable by an action. It may also be used to describe the rights of action itself, when considered as part of the property of the person entitled to sue. A right to sue for a sum of money is a chose in action, and it is a proprietary right.
Finally, and more recently, in Investors Compensation Scheme Ltd v West Bromwich Building Society,39 Lord Hoffmann said:40 [A] chose in action is property, something capable of being turned into money . . . [W]hat is assignable is the debt or other personal right of property. It is recoverable by 32 (1885) 30 Ch D 261 at 283–4. Later in the House of Lords, Lord Blackburn ( (1886) 11 App Cas 426 at 439), did not think this point was made out. He did not think that the term “chose in action” once had a technical meaning that had been extended, but rather that for a long time the class was determined by what could not fit into the notion of a chose in possession. Thus, when new forms of property were created, like shares, they naturally fell into the chose in action class. The point Lindley LJ was making was that as choses in action were excluded from being in the reputed ownership of the bankrupt, it was necessary to determine whether that phrase, as used in the legislation, was being used in a narrow technical and historical sense or in a wide sense that would include shares. 33 HW Elphinstone, “What is a Chose in Action?” (1893) 9 LQR 311 at 312. See also Colonial Bank v Whinney (1886) 11 App Cas 426 at 440 per Lord Blackburn. It has also been said that the principles of choses in action provide a set of legal norms that allow certain rights to be considered property. Once a right satisfies those norms it may be traded, and it is these norms, for example, that dictate that a patent is property while an invention is not: see J Braithwaite and P Drahos, Global Business Regulation (Cambridge, Cambridge University Press, 2000) at 40. 34 One exception may be a bare right of action which is still referred to as a chose in action that is incapable of assignment because it is personal: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.480. However, today rights of action are assignable if the assignee has a sufficient interest in the suit. The better view may be that such rights are true proprietary choses in action that may not be assigned in some cases due to overriding public policy considerations: see Beatty v Brashs Pty Ltd [1998] 2 VR 201 at 207. Occasional references can be found to the effect that a chose in action is a personal right which is assignable, eg Goldsbrough Mort & Co Ltd v Tolson (1909) 10 CLR 470 at 474 per Griffith CJ. 35 [1902] 2 KB 427 (reversed on another point [1903] 1 KB 644). See also Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 574 per Lord Goff, and see Smith v ANL Ltd (2000) 204 CLR 493. 36 [1902] 2 KB 427 at 430 per Channell J (reversed on another point [1903] 1 KB 644). 37 (1914) 18 CLR 360. 38 (1914) 18 CLR 360 at 379. 39 [1998] 1 WLR 896. 40 [1998] 1 WLR 896 at 915. See also Swift v Dairywise Farms Ltd [2000] 1 WLR 1177.
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action, but what is assigned is the chose, the thing, the debt or damages to which the assignor is entitled. The existence of a remedy or remedies is an essential condition for the existence of the chose in action but that does not mean that the remedies are property in themselves, capable of assignment separately from the chose.41
It should be noted that the personal nature of a right may still impact upon the determination of whether it is, or is not, a chose in action, or at least an assignable chose in action.42 For example, certain rights, such as a promise to marry, may be held too personal to be considered choses in action on public policy grounds.43 [2.06] What remains unclear is the extent to which the commercial need to recognise the assignment of choses in action figured in the movement of choses in action from personal to proprietary. Although today it is clearly not necessary for something to be seen as property before its transfer can be recognised,44 this was once a requirement of the common law.45 It is often stated that assignability is properly viewed as a possible effect of something being considered property rather than a test for property itself.46 This reasoning is not entirely convincing. Although it is necessary to avoid circular reasoning, such as that a chose in action is property because it is assignable and it is assignable because it is property, it is perfectly legitimate for the law to take the view that a right can be assignable by reason of the commercial need to accept that transferability, and it is by reason of that transferability that it is property because the institution of property is the vehicle generally used to affect transfers. The fact that choses in action are generally considered property only for the purposes of transfer dictates that transferability 41 The history of the common law’s movement from limiting the idea of “property” to tangibles to accepting a commercial meaning based on the “price of things” is traced in JR Commons, Legal Foundations of Capitalism (New York, Macmillan, 1924) ch 7. Cf Dear v Reeves [2002] Ch 1 (right of pre-emption considered a property right and assignable without having a present value). For some purposes a contractual right may be considered an asset which may be disposed of without its necessarily having a market value, thus making it unassignable: see O’Brien v Benson’s Hosiery (Holdings) Ltd [1980] AC 562. It follows that not all dispositions involve assignments. As to whether an assignment requires a disposition: see [3.11]. 42 It is possible for a right to be considered property without its being considered a chose in action, but quaere whether it is now possible to limit the term “chose in action” to property rights that have the characteristic of being transferable, cf Re Huggins (1882) 21 Ch D 85 at 91 per Jessel MR. See further OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 25–6. 43 Ibid, at 25. 44 Arguably it is necessary for something to be considered only a commodity to be alienable and this is something less than (but includes) property: see MJ Trebilcock, The Limits of Freedom of Contract (Cambridge, Mass., Harvard UP, 1993) ch 2. 45 Cf [2.07] below. 46 See Commissioner of Stamp Duties (NSW) v Yeend (1929) 43 CLR 235 at 245 per Isaacs J; Reg v Toohey; Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342–3 per Mason J; Australian Capital Television Pty Ltd v Commonwealth (No 2) (1992) 177 CLR 106 at 166 per Brennan J. See also JE Penner, The Idea of Property in Law (Oxford, Clarendon Press, 1997) at 130. Cf National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1247–8 per Lord Wilberforce; Dear v Reeves [2002] Ch 1 at 10 per Mummery LJ.
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is an informing factor rather than a mere incident of the right being property. Similarly, as noted in Lord Hoffmann’s description of choses in action in Investors Compensation Scheme Ltd v West Bromwich Building Society,47 a chose in action may be considered property if property is given the wide meaning of something of value; that is, something capable of being measured in money terms.48 Although this alone cannot explain the inclusion of some rights in the class of choses in action, if one first recognises the transferability of a mere right, then by virtue of this assignability it attracts a value, and in this way can then be considered property.49 Despite the above, it may be that assignability had little effect on the recognition of choses in action as property since legal assignment generally was not possible until provided for by legislation. Moreover, as will be discussed in Chapter 4, equity originally upheld the assignment of a legal chose in action by way of contract between the assignor and assignee rather than by viewing the transaction as involving a true transfer.50 It was only later that equity viewed choses in action as property for the purposes of transfer.51 It follows that although it is sometimes said that equity, conscious of commercial needs, recognised choses in action as property for the purposes of transfer,52 it needs to be added that initially, acting by reference to reasonableness53 and commercial needs, equity upheld assignments of legal choses in action. What is clear is that prior to the recognition that choses in action were assignable, the lack of transferability played an important part in allowing the class of choses in action to be expanded.54 Holdsworth suggested that this in part allowed lawyers in the eighteenth century to class patents and copyrights as choses in action.55 It may have been due to this expansion (based on non-assignability) that it appeared logical to split all interests into choses in action and choses in 47
[2.05]. See further JW Harris, Property and Justice (Oxford, Clarendon Press, 1996) at 50–1. 49 See T Cyprian Williams, “Property, Things in Action and Copyright” (1895) 11 LQR 223 at 227–8. An alternative is simply to adopt the position that all legally protected interests may be considered property for certain purposes: see LD Smith, The Law of Tracing (Oxford, Clarendon Press, 1997) at 49. 50 [4.05]. 51 [4.07]. 52 GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 621. 53 FCT Tudsbery, The Nature, Requisites and Operation of Equitable Assignments (London, Sweet & Maxwell, 1912) at 6. 54 Colonial Bank v Whinney (1885) 30 Ch D 261 at 287 per Fry LJ. See also WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1013 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 529). 55 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1013 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 529). See also OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 21–2, 28–32. 48
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possession.56 It has been said that the term “chose in action” moved from being described as a mere right of action to a “right incapable of being assigned”.57 It may be that, once assignability was recognised, it in fact had some impact on limiting the further expansion of the class of choses in action.58
(c) Assignment of Choses in Action [2.07] Choses in action and assignment, the position at common law. It is generally accepted that the common law did not develop a set of rules for the assignment of choses in action.59 It may be that a more precise statement is that to the extent that the common law did recognise the assignment of choses in action, that position did not prevail.60 Moreover, and despite the ability of the common law to recognise incorporeal property,61 the original reason for the common law’s reluctance to recognise the assignment of choses in action was probably due to the more general view that “property” meant something tangible and, in any case, that a transfer required delivery of possession.62 The need for a delivery of possession nevertheless allowed for the transfer of an intangible that was encapsulated in a document and could be the subject of a delivery. However, as noted, the common law has long recognised the idea of intangible property, so that this reasoning
56 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1014 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 530). 57 C Sweet, “Choses in Action” (1894) 10 LQR 303 at 307. 58 See the debate between Elphinstone and Williams on including tort within the class of choses in action; HW Elphinstone, “What is a Chose in Action?” (1893) 9 LQR 311 at 315, T Cyprian Williams, “Is a Right of Action in Tort a Chose in Action?” (1894) 10 LQR 143. See also C Sweet, “Choses in Action” (1894) 10 LQR 303 at 315; Editors’ note (1904) 20 LQR 113; Editors’ note (1905) 21 LQR 101. 59 Cf WW Cook, “The Alienability of Choses in Action” (1916) 29 Harv LR 816; G Glenn, “The Assignment of Choses in Action: Rights of Bona Fide Purchaser” (1934) 20 Virginia LR 621. One exception was that from early times members of the Jewish community in England could assign debts: see SJ Bailey, “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1931) 47 LQR 516, (1932) 48 LQR 248, 547. 60 EH Warren, The Rights of Margin Customers (Norwood, Mass, Plimpton Press, 1941) ch 4. See also Bernard Rudden, “Things as Thing and Things as Wealth” in JW Harris (ed), Property Problems: From Genes to Pension Funds (London, Kluwer, 1997) ch 12 at 152. 61 [2.02]. 62 F Pollock and FW Maitland, The History of English Law (Cambridge, Cambridge University Press, 1899) ii, at 226; WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 32; JR Commons, Legal Foundations of Capitalism (New York, Macmillan 1924) at 247; EH Warren, The Rights of Margin Customers (Norwood, Mass, Plimpton Press, 1941) at 38–47; PM Biscoe, Credit Factoring (London, Butterworths, 1975) at 96. See also FW Maitland, “The Seisin of Chattels” (1885) 1 LQR 324; FW Maitland, “The Mystery of Seisin” (1886) 2 LQR 481. See further G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, at 200.
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alone could not be sustained.63 Nevertheless, the view was also adopted that choses in action could not be assigned because they were personal in nature.64 [2.08] The origins of the “too personal” labelling of choses in action appears to have a number of sources.65 On one view, a chose in action was personal because it presupposed a personal relationship between two people, one having a right, the other a corresponding duty.66 That is, a chose in action, being a mere right of action, presupposes a definite plaintiff and defendant.67 It was irrelevant whether the action was to recover damages or some tangible property. It has also been suggested that the notion that a debt was personal and not transferable owed much to the dire consequences in early times that could follow the non-payment of a debt. Most obvious of these was the threat of debtor’s prison. Therefore, a debtor had a great interest, not only in the identity of his or her creditor, but in the likelihood of enforcement action being taken.68 In addition, choses in action were considered at one time to be too uncertain to be the subject of a grant until liquidated by a judgment or recognizance.69 Finally, because it was the duty of the debtor to seek out its creditor, it was thought this would be rendered too onerous if assignments were upheld.70 [2.09] One development that showed some promise of recognising the assignability of some choses in action was the recognition that personal actions to recover
63 [2.02]. See WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1000, 1012 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 518, 528). 64 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 36–45; G Gilmore, Security Interests in Personal Property, (Boston, Mass, Little Brown, 1965) i, at 200–1. See also Fitzroy v Cave [1905] 2 KB 364 at 372 per Cozens-Hardy LJ. Cf G Glenn, “The Assignment of Choses in Action: Rights of Bona Fide Purchaser” (1934) 20 Virginia LR 621 at 638–9 (suggesting that it was the fear of maintenance that was solely responsible for the position at common law. However, as noted below, the fear of maintenance arose in respect of choses in action real and almost by accident was applied to choses in action personal: see [2.09]). 65 EH Warren, The Rights of Margin Customers (Norwood, Massachusetts, Plimpton Press, 1941) at 68. It has been said that the too personal rule could arise only in an economy at a time when credit played a minor role: see EA Farnsworth, Farnsworth on Contracts (Boston, Mass, Little Brown, 1990) iii, para 11.2. This statement is not entirely convincing. To the extent that agriculture, industry and commerce were seasonal, credit would have been a fact of life: see WR Cornish and G deN Clark, Law and Society in England 1750–1950 (London, Sweet & Maxwell, 1989) at 226. 66 JB Ames, Lectures on Legal History (Cambridge, Mass, Harvard UP, 1913) 210 at 211–12. 67 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1000 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 518). 68 SJ Bailey, “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 248 at 257, (1932) 48 LQR 547 at 549–50. 69 Ibid, at 554; PM Biscoe, Credit Factoring (London, Butterworths, 1975) at 97. 70 WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 31–2.
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personal property were personal actions to protect proprietary interests.71 For example, by the sixteenth century it was accepted that a bailor’s interest in the reversion was proprietary.72 In commentating on these developments, Holdsworth stated:73 We might therefore have expected that the rights of the owner out of possession would come to be recognised as something more than a mere personal chose in action; and that they would develop into assignable rights of property.
Why this did not take place he put down to two causes.74 The first was events that took place in personal actions to recover property. The action in detinue, which was regarded as proprietary in character,75 was superseded by trover which, although protecting a proprietary interest, was not characterised as a proprietary action and was considered a mere chose in action.76 The second cause ultimately resulted in the merger of choses in action real and choses in action personal. This merger had occurred at least by the sixteenth century.77 Choses in action real never developed past being considered mere personal choses in action because of the law’s growing concern with maintenance and champerty.78 Holdsworth suggested that this concern, which was legitimate in relation to choses in action real, was adopted and applied naturally, but without much thought or reason, to choses in action personal. He suggested that when this occurred it was inevitable that all these rights would be grouped together as “choses in action”.79 71 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1002 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 521). See also OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 10–16. 72 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1004 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 522). Cf EH Warren, The Rights of Margin Customers (Norwood, Massachusetts, Plimpton Press, 1941) at 42 who suggests that it was not until the middle of the 19th century that it became clear that a bailor’s right in a chattel was more than a chose in action. 73 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1005 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 522). 74 Ibid, at 1005 (article) at 522 (book). 75 WT Barbour, “The History of Contract in Early English Equity” in P Vinogradoff (ed), Oxford Studies in Social and Legal History (Oxford, OUP, 1914) iv, at 28–33. 76 See also OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 10. 77 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1001 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 519). 78 C Sweet, “Choses in Action” (1894) 10 LQR 303 at 306, 308, 311. 79 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1007–10 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 524–5).
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It follows from what was said above that the concern over maintenance and champerty in respect of real actions rolled over into personal actions, preventing choses in action being recognised as property and holding up the acceptance of their assignability. At the same it had the effect of widening the class of choses in action. It is important to note, though, that Holdsworth was of the view that a right to recover ownership of personal property should have been assignable and that the dread of maintenance and champerty should have been confined to choses in action real; that is, rights of entry upon and actions for land. He thought that choses in action in the form of mere rights of action should not be assignable because they were too personal.80 [2.10] It may be, as Holdsworth appears to suggest, that even if personal rights of action to recover personal property were considered assignable, this would have had no effect on mere rights of action. Take, for example, an action in debt which was long considered proprietary in nature as it was an action to recover certain coins or chattels.81 Such an action was not seen as the enforcement of an agreement, but was thought to be in the nature of a real action to recover a thing that had been detained.82 That is, an action either based on a proprietary right or at least protecting a proprietary right. This is akin to an action to recover personal property, but this never resulted in the general field of choses in action being rendered proprietary. In addition to the reasoning suggested by Holdsworth a further reason why this was so may be added. There was a time when the law did not distinguish a promise from its tangible representation.83 Unlike the position under a credit contract, the relationship of debtor and creditor, in a cash society, was not seen in terms of assets and liabilities.84 In such a society it would be logical to view an action in debt as an action to recover coins or chattels unlawfully withheld. It could not be an action to enforce a promise, because the law did not 80 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997, at 1009–10 (article), 526–7 (book). Thus the relevance of maintenance and champerty to the history of the assignment of choses in action should not be over-emphasised. Perhaps the most cited judgment evidencing the relevance of maintenance is that of Sir Edward Coke in Lampet’s case (1612) 10 Co Rep 48b, 77 ER 994 at 997, viz, it was “the great wisdom and policy of the sages and founders of our law, who have provided that no . . . thing in action shall be granted or assigned to strangers, for that would be the occasion of multiplying of contentions and suits”. However, it has been persuasively argued that Coke referred to “choses in action” in both a broad and a narrow sense, and in this famous statement he used it in a narrow sense to mean “cause of action” thus saying nothing about a contractual right prior to breach: see EH Warren, The Rights of Margin Customers (Norwood, Mass, Plimpton Press, 1941) at 47–59. See further PH Winfield, “Assignment of Choses in Action in Relation to Maintenance and Champerty” (1919) 35 LQR 143. 81 [2.02] note 11. 82 Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567; Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 265 per Dawson J. See also Thomas Atkins Street, The History and Theory of English Contract Law (Washington DC, Beard Books, 1999 reprint) at 1–2. 83 JR Commons, Legal Foundations of Capitalism (New York, Macmillan, 1924) at 247. 84 Quaere though the extent to which England was a cash society: see [2.08].
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distinguish the promise.85 Moreover, given that an action in debt was thought to be an action to recover certain coins or chattels from a certain person, it would follow that once the move was made to distinguish the promise or obligation from the coins or chattels it remained a personal obligation correlative to a personal right. This would halt assignability in that it prevented the recognition of the concept of “ownership” of a personal right to an obligation. It would also prevent the common law’s acceptance of notions of intangible property from being transplanted to choses in action.86 [2.11] Conclusion. It follows from what has been said above that, to the extent that choses in action were recognised as property (things) prior to the passing of the Judicature Act 1873 (UK), the common law did not develop any sustained rules for the assignment of these “things”, because it still entertained the objection that they were personal “things”. [2.12] Common law exceptions and circumventions. It is possible to find a number of exceptions to the general position taken by the common law. For example, subject to a number of factors, it was possible for the Crown to take (or give) an assignment.87 Moreover, the common law readily accepted the transfer, and in some cases negotiation, of certain instruments; examples include bills of exchange, promissory notes and bills of lading.88 Various statutory provisions were also
85
JR Commons, Legal Foundations of Capitalism (New York, Macmillan, 1924) at 250. It can also be added that in the period where the class of choses in action was being expanded, the law of contract was being developed. The history of the law of contract can be seen as a movement from “property” to “obligation”: see JV Orth, “Contract and the Common Law” in HN Scheiber (ed), The State and Freedom of Contract (Stanford, Cal., Stanford UP, 1998) 44 at 45–9; PS Atiyah, The Rise and Fall of Freedom of Contract (Oxford, OUP, 1979) at 398. It may have been difficult in that environment also to entertain the thought of a movement in the opposite direction, which was thought to be required for the assignment of choses in action. 87 WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 34–7; SJ Bailey, “Assignment of Debts in England from the Twelfth to the Twentieth Century” (1931) 47 LQR 516 at 520, 529; PH Winfield, “Assignment of Choses in Action in Relation to Maintenance and Champerty” (1919) 35 LQR 143 at 144–7; RT Fenton, Garrow and Fenton’s Law of Personal Property in New Zealand (6th edn, Wellington, Butterworths, 1998) para 12.043; Ling v Commonwealth of Australia (1994) 123 ALR 65 at 69–70 per Gummow, Lee and Hill JJ; Booth v Williams (1909) 9 SR (NSW) 421. If an assignee from the Crown further assigned the chose, that second assignee could not enforce the assignment as it was void: see King v Twine (1607) Cro Jac 179 at 180, 79 ER 156. 88 WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 37–41; RT Fenton, Garrow and Fenton’s Law of Personal Property in New Zealand (6th edn, Wellington, Butterworths, 1998) para 12.044. See also JS Rogers, The Early History of the Law of Bills and Notes (Cambridge, Cambridge University Press, 1995) ch 8. Where a seller took a bill of exchange from a buyer and transferred it to a third party, there was no assignment of the debt owed by the buyer to the seller under the contract of sale. Inherent in the bill itself was a separate payment obligation, and if the buyer accepted the bill it was primarily liable on the bill, and right to payment was transferred upon a negotiation of the bill. 86
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enacted to allow for the assignment of certain choses in action.89 There are also examples of the common law accepting assignments when the debtor had bound him or herself in advance by “obligatory writing to the creditor and his assigns”.90 By the end of the seventeenth century the common law courts, although still adhering to the notion that choses in action could not be assigned, allowed an assignee to sue the assignor for breach of covenant.91 There are also examples (prior to the end of the eighteenth century) of the common law courts allowing assignees to bring an action in the name of the assignor where the debtor continued to pay the assignor when he or she had notice of the assignment.92 [2.13] In addition, there existed the idea of “acknowledgment”. If a debtor held funds belonging to his or her creditor and agreed, upon a request being made by the creditor, to pay a third party out of the fund, then, on notification to the third party, there is authority for the view that the third party could bring an action against the debtor for the amount, even though there was no consideration moving from the third party for the debtor’s promise.93 It has been suggested that this doctrine is similar to that of attornment in respect of tangible chattels.94 However, it has also been held that the doctrine can be applied where the debtor does not hold a fund belonging to the creditor so long as there is consideration moving from the third party.95 More recently this doctrine was applied to a case where the debtor did not hold a fund of the creditor’s, and agreed to a request from the creditor to pay a third party and notified that third party.96 If this doctrine is akin to attornment, it may be that in the case of a debt the transfer should take place by either assignment or novation, which would require the formalities of either 89 See FCT Tudsbery, The Nature, Requisites and Operation of Equitable Assignments (London, Sweet & Maxwell, 1912) at 8. 90 SJ Bailey, “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 547 at 548–9. Perhaps these cases simply reflect the fact that prior to the establishment of the doctrine of privity of contract in Tweddle v Atkinson (1861) 1 B & S 393, 121 ER 762, the common law allowed third parties to enforce contracts made for their benefit: see Law Commission for England and Wales, Privity of Contract: Contracts for the Benefit of Third Parties Law (London, HMSO, 1996) Law Com No 242, paras 2.2–2.5; R Flannigan, “Privity—The End of an Era (Error)” in P Kincaid (ed), Privity: Private Justice or Public Regulation (Sydney, Ashgate, 2001) at 29; MA Eisenberg, “Third-Party Beneficiaries” (1992) 92 Columbia LR 1358. See further GW Keeton and LA Sheridan, Equity (3rd edn, London, B Rose, 1987) at 227. 91 SJ Bailey, “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 547 at 574. 92 Ibid, at 575–9. 93 Morrell v Wootten (1852) 16 Beav 197, 51 ER 753; Griffin v Weatherby (1868) LR 3 QB 753. 94 R Goff and G Jones, The Law of Restitution, (6th edn, London, Sweet and Maxwell, 2002) ch 28. See further NE Palmer, Bailment (2nd edn, Sydney, Law Book Co, 1991) ch 21; F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 5.4. 95 Liversidge v Broadbent (1859) 4 H & N 603, 157 ER 978. 96 Shamia v Joory [1958] 1 QB 448. Cf Rothwells Ltd v Nommack (No 100) Pty Ltd (1988) 13 Australian Company Law Reports (ACLR) 421 where McPherson J refused to apply the doctrine to the case of a debt.
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assignment or novation be complied with. Without a fund of the creditor’s in the hands of the debtor it is not possible for him or her to attorn to the third party.97 Note, however, that, unlike assignment, the consent of the debtor was always required in an acknowledgement. Today, given the recognition of legal assignments, the concept of “acknowledgment” has fallen into disuse.98 [2.14] The strict position of the common law was also circumvented by use of a power of attorney.99 This became popular from around the fourteenth century and was achieved simply by the assignor appointing the assignee as his or her attorney to sue (in the assignor’s name or on behalf of the assignor) for a debt with a stipulation that the assignee was to keep any monies recovered.100 The power of attorney had a number of problems. Such arrangements could still be attacked as savouring of maintenance if the assignee did not have a sufficient interest in the suit.101 The main type of interest accepted by the courts was where the assignor, at the time of the appointment of the assignee as his or her attorney, owed money to the assignee. In addition, unless prevented by injunction, the assignor could still exercise its common law rights, such as giving a release to the debtor.102 The power of attorney could also be revoked. In time, limitations on the right to revoke were developed where the power of attorney was given for valuable consideration.103 There is also evidence that the common law went a step further and recognised the actual assignment of debts by a debtor to its creditor104 and allowed anyone with a pecuniary interest in a debt to sue in the name of the creditor.105 Novation was also recognised by the common law.106 97 Liversidge v Broadbent (1859) 4 H & N 603, 157 ER 978. See further R Goff and G Jones, The Law of Restitution (6th edn, London, Sweet & Maxwell, 2002) ch 28; JD Davies, “Shamia v Joory: A Forgotten Chapter in Quasi-Contract” (1959) 75 LQR 220; D Yates, “Trusts, Contracts and Attornments” (1977) 41 Conv (NS) 49; JC Hall, “Gift of Part of a Debt” [1959] CLJ 99 at 118–19; F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 5.4 at 88. 98 However, it is not beyond revival: see R Goode, Legal Problems in Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.54. 99 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 67–71. As to its origins: see SJ Bailey, “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1931) 47 LQR 516 at 527. Many assignments are coupled with powers of attorney, eg Tailby v Official Receiver (1888) 13 App Cas 523; Re Androma Pty Ltd [1987] 2 Qd R 134. 100 FC Tudsbery, The Nature, Requisites and Operation of Equitable Assignments (London, Sweet & Maxwell, 1912) at 9. 101 JB Ames, Lectures on Legal History (Cambridge, Mass, Harvard UP, 1913) 210 at 213. See also OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 67. 102 WW Cook, “The Alienability of Choses in Action” (1916) 29 Harv L R 816 at 823–4. 103 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 68; G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, at 202. 104 WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) at 42. 105 Fitzroy v Cave [1905] 2 KB 364 at 372 per Cozens-Hardy LJ. 106 Olsson v Dyson (1969) 120 CLR 365 at 388 per Windeyer J. See also JB Ames, Lectures on Legal History (Cambridge, Mass, Harvard UP, 1913) 210 at 212. See further JG Starke, Assignments of Choses in Action in Australia (Sydney, Butterworths, 1972) at 52–4.
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[2.15] From around the eighteenth century the law started to accept that rights to recover personal property could be assigned.107 For example, a bailor could make a gift of the right to the bailed goods and, although initially any action for detinue did not go with the goods, this eventually changed with the acceptance that a chose in action may be transferred as an incident to the transfer of some tangible property. Nevertheless, the common law generally did not change its position as regards contractual rights, which remained unassignable except by operation of law, for example, upon death. [2.16] The approach of equity. By the beginning of the eighteenth century, it was settled that equity would recognise the assignment of a legal chose in action and viewed the common law’s position as “absurd”.108 The mechanics of how equity gave effect to such “assignments” and how it protected the position of the obligor are dealt with in Chapter 4. Equity also remained unconvinced of any necessary link between assignment and maintenance.109 However, equity did not recognise the assignment of choses in action it thought were too personal or uncertain. For example, a claim for unliquidated damages in tort for a personal wrong or for breach of contract.110 More generally, the assignment of a bare right of action, that is, a right without occupation or enjoyment,111 was not upheld on public policy grounds. [2.17] The reaction of the common law. The common law eventually dropped its presumption of maintenance and began to recognise the “assignment” of debts, but still only by use of the power of attorney.112 This was not a true assignment, but it was no longer open to the suggestion of maintenance or champerty. Moreover, there is evidence that the existence of a power of attorney became a mere formality and could be implied.113 Generally, however, most choses in action remained unassignable at common law.114 107 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1017 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 533). 108 Master v Miller (1791) 4 TR 320 at 340, 100 ER 1042 at 1053 per Buller J. 109 Ibid, at 340 (TR), 1053 (ER) per Buller J. 110 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1022–3 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 538–9). 111 W Blackstone, Commentaries on the Laws of England (Oxford, Clarendon Press, 1766) ii, at 396. 112 WS Holdsworth, “The History of the Treatment of Choses in Action by the Common Law” (1920) 33 Harv L Rev 997 at 1021 (reprinted with minor amendments in WS Holdsworth, A History of English Law (2nd edn, London, Methuen, Sweet & Maxwell, 1937) vii, 515 at 536). 113 GP Costigan, “Gifts Inter Vivos of Choses in Action” (1911) 27 LQR 326 at 328. 114 Nevertheless, whilst reiterating that a chose in action was not assignable, the common law courts would take notice of the assignee’s right in equity and allow an action to be brought in the name of the assignor without the need to go to equity. Thus, where the assignor had become bankrupt, the court
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Legal assignment became possible upon the passing of section 25(6) of the Judicature Act 1873 (UK). This provision affected a procedural change to the law, allowing any legal chose in action that was assignable in equity prior to its passing to be assigned at law. It did not make assignable at law something that prior to its enactment was not assignable in equity. This is the extent of the procedural effect of this provision which has been the cause of some confusion and is dealt with in detail later.115 Today, equivalent statutory provisions exist in England and in all Australian States and Territories and allow an assignee to bring an action in its own name if the formal requirements of the statute are made out. There remain some interests that cannot be assigned under the statutory provisions but which may still be assigned in equity, the most important being an assignment of part of a debt or chose in action.
(d) Conclusion [2.18] Conclusion. There are two principal conclusions to be drawn from the above history. The first is that the law has adopted a property model of assignment. The second is that Anglo-Australian law has been left with two methods of assignment, legal and equitable, each with its own set of rules. A full study and critique of the property model falls outside the scope of this book, however, an explanation for it is suggested in Chapter 3. Before moving on to discuss the rules for the assignment of contractual rights, it is necessary to look in some detail at the two broad categories of legal and equitable assignment. This is done in Chapters 4 and 5. However, prior to this it is necessary to outline what is meant and achieved by an assignment. This is done in Chapter 3. Finally, throughout this chapter reference has been made to choses in action, (and more particularly contractual rights) being property. This is consistent with the language used in legal discourse as regards the assignment of choses in action and it is convenient to continue to use it throughout this book. However, it is suggested that this should be viewed as a shorthand way of expressing a more sophisticated idea. The law did not designate contractual rights to performance as property; what the law did was recognise that a party to a contract had title to a right to contractual performance.116 It was this title (ownership) that was considered recognised the equitable assignment so that the property did not pass to the trustee: see Winch v Keely (1787) 1 TR 619, 99 ER 1284. This approach led Gilmore to make the now famous remark: “Thus by the typically muddle-headed process of thinking known as the genius of the common law, assignments of intangibles were made effective in fact whilst basic theory still proclaimed them to be legal impossibilities”: see G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, at 202. 115 [5.04]–[5.26]. 116 See Norman v FCT (1963) 109 CLR 9 at 26 per Windeyer J (suggesting that anything that can be the subject of ownership may be assigned). Cf T Cyprian Williams, “Property, Things in Action and Copyright” (1895) 11 LQR 223 at 230–1 cited above [2.04].
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property. That is, a party to a contract had a (proprietary) right to a (personal) right of performance.117 This title was recognised for the purposes of transfer. As between the parties to the contract, their rights and obligations remain personal.118
117
See further LD Smith, The Law of Tracing (Oxford, Clarendon Press, 1997) at 61. Although the law has long recognised the legitimacy of recognising rights as property for only some purposes, quaere the extent to which this distinction can still be maintained: see [6.14]. 118
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3 Assignment and the Concept of Transfer (a) Introduction [3.01] Purpose of the part. This part looks at some fundamental aspects of assignment. It is divided into three chapters. This chapter deals with the meaning of assignment. In Chapters 4 and 5 the principal ways in which legal rights may be assigned are analysed. The purpose of this part insofar as the theme of the book is concerned is to elucidate the legal concept of transfer and to see how that concept is reflected in equitable and legal assignments. More generally this part looks at what occurs when rights are assigned and investigates the nature of equitable and legal assignments. [3.02] Purpose of the chapter. This chapter considers the meaning of assignment and investigates the legal concept of transfer. Its primary purpose is to extract the principal features and ingredients of an assignment. This exercise is also important in helping distinguish assignments from other transactions. It will be suggested that the principal feature of an assignment is contained in the idea that an assignment involves a transfer. The principal ingredients are the requirement of an intention to assign and the existence of a proprietary right which is the subject matter of the transfer. [3.03] Structure of the chapter. This chapter begins by looking at the meaning of assignment and what is meant by and involved in the idea that an assignment involves a transfer. It also deals with the relevance of intention in assignment and its importance in distinguishing assignments from other transactions. This is followed by a section which attempts to explain the current property model of assignment. Finally, the distinction between assignment and privity of contract is discussed.
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(b) Meaning of Assignment (i) Introduction [3.04] The legal concept of assignment. The word “assignment” has not been used uniformly throughout legal history.1 At one time it may have been used to describe a transaction that today would be described as a direction to pay.2 In Norman v Federal Commissioner of Taxation,3 Windeyer J described the modern assignment of a chose in action as involving “the immediate transfer of an existing proprietary right, vested or contingent, from the assignor to the assignee”.4 This description captures the most important feature and ingredients of assignment as a legal concept today. First, assignment is concerned with transferring rights. More precisely, it is suggested that a transaction is properly termed an assignment only if its effect is to transfer to the assignee the ownership of a right vested in the assignor. Transfer is the essence of assignment. It is the principal feature of an assignment. The transferred interest may amount to the ownership of the entire interest held by the assignor in the subject right, or ownership of a part of that interest.5 Moreover, a true assignment results in an immediate transfer. Secondly, although not expressly stated by Windeyer J, except where the assignment is by operation of law, it is inherent in his description that there be an intention to transfer the right. This is the first main ingredient of any assignment. It may be expressed as a substantive formality. The intention required is an intention immediately to assign; however, there are instances where equity can uphold an agreement to assign an interest as an immediate equitable assignment.6 Thirdly, the law of assignment is concerned with the transfer of property rights.7 The existence of a present property right is the second main ingredient in any assignment or the second substantive formality. Moreover, when there is dealing in property rights, there is always a requirement that the property be inherently identifiable and adequately identified.8 1 See SJ Bailey, “Assignment of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 547 at 580. See also [2.02]. In general discourse “assignment” or “assign” can also be used in the sense of to “allot”, “appoint” or “determine”: see The Oxford English Dictionary. See further Re Crothers [1930] VLR 49 at 65 per MacFarlan J. 2 SJ Bailey, “Assignment of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 547 at 580. 3 (1963) 109 CLR 9. 4 Ibid, at 26. See further W Blackstone, Commentaries on the Laws of England (Oxford, Clarendon Press, 1766) ii, at 326. 5 Cf Butler v Capel (1823) 2 B & C 251 at 253, 107 ER 377. 6 [7.15]–[7.16]. 7 [3.19]. 8 [7.11]–[7.14].
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[3.05] The institution of “assignment”. The description of assignment adopted by Windeyer J could be used to describe the “transfer” of intangibles (or rights) component of many transactions, for example, the transfer of title under a sale of goods.9 However, in practice the use to which the word “assignment” is put tends to be limited to describing a transfer which does not involve a transfer of a tangible asset,10 that is, transactions involving mere choses in action.11 It is here that “assignment” appears as an institution or subject in its own right, with its own peculiar rules which, to a limited extent, appear to divorce it from the rules governing sale of goods and sale of land. This book is concerned with this institutional concept of assignment as it applies to the assignment of contractual rights.
(ii) Assignment Distinguished from Other Transactions12 [3.06] Assignment and novation.13 A novation usually involves three parties; the two parties to a contract and a third party. The effect of a novation is that for valuable consideration the parties to the contract agree to extinguish14 the contract and one party enters into a replacement contract with the third party.15 The new contract replaces the extinguished contract.16 A novation may also occur between 9 In fact, following his description of assignment, he said ((1963) 109 CLR 9 at 26): “Anything that in the eye of the law can be regarded as an existing subject of ownership, whether it be a chose in possession or a chose in action, can to-day be assigned”. 10 Strangely, the word “assignment” is not generally used to describe a transaction which involves the transfer of title to tangibles (by way of sale) but where no transfer of possession occurs. 11 Occasionally it is also used to describe a transfer by way of security, whether the security involves tangible or intangible property. The word “assignment” is also sometimes used in practice to describe any transaction which is concerned with the alienation or vesting of rights and which does not involve the transfer of a tangible asset, for example, a declaration of trust and a charge. 12 Some transactions are distinguished elsewhere: see [2.13] (assignment and acknowledgement), [2.14] (assignment and powers of attorney), [3.13] (assignment and negotiation), [7.04] (assignment and revocable mandate). 13 See generally J Bailey, “Novation” (1999) 14 JCL 189. 14 The word “extinguish” is often used to describe what happens to the original contract. The novation does not result in a rescission, at least in the sense of the parties handing back benefits received under the contract. Nor does it result merely in a discharge of the contract with unconditionally accrued obligations surviving that discharge. The effect on the original contract may be that of discharge, but unless there is express provision to the contrary, each novation operates as between the original parties to the contract as a release: see Commercial Bank of Tasmania v Jones [1893] AC 313. In commercial practice the effect of a novation on accrued rights and obligations is dealt with expressly. 15 Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd (1983) 1 Intellectual Property Reports 315 at 320 per Powell J (“a novation is merely a contract between three parties, the obligee, the original obligor and the substituted obligor, the effect of which contract is that in consideration of the obligee releasing the original obligor from his obligation, the substituted obligor promises the obligee that he will assume responsibility for the performance of the obligation”). See also Mutual Export Corp v Asia Australian Express Ltd (The Lakatoi Express) (1990) 103 FLR 32 at 40. 16 As to the requirement of consideration see Scarf v Jardine (1882) 7 App Cas 345 at 351 per Lord Selborne and Olsson v Dyson (1969) 120 CLR 365 at 390 per Windeyer J. See further GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 155, 701–2.
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the parties to a contract whereby they agree to discharge one contract and to enter into another replacement contract. A novation does not involve a transfer of rights.17 The replacement contract creates new rights which are not derived from the original contract.18 A valid novation requires the consent of all the parties.19 [3.07] Assignment and contractual nominations.20 An offer or option may be made or given to a grantee and/or his or her nominee. Moreover, a contract, typically a contract of sale, may be expressed to be made with the buyer and/or its nominee. The effect of such a clause depends on construction. It may be intended as a personal offer to the grantee but which may be accepted by the nominee for the grantee.21 It may be a personal offer to the grantee, but in the sense of an offer to sell to the grantee or such persons as the grantee nominates. Here, if a nomination is made the contract will be between the grantor and that nominee.22 This is not an assignment, nor is it a novation. It is simply a form of offer made to the grantee and any person falling within the description of “nominee”, albeit that the named grantee dictates the content of that class.23 Where the offer is contained in a contract and it is exercisable and exercised by a nominee, this results in a new contract, that is, a novation, as it is not possible to add a party to a contract without discharging the contract.24 In this regard, it does not matter whether the benefit of the nomination provision is made to the party “or” its nominee, or whether it is made to the party “and” its nominee. Often a nominee provision merely expresses what would be implied in any case, namely that the grantee can direct that the subject matter of the contract be transferred to a nominee without 17 A statute may dictate that a “transfer” of certain subject matter takes effect by way of novation: see R Goode, Legal Problems of Credit and Security (3rd edn London, Sweet & Maxwell, 2003) paras 1.07, 1.13, 1.50, 3.03. See also Re Charge Card Services Ltd [1989] Ch 497 at 513. See further J Benjamin, Interests in Securities (Oxford, OUP, 2000) paras 305–7. See also [6.87]. 18 See Rasbora Ltd v JCL Marine Ltd [1977] 1 Lloyd’s Rep 645. 19 See Damon Compania Naviera SA v Hapag-Lloyd International SA (The Blankenstein) [1985] 1 WLR 435; The Aktion [1987] 1 Lloyd’s Rep 283 at 310 –11. See also Conquest’s Case (1875) 1 Ch D 334; Miller’s Case (1876) 3 Ch D 391; Chatsworth Investments Ltd v Cussins (Contractors) Ltd [1969] 1 WLR 1; Scarf v Jardine (1882) 7 App Cas 345; British Homes Assurance Corp Ltd v Paterson [1902] 2 Ch 404; Meek v Port of London Authority [1918] 2 Ch 96. 20 See CJ Rossiter, Principles of Land Contracts and Options in Australia (Sydney, Butterworths, 2003) para 3.20. 21 See AF Grant Pty Ltd v MacDonald [1960] Qd R 465. See also Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 6 per Griffith CJ. 22 See Westminster Estates Pty Ltd v Calleja (1970) 91 WN (NSW) 222; Bell Bros Pty Ltd v Sarich [1971] WAR 157 at 159. See also Clark v Lonergan [1961] NSWR 313; Byrne v Reid [1902] 2 Ch 735. In the case of an option, doctrinally this result follows only if the option is drafted as an irrevocable offer rather than as a conditional contract. 23 See Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. See also Westminster Estates Pty Ltd v Calleja (1970) 91 WN (NSW) 222 at 229. 24 Salter v Gilbertson (2003) 6 VR 466. Cf Damon Compania Naviera SA v Hapag-Lloyd International SA (The Blankenstein) [1985] 1 WLR 438 at 446–7 per Fox LJ; Hannan’s Hill Amalgamated No Liability v Barbican Corporation Ltd (1939) 13 ALJ 255 at 256 per Rich J.
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that nominee being a party to any contract with the grantor.25 Thus, the contract of sale is made with the original party but there is a sale (conveyance) to the nominee. [3.08] Assignment and vicarious performance. Generally, the burden of a contract is not assignable.26 However, it is possible to have a contractual obligation vicariously performed if the obligation does not call for personal performance.27 In such a case, if the performance is given on behalf of the contractor and with the intention of discharging the contractor, then performance by the third party will discharge the contractor.28 However, the delegation of a delegable duty does not discharge the contractor from its obligation to perform and the contractor remains liable for any non-performance.29 This is the case despite the customer’s consent to the vicarious performance.30 Finally, although there is no privity between the employer and sub-contractor,31 in some cases the sub-contractor may be liable to the employer in tort or bailment.
(c) Assignment as Transfer [3.09] “Transfer” generally. An “assignment”, in legal discourse, is said to involve a transfer. It is therefore important to determine what “transfer” means in this context. 25 See Earl of Egmont v Smith (1877) 6 Ch D 469 at 474 per Jessel MR; MacDonald v Robins (1954) 90 CLR 515 at 524 per Dixon CJ; Salter v Gilbertson (2003) 6 VR 466. Such a direction may be combined with an assignment of the benefit of the contract of sale to the nominee: see Shaw v Harris (No 2) (1992) 3 Tas R 167. 26 [6.101]. 27 [6.77]–[6.81]. 28 Eg John Rigby (Haulage) Ltd v Reliance Marine Insurance Co Ltd [1956] 2 QB 468 at 482 per Singleton LJ. 29 Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414; Fratelli Sorrentino v Buerger [1915] 1 KB 307 at 313 per Atkin J (affirmed [1915] 3 KB 367); Stewart v Reavell’s Garage [1952] 2 QB 545; Davies v Collins [1945] 1 All ER 247 at 249 per Lord Greene MR; Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1019 per Viscount Simon LC; British Waggon Co and Parkgate Waggon Co v Lea (1880) 5 QBD 149; Southway Group Ltd v Wolff (1991) 57 Building Law Reports (BLR) 33 at 43 per Parker LJ. 30 Stewart v Reavell’s Garage [1952] 2 QB 545. For an exception see Investors in Industry Commercial Properties Ltd v South Bedfordshire District Council [1986] 1 All ER 787 discussed at [6.79] note 548. Nevertheless, if an employer agrees to accept performance by a third party it will be bound by that performance even if it is not in accordance with the contract, so long as it is in accordance with the agreement for vicarious performance: Hirachand Punamchand v Temple [1911] 2 KB 330 (creditor agreeing to accept payment of smaller amount from third party). See also Waghorn v Linden Manufacturing Pty Ltd [1970] 3 NSWLR 559. 31 John Rigby (Haulage) Ltd v Reliance Marine Insurance Co Ltd [1956] 2 QB 468 at 484 –5 per Jenkins LJ; Schmaling v Thomlinson (1815) 6 Taunt 147, 128 ER 989.
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The word “transfer” is capable of wide meaning.32 In its day-to-day use (and in part as a legal concept) it is employed to describe the situation where a person parts with something in circumstances where the transferee obtains the exact same thing as that once held by the transferor.33 For example, in the context of sale of goods where the contract calls for delivery of possession, the goods themselves are the subject of such a transfer. However, in its popular sense, “transfer” may occur without there being a consequent movement of legal rights.34 [3.10] The legal meaning of “transfer”. In law, “transfer” is also used to describe a conveyance of property.35 In the context of a conveyance, the law’s focus is not merely on the transfer of tangible things but on the transfer of property rights. However, a transferee never obtains the exact same property rights as those held by the transferor. All property rights at a certain level of sophistication are personal and incapable of this type of transfer.36 Rather, it is generally accepted that a 32 Gathercole v Smith (1881) 17 Ch D 1 at 7 per James LJ, at 9 per Lush LJ. See also Bank of Victoria Ltd v Langlands Foundry Co Ltd (1898) 23 VLR 230 at 251 per Holroyd J; Re Kelly (1932) 4 Australian Bankruptcy Cases 258 at 267; Camden & Burton v London Borough Council [2000] 2 AC 399. See further Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1021 per Viscount Simon LC. 33 Lyle & Scott Ltd v Scott’s Trustees [1959] AC 763 at 778 per Lord Reid. 34 See Booth v Commissioner of Taxation (1987) 164 CLR 159 at 164 per Mason CJ. 35 An assignment (in the institutional sense) involves (and is) a transfer, but not all transfers necessarily involve (or are) assignments. For example, in Orakpo v Manson Investments Ltd [1978] AC 95 at 104 Lord Diplock described subrogation as involving a transfer of rights without an assignment; cf. Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291 para 25; Burston Finance Ltd v Spierway Ltd [1974] 1 WLR 1648 at 1652, and see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 9.060–9.065. However, at least in the case of simple subrogation, such as where an insurer is subrogated to the position of the insured, the action is not merely nominally in the name of the plaintiff/insured, it is the plaintiff’s action; subrogation here merely gives a person the right to stand in the shoes of another without vesting the chose in action in the party with the right to be subrogated: see James Nelson & Sons Ltd v Nelson Line (Liverpool) Ltd [1906] 2 KB 217 at 223 per Collins MR; Central Insurance Co Ltd v Seacalf Shipping Corp (The Aiolos) [1983] 2 Lloyd’s Rep 25 at 30; MH Smith (Plant Hire) Ltd v DL Mainwaring (T/A Inshore) [1986] 2 Lloyd’s Rep 244 at 246; Esso Petroleum Co Ltd v Hall & Russell & Co Ltd [1989] AC 643. For a discussion of simple subrogation as opposed to reviving subrogation: see C Mitchell, The Law of Subrogation (Oxford, Clarendon Press, 1994) at 5–7. In the law of documentary credits a distinction is drawn between the transfer of a credit and the assignment of a credit: see R Jack, A Malek and D Quest, Documentary Credits (3rd edn, London, Butterworths, 2001) ch 10; A Ward and G McCormack “Assignment of Documentary Credits” (2001) 16(5) Journal of International Banking Law (JIBL) 138. See further Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 22 per Dixon J. A transfer of rights is also sometimes distinguished from an assignment of rights where the transfer takes place without reference to the institutional rules governing the assignment of choses in action, for example, where commercial practice recognises a transfer of rights by delivery of certain documents: see generally C Debattista, The Sale of Goods Carried by Sea (2nd edn, London, Butterworths, 1998) ch 3 and AM Tettenborn, “Transferable and Negotiable Documents of Title—A Redefinition?” [1991] LMCLQ 538. 36 On one view this fact should end the law’s fascination with the idea of a transfer of rights: see JE Penner, The Idea of Property in Law (Oxford, Clarendon Press, 1997) at 147; JB Ames, “The Disseisin of Chattels” (1890) 3 Harv L Rev 313 at 315; JB Ames, “The Disseisin of Chattels” (1890) 3 Harv L Rev 337 at 339; JH Beale, Conflict of Law (1916) para 152 as cited by WW Cook, “The Alienability of Choses in Action: A Reply to Professor Williston” (1916–17) 30 Harv LR 449 at 449. Cf TD Kenneson,
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transfer of rights occurs when the transferor disposes of a right (which is extinguished) and where an equivalent and derivative right is created and vested in the transferee.37 Nevertheless, in the context of choses in action, it has been said that what is transferred is the chose in action; that is, the exact same chose in action and not an equivalent.38 It is suggested that the point being made by such statements is that in the case of an assignment of a contractual right there is an actual transfer of a right to contractual performance. That is, in addition to the extinction/creation transfer of title, there is a transfer that is akin to the transfer of goods in a contract for the sale of goods. This actual transfer occurs when the transferee is put in the same relationship to the right to performance as that previously held by the transferor. The legal concept of transfer which requires an extinction of rights on the one hand, and the creation and vesting of new but equivalent and derivative rights on the other hand, does not refer to the right to performance under a contract. That concept of transfer is concerned with the transfer of title to a contractual right. It is title that is the subject of extinction and creation. In the case of a sale of goods the effect of the sale is that the title of the seller is extinguished and there are created and vested in the buyer rights that are equivalent to those which were held by the seller. Similarly, in the assignment of a contractual right to performance, the assignor’s title to that right is extinguished and a new and equivalent title is vested in the assignee. Under a sale of goods the transfer of title relates to certain subject matter, namely the goods. Similarly, in the case of assignments of contractual rights the transfer of title relates to certain subject matter, namely the right to performance.39 It is also relevant to note that, although it is convenient to refer to a “right of performance” under a contract, that expression is apt to mislead. Inasmuch as a sale of a particular type of goods cannot vest in the buyer a different type of goods, a transfer of title to a contractual right to performance cannot vest in the assignee something that becomes “the assignee’s contractual right of performance”. There is no such “thing” as a “contractual right to performance”. There is only “the “Purchase for Value Without Notice” (1914) 23 Yale LJ 193; WA Searey, “Purchase for Value Without Notice” (1914) 23 Yale LJ 447. See also W Mincke, “Property: Assets or Power? Objects or Relations as Substrata of Property Rights” in JW Harris (ed), Property Problems: From Genes to Pension Funds (London, Kluwer, 1997) ch 7. 37 See R v Preddy [1996] AC 815 at 834 per Lord Goff, at 841 per Lord Jauncey. 38 Eg Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 915 per Lord Hoffmann: see [2.05]. In the case of a debt, often the “debt” itself is referred to as a piece of property which can be dealt with like any other asset—the necessity of enforceability to the characterisation of it being a chose in action being considered a mere incident: see Fitzroy v Cave [1905] 2 KB 364 at 372, 373 per Cozens-Hardy LJ. See further [6.34], [6.54]. 39 For a reference to contractual rights and debts as “things” see Portuguese-American Bank of San Francisco v Welles (1916) 242 US 7 per Holmes J.
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promisee’s right to performance”.40 This results from the personal nature of contract and this is all that the assignor has to sell. The assignee’s title is derived from the assignor, and although the assignor’s title to the right to performance is extinguished and replaced, the obligation of the obligor is not replaced or extinguished.41 The obligation owed by the obligor to the assignee is therefore the same obligation the obligor owed the assignor.42 As a result of the transfer of title, the assignee owns and is owed the performance under the contract, but what the assignee owns and is owed remains a contractual obligation promised by the obligor to the assignor.43 That is, the assignee buys the promise made to the assignor, “the assignor’s right to performance”. If the assignor’s right to performance was extinguished and replaced by “the assignee’s right to performance” or if there existed a chose in action entitled “a right to contractual performance” then the effect of an assignment would be to create privity of contract between the obligor and assignee which is not the law.
40 Strictly there are two rights; first, the promisee’s right to the promise of performance (in most cases this is more accurately expressed as the right to the promise to procure some performance) and secondly, the promisee’s right to performance, the latter being correlative to the obligation to perform. For the most part it is not necessary to distinguish between these two rights, and it is convenient and less cumbersome to continue to refer to the promisee’s “right to performance”. Moreover, there are doctrinal reasons for holding that at the moment of contract formation a contract party has, in addition to a right to a promise of performance, a right to performance: see [6.44]. That is, the right to performance exists from the moment of contract formation and does not come into existence when the correlative obligation to perform accrues. 41 This point distinguishes “transfer” as the term is used in assignment from the notion of “transfer” when used in banking law to describe a “transfer of funds”. Take, for example, a simple transfer of funds where the payer and payee have accounts at the same bank. The “transfer” would take place without any transfer of money; all that is required is book entries. In the result, the bank’s liability to the payer will be decreased and the bank’s liability, under a separate contract, to the payee will be increased. Thus, although this transaction involves both an extinction of rights on the one hand and a creation of rights on the other, this does not occur by way of assignment. Such directions are also not intended to be assignments but revocable mandates; however, even when the directions become irrevocable, the fact that at least two separate contracts are involved prevents there being a transfer by way of assignment. It has been suggested that what is transferred is a transfer of liability: see AL Tyree and A Beatty, The Law of Payment Systems (Sydney, Butterworths, 2000) para 3.2.2. In economic terms there is a transfer of purchasing power: see R Crane, I Fraser and T Martin, Financial Institutions, Markets and Instruments (5th edn, Sydney, Law Book Co, 2001) at 27. It has also been suggested that it is misleading to use the word “transfer” to describe this type of transaction: see Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728 at 750 per Staughton J. See also R v Preddy [1996] AC 815. See further M Brindle and R Cox (eds), Law of Bank Payments (3rd edn, London, Sweet & Maxwell, 2004) para 3.062. 42 Loxton v Moir (1914) 18 CLR 360 at 377 per Isaacs J. 43 Since the efficacy of the assignment will depend on the continued existence of the contract, quaere whether it is correct to say that the obligor still owes its duty in contract to the assignor even though that duty is clearly trumped by the duty to the assignee. The recognition of such a continuing contract duty has its uses: see [8.36] cf [5.05]. In the case of an equitable assignment of a contractual right there is no doubt legitimacy in the notion that the obligor continues to owe its duty in law to the assignor: see [4.19], [4.20].
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The recognition of this actual transfer of the right to performance helps to explain, at a doctrinal level, certain aspects of assignments of contractual rights. For example, it impacts on the valuation of the assignee’s interest. This is discussed in detail later.44 It also results in the assignee obtaining property that was once owned by the assignor. This would not be the case if the assignment merely transferred title as that transfer occurs by way of extinction and creation of rights.45 In addition, if there were no more to an assignment than a transfer of title (resulting in the assignee owning the subject right and being owed the subject obligation) then the obligor could in all cases discharge its obligation to the assignee by continuing to perform to the assignor. That is, because the assignee merely owns the title to a promise made by the obligor to the assignor, then by continuing to perform to the assignor the assignee receives its expected performance. Thus, performance is to the assignor but (legally) for the benefit of the assignee. It may be that for commercial reasons an assignee requires the obligor to perform to the assignor but this would be dictated by the assignee, not the law governing the assignment. Moreover, there may be rules regulating the relationship between the obligor and assignee (such as a requirement of notice) which would prevent the obligor having to account to the assignee if it discharged its obligation to the assignor.46 However, generally, it is accepted that the effect of an assignment is not merely that the obligation be performed for the benefit of the assignee but rather to the assignee; that is, the assignee can expect personal performance. This is the whole point of the institution of assignment, and is achieved by recognising that the contractual right to performance is actually transferred upon the transfer of title with the result that the obligor performs the exact same obligation, but to the assignee. All true assignments of contractual rights require an actual transfer of the right to performance. Unlike a sale of goods where it is possible to transfer title without possession, a transfer of title to a contractual right must always carry with it the actual right to performance.47 This, of course, does not mean that a person cannot get the benefit of an intangible thing such as a debt or contractual right without getting title. That benefit may result from a gift, a mistake or fraud. [3.11] The extended meaning of “transfer” in assignment. The view could be taken that any transaction which does not have as one of its components this dual disposition and creation of title does not involve a transfer, and in turn cannot be 44
[8.11]–[8.12]. Cf the position where funds are transferred between bank accounts; here the transferee’s interest is not in any way derivative; it obtains original title rights as well as an original chose in action: see above n 41. At the level of legal doctrine such a transferee does not obtain property that once belonged to another: see R v Preddy [1996] AC 815 (the result in R v Preddy was reversed by legislation: see Law Commission for England and Wales, Offences of Dishonesty: Money Transfers (London, HMSO, 1996) Law Com 243; see further R v Sofroniou [2004] QB 1218; In re Holmes [2005] 1 WLR 1857). 46 See further [8.06]. 47 See further [4.19]. Cf [6.75], [6.83]. 45
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described as an assignment.48 At the very least one might logically argue that although not all dispositions of rights involve transfers, a transfer requires a disposition.49 Such a restricted notion of title “transfer” would not capture an equitable assignment of a legal right which at an analytical level merely creates and vests in the assignee an equitable interest.50 The assignor does not dispose of an equitable interest because when, one person holds the “whole right of property”, no distinction is drawn between legal and equitable interests.51 Equitable interests are “engrafted” or “impressed” upon legal interests rather than “carved out of” them. Nevertheless, these transactions are today treated in law as assignments, and therefore must involve a transfer even if not involving a disposition.52 Any description of the legal concept of transfer as it applies to assignments would be seriously lacking if it did not capture such a large parcel of the subject matter.53 It is suggested that, in addition to the primary meaning of title transfer set out above, a transfer by way of institutional assignment also occurs where a derivative
48 Eg Re VGM Holdings Ltd [1942] Ch 235 at 241 per Lord Greene MR; Commissioner of Taxes (Queensland) v Camphin (1937) 57 CLR 127 at 133–4 per Latham CJ; George Wimpey & Co Ltd v IRC [1975] 2 All ER 45 at 50 per Sir John Pennycuick; Burton v Camden London Borough Council [2000] 2 AC 399 at 408–9 per Lord Millett. In these cases, it was suggested, that a transaction which involves the vesting in one party of an interest not previously held by the other party cannot be described as a sale, transfer or assignment: cf AGIP (Africa) Ltd v Jackson [1991] Ch 547 at 561; Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 615 per Lord Wilberforce; Fasken v Minister of National Revenue [1949] 1 DLR 810. However, what was really in issue in these cases was whether a particular transaction came within a statute, and therefore they cannot be accepted as strong authority for this more general proposition. This is not to suggest that there may be cases at common law where the mere creation and vesting of some interest should not be classified as a transfer. It is also conceivable that a transaction may amount to a transfer for one purpose and not for another: see FCT v Everett (1980) 143 CLR 440 at 453–4. See also MSP Nominees Pty Ltd v Commissioner of Stamps (1999) 198 CLR 494. See further Acorn Computers Ltd v MCS Microcomputer Systems Pty Ltd (1984) 57 ALR 389 at 393. 49 There will be transactions which involve a creation of rights (some of which may be informed by an intention to transfer) but which do not equate to transfers, conveyances or dispositions for the purposes of certain legislation: see generally Commissioner of Stamp Duties (NSW) v Perpetual Trustee Co Ltd (1926) 38 CLR 272; Commissioner of Taxes (Queensland) v Camphin (1937) 57 CLR 127. 50 See [7.18]. 51 Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 at 712 per Viscount Radcliffe; DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 at 442 per Gibbs CJ, at 463–4 per Aickin J. See also Grey v IRC [1958] Ch 690 at 708 per Lord Evershed MR (affirmed [1960] AC 1); Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311 per McLelland J; Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 706 per Lord Browne-Wilkinson. See further [7.18]. 52 [7.18]. See also Jerome v Kelly [2004] 1 WLR 1409. Cf Acorn Computers Ltd v MCS Microcomputer Systems Pty Ltd (1984) 57 ALR 389 at 393. See further O’Brien v Benson’s Hosiery (Holdings) Ltd [1980] AC 562. However, if it were not logical to speak of the disposal of an interest that did not exist prior to the time of the intended disposition then there would be no need to have drafted the statutory writing requirements in the manner in which they are drafted: see [7.26]. 53 Unless there is a statutory provision to the contrary it is more problematic to describe a transaction that involves a disposition without a vesting as a transfer: see Coles Myer Ltd v Commissioner of State Revenue [1998] 4 VR 728. For a discussion of a statutory provision that treats the mere creation of a right as a transfer see Anderson v Peldan (2005) 220 ALR 565.
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title to a right is merely created and vested in the transferee if that title may be said to give the transferee the equitable ownership of the right which is the subject matter of the assignment, and if there is an intention to transfer that ownership. The latter requirement is dealt with in detail later.54 However, it is important to emphasise that whether or not a transfer has taken place cannot be determined by the movement of rights alone. Like space and time, ultimately that movement cannot be separated from, or analysed without reference to, the intention that informs that movement. It may at first appear fictional to describe a transaction as involving a transfer when all that is involved is the creation and vesting of rights in the transferee. However, that is perhaps no more than a reflection of the limits of any analytical analysis of the movement of rights upon assignment. Moreover, although coming under some attack in recent years,55 if resort is made to the “bundle of rights” theory of ownership it is easy to view the assignor as disposing of an interest. Take, for example, the equitable assignment of a legal right by way of sale. In such a transaction, the assignor maintains the legal title to the subject right. Nevertheless, the interest56 the assignor continues to hold is now worth less to the assignor as it is held for the benefit of the assignee.57 But this is not merely an issue of decreased value;58 there is a clear diminishing of the assignor’s interest and an enlargement of the interest of the assignee which, on the bundle of rights theory, evidences a disposal and consequent vesting in the assignee.59 In the result, the word “transfer” is a word of wide import, and the sophistication of legal notions of property and transfer make it impossible to limit the
54
[7.03]–[7.10]. K Gray, “Property in Thin Air” [1991] Cambridge Law Journal (CLJ) 252; K Gray, “Equitable Property” (1994) 47 Current Legal Problems (CLP) 157 at 183; JE Penner, “The ‘Bundle of Rights’ Picture of Property” (1996) 43 UCLA L Rev 711; K Campbell, “On the General Nature of Property Rights” (1992) 3 KCLJ 79. 56 For the distinction between title and interest see R Goode, Commercial Law (3rd edn, London, Penguin, 2004) at 31. 57 Three Rivers District Council v Bank of England [1996] QB 292 at 304 per Waite LJ. 58 In the case of an assignment by way of security, the mortgagor’s right to redeem helps maintain the value of the property to the mortgagor. A movement in value may in some cases amount to a “transfer”: see Agip (Africa) Ltd v Jackson [1991] Ch 547 at 561. For some purposes, such as tax, the value of a legal right may stand unaffected by an equitable interest: see Farm Products Co-operative (Tararua) Co Ltd v Inland Revenue Commissioner (NZ) (1969) 1 ATR 85 at 89–90 per Turner J. 59 See generally Residues Treatment & Trading Co Ltd v Southern Resources Ltd (1988) 6 Australian Company Law Cases (ACLC) 1,160 (issuing of shares so as to reduce voting rights of certain shareholders held to amount to an expropriation of shareholder’s rights); Newcrest Mining (WA) Ltd v Commonwealth of Australia (1997) 190 CLR 513 (incorporation of land subject to mining leases within a national park, thus reducing the utility of the lessees’ rights under the lease amounted to an acquisition of property by the government, even though what was taken did not correspond to the interest held by the mining company). See also Smith v ANL Ltd (2000) 204 CLR 493; MSP Nominees Pty Ltd v Commissioner of Stamps (1999) 198 CLR 494 at 509. See further Inland Revenue Commissioners v John Lewis Properties plc [2003] Ch 513 at 551 per Schiemann LJ. 55
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concept of “transfer” to a narrow analytical formula.60 The context must dictate how wide or narrow the concept is in the particular case. In the context of an assignment of contractual rights, so far as the title to those rights is concerned, the concept of transfer must encapsulate both extinction and creation type transactions as well as transactions where title in merely created and vested. [3.12] Transfer and nemo dat quod non habet. The nemo dat rule is the fundamental rule governing transfers. Since an assignment of a contractual right involves a transfer, it is governed by this rule. The rule states that “no one gives what he does not have”. This rule has two principal aspects. First, a person cannot acquire title without the consent of the owner.61 Secondly, a person cannot transfer to another a better right than he or she has. This second aspect of the rule has three important consequences. The first and most obvious is that a transferee takes subject to existing real rights such as an existing security interest. Secondly, and related to the first, a transferee must take subject to any inherent weakness or infelicity in the subject right. Thirdly, from a practical perspective, it is very important properly to characterise the features of the right which is the subject matter of the assignment because if this is not done correctly then, although the rule cannot be breached, the effect may be equivalent to a breach, as the transferee may end up taking advantage of features that the right did not have. The rule does allow for the transfer of what may loosely be termed “lesser” rights. For example, a creditor may assign a debt in equity rather than at law. Nevertheless, the assignee in such a case obtains an interest in the debt and not something different. There are, of course, various exceptions to the nemo dat rule. Perhaps the most well known examples concern sales of goods by buyers and sellers in possession under sale of goods legislation. Even as regards choses in action exceptions are said to occur. For example, where an assignor assigns a debt twice, then priority will go to the assignee first giving notice to the debtor. Without there being an exception to the nemo dat rule such a priority dispute could not arise; if the first assignment was effective at law then the assignor would have had nothing to assign to the second assignee.62 Arguably, in certain contexts there is no need to recognise such an exception. In the case of an equitable assignment of a legal right, the assignor 60 It has even been suggested that the acquisition of a promise upon the formation of a contract takes place by way of transfer: see E Weinrib, “The Juridical Classification of Obligations” in P Birks (ed), The Classification of Obligations (Oxford, Clarendon Press, 1997) at 52–3; P Benson, “The Unity of Contract Law” in P Benson (ed), The Theory of Contract Law (Cambridge, Cambridge University Press, 2001) ch 4. Despite this being a legitimate theory, if it were adopted as contract law doctrine it could have undesirable results: eg The Commissioner of Stamp Duties (New South Wales) v Yeend (1929) 43 CLR 235 at 241. 61 T Weir, “Taking for Granted—The Ramifications of Nemo Dat” (1996) 49 CLP 325 at 328. 62 See R Goode, Commercial Law (3rd edn, London, Penguin, 2004) at 55.
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would not be assigning the same interest more than once but merely creating equivalent interests each time. This results from the principle that equitable interests are not drawn out of legal interests but engrafted upon them. A similar analysis would apply to a series of legal assignments of a legal chose in action if the procedural view of the statutory regime for legal assignments were adopted. In this book, a substantive view of the statutory regime is adopted and therefore an exception to the nemo dat rule would be required to assign a chose in action more than once under that regime.63 Similarly, an exception would be required if the law allowed for the multiple assignment of an existing equitable chose in action. Another exception may have recently appeared. In Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty),64 it was held that where an assignor assigns a right to an advance payment which is conditional upon some later performance by the assignor, the assignee obtains an unconditional right of payment. At first sight, the result here appears to go beyond an exception to the nemo dat rule. Generally, exceptions to the rule address defects in title to an existing asset. The effect of these exceptions is not only to allow for the transfer of the defective title held by the transferor but also for the title held by some third party. However, the issue in the example is not a simple defect in title; the assignor has a perfectly good title to a conditional right of payment. At the time of the assignment an unconditional right to payment did not exist. The exception to the rule here seems to create the asset which is the subject of the assignment. Nevertheless, this appears to be the way some exceptions to the nemo dat rule operate when dealing in pure intangibles. The example was given above of how a priority dispute can arise because a debt can be assigned more than once, even though at the time of the second assignment the assignor has nothing to assign. Arguably, the example here goes even further, because in the case of a double assignment at least the subject matter of the assignment, for example title to the debt, does exist although it is vested in a third party, namely, the first assignee. In the example, title to the unconditional right to payment was not held by anyone. Exceptions in the case of tangibles are usually based on the transferor at least having possessory title to the subject asset. It may be that the above analysis overstates this aspect of the decision in The Trident Beauty, and the finding that the assignee’s receipt of payment was unconditional was merely intended to express a view that the assignee was immune from any restitutionary claim by the debtor: it was not intended to characterise the nature of the chose in action held by the assignee.65
63 See [5.06]–[5.26]. See also Cronk v M’Manus (1892) 8 TLR 449, which suggests that an assignment of a debt by way of security under the statutory regime will be treated like a legal mortgage of tangible personal property. It would follow that any second mortgage could only be a dealing with the equity of redemption and therefore equitable. 64 [1994] 1 WLR 161. 65 See [8.33].
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[3.13] Transfer and negotiation. The concept of transfer is often contrasted with negotiability. The idea of a contrast here should not be overstated, since negotiation does involve a transfer but it is a transfer that is free of the nemo dat rule. The essential point is that an instrument that is negotiable (by delivery or endorsement and delivery) allows a bona fide transferee for value without notice to take the instrument free of any defects in title of prior parties and free from any equities that could be raised by prior parties.66
(d) The Element of Intention (i) Introduction [3.14] The requirement of an intention to assign. It will be recalled that Windeyer J in Norman’s case described an assignment as involving an immediate transfer.67 It was suggested that this must in turn require an intention to assign.68 That intention is a crucial ingredient of an assignment and distinguishes assignments from other transactions. The particular focus here is on the distinction between assignment on the one hand and equitable charges and declarations of trust on the other hand, as these are closely related to assignment. It is therefore convenient and imperative to distinguish these transactions in this chapter. The methodology applied by the courts for determining whether an intention to assign exists is dealt with in Chapter 7.
(ii) Outright Assignments and Security Assignments [3.15] Introduction. An assignment may be given for a variety of reasons. Assignments of contractual rights for the supply of goods or services usually follow the sale or transfer of some asset such as land or a business. A debt may also be assigned for a number of reasons. It may be a gift. It may be used in a number of ways to borrow money or raise finance. It may be assigned to discharge a debt in whole or in part. Often a right to an income stream is assigned for a period as a method of paying a debt. In relation to debts, an important distinction exists
66 Sometimes a reference to a negotiable instrument is used merely to refer to an instrument that can be transferred by delivery and endorsement even though that transfer is subject to the nemo dat rule: see R Goode, Commercial Law (3rd edn, London, Penguin, 2004) at 49. 67 [3.04]. 68 [3.04].
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between an outright assignment69 and an assignment by way of security, that is, a mortgage.70 [3.16] Distinguishing outright assignments from security assignments. Whether or not an assignment is outright or by way of security depends on intention. The concern is to find the real intention of the parties.71 The first principle is to give effect to the express words of the memorandum.72 However, effect will not be given to the express words or an express object if the form of the transaction is a sham; that is, if it seeks to mask the true transaction,73 for example, where a
69 The expression “outright assignment” includes an assignment by way of sale but is broader. Not all outright assignments are by way of sale. For example, a debt can be assigned for the purposes of discharging a loan in whole or in part. Such an assignment is not an assignment by way of security nor is it an assignment by way of sale: see Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyds Rep 142 at 161–2 per Slade J (overruled on another point: Re Spectrum Plus Ltd [2005] 3 WLR 58). It is not a sale as the consideration for the assignment is the loan or a forbearance to sue rather than the payment of a purchase price or the promise of the payment of a purchase price. See also Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137; Ashby Warner & Co Ltd v Simmons [1936] 2 All ER 697 and see Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd [1985] Ch 207 (application of the Quistclose principles to a transfer of funds (not by way of loan) for the payment of the transferee’s debts). See further R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.34. Finally, where there is an assignment by way of sale which incorporates an obligation to re-transfer the property, then, if no fresh consideration is required for the re-transfer, the retransfer will not be by way of sale: see Francis v NPD Property Development Pty Ltd [2005] 1 Qd R 240. 70 In addition, debts and contractual rights to payment are often used as security by way of charge. Here, the chose in action is merely appropriated as security; any assignment of the chose would occur as a means of enforcing the charge after a default. As to the nature of an “assignment by way of charge” see [4.27], [7.40]. 71 Manchester, Sheffield and Lincolnshire Railway Co v North Central Wagon Co (1888) 13 App Cas 554 at 568 per Lord Macnaghten. This intention is to be distinguished from the motive for the particular form of assignment. The motive may be to circumvent a statutory requirement which would apply if the transaction took a different form. Generally, motive is not a relevant consideration in characterising the form of the assignment: see Re George Inglefield Ltd [1933] Ch 1 at 22–3 per Lord Hanworth MR, at 23 per Lawrence LJ, at 26–7 per Romer LJ. 72 Lloyds & Scottish Finance Ltd v Cyril Lord Carpets Sales Ltd [1992] Butterworths Company Law Cases (BCLC) 609 at 615–16 per Lord Wilberforce, at 619 per Lord Scarman (stating that the approach is to give effect to the express intention of the parties rather than characterise the transaction on the basis of function; it is not to the point that a sale in certain circumstances will perform the same function as a loan on security; the approach is one of method and nature and not object). See also Olds Discount Co Ltd v Cohen [1938] 3 All ER 281n; Olds Discount Co Ltd v Playfair Ltd [1938] 3 All ER 275 at 277; Re Kent and Sussex Sawmills Ltd [1947] Ch 177 at 179 (note the criticism of this case in F Oditah, Legal Aspects of Receivables Financing (London, Sweet and Maxwell, 1991) at 80); Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 at 216 per Lord Devlin; Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98 at 114 per Windeyer J; Welsh Development Agency v Export Finance Co Ltd [1992] British Company Cases (BCC) 270 at 300. See also Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 at 607–8. 73 Re George Inglefield Ltd [1933] Ch 1 at 17 per Lord Hanworth MR; Curtain Dream plc v Churchill Merchanting Ltd [1990] BCC 341 at 349. See also Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78 (and see Orion Finance Ltd v Crown Financial Management Ltd (No 2) [1996] 2 BCLC 382).
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formal document of sale is used to disguise a loan on security.74 In addition, evidence that the express words of a memorandum do not reflect the real intention of the parties or no longer reflects the intention of the parties can come from the manner in which the transaction is conducted.75 However, that will generally be sufficient only if it shows that the parties made some other contract.76 Where there is no question of a sham or replacement agreement, the discovery of the true intention of the parties is one of construction and usually involves an interpretation of a memorandum of assignment. It is a question of law.77 Like the construction of any contract this process involves an investigation of the meaning of the words used by the parties and the legal effect of those words. The investigation into the meaning of words here is particularly concerned with discovering the various rights and obligations received and undertaken by the parties. It is then necessary to determine the legal effect of those rights and obligations divorced from any labels the parties themselves have attached to them. That is, the true transaction is determined by a legal analysis of the rights and obligations given and undertaken in the agreement.78 If in form a memorandum of assignment uses words of sale but in substance grants rights between the parties that are not consistent with a sale but are consistent with a security, then the real intention of the parties is to assign by way of security.79 Similarly, if a memorandum uses the word “security” but it is clear that the intention of the parties is that of an outright assignment, the word “security” will be ignored.80 However, a court will not strive to characterise a transaction in a way that is inconsistent with the label attached to it by the parties. The investigation by the court is without prejudice.81 Where a memorandum of assignment is documented as a sale but grants rights that are 74 Eg Saunderson & Co v Clark (1913) 29 TLR 579. See also R Goode, Commercial Law (3rd edn, London, Penguin, 2004) at 605–9. See further Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 278–9 per Dillon LJ, at 301 per Staughton LJ. 75 See Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78 (and see Orion Finance Ltd v Crown Financial Management Ltd (No 2) [1996] 2 BCLC 382). However, the fact that the parties do not follow the exact course dictated by the memorandum of assignment may be explained away on other grounds: see F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 2.12 at 37–8. See further Lloyds & Scottish Finance Ltd v Cyril Lord Carpets Sales Ltd (1992) BCLC 609. 76 Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 301 per Staughton J citing Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1966] 1 QB 650 at 683 per Diplock LJ. 77 Smith v Bridgend County Borough Council [2002] 1 AC 336 at 352 per Lord Hoffmann, at 355 per Lord Scott. 78 Re George Inglefield Ltd [1933] Ch 1 at 17 per Lord Hanworth MR; Helby v Matthews [1895] AC 471 at 475 per Lord Herschell; Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 279 per Dillon LJ, at 301 per Staughton LJ. 79 Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 at 725–6 per Lord Millett. The type of security interest created is also a question of law. For example, in the case of a charge, if the relevant memorandum uses words suggesting an intention to create a fixed charge but rights are given that are inconsistent with the charge being fixed then a court may hold that it is a floating charge. See further Re Spectrum Plus Ltd [2005] 3 WLR 58. 80 See Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142. 81 Re George Inglefield Ltd [1933] Ch 1 at 20 per Lord Hanworth MR.
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consistent with both a sale and a security a court will continue to recognise the transaction as one of sale unless there is evidence that this is not the true or real intention of the parties.82 This approach is dictated by the fact that no one criterion of sale or security is conclusive.83 This necessarily follows from the fact that a sale may be used to raise finance in much the same way as an assignment can be used to secure a loan.84 In either case the documentation is likely to mix language and in part use expressions and words that are more apt to describe the other form of transaction. This process of construction is not merely one of construing the operative words of the assignment clause, but rather construing that clause in light of the contract as a whole.85 The concern is with the substance of the transaction, and therefore it is necessary to look at the transaction, the relationship of the parties and the circumstances that gave rise to the transaction.86 In some cases there may be other admissible extrinsic evidence which suggests that the express words of the memorandum do not reflect the true intention of the parties.87 The particular concern is whether there is evidence of the assignor having an express or implied right to redeem the subject property. A sale contract would not contain such a right. However, care must be taken not to imply a right of redemption too quickly. For example, it is doctrinally possible to assign outright an income stream, not so as automatically to discharge a debt or loan but as a method of repayment of the debt or loan, which automatically comes to an end upon the repayment of that debt or loan without a revesting.88 Thus, in order for the assignor to be paid any excess in the hands of the assignee and to ensure that the transaction is not labelled a “security” it is not always necessary to make this a personal obligation of the assignee to pay an equivalent amount. Nevertheless, the possibility of there being a right of redemption is raised in situations where the 82 See Douglas v Culverwell (1862) 4 De GF & J 20, 45 ER 1089; Williams v Owen (1840) 5 My & Cr 303, 41 ER 386; Curtain Dream plc v Churchill Merchanting Ltd (1990) BCC 341; Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78 (and see Orion Finance Ltd v Crown Financial Management Ltd (No 2) [1996] 2 BCLC 382). 83 Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78 at 84–5 (and see Orion Finance Ltd v Crown Financial Management Ltd (No 2) [1996] 2 BCLC 382); Lloyds & Scottish Finance Ltd v Cyril Lord Carpets Sales Ltd (1992) BCLC 609 at 617. 84 Ibid, at 615 per Lord Wilberforce. 85 Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 280 per Dillon LJ, at 302 per Staughton LJ; Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78 (and see Orion Finance Ltd v Crown Financial Management Ltd (No 2) [1996] 2 BCLC 382). 86 Beckett v Tower Assets Co Ltd [1891] 1 QB 1 at 25–6 per Cave J; Re Kent and Sussex Sawmills Ltd [1947] Ch 177 at 180–1; Automobile Association (Canterbury) Inc v Australasian Secured Deposits Ltd [1973] 1 NZLR 417; Contemporary Cottages (NZ) Ltd v Margin Traders Ltd [1981] 2 NZLR 114. 87 Olds Discount Co Ltd v Playfair Ltd [1938] 3 All ER 275 at 280 per Branson J; Re Row Dal Constructions Pty Ltd [1966] VR 249 at 259; Automobile Association (Canterbury) Inc v Australasian Secured Deposits Ltd [1973] 1 NZLR 417. See also Beckett v Tower Assets Co Ltd [1891] 1 QB 1; Re Universal Management Ltd [1983] NZLR 462 at 470 per Cooke J at 476 per McMullin J; Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 at 608 per Mummery J. 88 The mechanics for achieving this are discussed at [7.40].
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assigned debts are greater (or potentially greater in the case of an assignment of an income stream) than the debt the assignor owes the assignee, where the assignor has a right to any amount received by the assignee in excess of the debt owed to the assignee, and where the assignor has a right or obligation to repurchase the chose. Moreover, in the case of a loan, where the income stream is assigned at the time of the loan and where the lender is to look solely to the assigned income for repayment, the transaction is more likely to be characterised as a security transaction.89 The mere fact that the assignment is expressed to be for the “repayment” of the loan rather than as “security” for the loan is not conclusive. Where a debt is assigned by way of mortgage, the assignee owns the chose and therefore has a right to the income stream which must be used by the mortgagee to discharge the debt.90 Goode, in the context of discussing transfers to cover future indebtedness, suggests that the critical distinction in assignments of this type is between an assignment of a debt where payment “must be held and applied exclusively for the purpose of satisfying any indebtedness of the [assignor], any surplus being returned and meanwhile being held on trust for the [assignor] . . . and . . . an outright payment which becomes part of the [assignee’s] free assets, so that his only obligation if the sum [received] exceeds the [indebtedness of the assignor] is a personal repayment obligation”.91 It is necessary to add to this the possibility of an assignment that is automatically extinguished upon the repayment of the loan. The issue can also be looked at from the position of the assignee. As has been pointed out, if “a purchaser sells the property he has purchased, he may keep any profit he had made on the transaction; if a mortgagee does so, he must account for the profit to the mortgagor. . . . If a purchaser sells the property he has purchased and makes a loss on the transaction, he cannot recover his loss from the vendor; if a mortgagee realises the mortgaged property for less than he is owed, he may recover the balance from the mortgagor.”92 However, none of these points is necessarily conclusive.93 The result ultimately depends on the true meaning, purpose and legal effect of the assignment. Thus, a right or obligation to repurchase a chose 89
See R Goode, Commercial Law (3rd edn, London, Penguin, 2004) at 609–10. Whether or not the mortgagee allows the mortgagor to keep receiving that income stream prior to any default is, subject to the mortgagee giving notice of the assignment, a matter to be agreed between the parties. An assignment without notice where the assignor continues to collect the debt but is required to pay sums received or equivalent amounts over to the assignee is capable of being construed as a security assignment. Ultimately this will depend on the true intention of the parties. The assignment may be by way of sale with the assignor collecting for the assignee: see Olds Discount Co Ltd v John Playfair Ltd [1938] 3 All ER 275; Lloyds & Scottish Finance Ltd v Cyril Lord Carpets Sales Ltd [1992] BCLC 609; Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 273, 283–4. See further Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 at 217 per Lord Devlin. 91 R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.36. 92 Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78 at 84 per Millett LJ. 93 See Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 279–80. It has even been suggested that an express right of redemption is not conclusive: see Lloyds & Scottish Finance Ltd v Cyril Lord Carpets Sales Ltd [1992] BCLC 609 at 618 per Lord Wilberforce. 90
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may evidence a right of redemption or it might be no more than a contractual option or obligation to purchase.94 An obligation to pay the assignor amounts received in excess of the amount the assignor owes the assignee may result from a right of redemption or it may be no more than a personal obligation to pay.95 As already noted, the fact that the assignee’s interest is to be extinguished once a debt is repaid by the assignor does not necessarily evidence an assignment by way of mortgage. A mortgage requires an obligation to re-transfer, that is, a reassignment by separate assurance rather than by virtue of the initial instrument of assignment itself.96
(iii) Equitable Charges [3.17] Assignment, equitable charges and transfer. A charge is a security which makes certain property liable to discharge an obligation.97 It is usually created by contract98 and gives the chargee a proprietary interest by way of security. The intention required to create a charge is an intention to appropriate a fund to the debt and not merely an intention to pay a debt out of the proceeds of a certain 94 See Williams v Owen (1840) 5 My & Cr 303, 41 ER 386; Alderson v White (1858) 2 De G & J 97 at 105, 44 ER 924 at 928; Re George Inglefield Ltd [1933] Ch 1 at 27 per Romer LJ; Gurfinkel v Bentley Pty Ltd (1966) 116 CLR 98 at 113 per Windeyer J; Automobile Association (Canterbury) Inc v Australasian Secured Deposits Ltd [1973] 1 NZLR 417; Contemporary Cottages (NZ) Ltd v Margin Traders Ltd [1981] 2 NZLR 114; Curtain Dream plc v Churchill Merchanting Ltd [1990] BCC 342; Chase Manhattan Asia Ltd v Official Receiver and Liquidator of First Bangkok City Finance Ltd [1990] 1 WLR 1181. There is a view that it is possible to avoid a sale and repurchase being interpreted as a mortgage by having the sale back characterised as a sale of equivalent property and not the same property. However, where the property is something like shares, it makes no sense to say that one is only selling back equivalent property if one adopts the view that the ownership of a share merely represents an indivisible interest in the capital of the company, because if that is correct one can only ever sell back the same thing: see [4.27]. See further R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.37; F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 2.12 at 38–9. 95 Olds Discount Co Ltd v John Playfair Ltd [1938] 3 All ER 275; Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209; Lloyds and Scottish Finance Ltd v Cyril Lord Carpet Sales Ltd [1992] BCLC 609. See also R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.34. See further PR Wood, Title Finance, Derivatives, Securitisations, Set-Off and Netting (London, Sweet & Maxwell, 1995) at 19–21, 53–5. 96 There remains the possibility that such a transaction may be a security transaction by way of charge. See Mercantile Bank of London Ltd v Evans (1899) 2 QB 613. See further [7.40]. 97 Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 595 per Buckley LJ; Re Charge Card Services Ltd [1987] Ch 150 at 176 per Millett J. 98 Re Bond Worth Ltd [1980] Ch 228 at 250 per Slade J. When created by contract, a charge requires consideration: Re Earl of Lucan (1890) 45 Ch D 470; this is necessarily the case where the charge is intended to encumber future property. See also Agnew & Bearsley v Commissioner of Inland Revenue [2001] 2 AC 710 at 726. Not all charges require a contract: see PG Turner, “Floating Charges—A ‘No Theory’ Theory” [2004] LMCLQ 319 at 320. See further EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, Law Book Co, 1993) at 773; R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 1.07, 1.53 (creation of charge by way of trust).
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fund.99 Like an equitable assignment of a legal right, a charge merely involves the creation and vesting of an interest in the chargee. However, it is said that a charge merely encumbers the relevant property; it does not operate by way of assignment.100 In terms of enforcement, the position at law is that the chargee may, by judicial process, call for an assignment of the charged property upon default by the chargor.101 It is only then that an assignment of the charged property takes place.102 Nevertheless, there are numerous judicial decisions stating that a charge operates as an equitable assignment and an equitable assignment operates by way of charge.103 In securities law the expressions “equitable charge” and “equitable mortgage” are often used interchangeably.104 In some cases an equitable charge 99
See further ibid, para 1.17. Re Charge Card Services Ltd [1987] Ch 150 at 176 per Millett J; Re Bond Worth Ltd [1980] Ch 228 at 250 per Slade J; Tancred v Delagoa Bay and East Africa Railway Co (1889) 23 QBD 239 at 242 per Denman J. See also EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, Law Book Co, 1993) at 17–20, 193–7, 616–7, 771–3. 101 See Re Owen [1894] 3 Ch 220. Statute may increase the powers of a chargee, eg Conveyancing Act 1919 (NSW) s109. 102 A charge may be used in conjunction with an assignment. The assignment may allow an assigned income stream to be used by the assignee without a prior default by the assignor, and the charge over the source of the income prevents that source being alienated and thus destroying the assignment: see Bank of New South Wales v The King [1918] NZLR 945 at 947 per Hosking J. Where this is the case, it does not necessarily result in the assignment being by way of security. Many documents use the words “assign” and “charge” in the one clause: eg Orion Finance Ltd v Crown Financial Management Ltd [1996] 2 BCLC 78. Whether the intention here is to create a charge or assign an interest or use both in conjunction is a question of construction. Often the express reference to a charge will be evidence that the transaction is intended to be by way of security. However, there may be cases where a document only uses the word assign but where a charge (in the conjunction sense explained above) is implied which, as explained above, supports an outright assignment. 103 Eg Rodick v Gandell (1852) 1 De GM & G 763 at 777–8, 42 ER 749 at 754 per Lord Truro (cited with approval in Palmer v Carey [1926] AC 703 at 706 and Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 613 per Lord Wilberforce); Re Kent & Sussex Sawmills Ltd [1947] 1 Ch 177 at 183; Thomas v Harris [1947] 1 All ER 444 at 445 per Scott LJ; National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 Austrailan Capital Territory Reports (ACTR) 1 at 3–5 per Blackburn J; Re Universal Management Ltd [1983] NZLR 462 at 476 per McMullin J; Elders Pastoral Ltd v Bank of New Zealand [1991] 1 NZLR 385 at 387 per Lord Templeman; Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 at 619 per Mummery J; Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 446 per McHugh and Gummow JJ; Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at 422 per Brennan CJ; Agnew & Bearsley v Commissioner of Inland Revenue [2001] 2 AC 710 at 721. See also National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 at 449–50 per Atkin LJ. Cf Ashby Warner & Co Ltd v Simmons [1936] 2 All ER 697 at 708 per Greene LJ. There is also academic authority suggesting that a charge operates by way of assignment: see W Gough, Company Charges (2nd edn, London, Butterworths, 1996) at 19, 38–9 (Gough appears to rely on the bundle of rights theory to argue that there is an assignment: see also in this regard Waitomo Wools (NZ) Ltd v Nelsons (NZ) Ltd [1974] 1 NZLR 484 at 490 per Richmond J and Young v Matthew Hall Mechanical & Electrical Engineers Pty Ltd (1988) 12 ACLR 399 at 403 per Brinsden J). The various statutory regimes for legal assignments also recognise this possibility by expressly stating that they apply only to absolute assignments “not purporting to be by way of charge”: see [7.39] and see PG Turner, “Assignment by Way of Charge” (2004) 24 Australian Bar Review 1 at 13. 104 London County and Westminster Bank Ltd v Tomkins [1918] 1 KB 515 at 528–9 per Scrutton LJ; Re Upson (1941) 12 Australian Bankruptcy Cases 147. 100
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has been said to involve a partial assignment.105 Both the House of Lords and the High Court of Australia in mentioning an equitable charge have talked of a right to redeem, even though a charge not operating by way of assignment would automatically be discharged upon performance of the secured obligation.106 The possible reasons for making this link between charges and assignments are discussed later.107 It is not possible to view a chargee’s rights as being merely potential. Prior to default by the chargor the chargee does have rights that may be enforced directly against the security property.108 In addition, the chargee’s interest subsists despite the chargor transferring ownership of the charged property to a third party (except a bonafide purchaser for value and without notice of the legal estate) and despite the chargor becoming insolvent. Therefore, the chargee is vested with some form of immediate proprietary interest in respect of the subject property.109 Arguably, given that the word “transfer” is a word of wide import, there may seem little point in suggesting that a charge does not involve a form of transfer. Nevertheless, it is suggested that there is no “transfer” in the sense that that word is used in relation to assignments. A “transfer” for the purposes of an assignment requires both the movement of rights and an intention to transfer ownership. One without the other does not equate to a transfer. In the case of a charge, there is no intention to transfer ownership even though that may result if there is a default.110 There is also an important difference in effect. Even if it is accepted that a charge involves a transfer, there is a difference in degree between an assignment and a charge because the assignee becomes the owner of the assigned right. Even where 105 Durham Bros v Robertson [1898] 1 QB 765 at 769 per Chitty LJ; Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand) Ltd [1995] 1 WLR 1140 at 1144 per Lord Hoffmann. See also Tooth v Brisbane City Council (1928) 41 CLR 212 at 221 per Isaacs J. 106 Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 at 226 per Lord Hoffmann; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588 at 595–6. See also Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 at 612 per Mummery J; Durham Bros v Robertson [1898] 1 QB 765 at 770 per Chitty LJ. 107 [4.27], [7.40]. 108 F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 5.6; W Gough, Company Charges (2nd edn, London, Butterworths, 1996) at 19. Cf EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, Law Book Co, 1993) at 17–20. 109 Re Bank of Credit and Commerce International SA (No 8) [1998] AC 214 at 226 per Lord Hoffmann. See also W Gough, Company Charges (2nd edn, London, Butterworths, 1996) at 19; EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, Law Book Co, 1993) at 18. 110 In practice, the express powers usually given to a chargee under a charge make the legal distinctions between an assignment by way of mortgage and a charge of little practical importance: see F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 5.6. Moreover, it appears to be generally accepted that upon the crystallisation of a floating charge, there is a complete equitable assignment: see National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1 at 5–6 per Blackburn J. However, that result probably derives from the construction of the relevant documents rather than a rule of law (see Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at 422 per Brennan CJ). Arguably, documents containing such provisions are on the way to being more like floating mortgages than floating charges: see Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 at 999 per Buckley LJ.
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a chargee obtains an assignment by enforcing the charge this is different from having ownership upon the creation of the security. In addition, where the chargee obtains an order for sale, this does not equate to a right to sell property held by an owner.111 Thus, any transfer that does take place upon the creation of a charge is not an absolute transfer. Moreover, to the extent that a chargee obtains rights that are not merely potential, those rights do not equate with ownership. In addition, if the chargor grants the chargee a charge over some fund owed to the chargor by a debtor, the chargee obtains no right of action against the debtor. The chargee’s right is limited to a right of action against the chargor.112 Generally, and subject to the particular characteristics of an assigned right, an assignee may have recourse to the obligor directly.113 Finally, in the case of a charge, there is no actual transfer of an underlying personal right which is necessary for a transfer by way of assignment.
(iv) Declarations of Trust [3.18] Assignment, declarations of trust and transfer. Trusts may be created by assignment, declaration or direction.114 The concern here is solely with declarations of trust. A declaration of trust over a legal interest, like a charge, does not analytically involve a disposal of rights by the settlor/trustee but rather a creation and vesting of rights in the beneficiary.115 Nevertheless, trusts are used to alienate assets and a contractual right may be the subject of a declaration of trust.116 Therefore, despite the notion of an “alienation” being broader than the concept of a transfer, there is probably nothing heretical in readily accepting that the creation of a trust may involve a transfer.117 111
EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, Law Book Co, 1993) at 17. Burlinson v Hall (1884) 12 QBD 347 at 350. 113 [4.04], [4.08]. 114 A transaction may require a combination of these: eg Corin v Patton (1990) 169 CLR 540; McLeay v Commissioner of Inland Revenue [1963] NZLR 711 at 717. 115 Cf the position as regards a declaration of trust over an existing equitable interest: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 7.200–7.215; JD Heydon and PL Loughlan, Cases and Materials on Equity and Trusts (6th edn, Sydney, Butterworths, 2002) para 7.15; RP Meagher and WMC Gummow, Jacobs Law of Trusts (6th edn, Sydney, Butterworths, 1997) ch 7. 116 For the implications of a trust on a promise see ibid, paras 222–5; Law Commission for England and Wales, Privity of Contract: Contracts for the Benefit of Third Parties (London, HMSO, 1996) Law Com No 242, paras 2.8–2.9; R Merkin (ed), Privity of Contract (London, LLP, 2000) paras 2.18–2.25; IB Stewart, “Why Place Trust in a Promise?: Privity of Contract and Enforcement of Contracts by Third Party Beneficiaries” (1999) 73 ALJ 354. In some cases it may be more advantageous to declare a trust over the benefit of a contract than to assign the benefit of the contract: see Don King Productions Inc v Warren [2000] Ch 291 at 319 (affirmed [2000] Ch 291). 117 Cf [4.07]. Usually, the question whether a declaration of trust involves a transfer arises in the context of a statutory provision, and the resolution of the issue will depend on whether terms such as, “transfer”, “dispose” and “alienate” as used in the legislation are intended to capture declarations of trust. 112
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It is common to describe the beneficiary of a trust as the beneficial owner of the trust property.118 Clearly the concept of ownership here depends on the type of trust and the terms of the trust.119 Often, although the interest of the beneficiary attaches to the property that is the subject matter of the trust, so that the beneficiary’s interest is properly characterised as being proprietary, that interest does not equate with ownership.120 However, there can be little wrong with calling the beneficiary under a bare trust who is sui juris and entitled to an equitable interest corresponding to the full legal interest the equitable owner of the trust property. Such a beneficiary may require the trustee to transfer to it the legal interest or direct the trustee to hold the property for a third party. If it is correct to call such a beneficiary the equitable owner of the trust property then it becomes necessary to distinguish an assignment from a declaration of trust by reference to the intention required for each. In the case of a declaration of trust, the settlor/trustee’s intention is for it to maintain ownership and hold the trust property for the benefit of the beneficiary. In the case of an assignment the intention is to simply transfer ownership.121 It is therefore irrelevant that a court may impose trustee obligations on the assignor in some instances to protect the interest of the assignee. When equity upholds transactions as a declaration of trust or assignment, it is to give effect to these varying intentions.
(e) The Requirement of a Proprietary Right [3.19] Introduction. An assignment of a contractual right is said to involve the transfer of existing proprietary rights.122 It may be questioned whether this property analysis still has value. Clearly the fact that something is thought of as 118 Cf JW Brunyate (ed), Maitland’s Equity: A Course of Lectures (2nd revised edn, Cambridge, Cambridge University Press, 1936) at 17. See also O’Sullivan v Commissioner of Stamp Duties [1984] 1 Qd R 212 at 230 citing DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 519 per Hope JA. See further Francis v NPD Property Development Pty Ltd [2004] QSC 202; CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724. 119 Nevertheless, because trust property is not available to the trustee’s creditors, the beneficiaries must have some immediate interest in or over trust property even if that interest is not in any specific asset. 120 DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 519 per Hope. 121 Despite this it is difficult to draw a clear line in some cases. For example, if an assignor, instead of holding a general intention to assign, holds an intention to assign in equity only, then clearly he or she intends to withhold legal ownership. 122 [3.04]. For some purposes it may be necessary to view assignment as primarily involving an issue of contract rather than property, eg, for private international law purposes: see Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825.
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property may mean that it is transferable, but this is not true of all property.123 In addition, it is not necessary today for something to be considered property for it to be enforceable against a third party, and the fact that something is considered property does not necessarily mean it is enforceable against third parties or has some impact on third parties.124 It is beyond the scope of this book to delve into the detail of any alternative models for assignment. It is also beyond the scope of this book to provide any detailed defence of the current property model of assignment. Nevertheless, since this chapter is concerned with the fundamental feature and ingredients of an assignment and the transfer of a property right is one of those fundamental ingredients, it is appropriate to offer some rationale for the current model. That is, some explanation of why a contractual right may be considered a transferable property right. In this section, the concern is not with explaining how contractual rights came to be viewed as property rights as a matter of legal history. The history of choses in action was dealt with earlier, and it was seen that this process was not systematic and probably occurred by virtue of a number of legal and economic factors. The aim of this section is to suggest an analysis of “contract as transferable property” that reflects modern legal doctrine. [3.20] Contractual rights as transferable property rights. It is generally accepted that, from a legal perspective, property rights arise as a legal response to some causative event.125 One such causative event is consent.126 This is the relevant category of causative event for contractual rights. Of course, consent may also give rise to personal rights. It is therefore necessary to look at what principles determine when such a causative event may give rise to a property right, that is, what principles inform the law to recognise that a person should be designated as having title (ownership) of a right. As evidenced in Chapter 2, the assignability of choses in action, outside statute, has been the creature of equity. Although the common law reached the point of recognising choses in action as being property, it never appeared entirely to accept that they had the characteristic of being transferable. It could be said that the legislative regime for legal assignment ended the need for that characteristic to develop at law. However, because that regime made assignable at law that which 123 Dorman v Rodgers (1982) 148 CLR 365 at 374 per Murphy J; R v Toohey Ex parte Meneling Station Pty Ltd (1982) 158 CLR 327 at 342–3 per Mason J. 124 K Gray and S Gray, “The Idea of Property in Land” in S Bright and J Dewar (eds), Land Law; Themes and Perspectives (Oxford, OUP, 1998) at 35–6. 125 P Birks, “Property and Unjust Enrichment: Categorical Truths” [1997] NZLR 623; R Grantham and C Rickett, “Property and Unjust Enrichment: Categorical Truths or Unnecessary Complexity?” [1997] NZLR 668. 126 K Gray, “Property in Thin Air” [1991] CLJ 252 at 302–3.
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was previously assignable in equity, it is perhaps more accurate to conclude that the common law (by force of legislation) adopted the approach of equity. Therefore, it is necessary to look to those principles that give rise to equitable proprietary rights not only for the purpose of characterising contractual rights as property but also as having the characteristic of transferability. Professor Gray has suggested that equity defines property by reference to inclusion rather than exclusion. The exclusionary aspect of property has its origins in the common law but in equity property is access.127 He states:128 It is perhaps worth noticing that the historic function of equitable intervention in property matters has always been to ensure, promote and safeguard rights of access. Equity’s concerns have long focused on the perceived need to preserve, for doctrinal reasons,129 various forms of access to the beneficial value of desired goods and resources. Thus, for example, the critical duty of the trustee is to deflect enjoyment to the beneficiary. The function of the restrictive covenant is likewise to permit the covenantee access to part of the utility in the land subject to covenant. The principal must be protected in his or her access to the commercial opportunities which the fiduciary might otherwise hijack. In each of these instances equitable property and the notion of stewardship seldom stand apart. Whereas legal rights, with their stolid and uncompromising character, more clearly connote the exclusionary aspect of property, equitable rights more subtly articulate a range of protected access to the benefits derived from profitable guardianship.
This analysis may be applied to debts and contractual rights. It can be readily accepted that in market economies contractual rights, particularly debts, are valuable assets. By reason of that value alone they may be considered property.130 More importantly that characterisation as an “asset” and the value of that asset depend on the extent to which the law provides access. A creditor requires access to a debt in order to use it like any other asset, for example, as security for the raising of finance and to pay off a debt. Such access would be cumbersome if the creditor was required to obtain the consent of the debtor to transfer the asset. Therefore, the recognition that such rights are assignable is a way of providing such access as it is a way of allowing the asset to be transferred without consent.131 Property is the institution and vehicle that allows that transfer to occur. To talk of access (or property) here without transferability would be nonsense. For the assignee, access requires an ability legitimately to call for performance of an assigned right and to enforce the rights it has purchased from the assignor. Access for the assignee requires enforceability. 127 See further ibid, at 294. See also FS Cohen, “Dialogue on Private Property” (1954–5) 9 Rutgers L Rev 357 at 373. 128 K Gray, “Equitable Property” (1994) 47 CLP 157 at 171. 129 He suggests the doctrinal force that drives equity here is the conscience of the community; see ibid, at 207. 130 [2.05]. 131 See TW Merrill and HE Smith, “The Property/Contract Interface” (2001) 101 Columbia LR 773.
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It follows that assignment is a method by which access is both controlled and given to these resources without the consent of the person bound to provide the performance.132 Moreover, because this access is provided by the law it is legitimate and usual to view such transactions as dealings in property. [3.21] Property and enforcement by the assignee. As noted in the previous paragraph, if access is to be provided to the assignor, it is essential that the subject right be transferable. Little more needs to be said on this point. However, the position of the assignee requires further explanation. In the last paragraph, it was suggested that access vis-à-vis the assignee requires enforceability. This still begs the further question, how does the characterisation of the assignee’s interest as property aid in this enforceability? [3.22] As a starting point, it is instructive to review how the characterisation of something as property affects rights and duties in respect of that property. Grantham and Rickett133 suggest, correctly it is submitted, that once a property right is created as a response to some causative event, it then becomes a causative event in itself,134 which may be the subject of a legal response as it gives rise to primary rights and correlative duties, which, when infringed, give rise to secondary rights and obligations.135 Those rights may be personal rights or proprietary rights. Although the party subject to a duty owes that duty to the right holder, these are rights in respect of a thing in the case of personal rights, and as regards proprietary rights, these are rights which relate to a thing, not a person.136 Thus, statements to the effect that the common law distinguishes between what one is owed and what one owns do not tell the full story. It is necessary to add that one
132 Another related reason for granting access would be the promotion of efficient use of resources: see MD Bayles, Principles of Law: A Normative Nalysis (Dordrecht, Kluwer, 1987) at 78–9, 83. 133 R Grantham and C Rickett, “Property and Unjust Enrichment: Categorical Truths or Unnecessary Complexity?” [1997] NZLR 668 at 671. See also R Grantham and C Rickett, “Property Rights as a Legally Significant Event” [2003] CLJ 717. 134 Admittedly, some rights such as the right of an owner of property to the income generated by that property are abstract rights. Such a right cannot be transferred separately from the property, as it follows the ownership of the property and it becomes active only if the owner uses the property to generate income: see Booth v Commissioner of Taxation (1987) 164 CLR 159 at 165 per Mason CJ. See also Commissioner of State Revenue (Victoria) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 at 666. Nevertheless, it cannot be correct to hold that, until infringed, all property rights are inanimate and not causative events in themselves. To be able to infringe a right the right must not only exist but cause the relevant duty to arise, that is, it is causative; cf P Birks, “Property and Unjust Enrichment: Categorical Truths” [1997] NZLR 623. 135 Cf ibid; P Birks, “Definition and Division: A Mediation on Institutes 3.13” in P Birks (ed), The Classification of Obligations (Oxford, Clarendon Press, 1997) ch 1. See also P Watts, “Property and ‘Unjust Enrichment’: Cognate Conservators” [1998] NZLR 151. 136 See further as regards the rights in respect of things and rights in things, [4.33].
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may be owed an obligation because of what one owns. Importantly property de-personalises the “right–duty correlation”.137 As Penner explains:138 The reference to things is vital. If a thing stands between the right-holder and the dutyower, then we can see how the normative guidance of the rights and duties can be impersonal. We do not have to frame the duty to respect property as a duty to particular individuals, but as a duty in respect of things. This will, of course, benefit the individual right-holders, but they need not be individually enumerated in order to understand the content of the duty.
Given that a “thing” may include a chose in action,139 this analysis could explain why a person in the position of an assignee, who has no contractual relationship with the obligor, can enforce performance by the obligor. That is, because the personal right is a right in respect of a thing.140 [3.23] Despite the above analysis, it is not clear to what extent these general rules of property, which for convenience are here referred to as a “rights model”, explain the assignment of legal choses in action. There are two reasons for this doubt. First, a legal assignment is enforceable by virtue of statute. The common law never had to address these enforcement issues. Secondly, in equity certain subject matter may be considered property due to the degree of protection equity provides.141 That is, courts do not in all cases protect property, but rather “the judiciary calls property that which they protect”.142 In fact, in Norman v Federal Commissioner of 137 R Grantham and C Rickett, “Property and Unjust Enrichment: Categorical Truths or Unnecessary Complexity?” [1997] NZLR 668 at 677. 138 JE Penner, The Idea of Property in Law (Oxford, Clarendon Press, 1997) at 24: see also at 75–7. See also JW Harris, Property and Justice (Oxford, Clarendon Press, 1996) ch 8; J Waldron, The Right to Private Property (Oxford, Clarendon Press, 1988) at 38; AM Honoré, “Rights of Exclusion and Immunities Against Divesting” (1960) 34 Tulane LR 453 at 463; J Raz, The Concept of a Legal System (2nd edn, Oxford, Clarendon Press, 1980) at 179–81. 139 [3.10]. 140 Cf JE Penner, The Idea of Property in Law (Oxford, Clarendon Press, 1997) at 129–32. 141 Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1990) 95 ALR 87 at 135–6 per Gummow J (affirmed (1990) 99 ALR 679). 142 JE Cribbert, “Concepts in Transition: The Search for a New Definition of Property” (1986) U Ill L Rev 1 at 41. See also D Wright, “The Remedial Aspects of Equitable Property” in P Jackson and DC Wilde (eds), Contemporary Property Law (Aldershot, Ashgate, 1999) ch 2. See further Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 at 712 (equity “calls into existence and protects equitable rights and interests in property only where their recognition has been found to be required in order to give effect to its doctrines.”); Cooney v Burns (1922) 30 CLR 216 at 232–3 per Isaacs J (“The word ‘contract’ itself primarily means a transaction which creates personal obligations; but it may, though less exactly, refer to transactions which create real rights. . . . If the personal obligations are such that according to the rules of equity operating on the conscience of the defendant it is a right specifically to enforce the performance of the contract, then, and then only, does equity regard the purchaser as owner of the property.”) Cf P Birks, “Proprietary Rights as Remedies” in P Birks (ed), Frontiers of Liability (Oxford, OUP, 1994) ii, at 216; P Birks, “Annual Miegunyah Lecture: Equity, Conscience, and Unjust Enrichment” (1999) 23 Melbourne ULR 1; P Birks, “Rights, Wrongs, and Remedies” (2000) 20 OJLS 1; P Birks, “Personal Property: Proprietary Rights and Remedies” (2000)
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Taxation,143 Windeyer J not only described an assignment as involving a transfer but suggested that equitable assignments were effective because of the remedies equity provided. That is, it is possible to define the assignee’s interest only by reference to the relief the court would provide.144 It is important to stress that equity’s approach here is not moving from effect to cause. In each case the cause for equity’s intervention is the existence of some equity that calls for protection. Thus, the obligation, not the remedy protecting that obligation, comes first.145 Nevertheless, it is the degree of protection provided that dictates that what is being protected is property. It follows that in equity there exists a coalescence between property and obligation.146 An agreement to assign, creating an obligation on the part of the assignor, can (if equity would provide sufficient protection) be upheld as an immediate equitable assignment, giving the assignee beneficial ownership of the assignor’s right against the obligor. [3.24] In terms of enforcement, this remedial model does not require a highly technical explanation. If the conscience of equity is drawn to an assignment, an equity will be raised and equity will consider that an obligation is owed to the assignee by the assignor.147 Equity will make remedies available to the assignee to protect its interest in having those obligations carried out. The degree of protection (access) made available results in the interest of the assignee in the subject right being viewed as a proprietary interest. If sufficiently proprietary, then the assignee can be said to own the subject right and will be owed the obligation by the obligor and may, depending on certain factors, have direct recourse against the obligor.148 Alternatively, and more directly, the explanation may run that it is necessary to call into existence a proprietary interest here to give effect to equitable doctrine. That is, equity’s conscience (via equitable doctrine) is drawn to the transaction; to give effect to that doctrine it is necessary to characterise the KCLJ 1; P Birks, “Three Kinds of Objection to Discretionary Remedialism” (2000) 29 WALR 1 and see S Evans, “Defending Discretionary Remedialism” [2001] Syd LR 463. 143 (1963) 109 CLR 9 at 33–4 per Windeyer J. See also GE Crane Sales Pty Ltd v FCT (1971) 126 CLR 177 at 180 per Barwick CJ. 144 See further Central Trust & Safe Deposit Co v Snider [1916] 1 AC 266 at 272 per Lord Parker. 145 Smith Kline & French Laboratories (Australia) Ltd v Secretary, Department of Community Services and Health (1990) 95 ALR 87 at 135–6 per Gummow J (affirmed (1990) 99 ALR 679); Wily v St George Partnership Banking Ltd (1999) 161 ALR 1 at 3 per Sackville J. See also P Parkinson, “Reconceptualising the Express Trust” [2002] CLJ 657 at 663. Cf Joshua Getzler, “Patterns of Fusion” in P Birks (ed), The Classification of Obligations (Oxford, Clarendon Press, 1987) ch 7 at 175. 146 K Gray, “Equitable Property” (1994) 47 CLP 157 at 165, 183. See also R Goode, “Ownership and Obligation in Commercial Transactions” (1987) 103 LQR 433 at 437. Quaere whether the common law can continue to maintain this distinction: see G Samuel, “Property Notions in the Law of Obligations” (1994) 53 CLJ 524 and P Benson, “The Unity of Contract Law” in P Benson (ed), The Theory of Contract Law (Cambridge, Cambridge University Press, 2001) ch 4. 147 This will depend on whether the elements of an equitable assignment are made out: see [7.18]–[7.23]. 148 [4.08].
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assignee’s interest as proprietary, because the assignment may not only be voluntary but it may be necessary to allow the assignee to have recourse directly against the obligor. It is therefore necessary here to admit an equitable interest in the subject matter of the assignment.149 [3.25] This remedial view of assignment is not at odds with the idea that an assignment involves a transfer. As noted earlier, it was in Norman v Federal Commissioner of Taxation that Windeyer J recognised the remedial model but nevertheless described assignments as involving a transfer. It does not matter to the “principle of transfer” what method equity uses to hold the assignor to its promise to assign the legal right (or an equitable right) so long as it is acting to give effect to the intention of the assignor (and perhaps in some cases the expectation of the assignee),150 and so long as the interest vested in the assignee is the equitable ownership of the subject legal right. [3.26] It should be added that, although it has never been expressly displaced, it is not entirely clear to what extent this remedial model still represents the totality of equity’s approach to assignment.151 There may be some scope also to recognise the operation of the rights model. There are a number of reasons for this. First, the notion that equity calls property that which it protects means little if this is not dependent upon the degree of protection provided. It is readily accepted that where a court would decree specific performance, the interest protected is proprietary.152 Moreover, in such a case, where the intention is to assign then the interest of the assignee equates to the ownership of the chose.153 Nevertheless, there are numerous authorities that have suggested that, so long as equity will provide any type of protection, then the interest of the assignee may be considered proprietary.154 Such decisions appear to rob the idea of “the degree of protection” of any 149
Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 at 712 per Viscount Radcliffe. [7.16]. 151 However, the continued relevance of the principle that an equitable interest is commensurate with the protection that equity will provide was recently reaffirmed by the High Court of Australia in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 333. Arguably a weakness of the remedial model is that although one might readily conclude that a right protected by specific performance is a property right, nevertheless, for as long as one requires such a remedy to protect his or her position, there is no transfer of ownership: see Currey v The Federal Building Society (1929) 42 CLR 421 at 448 per Isaacs J. This argument seems to be based on the view that if one owns something, although remedies may be required to prevent intrusions upon the enjoyment of that ownership, no remedy is required to uphold the interest as it is complete. Perhaps there is a weakness in this argument, in that it appears to be based on a common law view of ownership which defines ownership by exclusion rather than an equitable concept of ownership based on access. 152 The relevant time for determining the availability of a remedy is the time of the assignment rather than the time an order to enforce it is sought: see JF Keeler, “Some Reflections on Holroyd v Marshall” (1967–70) 3 Adelaide Law Review 360 at 371. Cf [7.16]. 153 Cf Currey v The Federal Building Society (1929) 42 CLR 421 at 448 per Isaacs J. 154 For a collection, discussion and criticism of these decisions see RP Meagher, “Sir Frederick Jordan’s Footnote” (1999) 15 Journal of Contract Law (JCL) 1. 150
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meaning. If a party may claim some equitable relief in respect of some thing then, although that right may legitimately be characterised as protecting some property interest, it does not necessarily equate to the recognition of equitable ownership of the thing. Moreover, if the governing principle is that equity considers property that which it protects, then the remedy itself will dictate whether or not the subject matter (debt or contractual right) constitutes a “thing” in the first place. That is, the action may not properly be characterised as being in respect of a thing.155 Transactions properly termed “assignments” should be limited to cases where the assignee is vested with an interest equating to ownership (legal or equitable) and not something less than this. Arguably where the protection being provided is not specific performance, then, unless the transaction can be upheld as an assignment on some other approach, such as the rights model, it should perhaps be viewed as a transaction that is on its way to being an assignment, but not in fact an assignment.156 Secondly, the remedial model was adopted at a time when an equitable assignment was viewed as giving the assignee rights only against the assignor.157 In such circumstances it makes sense to speak of the assignment as capable of being the subject of an order for specific performance. The assignee was interested only in forcing the assignor to lend its name to the suit or later taking the necessary steps to complete a legal assignment. Today, the joinder of the assignor is generally thought to be a mere matter of procedure and, in any case, no separate action is required to join the assignor. Moreover, it is now accepted that an equitable assignee may have direct claims against the obligor and, although it may make sense to say that as against the assignor the assignee owns the subject right by reason of the degree of protection equity will afford, ultimately, to enforce that right against the obligor the assignee is relying on its ownership of the assigned right, and not the availability of a remedy against the assignor. The relevance of the rights model is seen in the fact that the efficacy of an assignment is not dependant upon the continued existence of a remedy against the assignor. Thus, the better view may be that the two models work in combination to give full effect to the assignment. Therefore, in some instances equity is not calling property that which it protects, but is simply protecting an interest in property that is already in existence. That is, as is sometimes said, equity simply recognises that a chose in action is property for the purposes of transfer.158 Thirdly, it is readily accepted that where parties agree for valuable consideration immediately to assign a legal right then, if for any reason the transaction is not upheld as a legal assignment, it will be upheld as an equitable assignment as soon 155
See further ibid, at 9. Haque v Haque (1965) 114 CLR 98 at 124–5 per Kitto J; Stern v McArthur (1988) 165 CLR 489 at 523 per Deane and Dawson JJ. 157 [4.05], [4.19]. 158 [4.07]. 156
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as the assignee’s consideration is executed.159 That equitable assignment is not dependent upon the availability of specific performance.160 Therefore, although equity will provide a remedy to protect the interest of an assignee, that remedy flows from a right which in turn arises from having an interest in the legal right which is the subject of the assignment. In such cases it does not matter what remedy equity would provide to protect the interest of the assignee. In fact, in Tailby v Official Receiver,161 Lord Macnaghten, in discussing the relevance of specific performance to assignments of future property, said:162 [T]he Court is merely asked to protect rights completely defined as between the parties to the contract, or to give effect to such rights either by granting an injunction or by appointing a receiver, or by adjudicating on questions between rival claimants. The truth is that cases of equitable assignment . . . where the consideration has passed, depend on the real meaning of the agreement between the parties. The difficulty, generally speaking, is to ascertain the true scope and effect of the agreement. When that is ascertained you have only to apply the principle that equity considers that done which ought to be done if that principle is applicable under the circumstances of the case. The doctrines relating to specific performance do not, I think, afford a test or measure of the rights created.
This is significant because equitable assignments of legal rights are important to commerce, and must therefore be seen as based on a set of reliable factors rather than being discretionary.163 Although it may be said that where a failed legal assignment is upheld as an equitable assignment, or where an agreement legally to assign is upheld as an immediate equitable assignment, it is, in a sense, upheld in equity by operation of law,164 today, such equitable assignments may be all that is intended by the parties.165 That is, the parties intend to take advantage of those equitable principles that have been applied to uphold such transactions. However, on a pure remedial approach the type of remedy available should be very important, and
159
[7.19]. [7.19]. 161 (1888) 13 App Cas 523. 162 (1888) 13 App Cas 523 at 547–8. See also Pakenham Upper Fruit Co Ltd v Crosby (1924) 35 CLR 386 at 398 per Isaacs and Rich JJ; Re Crothers (1930) VLR 49 at 56. 163 Alternatively, it may be that equity gives effect to the assignment upon execution of consideration because at that point damages become inadequate. This is not to introduce a requirement of specific enforceability, but it may suggest that equity’s approach here is still remedial rather than rights based. It would follow that if damages were still an adequate remedy the assignment would not be upheld. This may explain why no equitable interest arises upon entry into an agreement for the sale of goods: see further JF Keeler, “Some Reflections on Holroyd v Marshall” (1967–70) 3 Adelaide LRev 360 at 374. However, if that were the sole reason for equity’s recognition of assignments of legal rights, then, given that it is now possible to assign at law, one would have expected equity to retire from this field. 164 [7.16]. 165 Eg in receivables financing often there is intended to be only an equitable assignment, or at least an assignment without notice. Such transactions are not upheld as failed legal assignments. 160
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strictly only the availability of specific performance would be enough to give rise to an interest amounting to the beneficial ownership of the legal right.
(f) Assignment and Privity of Contract [3.27] Assignment distinguished from privity. The assignment of a contractual right does not create privity of contract between the assignee and obligor.166 This is obvious enough in the case of an equitable assignment,167 but it is also true of a legal assignment.168 As noted earlier, the effect of an assignment is that the relevant obligation is owed to the assignee, but what the assignee acquires in terms of characterisation is title to a contractual obligation promised by the obligor to the assignor. The assignment does not substitute the assignee for the assignor as a matter of contract.169 If it were otherwise there would have been no need to state in the legislative provisions that the assignee takes subject to the equities, nor expressly state that the assignment transfers the legal right as well as the legal remedies and other remedies for its recovery.170 Moreover, if an assignment did bring the parties into privity, it would not be possible to maintain the distinction that is drawn between the assignment of contractual rights and contractual duties. If an assignee is brought into privity with the obligor, it would be bound by contractual duties and liable for the non-performance of those duties. This is not the law.171 In addition, if the assignee and obligor are brought into privity, the assignee should, in all cases, be able to recover for its own personal loss resulting from a breach of contract by the obligor.172 The enforcement of the assignee’s right is not at odds with privity because what the assignee protects or enforces is its title to the 166 Similarly, a contract for the benefit of a third party does not, without more, create an assignment: Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460. 167 Bagot Pneumatic Tyre Co v Clipper Pneumatic Tyre Co [1902] 1 Ch 146 at 156 per Vaughan Williams LJ; Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430 at 445 per Sir John Pennycuick. Cf Calaby Pty Ltd v Ampol Pty Ltd (1990) 71 NTR 1 at 17–20 per Angel J (overruled (1991) 110 ALR 343). In this last case, Angel J was inclined to think that an assignment can create privity and in any case believed privity would exist if the original contract was expressly made with the promisee and its assigns. However, the better view is that such a provision merely goes to evidencing the assignability of the subject right: see further [6.71] and see [3.07]. 168 Cf Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430 at 445 per Sir John Pennycuick; Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 561 per Giles J. 169 International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 438 per Jacobs JA. 170 Read v Brown (1888) 22 QBD 128 at 132 per Lord Esher MR. See also Bennett v White [1910] 2 KB 643 at 646 per Cozens-Hardy MR. 171 Bagot Pneumatic Tyre Co v Clipper Pneumatic Tyre Co [1902] 1 Ch 146 at 156 per Vaughan Williams LJ; Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1993] 1 WLR 138 at 147 per Hoffmann J (overruled on another point [1995] Ch 152); Rhone v Stephens [1994] 2 AC 310 at 317 per Lord Templeman. 172 [8.09]–[8.15].
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subject right. Thus, assignment is not a true exception to privity. Moreover, it is not improper to refer to the assignee as the “promisee” in the case of an assignment of a contractual right, or the “licensee” in the case of an assignment of a contractual licence, or “the bank” in the case of an assignment of the benefit of a security where the bank is defined to include its “assigns”. However, in doing this it is necessary to recognise that the assignee is being characterised by reference to the property right that it owns and not by reference to the personal contactual rights that exist between the parties to the contract.173 Finally, because an assignment does not create privity of contract, except for the enforcement of unconditionally accrued rights, the assignee is dependent upon the continued existence of the contract and the continued legal existence of the parties to the contract.174
173 174
See further Garrisons Pty Ltd v The Solicitors’ Trust [2004] TASSC 139. See Re Kenneth Wright Distributors Pty Ltd [1973] VR 161.
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4 Equitable Assignments (a) Introduction [4.01] Purpose of the chapter. This chapter is concerned with the characterisation of an equitable assignment of a legal right. In Chapter 3 it was suggested that such an assignment can be legitimately understood as involving a transfer and therefore properly termed an “assignment”. So far as the theme of this book is concerned, the purpose of this chapter is to determine whether this “assignment as transfer” idea is in fact reflected in case law even if not necessarily articulated in the manner suggested in Chapter 3. This is an issue that is not only important in attaching a label to such transactions. Whether or not the transaction is properly seen as an assignment will affect the nature and characteristics of the right vested in the assignee as well as how, and the extent to which, the assignee, may enforce its assigned right. More generally, this chapter is concerned with investigating the essence of an equitable assignment. This is important for the chapters that follow. [4.02] Structure of the chapter. The main focus of this chapter is on the equitable assignment of legal rights assignable at law. The characterisation of such transactions as true assignments is problematic. This flows from the view that the assignee is, to a certain extent, dependant on the assignor for its protection, or may only have rights against the assignor. The chapter also briefly looks at the equitable assignment of legal interests not assignable at law to determine whether such transactions are properly termed “assignments”. Finally, the chapter addresses the so-called “assignment” of future interests. For completeness, the chapter begins with a brief statement of the position as regards equitable assignments of equitable interests. Although the principal concern of the book is the assignment of legal contractual rights, an equitable assignee of such a right who further assigns the right will obviously be attempting to assign an equitable rather than a legal interest.1 It is, therefore, necessary to deal with equitable assignments of equitable interests as the presence of such intermediate 1 Eg Care Shipping Corp v Latin American Shipping Corp [1983] 1 QB 1005. See also Letts v IRC [1957] 1 WLR 201 (here it was held that a contractual right to have shares issued was an equitable chose in action as it could be protected only by specific performance).
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assignees will be important when later addressing the position of the parties in Chapter 8.2
(b) Equitable Assignment of Equitable Interests [4.03] Equitable assignment of equitable interests. The assignee of an assignment of an equitable interest that subsists at the time of the assignment can sue in his or her own name and give a good discharge, as the assignee alone is regarded as having an interest in the subject matter assigned.3 However, where the equitable assignment is of only part of an equitable interest, then as a procedural safeguard the assignor must be joined in any action.4 In either case, there can be no doubt that there is a true transfer of the equitable interest. The assignee becomes the owner (in equity) of the relevant interest and is owed the relevant duty. There is both a transfer of title and an actual transfer of the subject right.
(c) Equitable Assignment of Legal Interests Assignable at Law (i) Introduction [4.04] The equitable assignment conundrum. Despite its longevity, there continues to be a difference of opinion whether an equitable assignment of a legal right should be characterised as a true assignment. In practice, these unresolved issues tend to cause problems in two areas. The first concerns whether notice to the 2 Where a contract creates an equitable interest, the contract rights themselves constitute a legal chose in action. If it were possible to deal with the contract right distinct from the equitable interest, the dealing would be a dealing in legal rights: see Lane v Conlan (2003) 28 WAR 337. 3 Redman v Permanent Trustee Co of NSW Ltd (1916) 22 CLR 84 at 95 per Isaacs J. However, it has been held that a partner cannot separately assign his or her right to a share in the profits of the partnership as it is not distinct from the interest in the partnership. Moreover, an assignment of a partner’s interest in the partnership, though valid, does not make the assignee a partner. Therefore, to give effect to the assignment of this equitable interest it is necessary to impose a trust, so that the assignor who remains a partner holds the relevant interest on trust for the assignee: see FCT v Everett (1980) 143 CLR 440; Commissioner of Taxation v Galland (1986) 162 CLR 408. Cf Hadlee v Commissioner of Inland Revenue [1989] 2 NZLR 447, [1991] 3 NZLR 517, [1993] AC 524, FCT v Everett (1978) 21 ALR 625 at 643–4 per Deane J. 4 Eg Letts v IRC [1957] 1 WLR 201. Moreover, in the case of a mortgage where an action is on foot between the assignee and obligor, if the assignor wishes to enforce its equity of redemption, he or she needs to be joined: see Re Pain [1919] 1 Ch 38.
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obligor is required for the validity of the assignment,5 and the second is the more problematic conundrum caused by the requirement of joinder. Although the issue of notice is prima facie a matter of formality, it is important to address it here as it impacts on the nature of the relationship between the assignee and obligor, which is important in characterising the essence of the transaction. The requirements for a valid notice are discussed in the context of formalities in Chapter 7. As to joinder, the great weight of modern authority holds that in any action by an assignee to enforce its assigned right it must join the assignor as a matter of procedure.6 The reasons for such procedural joinder have been said to be to ensure that the debtor does not have to pay twice;7 to ensure that the assignor is bound;8 to ensure the debtor is protected from a further claim;9 and to give the assignor the opportunity to challenge the assignment.10 It is probably this last statement that best captures the idea here. If the assignment is valid the assignor cannot deny the assignee’s ownership. The debtor is at risk only if he or she accounts to the assignee and the assignment is invalid. However, even if the assignment is valid the debtor will not want the inconvenience of a further action being brought by the assignor. Being merely a matter of procedure, joinder may be dispensed with in certain cases. This gives rise to a conundrum, in that the procedural view of joinder apparently allows an equitable assignee to claim a legal remedy for the purposes of enforcing a legal right. Legal doctrine would suggest that such a claim would require the joinder of the assignor as a matter of substantive law. In addition, at the same time as the authorities appear to accept the procedural view of joinder, there is another line of authority that suggests that an equitable assignment merely gives the assignee rights against the assignor. If this is correct, then any action against the obligor must by definition be brought by the assignor which would, in turn, dictate that joinder is substantive. This directly calls into question both the character of these transactions as true assignments and the interest vested in the assignee. The conclusions drawn in this chapter may be broken down into the following points: 1. For the reasons discussed in Chapter 3, a transaction is properly characterised as an equitable assignment of a legal right only if the assignor intends to transfer ownership of an identifiable and identified legal right to the assignee and if the assignee is vested with the equitable ownership of that legal right and is treated (in equity) as being owed the relevant obligation. 5
This issue was left open by Windeyer J in Norman v FCT (1963) 109 CLR 9 at 38. As regards partial assignments: see [4.27]. 7 Three Rivers District Council v Bank of England [1996] QB 292 at 298 per Staughton J. 8 Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584 at 588; Central Insurance Co Ltd v Seacalf Shipping Corp (The Aiolos) [1983] 2 Lloyd’s Rep 25 at 32. 9 Ibid, at 33–4. 10 Durham Brothers v Robinson [1898] 1 QB 765. 6
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Equitable Assignments 2. Notice to the obligor is not necessary for the efficacy of an equitable assignment. 3. Notice is necessary to bind the conscience of the obligor. 4. As regards joinder; if an equitable assignee requires a legal remedy, then joinder of the assignor is required as a matter of substantive law; where an assignee wants to exercise or enforce a legal right and is not relying on the aid of equity to do so, then joinder of the assignor is required as a matter of substantive law; where the assignee can rely on its equitable interest to obtain an equitable remedy that results in the enforcement of a legal right then the assignor must be joined as a matter of procedure; where the assignee seeks an equitable remedy to enforce or protect its equitable interest then the assignor must be joined as a matter of procedure. 5. When the assignee seeks an equitable remedy, in order to determine whether or not a claim can be brought directly against the obligor, it is necessary to investigate the precise nature of the assignee’s interest. In this book this is referred to as the “strength” of the assignee’s right. In certain cases the assignee’s interest will not be strong enough to support a direct claim against the obligor. In such cases, the only remedies enforceable against the obligor will be legal remedies, and therefore joinder becomes a matter of substantive law. Therefore, there may be cases where a transaction is properly entitled an “assignment” as the assignee’s title amounts to ownership, and the assignee is (in equity) owed the obligation, but where the assignee’s rights are nevertheless limited to taking action against the assignor by reason the assignee’s interest.
Point five and the extent and type of remedies that may be available to the equitable assignee are mentioned in this chapter but dealt with in detail in Chapter 8.11
(ii) The Character of an Equitable Assignment of a Legal Right [4.05] The contract analysis. Historically, for an equitable assignee of a legal right to enforce the legal right the action had to be brought by the assignee in the name of the assignor.12 If the assignor refused to allow its name to be used the assignee could, if the assignment was for valuable consideration,13 file a bill in equity and, upon giving an indemnity as to costs, obtain an injunction allowing the assignor’s
11
[8.27]–[8.30]. Cf as to the assignment of part of a debt Norman v FCT (1963) 109 CLR 9 at 29–30 per Windeyer J. See [4.27]. 13 Re Westerton [1919] 2 Ch 104 at 111 per Sargant J; Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 3 per Atkinson J. See also Norman v FCT (1962) 109 CLR 9 at 31 per Windeyer J. 12
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name to be used in a suit at law to recover the assigned debt.14 The action had the appearance of one brought by the assignor. Even today, because the assignor remains the legal owner of the debt,15 he or she maintains a cause of action.16 Where the equity courts were capable of enforcing the assignee’s claim directly, they generally did not do so because the potential then existed for the assignor to bring an action at law on the same claim, thus requiring the obligor to obtain an injunction to stop the second suit. More generally, injunctions could be obtained in equity to prevent an assignor suing at law for his or her own benefit.17 The fact that the action proceeded at law, and in the name of the assignor, was logical because the proceedings were intended to enforce the legal right. If the assignee could enforce the legal right directly it would suggest that the legal right had been transferred. That result would have been beyond the jurisdiction of equity to deliver. Equity could not put in place rules for the transfer of legal rights. What it could and did do was take the position that, if a person intends to assign a legal right, that person should, in certain circumstances (such as where there is executed consideration for the promise), be bound by that act. Thus, equity acting in personam attaches to the conscience of the assignor and forces the assignor to lend his or her name to the suit at law.18 On the above analysis the equitable assignment of a legal right merely provided the assignee with a remedy against the assignor, that is, the assignment operated only between the assignor and assignee. What is obtained or “assigned” from the assignor appears to be no more than a right to sue in the name of the assignor.19 There are numerous authorities, even of recent origin, that take this view of the
14 Crouch v Credit Foncier of England Ltd (1873) LR 8 QB 374 at 380 per Blackburn J. See also Winch v Keeley (1787) 1 TR 619, 99 ER 1284; Re Westerton [1919] 2 Ch 104; Three Rivers District Council v Bank of England [1996] QB 292; Norman v FCT (1963) 109 CLR 9 at 26 per Windeyer J. See also Turquand & The Capital and Counties Bank v Fearon (1879) 4 QBD 280. The assignor could also be restrained from receiving the debt: see Norman v FCT (1963) 109 CLR 9 at 27 per Windeyer J. Alternatively, the defendant could be forced to admit, in the action at law, that the assignee held the legal interest: see Sweet v Cator (1841) 11 Sim Rep 572, 59 ER 994. Where the assignee held a power of attorney from the assignor it could bring an action at law and could obtain relief in equity only if the assignor obstructed or threatened to obstruct the assignee’s claim: see Cator v Burke (1785) 1 Brown’s Ch 434, 28 ER 1222. If the assignee failed to offer the indemnity before joining the assignor as a defendant, the assignee, although successful in the action, may have been required to pay that defendant’s costs: see Oshlack v Richmond River Council (1998) 193 CLR 72 at 89 per Gaudron and Gummow JJ. See also Turquand & the Capital & Counties Bank v Fearon (1879) 4 QBD 280. 15 Re Steel Wing Co Ltd [1921] 1 Ch 349 at 357; Deposit Protection Board v Dalia [1994] 2 AC 367 at 381 (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367). 16 Three Rivers District Council v Bank of England [1996] QB 292. See also Paragon Finance plc v Pender [2005] 1 WLR 3412. 17 Jeffs v Day (1866) LR 1 QB 372. 18 See Re Crothers [1930] VLR 49 at 66 per MacFarlan J. 19 Hammond v Messenger (1838) 9 Sim 327, 59 ER 383.
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assignee’s position.20 The rationale for this analysis is that such an assignment operates by way of agreement or contract between the assignor and assignee.21 The effect of this contract analysis is that equity forces the assignor to perform its promise rather than leave the assignee with a remedy in damages. It is important to note what that promise is. Initially, the assignor had agreed immediately to assign a legal right to the assignee. Such an agreement was incapable of being performed at law and therefore it cannot be the case that equity would uphold such contracts of assignment only if they were capable of being the subject of an order for specific performance. It appears that equity implied a promise that the assignor would lend its name to any suit against the obligor and held the assignor to this promise.22 In short, and perhaps with less precision, equity gave effect to the intended assignment by recognising an agreement to assign. The remedial model of an equitable assignment of a legal right discussed earlier originated with the contract analysis.23 [4.06] As noted earlier, the remedial model of assignment is not at odds with the notion that an assignment involves a transfer.24 However, if the remedial model remained grounded in this contract analysis a problem does arise because, if the assignee’s rights merely flow from a contract and its ability to obtain remedies to enforce a promise flowing from that contract, then that result could be achieved without resorting to the language of assignment and vested rights.25 This is even more the case if the “remedy” is merely in respect of a promise by the assignor to lend its name to any suit against the obligor. The mere fact that a person may have an equitable remedy in relation to a legal right does not mean that they have an interest in the legal right. Clearly, in the past, the word “assignment” has been used in a broad sense.26 If the extent of the assignee’s rights was limited to actions against the assignor then equity did little more than the common law, except to construct a power of attorney when no express power was given.27 For there to be a true assignment, that is, a transfer, it is not sufficient for the assignor to vest in the assignee a right against the assignor, but rather the assignee must be vested 20 Eg Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 Butterworths Property Reports (BPR) 11,512 at 11,518; Showi Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 561; Corin v Patton (1990) 169 CLR 540 at 576 per Deane J. See also Neave v Neave [1926] GLR 254 at 256. 21 Wright v Wright (1749–50) 1 Ves Sen 410 at 412, 27 ER 1111 at 1112. 22 From this it is not difficult to see the legitimacy of equity giving immediate effect to what in law is a mere agreement to assign and, alternatively, where an immediate assignment fails at law, giving effect to the transaction as an agreement (legally) to assign and thus an immediate equitable assignment. 23 [3.23]. 24 [3.25]. 25 It would also prevent the recognition of voluntary assignments. 26 [3.04]. 27 SJ Bailey, “Assignments of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 547 at 567.
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with the ownership of rights which exist between the assignor and the obligor by virtue of the contract between the assignor and obligor. The contract analysis does not provide this result. [4.07] The assignment analysis. An alternative analysis, and one which gives effect to a transfer, is that equity restated or progressed the remedial model so that the transfer was given effect to by reason of the remedies equity provided.28 Here equity did not merely take the view that in certain circumstances an assignor should be bound by his or her promise to assign, rather, by virtue of the degree of protection it was prepared to provide the assignee, it recognised the assignee’s beneficial ownership of the subject matter of the assignment. Here, equity does not simply bind the conscience of the assignor and act in personam; rather, because the conscience of the assignor is bound equity fastens upon the subject property itself.29 In addition, for reasons discussed earlier, equity also at some point appears to have taken the step of simply recognising the proprietary character (ownership) of a legal right for the purpose of transfer.30 This is a clear recognition of a transfer taking place. It follows that such transactions take effect as assignments because an equitable interest is created and vested in the assignee, and that interest is the beneficial ownership of the legal right which is the subject of the assignment and the assignee is treated (in equity) as being owed the obligation. That is, in less precise terms (and in respect of contractual rights), the assignee obtains an interest in the contract that exists between the assignor and obligor. This is referred to here as the assignment analysis.31 It is only by reference to this analysis that such assignments are, as they are said to be, examples and applications of the maxim that equity treats as done that which ought to be done.32 28
[3.23]. Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27 per Dixon J. 30 [3.26]. See also Fitzroy v Cave [1905] 2 KB 364 at 372–3 per Cozens Hardy LJ; Re Steel Wing Co Ltd [1921] 1 Ch 349 at 355 per PO Lawrence J. See further Three Rivers District Council v Bank of England [1996] QB 292 at 315 per Peter Gibson LJ. 31 This analysis can be confused with a trust analysis, that is, an equitable assignment operated by way of trust: see further ICF Spry, Equitable Remedies (6th edn, Sydney, Law Book Co, 2001) at 80. Here, the interest of the assignee is equated to the interest of a beneficiary under a trust. However, it is inaccurate to align an assignment with a trust merely because a court may impose a trust to protect the interest of an assignee: see Re Rose [1952] Ch 499 at 510–11 per Evershed MR; Warner Bros Records Inc v Rollgreen Ltd [1976] 1 QB 430 at 443–4 per Roskill LJ. See further GE Crane Sales Pty Ltd v FCT (1971) 126 CLR 177 at 183 per Menzies J (suggesting that where a creditor constitutes itself as a trustee of its debts for another, this amounts to an assignment in equity of the debts). Nevertheless, the trust analysis is perhaps an important indicator that equity would recognise the assignment of legal interests by way of gift: see Norman v FCT (1962) 109 CLR 9 at 33 per Windeyer J. The trust analysis was perhaps a logical consequence of the contract analysis. That is, if the effect of upholding the assignment was only to give it effect as between the assignor and assignee, a trust may be required to protect the assignee’s interest when the subject matter of the assignment was in the hands of the assignor: see Re Crothers [1930] VLR 49 at 66 per MacFarlan J. 32 [7.15]. 29
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[4.08] Conclusions on the characterisation of equitable assignments of legal rights. There is a dichotomy between the assignment analysis and the contract analysis. It is suggested that the assignment analysis represents the modern and better view. This is evidenced by the procedural view taken of joinder which, although designed to protect the obligor and to ensure all interested parties are before the court, appears implicitly to recognise that the obligor owes its obligation in part to the assignee as the assignee, can bring an action in its own name against the obligor under this rule.33 Thus, the view that such a transaction involves a true transfer is reinforced by the fact that the need for an action at law to enforce the obligation of the obligor began to be viewed as a mere procedural incident. The assignor plaintiff was merely a nominal plaintiff.34 The contract analysis itself showed early signs of breakdown when equity took the view that if the assignor would not lend its name to the suit at law or did or intended to do some act which would prevent the assignee from recovering at law in the assignor’s name, the assignee could commence an action in equity in its own name against the obligor, especially if there had been collusion between the assignor and obligor.35 [4.09] In addition, in time, and perhaps as a consequence of section 85 of the Common Law Procedure Act 1854,36 if an assignor would not lend its name to a suit at law for the benefit of the assignee, then the assignee could commence an action in law in its own name and join the assignor as co-defendant. From this the view naturally formed, at law, that it was necessary only that the assignor be a party to the action to ensure that the assignor was bound by the decision for the protection of the obligor. However, that procedure reflects an equitable, rather than a common law, approach to joinder.37 Certainly, the point was reached where the common law courts, knowing that the assistance of equity was available, adopted the position that an assignee could sue in the assignor’s name without having to go 33 See [4.04]. See also Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 4 per Atkinson J; Deposit Protection Board v Dalia [1994] 2 AC 367 at 385 (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367). 34 Fitzroy v Cave [1905] 2 KB 364 at 372 per Cozens-Hardy LJ; James Nelson & Sons Ltd v Nelson Line (Liverpool) Ltd [1906] 2 KB 217. 35 Hammond v Messenger (1838) 9 Sim 327 at 332, 59 ER 383 at 385–6. There is also early authority that appears to recognise the assignee as the owner in equity: see Fashion v Atwood (1688) 2 Chan Cas 37, 22 ER 835. See also Ross v Blackham (1875) 1 VLR (E) 220 at 232. 36 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 77. This Act allowed the common law courts to entertain equitable defences. Thus, if a debt was assigned in equity and the assignor attempted to enforce the debt for his or her own benefit in a common law court, the court could entertain the defence that in equity an injunction could be obtained to prevent this: see Jeffs v Day (1866) LR 1 QB 372. 37 The fact that the assignor may be joined as a defendant does not mean that the action by the assignee is against the assignor. This is simply a procedure used by equity to ensure all interested parties are before the court and bound by the judgment.
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to equity.38 When this position was reached at law, equity adopted the position that, because the assignee had a remedy at law, it should be left to that remedy rather than an equitable remedy. However, the common law courts never reached the point, prior to the Judicature Act 1873 section 25(6), of allowing an assignee of a chose in action to sue in its own name at law without joining the assignor.39 Today, no separate action in equity is required to force the assignor to lend its name to the suit. The assignor is simply joined as co-plaintiff, and if it refuses to be so joined then it can be joined as co-defendant. Moreover, if the obligor does not take the point that the assignor has not been joined, the court may ignore it.40 Finally, the assignment analysis gives effect to the transaction as a transfer, and therefore is in line with the modern view that an assignment involves a transfer. It also follows that on the assignment analysis, the interest equity protects is the assignee’s equitable ownership of the assigned right. The assignee’s rights do not derive from a mere personal equity giving the assignee a personal right to seek an equitable remedy against the obligor.
(iii) Notice and Joinder [4.10] The case law. The view that notice to the obligor is necessary for the efficacy of an equitable assignment of a legal right was stressed by the New Zealand Court of Appeal in Mountain Road (No 9) Ltd v Michael Edgley Corp Pty Ltd.41 This case involved a purported assignment for value of certain contractual rights, expressed to take effect only upon the execution of a memorandum of assignment. That memorandum was never signed by one of the parties, and the invalidity of the assignment was upheld on that ground. However, the court went on to suggest that even if that were not the case the assignment could not be enforced as an equitable assignment of a legal right because notice had not been given to the obligor. Prior to such notice the assignment was complete only as between the assignor and assignee. [4.11] Two principal authorities were relied upon in Mountain Road. The first was the decision of Lord Macnaghten in William Brandt’s Sons & Co v Dunlop Rubber Co Ltd.42 In this case the debtor had paid the assignor after receiving notice 38
[2.12]. Norman v FCT (1963) 109 CLR 9 at 27 per Windeyer J. See also Price v Seaman (1825) 4 B & C 525, 107 ER 1155. 40 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten. 41 [1999] 1 NZLR 335. Re Crothers [1930] VLR 49 at 65 per MacFarlan J. 42 [1905] AC 454. Reliance was also placed on Compania Colombiana de Seguros v Pacific Steam Navigation Co. [1965] 1 QB 101 at 129 where Roskill J said that “notice to the debtor before action is brought is clearly required”. These remarks were criticised by Scott J in Weddell v JA Pearce & Major [1988] Ch 26 at 45. However, it may be that Roskill J was simply referring to the requirements for a legal assignment. Cf Torkington v Magee [1902] 2 KB 427 at 431 (overruled on another point [1903] 1 39
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of the assignment. The issue raised for judgment was whether the debtor had received sufficient notice. If sufficient notice had been given, the debtor’s payment to the assignor would not result in the discharge of the debt and the debtor would remain liable to the assignee. The court in Mountain Road thought that the tenor of Lord Macnaghten’s speech supported the view that “the title of an equitable assignee is not effective against third parties unless and until they have been given notice”.43 However, Lord Macnaghten made only two remarks as regards notice. First, he said that as between assignor and assignee the assignment was complete without notice.44 Secondly, the only statement he made that may imply that notice is relevant to the efficacy of the assignment was, “All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person”.45 However, that statement was simply addressing the issue of the form that equitable assignments may take. That is, it need not be in the form of a communication to the assignee, but rather a communication to the debtor/obligor. It was not meant as a comprehensive statement of the requirements of an equitable assignment. In fact, the statement was meant to convey the informal nature of equitable assignments. [4.12] The second case relied on was Warner Bros Records Inc v Rollgreen Ltd.46 This case concerned the equitable assignment of an option. The preliminary issue put before the court was: “[w]hether or not an equitable assignee of a contractual option who has not given notice of the assignment to the grantor of the option may exercise the same in his own name so as to bind the grantor of the option”.47 Lord Denning MR said that “it is a settled principle of equity that in order to perfect the title of an assignee of a debt notice to the debtor is necessary”.48 He considered that this principle was not limited to debts, but also extended to options. He said that a “grantor cannot be expected to act on a letter purporting to exercise the option which comes out of the blue from someone or other of which he knows nothing. . . . Notice is therefore necessary to perfect the right of the assignee to KB 644) where Channell J, in dealing with an assignment of a legal right, suggested that prior to the passing of the Judicature Act the assignee would have had rights after giving notice to the obligor. See also Deposit Protection Board v Dalia [1994] 2 AC 367 at 387 per Sir Michael Fox (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367). 43 [1999] 1 NZLR 335 at 341. 44 [1905] AC 454 at 462. 45 Ibid. 46 [1976] 1 QB 430. 47 Ibid, at 440. 48 Ibid, at 442, citing Stocks v Dobson (1853) 4 De GM & G 11, 43 ER 411. The issue in the latter case concerned whether a sub-assignee, having given no notice, could force the debtor to pay again after it had settled with the assignor/intermediate-assignee. Turner LJ saw the facts as giving rise to a priority dispute, hence the reference to notice being necessary to perfect title. See also Neave v Neave [1926] GLR 254 at 256 per Adams J; Squires v SA Steel & Sheet Pty Ltd (1987) 45 South Australian State Reports (SASR) 147 at 144 per Bollen J; Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 at 119–20 per Hirst J; Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825.
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exercise the option.”49 Arguably the latter statement does not follow from the former. Although the element of surprise may be a reason for staying an action brought by the assignee, that cannot be determinative of the title of the assignee.50 In the same case Roskill LJ said that “an equitable assignee of a contractual option who has not given notice of the assignment to the grantor of the option cannot exercise that option in his own name”.51 He continued, “the only rights that an equitable assignment can create in the equitable assignee are rights against his assignor who thenceforth becomes the trustee of the benefit of the option for the assignee, and the assignor could, of course, be compelled in equity to exercise those rights for the benefit of the assignee. . . . The present equitable assignee never became the legal assignee, and so, in my judgment, never became in a position to enforce the contractual right.”52 These remarks suggest that, unlike Lord Denning MR, Roskill LJ saw notice as being relevant only to determining whether or not the statutory regime had been satisfied. He did not suggest that the assignment was not a perfectly good equitable assignment prior to notice being given. His remarks concerning enforcement by an equitable assignee follow the traditional contract analysis of an equitable assignment, although he added that the assignee becomes a trustee, thus recognising a beneficial interest in the assignee.53 Similarly, Sir John Pennycuick took the view that the equitable assignee could not exercise the option because the assignment did not put the assignee into a contractual relationship with the obligor. Although this case involved an attempted exercise of a legal right, it would follow on his reasoning that an equitable assignee could not bring proceedings against the obligor to enforce a legal right. He suggested that the equitable assignee’s interest consists only of a right in equity to require the assignor to protect the interest which he or she had assigned, by, in that case, exercising the option.54 Where the assignor refuses to do so, the assignee can take action in equity to compel the assignor to act for the benefit of the assignee. His analysis is an even more straightforward adoption of the contract analysis than that of Roskill LJ. He saw enforcement as based on personal contractual rights and obligations. There being no contract between the assignee and obligor, the assignee had no rights against the obligor. It appears that both Roskill LJ and Sir John Pennycuick were of the view that if a person wishes to exercise a legal right, that person must have the legal right. An equitable interest in that right is not sufficient. This is a sound view and the result 49 [1976] 1 QB 430 at 442. This statement on its face appears merely to address the sufficiency of notice, that is, it appears to suggest that for a notice to be legitimate it must originate from the assignor. Cf Morrell v Wootten (1852) 16 Beav 197, 51 ER 753. See further [7.18]. 50 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 561. 51 [1976] 1 QB 430 at 443. 52 Ibid, at 443–4. 53 Cf Three Rivers District Council v Bank of England [1996] QB 292 at 302 per Staughton LJ, at 315 per Peter Gibson LJ. 54 [1976] 1 QB 430 at 445.
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in the case is therefore the correct one.55 Moreover, both Roskill LJ and Sir John Pennycuick appeared to be of the view that even if notice had been given, the assignee would still not have been able to exercise the option in its capacity as an equitable assignee.56 Notice would have made a difference only if it was the final element of a legal assignment. Therefore, it was only Lord Denning MR who emphasised a need for notice to perfect the title of an equitable assignee.57 What can no longer be accepted from the judgments of Roskill LJ and Sir John Pennycuick is the idea that an equitable assignment only ever gives the assignee rights against the assignor. There was no need to hark back to this contract analysis to provide the desired commercial result in the case when both could have simply relied on the sounder basis just mentioned which also gives effect to the transaction as a true assignment. [4.13] The court in Mountain Road disagreed with the well known decision of Scott J in Weddell v JA Pearce & Major.58 This case involved the commencement of a claim in negligence by an equitable assignee prior to any notice of the assignment being given to the obligor. Scott J did not appear to be of the belief that notice was necessary for the efficacy of the assignment. Rather, he appeared to consider notice as being primarily relevant to priorities as between competing assignees. His decision was reached simply by focusing on the notion, expressed in a number of cases, that, although the assignee should join the assignor, an action commenced by the assignee was not a nullity.59 This assumed that the assignee is otherwise entitled to sue in its own name. Such an action, he thought, was liable to be stayed pending the joinder of the assignor.60 Without such joinder the assignee could obtain interim relief 61 but would generally be unable to obtain damages or a perpetual injunction. It followed that he considered joinder to be a 55 It should be noted that the case involved an attempt to exercise a legal right, and in that context there was no need for Roskill LJ and Sir John Pennycuick to draw the distinction between the enforcement of a legal right by way of a legal remedy on the one hand and the enforcement of a legal right by way of an equitable remedy on the other. 56 See also Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 561 (however, quaere whether Giles J is of the view that the reason a legal assignment would have made a difference is that it creates privity of contract between the assignee and obligor, whilst (relying on the contract analysis) an equitable assignment, being merely operative between the assignor and assignee, does not touch the contract with the assignor and obligor and therefore the assignor could exercise the right). Cf [3.27]. 57 See further Three Rivers District Council v Bank of England [1996] QB 292 at 315 per Peter Gibson LJ. 58 [1988] 1 Ch 26. 59 He cited William Brandt’s & Sons and Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten; Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 at 14 per Viscount Cave LC, at 19 per Viscount Finlay, at 30 per Lord Sumner. 60 EM Bowden’s Patents Syndicate Ltd v Herbert Smith & Co [1904] 2 Ch 86. 61 Eg Sweet v Cater (1841) 11 Sim Rep 572, 59 ER 994; Actien-Gesellschaft für Cartonnagen Industrie AG v Tenler (1899) 16 RPC 447; EM Bowden’s Patents Syndicate Ltd v Herbert Smith & Co [1904] 2 Ch 86 at 91 per Warrington J.
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matter of procedure. He said the reason for joinder was “a pragmatic one”.62 That is, the “debtor must not be at risk of suit by the legal owner of the chose”.63 Where there is no such risk, and where the debtor can obtain a complete discharge by paying the assignee, then joinder may be dispensed with. The court in Mountain Road said that Scott J had failed to recognise the “difference between a proceeding lacking a party (the assignor not joined)64 and a proceeding where there is no title in the plaintiff to sue at all because a prerequisite to the right to sue (notice of the assignment to the defendant) is absent”.65 [4.14] The decision in Mountain Road has been strongly criticised in two Australian cases. The first is the decision of the Queensland Court of Appeal in Thomas v National Australia Bank Ltd.66 In this case, the parties agreed to have tried, as a preliminary issue, whether the appellant assignee was entitled to bring and maintain an action even though at the time the action was commenced no notice of the assignment had been given to the obligor. The assignment concerned the transfer of certain rights of action by a trustee in bankruptcy to the appellant. Pincus JA wrote the leading judgment. His starting point was the undoubted position that an equitable assignment of a legal interest is complete between assignor and assignee without notice.67 The next consideration was whether that meant property passed without notice. He suggested it would be a strange result practically if the giving of notice just prior to proceedings made the proceedings good, but just after proceedings made them bad.68 He thought that references to an equitable assignment being effective as between the assignor and assignee without notice do not mean that it is void against all persons other than the assignor and 62
[1988] 1 Ch 26 at 40. Ibid, at 40. 64 No action is dismissed for want of parties: see Werderman v Société Générale d’Eletricité (1881) 19 Ch 246; William Brandt’s & Sons and Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten. 65 [1999] 1 NZLR 335 at 345. 66 [2000] Qd R 448. 67 Ibid, at 453. Other examples where similar statements have been made include, Re General Horticultural Company (1886) 32 Ch D 512 at 515 per Chitty J; Gorringe v Irwell India Rubber and Gutta Percha Works (1886) 34 Ch D 128 at 132 per Cotton LJ; Adcock v Jolly (1893) 19 VLR 609 at 615 per Holroyd J; The London & Yorkshire Bank Ltd v White (1895) 11 TLR 570; Anning v Anning (1907) 4 CLR 1049 at 1064 per Isaacs J; Re Westerton [1919] 2 Ch 104 at 111 per Sargant J; Re City Life Assurance Co Ltd [1926] Ch 191 at 215 per Pollock MR, at 220 per Warrington LJ; Robertson v Grigg (1932) 47 CLR 257 at 266 per Gavan Duffy CJ and Starke J; Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 622 per Dixon J; Bank of Australasia v Annie Hertz (1937) 54 WN (NSW) 179 at 180; Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 4 per Atkinson J; Corin v Patton (1990) 169 CLR 540 at 577 per Deane J; Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 at 117, 119 per Hirst J. See also Jones v Gibbons (1804) 9 Ves Jun 407, 32 ER 659; Donaldson v Donaldson (1854) Kay 711, 69 ER 303; Re Way’s Trusts (1864) 2 De GJ & S 365, 46 ER 416. Cf Re Crothers [1930] VLR 49 at 55 per Cussen J (here it is suggested that the assignment is operative between the assignor and assignee without notice, but “completed” by giving notice). 68 [2000] Qd R 448 at 453. See also Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 5 per Atkinson J. 63
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assignee.69 In this regard he concluded that the decision in Mountain Road had overlooked a number of authorities and that the decision in Warner (heavily relied on in Mountain Road) was irreconcilable with the general trend of the authorities.70 [4.15] One important decision overlooked was Re City Life Assurance Co Ltd.71 This case involved two actions. In the relevant action, an insurance policy holder mortgaged the policy to the issuing company to secure certain advances. The issuing company then assigned its interest to certain trustees without notice. The issuing company then went into compulsory liquidation. It was held that, by virtue of the fact that the mortgage debt had been assigned, there was no right of set-off between the policy holder and the liquidator in respect of the amount due under the policy and the amount of the mortgage debt. That is, at the date of the winding up there was no debt due from the policy holder to the company, but there was a debt due from the company to the policy holder. The equitable assignment was “absolute and complete” despite the lack of notice.72 [4.16] On the issue of joinder, Pincus JA recognised that the balance of authority dictated that the joinder of the assignor was a matter of procedure (rather than substantive law) which might be departed from.73 The most important decision in that regard is Performing Right Society Ltd v London Theatre of Varieties Ltd.74 Here it was held that the equitable assignee of a copyright could not obtain a perpetual injunction to prevent infringement without joining the assignors. Viscount Cave LC said that although such an assignee may obtain interim relief, the person having the legal right must, subject to few exceptions, in due course be made a party.75 He thought this was always the practice of the Court of Chancery and was also the rule of the Supreme Court. He noted that although an action could not be defeated by reason of misjoinder or non-joinder, this did not mean it was possible to obtain judgment in the absence of a necessary party. Viscount Finlay also referred to 69
[2000] Qd R 448 at 455. Ibid, at 456. 71 [1926] 1 Ch 191. See also Hiley v The Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468. 72 [1926] 1 Ch 191 at 220 per Warrington LJ; see also at 215 per Pollock MR. See further Bell v The London & North Western Railway Co (1852) 15 Beav 548, 51 ER 651; Davis v Freethy (1890) 24 QBD 519; Bank of NT Butterfield and Son Ltd v Golinsky [1926] AC 733; Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 5 per Atkinson J; Ward v Duncombe [1893] AC 369 at 392 per Lord Macnaghten; Gorringe v Irwell India Rubber and Gutta Percha Works (1886) 34 Ch 128; Re Patrick [1891] 1 Ch 82 at 87 per Lindley LJ; Re Connolly [1931] Gazette Law Reports (GLR) 551; Adcock v Jolly (1893) 19 VLR 609 at 615 per Holroyd J; Bank of Australasia v Annie Hertz (1937) 54 WN (NSW) 179 at 180. 73 [2000] 2 Qd R 448 at 456–9. 74 [1924] AC 1. See also Norman v FCT (1963) 109 CLR 9 at 29–30 per Windeyer J; National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1 at 7–8 per Blackburn J; Weddell v JA Pearce & Major [1988] Ch 26 at 40–1; Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825 at 850 per Mance LJ. See further Three Rivers District Council v Bank of England [1996] QB 292. 75 [1924] AC 1 at 14, 18. 70
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joinder being a rule of practice which should be observed except under very special circumstances.76 Lord Sumner drew a distinction between the recognition of “an equitable title or a valid title in equity and the grant of relief to a person so entitled”. The latter, he said, requires the joinder of the legal owner as a matter of procedure.77 In Thomas’ case, Pincus JA thought the joinder of the trustee in bankruptcy involved no practical advantage; it would have increased delay and complexity and, moreover, the trustee would take no part in the proceedings in any case. There was, therefore, no chance of the assignor later suing the debtor, and so the rule could be relaxed. [4.17] The second Australian case is the decision of Santow J in Jennings v Credit Corp Australia Pty Ltd.78 The issue here concerned the Limitation Act 1969 (NSW), viz, does the Act bar an enforcement action against a debtor when the action was brought solely by an equitable assignee of a debt who got in the legal estate only after the limitation period expired. The initial action by the assignee was commenced within time. The debtor claimed that the action was a nullity as the assignor was never joined, and therefore it did not prevent time running for the purposes of the Act. The basis of this argument was that an equitable assignee had rights only against the assignor and had no standing to enforce the legal contractual right. No argument was raised concerning the effectiveness of an assignment without notice. The issue was one of joinder. Santow J thought the long line of authority upholding the assignee’s right to claim interlocutory relief and the statements that joinder was a matter of procedure clearly suggested that such actions were not a nullity. He referred to the proposition, expressed by Sheller JA in Long Leys Co Pty Ltd v Silkdale Pty Ltd,79 that the procedural rule requiring the joinder of the assignor said nothing about the actual validity of a demand made by an assignee against a debtor. In Long Leys, Sheller JA also said that joinder had both a procedural and substantive aspect. He thought that the procedural aspect was to protect against duplicated claims, whereas the substantive aspect dictated that the equitable assignee’s right was one against the assignor rather than the obligor.80 Santow J thought these propositions could not co-exist if the latter was stated in such absolute terms. He thought it clear that the procedural rule allows an equitable assignee rights against the obligor in certain circumstances, such as where a claim is made for interim relief or where the debtor waives his or her right for the legal assignor to be present. He thought this gave rise to a false dichotomy between the procedural and substantive rules— 76
Ibid, at 19. Ibid, at 29. 78 (2000) 48 NSWLR 709. 79 (1991) 5 BPR 11,512 at 11,518. 80 Ibid, at 11,518. See also Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 561 per Giles J. 77
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the substantive rule had exceptions and in each of those exceptions the assignee was exercising a contractual (that is, presumably legal) right against the debtor. He thought that Mountain Road had adopted the substantive rule in its absolute form. [4.18] It is suggested that Santow J was correct in his view that Sheller JA’s two propositions could not co-exist. He was also correct in his observation that in the authoritative examples in which the joinder rule has been relaxed, namely William Brandt’s & Sons and Co v Dunlop Rubber Co Ltd 81 and Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd, 82 it does appear as if the court readily allowed the assignee to enforce the legal right. However, it is suggested that the law should not accept that the substantive position has a number of exceptions. The dichotomy that Santow J referred to falls away if the assignee is not attempting to enforce the legal right, but rather is seeking to enforce its equitable right or otherwise seeking an equitable remedy to enforce a legal or equitable right.83 In addition, it is suggested that the continued adherence to the idea that the assignee has rights only against the assignor, as evidenced in the judgment of Sheller JA, should be abandoned. As an all-encompassing rule this fails to reflect that the assignee is intended by the assignor to be either the legal or beneficial owner of the right, and in any case is in law the beneficial owner because the transaction is upheld as involving a transfer by way of assignment. [4.19] Conclusions on notice. All the principal authorities agree that an equitable assignment is complete as between the assignor and assignee without notice to the obligor. That is, notice is not necessary to perfect the assignment.84 It follows that whether or not the assignee has a direct remedy against the obligor, when an 81
[1905] AC 454. [1903] AC 414. See further Thomas v National Australia Bank Ltd [2000] 2 Qd R 448; Equus Financial Services Ltd v Glengallen Investments Pty Ltd (unreported Queensland CA, 19 May 1994) per McPherson JA; Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724; Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 BPR 11,512 at 11,518 per Sheller JA; Acorn Computers Ltd v MCS Microcomputer Systems Pty Ltd (1984) 57 ALR 389; Central Insurance Co Ltd v Seacalf Shipping Corp (The Aiolos) [1983] 2 Lloyd’s Rep 25 at 34 per Ackner LJ; National Mutual Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1 at 708 per Blackburn J; Camfield Pastoral Co v Dixon [1972] Qd R 289; Re Steel Wing Co Ltd [1921] 1 Ch 349 at 256 per PO Lawrence J; Wilson v Ragosine & Co Ltd (1915) 84 LJKB 2185; Manchester Brewery Co v Coombs [1901] 2 Ch 608 at 616–17 per Farwell J; Schneidman v Barnett [1951] NZLR 301 at 307 per FB Adams J; McMahon v Gilberd & Co Ltd [1955] NZLR 1206 at 1219 per Turner J. See also Nolan v King and Cook [1931] QSR 342 (no joinder required where assignor authorises assignee to give discharge). 83 Brandt’s case was an equitable assignment of a debt, the equitable assignee/equitable creditor relied on its equitable interest to claim an equitable remedy to enforce an equitable debt; equity has long recognised a jurisdiction to enforce debts: see [4.27], [8.18]. Tolhurst’s case was a claim for specific performance, the assignee (assuming the assignment was equitable and not legal) relied on its equitable interest to claim an equitable remedy to enforce a legal right. 84 In addition to the cases discussed above: see Ward v Duncombe [1893] AC 369 at 392 per Lord Macnaghten; Walker v The Bradford Old Bank Ltd (1884) 12 QBD 511; Anning v Anning (1907) 4 CLR 1049 at 1069–70 per Isaacs J. See also Donaldson v Donaldson (1854) Kay 711, 69 ER 303. 82
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assignment is complete as between the assignor and assignee then the obligor is bound by the assignment.85 Generally (and putting aside priority disputes and exceptions to the nemo dat rule), in any dealing in property rights, once a transfer is complete between the parties this will automatically, without more, impact on relationships between the transferee and third parties in respect of the asset or thing which is the subject of an actual transfer.86 If an equitable assignment of a legal right is properly entitled an “assignment” then it must involve a transfer, as this is the essence of assignment, and therefore the same result must follow. The reason so many cases make statements to the effect that “as between the assignor and assignee the assignment is complete without notice” without any mention of the efficacy of the assignment vis-à-vis the obligor may, in part, lie with the now outmoded contract analysis, and in part with the view that such assignments were made effective because of the remedies equity provided.87 As already noted, the latter does not stop such transactions being properly recognised as assignments, but courts were rarely asked to consider any remedies the assignee may have against the obligor. The assignee was content either to force the assignor to take steps to bring about a legal assignment (once legal assignments of choses in action became possible) or to force the assignor to lend its name to any suit by the assignee against the obligor. There was little need, therefore, to consider direct actions against the obligor despite the fact that joinder was ultimately perceived as being a requirement of procedure. In addition, the notion that the assignment is complete as between the assignor and assignee without notice does reflect the practical reality of the transaction. From the perspective of the assignor, whether notice of the assignment is given or not it holds the assigned right and its fruits for the benefit of the assignee. From the perspective of the obligor, the reality is that it continues to owe its obligation at law to the assignor. This does not deny the efficacy of the transfer but reflects the doctrinal allocation of rights. It is only upon receipt of notice that the obligor must consider the position of the assignee and look to the assignee for a discharge even though prior to notice it owed its obligation in equity to the assignee.88 None of this is meant to deny the possibility of the assignor and assignee transacting in a way that does not impact on the obligor. For example, the assignor and assignee may come to their own arrangements as regards the fruits of a contract. Such dealings often occur where the benefit of a contract cannot be assigned either because the benefit of the contract is personal to the assignor or 85
FCT v Everett (1979) 143 CLR 440 at 452. This may mean that third parties coming into contact with the transferee must respect the transferee’s interest or it may mean that the transferee must recognise the interest of a third party. 87 Where judges adhered to the contract analysis but also accepted that an assignee might enforce an assigned right against an obligor, perhaps it was logical to require something more in order to effect the transfer, and this was found in a requirement of notice: see Re Crothers [1930] VLR 49 at 55 per Cussen J, at 66 per MacFarlan J. 88 See further [8.06]. 86
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there is a prohibition on assignment. In such a case, the assignor may seek to transfer to the assignee some interest in the fruits of the contract which would be effective once those fruits were received by the assignor. Arguably, where there is such a limitation on assignment and there is an attempt to assign the benefit of the contract, the assignment may be construed or read down to assign that which is assignable, namely the fruits.89 Moreover, when such an agreement is entered into equity may characterise the relationship between the assignor and assignee as proprietary even before the fruits of the contract vest in the assignor. Thus, again the transaction may be expressed to be complete as between the assignor and assignee, although the transfer could not be said to be complete prior to the property coming into existence. Finally, if one accepts the above analysis that distinguishes between the title to a chose and the chose itself, and goes a step further and recognises the ability of an assignor to assign title to a chose and retain the chose itself, then such a transaction would be a complete transfer as between the assignor and assignee, but would not affect the obligor because it would continue to perform to the party “holding” the chose, that is, the assignor.90 [4.20] Notice, it is suggested, serves four purposes. First, it maintains the assignee’s priority.91 Secondly, it prevents certain equities arising as between assignor and obligor to which the assignee would be subject.92 Thirdly, it will generally prevent the obligor from obtaining a discharge from the assignor.93 Fourthly, it binds the conscience of the obligor.94 The first purpose is readily accepted and a discussion of priorities falls outside this text. The second and third purposes are also readily accepted and are discussed 89
See Swan and Cleland’s Graving Dock and Slipway Co v Maritime Insurance Co [1907] 1 KB 116. See further [6.75], [6.83]. 91 It may be noted that it was in the narrow context of a priority dispute that Sir Thomas Plumer MR in Dearle v Hall (1828) 3 Russ 1 at 22, 24, 38 ER 475 at 483, 484, said that notice was necessary to perfect title (see also Foster v Cockerell (1835) 3 Cl & Fin 456 at 476, 6 ER 1508 at 1516; Jones v Jones (1838) 8 Sim 633 at 643, 59 ER 251 at 255; Meux v Bell (1841) 1 Hare 73, 66 ER 955; Stocks v Dobson (1853) 4 De GM & G 11, 43 ER 411; Re Freshfields’ Trust (1879) 11 Ch D 198 at 202; Arden v Arden (1885) 29 Ch D 702 at 708). To the extent that Sir Thomas Plumer MR meant his statement to have a wider impact, this can be explained away on the basis of his concern with the reputed ownership provisions of the bankruptcy legislation which required notice to take “goods”, which included certain debts, out of the possession of the bankrupt: see Ward v Duncombe [1893] AC 369 at 378 Lord Herschell LC, at 392–3 per Lord Macnaghten (“In defence of the rule in Dearle v Hall, it has been said that notice is necessary in order to ‘perfect’ the title of the assignee—in order to ‘complete’ his title. Those expressions have frequently been used; but they are, I venture to think, little more than mere phrases. Notice does not render title perfect. Notice was not even a step in the title until it was made so by the decision in Foster v Cockerell. Apart from the rule in Dearle v Hall, an assignee of an equitable interest from a person capable of disposing of it has a perfect equitable title, though the title is no doubt subject to the infirmity which attaches to all equitable titles. And that infirmity is not and cannot be wholly cured or removed by notice to the trustees”.) 92 [8.49]. 93 Brice v Bannister (1878) 3 QBD 569. See further [8.06]. 94 Tooth v Brisbane City Council (1928) 41 CLR 212 at 222 per Isaacs J; Robertson v Grigg (1932) 47 CLR 257 at 266 per Gavan Duffy CJ and Starke J. 90
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in other chapters. The significance of the fourth purpose does require further explanation here as it is important to the underlying theme of this book and is used later to advance the argument that a formal legal relationship exists between the assignee and obligor. If a transaction is upheld as an equitable assignment of a contractual right then the obligor must immediately owe its personal obligation to the assignee. Therefore, notice is not required for the assignee to commence an action against an obligor as the assignee’s title is complete.95 The fact that the obligor may at that point have no knowledge of the assignee is not to the point.96 In terms of knowledge, it is only important that the obligor knows it has a contractual obligation. If the obligor fails to carry out that obligation by breaching the contract, it should be accountable to whoever was owed the obligation at the relevant time. Ultimately this will be the person beneficially entitled to the obligation. Thus, in the case of an assigned contractual right where the obligor is required to perform some obligation, the requirement of notice, in terms of binding the conscience of the obligor, is to bring home to the mind of the obligor its responsibility to the assignee before the time for performance accrues. Whether or not this should impact upon the assessment of damages available to the assignee is discussed later.97 Where the assigned right is such that an assignee may call for a personal accounting or performance, for example, in the case of an assignment of a debt, notice to the obligor is necessary to bind the conscience of the obligor to render that personal accounting. However, this does not mean that the obligation was not owed to the assignee prior to such notice. If that were the case then the efficacy of the assignment prior to notice is called into question. It simply means that a payment to the assignor will discharge the debtor as its conscience is not bound prior to notice; this is possible without denying the efficacy of the transfer as there is still a contract between the obligor and assignor and strictly the obligation at law is owed to the assignor. However, if the debtor fails to pay it is liable to the assignee as the assignment is valid prior to notice. It follows that it is not necessary to adopt a view that, upon notice, the obligor has imposed on it a fresh obligation in equity. That obligation exists prior to notice. [4.21] Conclusions on joinder. Logically, if an assignee’s intention is to exercise a legal right such as an option, or to enforce a legal right by way of a legal remedy, such as a claim for damages for breach of contract, then the involvement of the assignor is dictated as a matter of substantive law. However, if the law were to stop there the result would be inconvenient. The ability of assignees in certain cases to bring an action in their own name against 95 96 97
See The Burwood Land, Building, and Investment Co Ltd v Berridge (1893) 19 VLR 630. Ward v Duncombe [1893] AC 369 at 392 per Lord Macnaghten. [8.09].
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the obligor without joining the assignor and receive final judgment is clearly efficacious and must be maintained. What must be attempted is an explanation (which makes doctrinal and analytical sense) of how the assignee’s right of enforcement operates. [4.22] Arguably there are three possible paths the law could take. The first is based on equity’s ability to enforce legal rights using equitable remedies.98 The principal example of this jurisdiction is the remedy of specific performance. This is an equitable order forcing a person to carry out a legal obligation. However, generally, the benefit of an order for specific performance goes to a person who has a legal right to performance and has provided valuable consideration. That is, equity here aids legal rights, not equitable rights, and the rights it protects are personal primary rights to contractual performance. The only legal right the equitable assignee has arises out of its contract with the assignor. There is therefore an inherent limitation to this path. However, this limitation is not necessarily insurmountable.99 Statements can be found which recognise a jurisdiction to grant specific performance to such assignees.100 It is thought that an assignee can obtain an order for specific performance if such an order could have been obtained by the assignor.101 In addition, it is in the context of orders for specific performance that the requirement of joinder is often relaxed.102 Such a result makes sense if the assignment is a failed legal assignment and is upheld in equity by virtue of equity treating as done that which ought to be done; in such a case the assignment is treated in equity as if the legal assignment had occurred, and so it is logical to make available to that assignee those equitable remedies which may be used to enforce legal rights. However, this would not help an assignee claiming common law damages for breach of contract. Moreover, there is also the view, perhaps not yet fully addressed in the context of assignments, that for equity to grant a person with an
98 This is distinguished from the ability of a person who has rights which in equity are enforceable against the legal owner as the “legal owner” here would be the assignor: see Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 707 per Lord Browne-Wilkinson. 99 The jurisdiction to grant specific performance is not narrow. Specific performance can be granted to a party to a contract despite the discharge of the contract if there is evidence of fraud, accident, mistake or surprise: see Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315. 100 See Hume v Monro (No 2) (1943) 67 CLR 461 at 482 per Williams J. See also JC Williamson Ltd v Lukey & Mulholland (1931) 45 CLR 282 at 297 per Dixon J and Manchester Brewery Co v Coombs [1901] 2 Ch 608 at 616–17 per Farwell J. If Tolhurst’s case is seen as an equitable assignment it too is an important example: see [8.06]. See further ICF Spry, Equitable Remedies (6th edn, Sydney, Law Book Co, 2001) at 80. Quaere whether a privity rule that allowed for a third party beneficiary to enforce a contract without characterising the third party’s interest as either legal or equitable would warrant equity adopting a course that would allow a third person/assignee with an equitable interest in the relevant contract a right to seek specific performance of the contract. 101 [8.07]. 102 Ibid.
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equitable interest some relief that is not merely equitable requires exceptional circumstances.103 Such circumstances could not exist in every assignment. [4.23] A second path lies not in arguing that an assignee with an equitable interest can rely on that interest to bring an action in equity to enforce a legal right, but rather that that equitable interest is sufficiently recognised by the law to justify an action at law. If correct this would appear to be a case of either the law treating as done that which ought to be done or the law following equity. There is no doubt that after the Judicature Acts, and even before then, the common law recognised equitable rights and interests.104 Moreover, there is clear evidence that the common law recognised the effectiveness of equitable assignments105 and the breach of a contract of assignment was actionable for damages at common law. However, there is a clear difference between the common law recognising an equitable right and the common law allowing a person with an equitable right to enforce a legal right. Although exceptions can be found, the highest point reached by the common law was to recognise the interest of an equitable assignee and allow the assignee to bring an action in the name of the assignor.106 The common law always required the assignor to be joined. Although the common law has moved a long way since its early stance of refusing to “recognise that equitable rights, titles and interests entitled their holders to any relief at law”,107 it has still not reached a general position where it will give its aid to enforce equitable interests. The trend of modern law has been one of increased availability of equitable relief to protect common law rights rather than of common law remedies being made available to protect equitable rights.108 103 See Lidden v Composite Buyers Ltd (1996) 67 FCR 560 at 563 per Finn J; Pearson v Commissioner of Taxation [2001] FCA (Federal Court of Australia) 1427 para 13. The High Court of Australia recently expressed equity’s jurisidiction to grant remedies in the case of an assignment in the following terms: see Theodore v Mistford Pty Ltd (2005) 219 ALR 296 at 302 (“In respect of a legal interest, under the general law an agreement to give a legal mortgage is described as an equitable mortgage. Subject to compliance with any statutory formalities, it may be treated in equity as if a legal mortgage had been granted and therefore as carrying with it the remedies, including foreclosure, incident to a legal mortgage. Hence the statement that while in theory the equitable mortgagee may call for a legal mortgage, in the great majority of cases the mortgagee rests upon its equitable rights. Lord Eldon LC said of the Court of Chancery that ‘an equitable title to a mortgage is here as good as a legal title’. In this way, by looking at the intent rather than the form, equity is able to treat as done that which in good conscience ought to be done.” (citations omitted)). 104 Winch v Keeley (1787) 1 TR 619 at 623, 99 ER 1284 at 1286 per Ashhurst J. 105 Forth v Stanton (1681) 1 Wms Saund 210, 85 ER 217; Moulsdale v Birchall (1772) 2 Black W 820, 96 ER 483; Winch v Keeley (1787) 1 TR 619 at 623, 99 ER 1284 at 1286 per Ashhurst J; Master v Miller (1791) 4 TR 320 at 341, 100 ER 1042 at 1053 per Buller J. See also Israel v Douglas (1789) 1 H Bl 239, 126 ER 139; Carpenter v Marnell (1802) 3 B & P 40, 127 ER 23; Crowfoot v Gurney (1832) 9 Bing 372, 131 ER 655: see further [2.15], [4.08], [4.09]. 106 [2.12], [2.17], [4.09]. 107 RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 1.200. 108 See generally A Mason, “The Place of Equity and Equitable Remedies in the Contemporary Common Law World” (1994) 110 LQR 238.
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[4.24] One way round this is the suggestion that in the case of assignment the common law did not merely recognise the equitable assignment of legal rights but, in addition, accepted those assignments as assignments at law.109 Thus, where equity would recognise the assignment of a contractual right, it was concurrently recognised as an assignment at law. This argument was put forward by Professor Cook in 1916 in the Harvard Law Review.110 Cook took the view that the common law reached the position where, upon notice to the obligor, legal ownership of the chose in action vested in the assignee and the assignor ceased to be the legal owner, except for the purposes of lending its name to the title of the suit. It was in this sense that he thought the Judicature Act provisions allowing the assignee to sue in its own name were procedural.111 In his view the assignee’s ownership of the chose was concurrently legal and equitable. Cook’s argument was principally based upon American authorities, but he also relied on a handful of English common law cases that appeared to recognise the assignment of legal rights.112 It must be said that the idea that the common law fully recognised the assignment of choses in action is at odds with the general flow of all historical treatises on the history of assignment of choses in action.113 Although it is possible to point to cases that show the common law recognising assignments, it certainly did not develop any general doctrine of common law assignment that survived up to the passing of the Judicature Act 1872 section 25(6). Nor did it adopt the position that an assignment in equity was an assignment at law.114 The English case on which Cook principally relied was Legh v Legh,115 a case in which a debtor paid an assignor and received a release from the assignor at a time when the debtor had notice of the assignment. The Court of Common Pleas ordered the release to be cancelled. Cook suggested that this was evidence that one of the ingredients that make up ownership, namely the right to 109 There are examples of the common adopting equitable doctrines either as its own or taking equities into account in working out common law rights: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 1.205. An example of the first is the adoption by the common law of equity’s approach to variations of a principal contract without the approval of the guarantor. An example of the second is the recognition of a mortgagor’s equity of redemption: see Pawlett v AG (1667) Hard 465 at 469, 145 ER 550 at 552 per Hale CB. 110 WW Cook, “The Alienability of Choses in Action” (1916) 29 Harv LR 816. See further G Glenn, “The Assignment of Choses in Action: Rights of Bona Fide Purchaser” (1934) 20 Virginia L R 621; Grant Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, para 7.4. 111 WW Cook, “The Alienability of Choses in Action” (1916) 29 Harv LR 816 at 821. See also Holt v Heatherfield Trust Ltd [1942] 2 KB 1. See further F Oditah, “Priorities: Equitable Versus Legal Assignment of Book Debts” (1989) 9 OJLS 513 at 522. See [5.04], [5.27]. 112 Cf Fitzroy v Cave [1905] 2 KB 364 at 372 per Cozens-Hardy LJ. 113 See Chapter 2. 114 See VV Palmer, The Paths to Privity (San Francisco, Cal, Austin & Winfield, 1992) at 146–7; WR Warren, The Law Relating to Choses in Action (London, Sweet & Maxwell, 1899) ch 1; SJ Bailey, “Assignment of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 547 at 579. 115 (1799) 1 Bos & Pul 447, 126 ER 1002.
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give a release, was now missing from the bundle of rights held by the assignor.116 Thus, both at common law and in equity there was a transfer to the assignee. This analysis flows from Cook’s application of Hohfeldian rights analysis which, although legitimate, was certainly not in the mind of the court at the time of Legh v Legh. Moreover, Cook would have needed to explain away the fact that the action was brought by the assignee in the name of the assignor, which in fact evidences that there was no legal assignment operating. All this case really evidences is a recognition (rather than the adoption) by a common law court of the assignment in equity.117 At its highest, it may evidence a court of common law exercising equitable jurisdiction. In this regard, in Phillips v Clagett,118 Parke B suggested that this “equitable jurisdiction” of the courts of common law was limited to “preventing the defendant from pleading pleas of release, where the release is valid in point of law, but invalid in equity, as being a fraud for which the defendant is answerable”. If that is correct, it should not therefore have been extended to actually setting aside the release.119 Cook’s views were convincingly criticised by Professor Williston.120 Williston had no trouble calling the assignee’s right legal if by that all that was meant was that it was enforced in a court of law in the name of the assignor. However, he thought Cook had meant to go further than that. Williston suggested that if Cook was right there was no doctrinal reason why the assignee should take subject to the equities that the obligor has against the assignor.121 Secondly, he thought that if Cook’s view was accepted, then the normal priority rules which treat the assignee as having an equitable right must be changed and the assignee as the holder of a legal right must generally prevail over other equitable rights. Thirdly, he pointed out that if Cook was correct then a partial assignment of a debt, being a mere equitable assignment, could always be defeated by a later legal assignment of the whole debt.122 116
WW Cook, “The Alienability of Choses in Action” (1916) 29 Harv LR 816 at 824, 828. See also Winch v Keeley (1787) 1 TR 619, 99 ER 1284. Cf WW Cook, “The Alienability of Choses in Action: A Reply to Professor Williston” (1917) 30 Harv LR 449 at 463. 118 (1843) 11 M & W 84 at 93, 152 ER 725 at 729. 119 See OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 74–80. The requirement of fraud which allowed the common law courts to look beyond the parties to the action was later alleviated by the Common Law Procedure Act 1854, s85 which allowed the assignee to set up an equitable reply to the defendant’s plea of release. That is, the common law courts could take account of the assignee’s reply that the obligor had notice of the assignment at the time it obtained a release from the assignor without the need for there to have been any fraud: see De Pothonier v De Mattos (1858) El Bl & El 461, 120 ER 581. See further McDermott v Black (1940) 63 CLR 161 at 186–9 per Dixon J. See [4.09]. 120 Samuel Williston, “Is the Right of an Assignee of a Chose in Action Legal or Equitable?” (1916) 30 Harv LR 97. For Cook’s reply see WW Cook, “The Alienability of Choses in Action: A Reply to Professor Williston” (1917) 30 Harv LR 449. For Williston’s final comments see S Williston, “The Word ‘Equitable’ and its Application to the Assignment of Choses in Action” (1918) 31 Harv LR 822. 121 See further F Oditah, Legal Aspect of Receivables Financing (London, Sweet & Maxwell, 1991) para 6.15. 122 See S Williston, “Is the Right of an Assignee of a Chose in Action Legal or Equitable?” (1916) 30 Harv LR 97 at 104. 117
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Some further observations may also be made. First, although Cook denied that the assignor remains the owner of the assigned right (except for the purpose of lending its name to the suit), the weight of authority suggests that in the case of an equitable assignment of a legal right, the assignor retains the legal interest and remains the legal owner.123 Combining that authority with Cook’s argument would result in both the assignor and assignee having a legal interest when generally the common law has never recognised two rights of ownership. Perhaps this might be overcome by concluding that the assignor and assignee are co-owners. However, if that were the case, and if both interests were legal, then presumably either party could release the debtor.124 But the accepted position is that generally upon notice of an assignment the assignor cannot discharge the obligor.125 Finally, Cook’s idea that the assignee’s interest is both legal and equitable appears to suggest the two interests may continue to exist separately when vested in the one person.126 That too is at odds with the great weight of authority.127 [4.25] It is necessary then to turn to the third path. To do this it is necessary to put aside both the notion that the assignee is always attempting (at law or in equity) to enforce the legal right and the idea that the assignee’s rights consist only of rights against the assignor. Dealing first with the latter, it is suggested that the assignee’s rights may be limited to action against the assignor in three cases. First, where the transaction is not really an assignment. Secondly, where the assignee either wants to exercise a legal right or wants a legal remedy—although strictly this no longer requires an action, the assignor is simply joined. Thirdly, where the transaction is properly called an assignment but the strength of the assignee’s right is such that it allows for enforcement only by taking action against the assignor. The idea of the strength of a right is dealt with in Chapter 8.128 In essence it will be suggested that, subject to certain statutory constraints, the terms of an assignment may expressly or impliedly limit the remedial avenues open to the assignee. Turning to the former issue, it is suggested that the stone that has been left unturned is the assignee’s ability to seek equitable relief to protect its equitable interest. It has already been noted that joinder is procedural where the assignee seeks an equitable remedy to enforce a legal right. The same is true where the assignee seeks to enforce or protect its equitable interest. Clearly, the assignee is the proper plaintiff to claim such equitable relief against the obligor. If equitable remedies are sufficiently versatile to protect the assignee’s interest, there will be no 123
[4.25]. See S Williston, “Is the Right of an Assignee of a Chose in Action Legal or Equitable?” (1916) 30 Harv LR 97 at 108. 125 [8.06]. 126 See WW Cook, “The Alienability of Choses in Action: A Reply to Professor Williston” (1917) 30 Harv LR 449. 127 [3.11]. 128 [8.27]. 124
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need to take the strict procedural approach to joinder for the purposes of doing justice and allowing an assignee to bring an action in its own name in certain cases. That is, it could be accepted, as doctrinally it should be, that where the assignee wishes to exercise a legal right or to seek a legal remedy then the involvement of the assignor is required as a matter of substantive law. If that position is accepted then there appear to be only two situations that on their face may cause injustice. The first occurs where the obligor waives its right to have the assignor present and the second where the assignor ceases to exist. The first of these, it is suggested, may be dealt with on the basis of estoppel. As to the second situation, it must be rare for an assignor to cease to exist and its legal interest not to vest in some other party by operation of law.129 However, if that is the case, then there may be much to be said for the view that that outstanding legal interest should vest in the assignee.130 The alternative, of course, is that if the legal interest dies, so too does the equitable interest; however, this result would cause numerous problems in sale of business transactions and is commercially unacceptable. There is some support for the view that, generally, the action of the assignee should be seen as a cause of action in equity. In Three Rivers District Council v Bank of England,131 Staughton LJ said that the equitable assignee has a cause of action, but it is a cause of action in equity.132 In the same case, Peter Gibson LJ said that the equitable assignee becomes in equity the owner and controller of the assigned right and entitled to sue for the recovery of the chose.133 Moreover, in Durham Brothers v Robertson134 Chitty LJ, in one of the most famous statements of the joinder rule, characterised the assignee’s action as being an action in equity rather than an action in law to enforce the legal right. He said:135 As is well known, an ordinary debt or chose in action before the Judicature Act was not assignable so as to pass the right of action at law, but it was assignable so as to pass the right to sue in equity. In his suit in equity the assignee of a debt, even where the assignment was absolute on the face of it, had to make his assignor, the original creditor, party in order primarily to bind him and prevent his suing at law, and also to allow him to dispute the assignment if he thought fit. This was a fortiori the case where the assignment was by way of security, or by way of charge only, because the assignor had a right to redeem.136 129
Eg EM Bowden’s Patents Syndicate Ltd v Herbert Smith & Co [1904] 2 Ch 86. Alternatively, because there is no one left to claim a legal remedy, such a case may be one that may more readily be the subject of an order for specific performance in favour of the assignee: see Hume v Monro (No 2) (1943) 67 CLR 461 at 482 where Williams J makes this suggestion and cites Tolhurst’s case as authority. 131 [1996] QB 292. 132 Ibid, at 303. 133 Ibid, at 308. 134 [1898] 1 QB 765. See also Adcock v Jolly (1893) 19 VLR 609 at 615 per Holroyd J. 135 [1898] 1 QB 765 at 769–70 (emphasis added). 136 In referring to the suit being in equity, Chitty LJ did not suggest that after joinder the suit continued as one at law. 130
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It is suggested that the insistence called for here that joinder be seen as a matter of substantive law when the assignee seeks a legal remedy is not inconsistent with those cases which have held that the commencement of an action by the assignee to enforce the legal right is not a nullity. Clearly the assignee can claim interim relief. However, and more fundamentally, the equitable assignee may rely on its equitable interest to commence an action to enforce the legal right. What the assignee cannot obtain is a legal remedy, and so the assignor must be joined prior to judgment and the making of such an order. The mere commencement of the action is not the enforcement. Moreover, the assignee cannot exercise a legal right. It follows that an election by the equitable assignee to exercise an option is a nullity.137 It is also suggested that there is nothing inconsistent between this approach and the decision in Performing Right.138 That case concerned a claim for injunctive relief. Clearly there joinder is procedural. Viscount Cave LJ, as noted above, focused on the need to join a “necessary” party. The joinder of the legal right holder prior to judgment is merely joining a necessary party but in a substantive sense. Moreover, it is suggested that the speeches of Viscount Finlay and Lord Sumner may be read as limited to claims for equitable relief. Finally, it is suggested that the analysis put forward here would be as efficacious as the procedural joinder rule, and more doctrinally sound, if equitable remedies were sufficiently versatile to protect the assignee’s interest. The assignee’s remedies are dealt with in Chapter 8 where it is suggested that the assignee has a right to claim equitable compensation for breach of contract by the obligor and, where the assignment is of an obligation to pay, the assignee can (as a creditor in equity) enforce that primary obligation in equity.139
(d) Equitable Assignment of Legal Interests Not Assignable at Law [4.26] Introduction. Certain legal choses in action may not be assignable at law but are said to be assignable in equity. The prime example is the assignment of part of a debt or chose in action. Whether or not an assignment is entire or partial 137 A contractual right to arbitration is also a legal right and, therefore, in addition to other procedural requirements, generally requires a legal assignment for the assignee to be able to exercise it in its own name: see Baytur SA v Finagro Holding SA [1992] 1 QB 610 at 618 per Lloyd LJ. The enforcement of a guarantee, being the enforcement of a legal right, would also generally require a legal assignment if the assignee wished to exercise it in its own name. Therefore, notice would be necessary. However, notice to the guarantor of the assignment of the main contract would not be necessary. 138 Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1. 139 [8.24].
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depends upon the construction of the terms of the assignment and need not be considered further here.140 What are of concern are the nature and characteristics of these transactions and whether or not they are be properly termed “assignments”. [4.27] The assignment of part of a debt. In the case of an assignment of part of a debt, the proper plaintiff is the assignee. Where an entire debt was assigned in equity the assignee could bring an action at law in the name of the assignor to enforce the debt. However, that procedure was not available in the case of a partial assignment. A debt could not be recovered piecemeal at law.141 Despite a partial assignment, there remains one debt.142 This is still the position under most statutory regimes for legal assignments.143 It follows that such assignments (and such interests) were and still are (subject to a few statutory exceptions) recognised only in equity and, therefore, the assignee can bring an action in equity in its own name to enforce its assigned right.144 The assignor necessarily had to be joined so that the rights of all persons interested in the debt could be determined.145 Procedurally joinder is required to protect the assignor, as he or she may have a defence to raise against the efficacy of the assignment. Substantively, joinder is necessary as there is only one indivisible debt that must be enforced in its entirety. Two important points appear to flow from this. First, this explanation appears to recognise the assignee as the beneficial owner of the assigned right and therefore 140 Eg Harding v Harding (1886) 17 QBD 442; Bank of Liverpool & Martins Ltd v Holland (1926) 43 TLR 29. The ability partially, fractionally or divisionally to assign contractual rights to performance is considered later, [6.48]–[6.56]. 141 Norman v FCT (1962) 109 CLR 9 at 29 per Windeyer J. 142 Deposit Protection Board v Dalia [1994] 2 AC 367 at 385 per Simon Brown LJ (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367). 143 Norman v FCT (1962) 109 CLR 9 at 29 per Windeyer J. Cf Property Law Act 1969 (WA) s20(3) allowing for the legal assignment of part of a debt or chose in action. 144 Norman v FCT (1962) 109 CLR 9 at 29 per Windeyer J. See also McIntyre v Gye (1994) 122 ALR 289 at 295. Cf Long Leys Co Pty Ltd v Silkdale Pty Ltd (1991) 5 Butterworths Property Reports (BPR) 11,512 where the ability of an equitable assignee to enforce a debt was thought to be a triable issue. See further Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 559. 145 Norman v FCT (1962) 109 CLR 9 at 29 per Windeyer J. See also Bergmann v MacMillan (1881) 17 Ch D 423; Re Steel Wing Co Ltd [1921] 1 Ch 349 at 357; Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81 at 100 per Greer LJ; Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584 at 588–9 per Parker LJ; Deposit Protection Board v Dalia [1994] 2 AC 367 at 387 per Sir Michael Fox (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367). However, in the case of a partial assignment of a judgment debt, the view has been expressed that leave should not be given to the assignee to sue without joining the assignor, as there should be only one execution order. Since the assignor has only one judgment and can therefore issue only one execution, to allow multiple executions would be to recognise the assignment of a right the assignor did not have which is at odds with the nemo dat rule governing transfers. See McIntyre v Gye (1994) 122 ALR 289 at 293; Forster v Baker [1910] 2 KB 636. See also Australian Workers Union v Bowen (1946) 72 CLR 575. It follows that the debt is not partially assignable: see Nirens v Fowler Asphalt Pty Ltd (1966) 9 FLR 255. Where there is a partial assignment of a debt together with a partial assignment of the security interest under a mortgage (which secures payment of the debt), it is not possible partially to enforce rights under the mortgage.
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the transaction is upheld as an assignment. Secondly, it appears that from early times equity had jurisdiction to enforce a debt on the basis that the assignee was the equitable creditor.146 It is sometimes suggested that the assignment of part of a debt operates by way of charge.147 The distinction between assignment and charge has already been dealt with,148 and so too the need in some cases to combine an assignment with a charge.149 The notion of an “assignment by way of charge” is dealt with later.150 The question here is whether, in the case of a partial assignment of a debt, it makes sense to speak of the actual assignment of a part, or whether it is necessary, to give any legal effect to the transaction, that it be upheld as a charge. Any transfer requires certainty of subject matter. It is impossible to transfer an interest in goods when they are unascertained; transfer requires an unconditional appropriation of the goods to the contract. Similarly, it may be thought to be impossible to have an interest in an undivided part of a debt, so that any interest must be a partial interest in the entirety of the debt, and this can be achieved only by way of charge.151 It may be true that when an “assignment” of part of a debt is given by way of security what is often meant is a charge.152 In many such cases it will probably not matter whether the transaction is upheld as a charge or assignment.153 In addition, it is accepted that an assignment by way of security, that is, a mortgage, incorporates a charge.154 However, this should not been seen as denying the possibility of there being an actual assignment of part of a debt.155 Arguably, anything capable of being charged is capable of assignment because the enforcement of a charge involves the chargee approaching a court for an assignment.156 In addition, when 146
Re Steel Wing Co Ltd [1921] 1 Ch 349 at 355. See further [4.18], [8.18]. Eg Rodick v Gandell (1852) 1 De GM & G 763 at 777–8, 42 ER 749 at 754 per Lord Truro; Palmer v Carey [1926] AC 703 at 706 per Lord Wrenbury; Re Lawsons Constructions Pty Ltd [1942] South Australian State Reports (SASR) 201 at 201 per Mayo J; Thomas v Harris [1947] 1 All ER 444 at 445 per Scott LJ; Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584 at 588 per Parker LJ; National Mutual Life Nominees Ltd v National Capital Developments Commission (1975) 6 Australian Capital Territory Reports (ACTR) 1 at 5 per Blackburn J; Wreckair Pty Ltd v Emerson [1992] 1 Qd R 700; Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 446 per McHugh and Gummow JJ. 148 [3.17]. 149 [3.17]. 150 [7.39]–[7.40]. 151 See further R Goode, “Ownership and Obligation in Commercial Transactions” (1987) 103 LQR 433 at 448. 152 Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137 at 141; Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190 at 195 per Mathew LJ. 153 See Robertson v Grigg (1932) 47 CLR 257 at 271 per Dixon J (who appears not to place too much weight on the distinction in this case). 154 Shea v Moore [1894] 1 IR 158 at 168 per Walker C. See further R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.52. 155 Ashby, Warner & Co Ltd v Simmons [1936] 2 All ER 697 at 704–5 per Greer LJ. 156 Quaere whether “assignment” in this context only means “appropriation”, that is, an order for payment of the assigned sum. 147
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an assignor is indebted to an assignee, the assignment of a debt to the assignee, whether partial or otherwise, may be given as a method of payment.157 Such an assignment may be outright or by way of mortgage. In either case, its purpose of providing a method of payment prior to default would be defeated if it were upheld as a mere charge. Moreover, in Norman v Federal Commissioner of Taxation,158 Windeyer J, in perhaps the leading modern statement on partial assignments, did not at any stage suggest that the transaction could operate only as a charge. In fact, the whole tenor of his judgment was that there could be partial assignments and they could be by way of gift. It appears odd for a transaction to be upheld as a charge when the intention of the parties was that of an assignment. It has been said many times that if an assignor intends to make an assignment and fails to comply with the necessary requirements, then a court will not rescue the transaction by upholding it as a trust.159 The same must go for rescuing an assignment by upholding it as a charge. However, it has also been said that it is not inconsistent with this rule that a court may impose a trust to protect the interest of the assignee.160 Perhaps upholding the equitable assignment of part of a debt as a charge merely serves this purpose.161 That is, it does not deny the efficacy of the assignment and the vesting of ownership in the assignee, but seeks to protect the interest of the assignee. Perhaps equity, like the common law, cannot identify any specific part of the debt or fund for the purposes of assignment. However, equity is capable of taking substantive institutions like trusts and charges and using them for a remedial or protective purpose. Thus, by using the notion of an equitable charge equity can protect the interest of the assignee as a true assignee and not a chargee. It would follow from this that equity’s requirement that the subject matter be identified is satisfied merely by the identification of the debt or fund and not the part of the debt or fund. 157
This would not automatically discharge the debt: see Re Cunningham [1965] WAR 115. (1963) 109 CLR 9 at 29. See also McIntyre v Gye (1994) 122 ALR 289 at 296; Shepherd v FCT (1965) 113 CLR 385; Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137 at 141; Ashby, Warner & Co Ltd v Simmons [1936] 2 All ER 697; Re Steel Wing Co Ltd [1921] 1 Ch 349 at 355 per PO Lawrence J; Brice v Bannister (1878) 3 QBD 569; Durham Bros v Robertson [1898] 1 QB 765 at 773 per Chitty LJ (but cf Chitty LJ at 774 where he appears to suggest that insofar as the legislative scheme for legal assignments is concerned, any partial assignment is by way of charge (see also Jones v Humphreys [1902] 1 KB 10 at 13–14 per Lord Alverstone CJ, although on the facts before him, his statement may not be as objectionable as Chitty LJ’s)—however, as noted above, the reason for partial assignments falling outside the legislative regime is properly based on the impediments to enforcement in common law courts—this reasoning of Chitty LJ was doubted in Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137 at 141). See further [7.39]–[7.40]. 159 Re Rose [1952] Ch 499 at 510. 160 [4.07]. 161 Perhaps this is the best explanation for the decision in Re Lawson Constructions Pty Ltd [1942] SASR 201. Cf Re Brush Aggregates Ltd [1983] Butterworths Company Law Cases (BCLC) 320 and the powerful criticism of this case in F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) at 74. 158
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Alternatively, in Ashby, Warner & Co Ltd v Simmons,162 Greene LJ suggested that in those cases where it was said that an equitable assignee had a charge over the fund, the expression was used to make the point that the assignee had a right against the fund, and not merely a personal right against an individual. It may also be the case that the word “charge” has been used loosely when the judge in fact meant assignment or mortgage.163 It may be that in some cases, although the transaction was intended to be an assignment, it was still characterised as a charge for the purposes of some legislative provision, so that maintaining the distinction in that context was immaterial.164 However, from a doctrinal perspective assignment and charge must be kept distinct.165 As already noted, when dealing with a security the notion that the mortgage takes effect by way of charge (as opposed to a charge taking effect by way of partial assignment) is less offensive because every mortgage incorporates a charge. When used to express an outright assignment though the notion that the assignment takes effect by way of charge remains problematic. Goode suggests that the reason for this confusion of terminology “lies in the fact that in contrast to charges on tangibles, under which the creditor looks to the proceeds of the charged asset, a charge on a debt or fund is enforced by collecting payment out of the fund from the fund holder in the same way as under a partial assignment, and in construing the statutory provisions governing the assignment of choses in action the courts focused on the question whether the assignment was to be considered absolute or ‘by way of charge only,’ a phrase taken to include partial assignment”.166 Returning to the protection point made above, it may be that in the case of an outright assignment the law recognises a charge on the fund for the purposes of ensuring that the assignment cannot be defeated.167 This may be no more than an application or extension of the principle that every mortgage incorporates a charge; the expression “assignment by way of charge” is then simply a shorthand expression for such a transaction. However, if correct, this analysis would not apply only to partial assignments. Another possibility may be that perhaps some courts see an analogy between an assignment of part of a debt and the recognition of equitable interests in contracts 162
[1936] 2 All ER 697 at 708. See UTC Ltd v NZI Securities Australia Ltd (1991) 4 WAR 349 at 354 per Ipp J. 164 Eg Re Kent & Sussex Sawmills Ltd [1947] 1 Ch 177; Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602. See also Bailey v New South Wales Medical Defence Union Ltd (1995) 184 CLR 399 at 446 per McHugh and Gummow JJ. 165 See Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at 422–3 per Brennan CJ. 166 R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.52. See also PG Turner, “Assignment by Way of Charge” (2004) 24 Australian Bar Review 1 at 5–13, tracing much of the idea that a charge takes effect as an assignment to a misunderstanding of the decision in Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93. 167 See [3.17]. 163
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for the sale of unascertained or future goods.168 In the latter, equity has generally always followed the law, requiring the goods to be ascertained, present and unconditionally appropriated to the contract before any transfer would be recognised. Thus, generally, no equitable interest is recognised as it would arise only at the same time that the legal interest was transferred. It is not necessary here to debate whether this is the approach equity should take to contracts for the sale of goods except to note that this analogy may have been impliedly drawn, thus requiring the recognition of a charge to give effect to the partial assignment of a debt.169 It is suggested, however, that there is no impediment to the recognition of an outright assignment of part of a debt.170 Moreover, the proper characterisation of such an assignment is not the assignment of an unascertained part of an ascertained whole but rather the assignment of something akin to the sale of specific goods. In the case of sale of goods, it has generally been thought that a sale of an undivided share (expressed as a fraction) in goods, such as the sale of a share in a racehorse, is a sale of specific goods so that legal title can pass without an act of appropriation.171 This is akin to what occurs in the case of the assignment of part of a debt. The debt is specific (indivisible) property. It is not akin to an identified bulk. In fact, most of the debate about this issue as regards sale of goods has been whether or not such a transaction concerns goods for the purposes of the legislation or merely a dealing in choses in action.172 The notion that the transfer involves specific property is generally accepted. It may be argued that one weakness with this analysis is where the assignment is not expressed as a fraction. Here it could be argued that the “assignment” is more akin to the transfer of an unascertained part of an ascertained whole. It is suggested that this is incorrect, and that an assignment of part of a debt is always an assignment of a fraction no matter how it is expressed, and must always be analysed in terms of a fraction of the whole debt no matter what expression is used in the transaction.173 The result of such a partial assignment is that the assignor and assignee become co-owners.174 Presumably 168 See Hoare v Dresser (1859) 7 HL Cas 290 at 317–18, 11 ER 116 at 127 per Lord Cranworth, (cited in Palmer v Carey [1926] AC 703 at 706 per Lord Wrenbury); Ashby Warner & Co Ltd v Simmons [1936] 2 All ER 697 at 704 per Greer LJ; Re Lawsons Construction Pty Ltd [1942] SASR 201 at 204 per Mayo J. 169 Cf R v Grieg [1931] VLR 413 at 435 per Cussen ACJ (suggesting that different considerations apply as regards assignment of part of a debt and the sale of part of a bulk of goods). 170 Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137 at 141. 171 See Law Commission for England and Wales, Sale of Goods Forming Part of a Bulk (London, HMSO, 1993) Law Com No 215, paras 2.5–2.7. It is not clear whether the sale of a fractional share in an identified bulk is considered a sale of specific goods: see KCT Sutton, Sale and Consumer Law (4th edn, Sydney, Law Book Co, 1995) at 94 and cf Law Commission for England and Wales, Sale of Goods Forming Part of a Bulk (London, HMSO, 1993) Law Com No 215, para 4.2. 172 See ibid, paras 2.5–2.7. 173 R Goode, Commercial Law in the Next Millennium (London, Sweet & Maxwell, 1998) at 73. Where the memorandum simply refers to a sum of money, it can be translated into a fraction, unless on construction the intention is merely to assign the fruits of the debt and not the “right” to payment. 174 Ashby, Warner & Co Ltd v Simmons [1936] 2 All ER 697 at 704 per Greer LJ (“[the] assignment gave [the assignee] an equitable claim on the fund if the fund came into existence”).
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this co-ownership is a tenancy in common,175 as this would allow each to enforce its own interest in its own name subject to the joinder of the other party.176 However, the interest of the assignee is assignable in whole or in part and therefore is usually referred to as a chose in action in its own right.177 The above assignment of a debt is to be distinguished from the assignment of a right to performance where that performance will ultimately result in a debt, but where the assignment is effective prior to the accrual of an obligation to pay, that is, prior to the coming into existence of a debt. For example, assume A owes a debt to B of £100 and that A wishes to assign to B part of a present right to an income stream for the purposes of paying the debt. A may alienate the entire income stream and express the assignment to terminate upon payment of a definite sum. However, it is more likely that A will assign “such part of [the income stream] as is necessary to pay B £100”.178 This is a partial assignment and, although ultimately when the income stream comes to an end it may be possible to determine the fractional interest assigned to B, it is difficult to calculate this at the time of the assignment. Arguably here the assignment is of an unascertained part of an ascertained whole, but the result is the same, the assignee becomes a co-owner of the whole to the extent of its interest.179 [4.28] The assignment of part of a chose in action. The same analysis must operate as regards partial assignments of choses in action other than debts. In commercial practice such an assignment may have limited use other than in the 175 Although there is a view that at law a chose in action can only be co-owned jointly, in equity it can be co-owned by tenants in common, and presumably a tenancy in common would be implied, particularly if the interests are not equal: see Re McKerrell [1912] 2 Ch 648 and see AP Bell, Modern Law of Personal Property in England and Ireland (London, Butterworths, 1989) at 74–5, 166–7. Where parties hold rights as joint tenants, they will hold undivided interests in the whole of the subject property. Therefore, one joint tenant cannot separate and assign its interest so as to constitute the assignee a joint tenant. Such a result can be achieved only by the establishment of a new joint tenancy. However, a joint tenant can sever the joint tenancy so as to create a distinct interest in the subject matter and, if the subject matter is otherwise transferable, assign that interest so that the assignee takes as tenant in common: see Corin v Patton (1990) 169 CLR 540 at 575 per Deane J. 176 See Acorn Computers Ltd v MCS Microcomputer Systems Pty Ltd (1984) 57 ALR 389. 177 See FCT v Everett (1980) 143 CLR 440 at 450. 178 Drawing the distinction here between the assignment of a right to performance and a debt would be more difficult where the obligation to pay accrued from moment to moment; such instances are rare. Another possibility is for A to assign “the next £100 to be derived from [the income stream]”. This is likely to be an assignment of future property if no debt exists at the time of the intended assignment. When the property does come into existence, then if the debt accruing from the income stream is £100 the assignment is properly characterised as absolute, not partial. If the debt is greater than £100 then the assignment is partial and is a fractional assignment of a debt. 179 Although the cases have not adopted this reasoning, the same analysis could explain the efficacy of a partial assignment of an interest in a shareholding. The result is not based on the subject matter being fungible because the interest is indivisible and incapable of being fungible: see R Goode, “Are Intangible Assets Fungible?” in P Birks and A Pretto (eds), Themes in Comparative Law (Oxford, Hart, 2002) ch 7. See generally Hunter v Moss [1994] 1 WLR 452; Re Harvard Securities Ltd [1997] 2 BCLC 369.
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case of a contractual right to performance, where that performance will require the payment of money but where the debt has yet to accrue. However, unlike the position as regards debts, equity’s ability to enforce such rights is limited and its ability to grant legal remedies non-existent. It follows that the joinder of the assignor (who may or may not want to take enforcement action) should be a matter of substantive law. There is nothing unique in this result; the position is the same as that involving joint promisees. [4.29] Conclusion. It follows from the analysis above that partial assignments are true assignments. It should be added that although such assignments are not “absolute” for the purposes of most legislative regimes for legal assignments, the construction of these regimes is driven by their focus on protecting the debtor and the procedural impediments to enforcing a debt piecemeal in a court of law. They should not to be viewed as evidence of any fundamental impossibility of assigning part of a debt. Moreover, it may be noted that the statutory regime for legal assignment in Western Australia expressly recognises the partial assignment of debts.180 Given that that regime is concerned with absolute assignments not by way of charge, this jurisdiction must then envisage a true assignment of part of a debt.
(e) Assignment of Future Interests [4.30] Introduction. Since this chapter is concerned with the proper characterisation of equitable assignments, it is necessary to say something about the characterisation of so-called “assignments” of future interests. [4.31] Assignments of future property. Strictly, it is not possible to assign future property as it does not exist. However, when made for value, equity will give effect to such transactions by upholding them as agreements to assign future property. Upon the property coming into existence the assignee takes an immediate interest, as the transaction takes effect as an assignment at that point rather than being merely a bipartite transaction between the assignor and assignee. In Palette Shoes Pty Ltd v Krohn,181 Dixon J expressed the position in the following manner:182 As the subject to be made over does not exist, the matter primarily rests in contract. Because value has been given on the one side, the conscience of the other party is bound 180
Property Law Act 1969 (WA) s20(3). (1937) 58 CLR 1. See also Re Lind [1915] 2 Ch 345 at 357, 358, 360 per Swinfen Eady LJ; Tailby v Official Receiver (1888) 13 App Cas 523 at 543 per Lord Macnaghten; Booth v FCT (1987) 164 CLR 159 at 165 per Mason CJ. 182 (1937) 58 CLR 1 at 27. 181
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It also follows that the assignor never takes the full beneficial interest as the assignment actually binds the property itself when it comes into existence.183 [4.32] Nature of the interest held by the assignee. An issue then arises as to the nature of the interest held by the assignee prior to the property coming into existence. Prima facie the assignee’s rights appear to rest simply in contract. However, it has been said, and it appears settled, that the assignee’s interest is not merely contractual but has some of the incidents of a proprietary interest.184 The fact that the assignment occurs upon the property coming into existence without any act of the parties evidences that the right of the assignee prior to this time is more than merely contractual. This is an issue that is important when the assignor becomes bankrupt. For example, assume there is an assignment by way of sale where for a certain consideration the assignor agrees to assign some expectancy. Assume that prior to that expectancy coming into existence the assignor becomes bankrupt and is later discharged from bankruptcy, and that it is only after this that the property comes into existence and is vested in the assignor. The discharge from bankruptcy would release the assignor from its obligation under the “sale”. If the assignee’s interest under the agreement to assign, which in this example is the same transaction as the sale, merely rests in contract then that too is released. If, however, the assignee’s interest is a “higher interest” then arguably it should continue to attach to the property when it comes into existence. Another, more likely, example is where an assignor assigns an expectancy as security for some debt owed to the creditor/assignee. The assignor then becomes bankrupt and is discharged from bankruptcy without the assignee proving in the bankruptcy and only later does the property come into existence. Here, again, the debtor would be released from its liability to the creditor following the discharge of bankruptcy and this would include the covenant to pay under the security. Despite legislative provisions then allowing for the enforcement of securities in the 183 Re Lind [1915] 2 Ch 345 at 360 per Swinfen Eady LJ; Re Row Dal Constructions Pty Ltd [1966] VR 249 at 254 per Herring CJ; Re Androma Pty Ltd [1987] 2 Qd R 134 at 152 per McPherson J. 184 FCT v Everett (1978) 21 ALR 625 at 643–4 per Deane J (Deane J was in the minority in this case and the decision of the majority was later affirmed by the High Court ((1980) 143 CLR 440); however, this point was not mentioned by the High Court and later decisions of the High Court have approved Deane J’s statement as to the effect of such an assignment). See also Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27 per Dixon J; McIntyre v Gye (1994) 122 ALR 289 at 296–7; Booth v FCT (1987) 164 CLR 159 at 177 per Toohey and Gaudron JJ. In the case of a security assignment, its immediate effect will be that of a floating security: see Re Spectrum Plus Ltd [2005] 3 WLR 58 at 93 per Lord Scott.
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face of such a release,185 if the assignee’s security interest under the assignment merely rested in contract, that too would be discharged, leaving the assignee with no claim to the subject property. However, in Re Lind,186 which is now the leading case in this area,187 in a factual situation akin to the one just mentioned, it was held that the assignee continues to have an interest in the subject property when it comes into existence. Much of the reasoning of the court was based on the idea that the assignee’s interest prior to the subject matter coming into existence is a “higher” interest than a mere contractual interest.188 A question arises whether the reasoning in Re Lind can be applied to the first example. The question in Re Lind was whether or not the transaction created a security. As long as the creditor was characterised as a “secured creditor” the security could be enforced despite the discharge. It is possible to classify the relationship between the debtor and creditor as a secured relationship without any transfer of the secured property. Arguably, for the assignee’s interest in the first example to survive the assignor’s bankruptcy and discharge from bankruptcy there needs to have been a transfer prior to the commencement of the bankruptcy. However, it is probably sufficient that the assignee’s interest is classified as proprietary to survive discharge and the higher right analysis achieves that. Certainly, despite the narrow question in Re Lind, the weight of the reasoning simply relied on the recognition of a “higher right”, and there is no logical reason to limit this to security transactions.189 Moreover, it would be inconsistent to limit the reasoning in Re Lind to intended security assignments and not outright transfers when the relevant legislation continues, insofar as assignments are concerned, to define a secured creditor as a creditor holding a mortgage: a mortgage assumes a transfer.190 185
Eg Insolvency Act 1986 (Eng) s281(1) and (2); Bankruptcy Act 1966 (Cth) s 153(1) and (3). [1915] 2 Ch 345. See also Re Gillott’s Settlement [1934] 1 Ch 97. Cf Collyer v Isaacs (1881) 19 Ch D 342. See also Re Dent [1923] 1 Ch 113; Deputy Commissioner of Taxation v Government Insurance Office of New South Wales (1993) 117 ALR 61. See further RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 6.275–6.330. 187 See Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 27 per Dixon J (referring to Re Lind and saying; “[A]lthough the matter rests primarily in contract, the prospective right in property which the assignee obtains ‘is a higher right than the right to have specific performance of a contract,’ and it may survive the assignor’s bankruptcy because it attaches without more eo instanti when the property arises and gives the assignee an equitable interest therein.”). 188 [1915] 2 Ch 345 at 357, 358 per Swinfen Eady LJ, at 365 per Phillimore LJ, at 373–4 per Bankes LJ. 189 However, at one point in his judgment, Swinfen Eady LJ did say ([1915] 2 Ch 345 at 360–1, and see at 370–1 per Bankes LJ), in answer to an argument that because the debts created by the mortgage were discharged, so too was the ancillary contract relating to future property, that; “The answer is that the mortgagees . . . elected to rely upon their security, and not to prove, and therefore as mortgagees they stand outside the bankruptcy; and, moreover, that any contract contained in those deeds for vesting the future property in the mortgagees was ancillary not to the debt, but to the mortgage by which the debt was secured.” See also Deputy Commissioner of Taxation v Government Insurance Office of New South Wales (1993) 117 ALR 61 at 73 per Hill J and cf at 63 per Jenkinson J. 190 Insolvency Act 1986 (Eng) s248; Bankruptcy Act 1966 (Cth) s5. 186
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[4.33] Problems with the analysis.191 Despite the interest of the assignee prior to the property coming existence being well settled by case law, the actual characterisation of this right remains problematic.192 To say that the assignee’s interest is higher than a mere contractual right merely begs the question, “a higher interest in respect of what”? There is only the agreement to assign. Nevertheless, arguably this analysis provides a desired commercial result. Moreover, given that the efficacy of “assignments” of future property is the basis for the development of the floating charge it would appear that the “higher right” analysis is now so well entrenched that is makes little sense spending time critiquing it. The result in Re Lind is usually explained on the basis of relation back. That is, where the consideration for an agreement to assign is executed equity immediately gives effect to the assignment, but it relates back to the date of contract. However, this merely begs another question: why does it relate back? In the result, it is suggested that any problems in recognising the proprietary character of the right vested in the assignee flow from either limiting property and property law to being concerned with the recognition of rights in things or putting too much emphasis on the need for a presently existing thing. A large part of property and property law is concerned with characterising relationships between people in respect of things.193 The things may be either present or future. Property rights come into existence by some causative event. The most usual such event is consent. Thus, the execution of a contract, such as a memorandum of mortgage, immediately brings into existence property rights in terms of characterising the relationship between the parties. It is logical at that point to refer to the creditor as a secured creditor. The actual existence of the thing is necessary only for the purposes of attachment or transfer or for recognising some sui generis interest in the property.194 So long as that proprietary relationship continues to exist then property coming into existence which can be identified as the subject matter of that relationship will be
191 See generally R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 2.13. 192 See RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.320. See further CJ Davis, “Floating Rights” [2002] CLJ 423. 193 Some may take the view that this is all property and property law are concerned with. It could even be argued that the need for a “thing” no longer reflects the entirety of the category “property”. However, at the level of doctrinal law there remains a strong view that property law is not merely concerned with relationships between people in respect of things, but that it is still sensible and useful to continue to characterise some rights as rights “in” things. This expression has its use where any enforcement mechanism is against the thing itself: see EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, Law Book Co, 1993) at 6–10; P Ali, The Law of Secured Finance (Oxford, OUP, 2002) paras 2.33–2.40. 194 In the case of a floating security where property which is the subject of the charge exists, it is not necessary to characterise the interest of the chargee (prior to crystallisation) as merely a proprietary relationship with the chargor. When such property exists the chargee has an interest over that property, although that interest is not fixed on any particular property.
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attached. Hence the relation back.195 Importantly, that relationship can continue despite the non-consensual discharge, release or extinction of the underlying contract, as the proprietary relationship arises as a matter of law as a consequence of the initial consensual agreement between the parties. If it is necessary to place a description on the interest of the assignee arising from this relationship, it can be expressed as an equity.
195 It also follows that the nature and characterisation of this relationship are dependent upon the type of transaction entered into between the parties. For example, this relation back does not occur upon crystallisation of a floating charge: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 4.07, 5.38. However, prior to crystallisation the relationship between chargor and chargee is proprietary as there is a present security. It follows that if a situation were to arise where despite crystallisation the chargee had to rely on its pre-crystallisation interest then that interest was different from the interest that takes effect from crystallisation: see ibid, paras 5.40. See further [7.15].
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5 Statutory or Legal Assignments (a) Introduction [5.01] Purpose of the chapter. Since the passing of the Judicature Act 1873, it has been said that legal choses in action may be assigned at law. At the same time, it has also been said that the statutory regime is a procedural provision. These statements are inconsistent. The purpose of this chapter is to explore this inconsistency to determine whether or not there can be a true legal assignment of contractual rights at law. Unlike the position with equitable assignments of legal rights, there is no issue here as to whether statutory or legal assignments are true assignments. That is, in the case of contractual rights, if one takes a substantive view of the legal regime then clearly there is a true legal transfer, as title is transferred by way of extinction and creation and the right to performance is actually transferred so that the assignee is owed the obligation. If the procedural view is adopted there will also be a true transfer and the analysis of such a transaction will be the same as set out in Chapter 4 in the section dealing with equitable assignments of legal rights. There is nothing akin to the “contract analysis” as discussed in Chapter 4 appearing in the cases concerning statutory assignments to complicate the picture. However, clearly there is an issue as to the characterisation of such an assignment. The answer to this lies with resolving the abovementioned inconsistency. In the result, it is concluded that the statutory regime has a substantive effect rather than being merely procedural in effect. Thus, transactions complying with the regime are true legal assignments. [5.02] Structure of the chapter. Apart from this introduction, the chapter has three sections. The first sets out the arguments for the procedural view, the second the arguments for a substantive view and the last reaches a conclusion. [5.03] Contents of the statutory provisions. The contents of the various provisions for statutory or legal assignment existing in England and all Australian states are essentially the same. For the purposes of the discussion in this chapter, the English and New South Wales provisions are set out here. The relevant English
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provision is contained in section 136 of the Law of Property Act 1915 and provides:1 (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.
The relevant New South Wales provision is contained in section 12 of the Conveyancing Act 1919 (NSW) and provides: 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 chose 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 receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled if he or she thinks fit, to call upon the 1 Conveyancing Act 1919 (ACT) s12; Law of Property Act 2000 (NT) s182; Property Law Act 1974 (Qld) s199(1) and (2); Law of Property Act 1936 (SA) s15; Conveyancing and Law of Property Act 1884 (Tas) s86(1) and (2); Property Law Act 1958 (Vic) s134; Property Law Act (1969) (WA) s20. Prior to the enactment of these provisions, South Australia enacted a general provision for the assignment of choses in action which for a time co-existed with the Judicature Act provisions. It is discussed in Robinson v The State of South Australia [1928] SASR 42.
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several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.
(b) The Procedural View [5.04] Introduction. The provisions for statutory or legal assignment have their origins in section 25(6) of the Judicature Act 1873. Generally, the Judicature Act brought about certain procedural reforms to the administration of law and equity in England.2 The history and effect of these reforms have been well documented.3 As to legal assignments being part of this reform, it is said that the effect of the statutory regime is merely procedural. By this it is meant that the statutory regime for legal assignment does no more than allow an assignee, who previously could have maintained a claim in the assignor’s name (by reason of an equitable assignment of a legal right), to sue the debtor in its own name without joining the assignor and give a good discharge. However, if the statutory regime is a procedural provision then it must follow that, although the assignee can sue in its own name, the right assigned is still an equitable right. That is, the assigned right is notionally legal for the purpose of allowing the assignee to bring an action in its own name. [5.05] Support for the procedural view. There is much case support for the view that the statutory regime is merely procedural.4 That support essentially relies on the procedural nature of the Judicature Act reforms. Moreover, there is some support for taking the procedural analysis to the ultimate conclusion mentioned in the last paragraph, namely that the assignee’s interest is only notionally legal. In 2
See generally Judicature Commission, First Report of the Commissioners London, HMSO, (1869). Eg RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) ch 2; P Loughlan, in P Parkinson (ed), The Principles of Equity (2nd edn, Sydney, Law Book Co, 2003) para 111. See also Britain v Rossiter (1879) 11 QBD 123 at 129 per Brett LJ. 4 Burlinson v Hall (1884) 12 QBD 347 at 349 per Day J; Victoria Insurance Co v King (1895) 6 QLJ 202 at 203 (affirmed [1896] AC 250); Marchant v Morton, Down & Co [1901] 2 KB 829 at 832 per Channell J; Torkington v Magee [1902] 2 KB 427 at 435 per Channell J (reversed on another point [1903] 1 KB 644); Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 676 per Cozens Hardy LJ ([1903] AC 414 at 424 per Lord Lindley); Walker v The Bradford Old Bank Ltd (1883) 12 QBD 511 at 515 per Smith J. See also Snyder’s Ltd v Furniture Finance Corp Ltd [1931] 1 DLR 398 at 313; Trubenizing Process Corp v John Forsyth Ltd [1943] 4 DLR 577 at 580; Slattery v Slattery [1946] 1 DLR 304 at 313; Pettit & Johnston v Foster Wheeler Ltd [1950] 2 DLR 42 at 48–9 (affirmed [1950] 3 DLR 320); Harding Carpets Ltd v Royal Bank of Canada [1980] 4 WWR 149 at 157–60. See further S Williston, “Is the Right of an Assignee of a Chose in Action Legal or Equitable?” (1916) 30 Harv LR 97 at 105; S Williston, “The Word ‘Equitable’ and its Application to the Assignment of Choses in Action” (1917–18) Harv LR 822 at 833 and cf WW Cook, “The Alienability of Choses in Action” (1916) Harv LR 816 at 821. 3
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Harding Carpets Ltd v Royal Bank of Canada,5 it was held that in a priority dispute a statutory assignee may be postponed to another assignee who gives first notice to the debtor.6 The reasoning of Morse J in that case was based in part on the procedural nature of the statutory regime. It was thought that the efficacy of a statutory assignment was based on equity, that is, it did not transfer to the assignee any rights recognised by the common law.7 This suggests that Morse J was of the view that the assignee’s rights were equitable.8 In addition, although not stated, it would appear to follow from his judgment that he applied the rule in Dearle v Hall 9 to resolve the priority dispute. The application of this rule to resolve a priority dispute between an equitable and a legal assignee carries the weight of judicial support.10 Moreover, it further suggests that the statutory assignee’s interest is equitable as the rule applies to priority disputes between competing equitable interests.11 Morse J also based his decision on that part of the statutory regime which states that the assignee takes subject to the equities. In England that provision states that the assignee takes “subject to equities having priority over the right of the assignee”. In New South Wales the provision states that assignee takes “sub5
[1980] 4 Western Weekly Reports (WWR) 149. Under Anglo-Australian law this dispute will arise only where there is a prior equitable assignment and a later statutory assignment. If the statutory assignment is first and the equitable assignment second (such as where there is a legal assignment by way of mortgage and the assignor further assigns its equity of redemption), the notice required for the efficacy of the statutory assignment will automatically be notice for the purposes of priority. In Harding Carpets Ltd v Royal Bank of Canada [1980] 4 WWR 149, Morse J was of the view that, under the relevant Canadian legislation, notice was not a necessary requirement for a statutory assignment. Thus, it was legitimate to speak of a contest between a statutory and equitable assignee prior to any of them giving notice. Under Anglo-Australian law the case would be understood as a competition between a prior equitable assignee and a later statutory assignee. 7 [1980] 4 WWR 149 at 158. 8 See also S Williston, A Treatise on the Law of Contracts (3rd edn, New York, Baker, Voorhis & Co, 1960) iii, para 447. 9 (1828) 3 Russ 1, 38 ER 475. 10 The authorities usually relied upon for this point are E Pfeiffer Weinkellerei-Weineinkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150 at 162–3 per Phillips J; Harding Carpets Ltd v Royal Bank of Canada [1980] 4 WWR 149 and Marchant v Morton, Down & Co [1901] 2 KB 829 per Channell J (but see the powerful arguments put forward by Oditah that these cases are not strong authorities for this point and, in any case, should be rejected in terms of principle: see F Oditah, “Priorities: Equitable Vesus Legal Assignments of Book Debts” (1989) 9 OJLS 513 at 517 and F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 6.15). See also Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 at 620–1 per Mummery J. See further OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 104–5; S Williston, A Treatise on the Law of Contracts (3rd edn, New York, Baker, Voorhis & Co, 1960) iii, para 438; JS Ziegel, “The Legal Problems of Wholesale Financing of Durable Goods in Canada” (1963) 41 Can BR 54 at 109; P Biscoe, Credit Factoring (London, Butterworths, 1975) at 132–7; DM McLauchlan, “Priorities and Equitable Tracing Rights and Assignments of Book Debts” (1980) 96 LQR 90; R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 5.09; EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, Law Book Co, 1993) at 870–2. 11 Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602. Cf Palmer v Locke (1881) 18 Ch D 381 at 386–7 per Jessel MR (affirmed (1881) 18 Ch D 381); Re Duck Jarm (1924) 24 SR (NSW) 521 at 526. 6
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ject to all equities which would have been entitled to priority over the right of the assignee”. It was thought that these words did not govern the relationship between merely the assignee and debtor but also the assignee and competing third parties. More recently, Lord Goff in Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty)12 also appears to have adopted a procedural view of the statutory regime. That case concerned an action by a debtor against a defendant assignee to recover a payment made on the ground of total failure of consideration. The assignment appears to have fulfilled all the requirements of the statutory regime. In discussing the role restitution should play in cases involving third parties, Lord Goff characterised the case as one in which the plaintiff had conferred a benefit on the defendant (assignee) in the course of performing an obligation to a third party (assignor).13 However, if the effect of a statutory assignment were substantive, the assignee would own the assigned right outright and the obligor’s duty would be owed only to the assignee and not in part to the assignor.14 The assignor would stay in the picture as a matter of contract and may still have duties to perform. It is only if the statutory regime is procedural that it could be said that the obligor would continue to owe any substantive duty in part to the assignor.15
(c) The Substantive View [5.06] Primary argument for the substantive view. The primary argument for the statutory regime having a substantive effect flows from the words of the provision. The relevant provision in each jurisdiction has words to the effect that the assignment shall be “effectual in law . . . to pass and transfer the legal right to such debt or thing in action”.16 On its face this clearly suggests that the assignee takes the assignment at law not in equity and that it obtains a legal right and not an equitable right. In Read v Brown,17 it was argued that “legal right” as it appears in the 12 [1994] 1 WLR 161. Cf his remarks at first instance in Ellerman Lines Ltd v Lancaster Maritime Co Ltd (The Lancaster) [1980] 2 Lloyd’s Rep 497 at 503 (where he refused to apply the rule in Dearle v Hall to a competition between a legal assignee and an equitable assignee, holding that the legal assignee “ranks before any equitable interest, even a prior equitable interest, unless the [legal] assignee had actual or constructive notice of the equitable interest at the time of the assignment.”). 13 [1994] 1 WLR 161 at 166. 14 Other than a bare personal obligation, perhaps (see [8.36]) Lord Goff was only intending to express the point that in the case of an assignment of a contractual right, what the assignee purchases is a right to a contractual obligation owed to the assignor: see [3.10]. 15 [8.06]. 16 Eg Conveyancing Act 1919 (NSW) s12. 17 (1888) 22 QBD 128. See also Durham Brothers v Robertson [1898] 1 QB 765 at 773 per Chitty LJ; Bacon v Yatchaw Irrigation and Water Supply Trust (1898) 23 VLR 485 at 487–8 per Williams J; Fitzroy v Cave [1905] 2 KB 364 at 373 per Cozens-Hardy LJ; Bennett v White [1910] 2 KB 643 at 646 per Cozens-Hardy MR, at 648 per Farewell LJ, at 648 per Kennedy LJ; Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 at 116, 118 per Hirst J.
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provision meant the same thing as “legal and other remedies” as it appears later in the section. Lord Esher MR (with whom Fry and Lopes LJJ agreed) said:18 It is said that [the statutory regime] only affects procedure . . . [T]he words mean what they say; they transfer the legal right to the debt as well as the legal remedies for its recovery. The debt is transferred to the assignee and becomes as though it had been his from the beginning; it is no longer the debt of the assignor at all, who cannot sue for it, the right to sue being taken from him; the assignee becomes the assignee of a legal debt and is not merely an assignee in equity, and the debt being his, he can sue for it, and sue in his own name.
[5.07] The argument against the literal view: applicability of the regime to equitable choses in action. There is an argument that suggests that the literal view of the provision cannot be sustained. This argument is not itself directly concerned with the substantive/procedural issue being discussed here, but rather with whether the provision applies to the equitable assignment of equitable interests. One point that fuels this argument is the reference to a “trustee” in the provision. If the provision applies to the assignment of equitable interests, it becomes nonsensical to construe it literally. Under this argument, the better construction of the provision is that it was intended to capture those rights which before the Act were capable of lawful assignment.19 The High Court of Australia (in obiter) has adopted this view of the provision.20 In the section that follows, it is suggested that the provision does not generally apply to the assignment of an equitable chose in action. However, there may be one exception. The exception arises where there is a chain of assignments and where the first assignment involves an equitable assignment of a legal interest. For example, assume A attempts to assign a legal debt to B which fails to satisfy the statutory requirements because no notice is given to the debtor, but which nevertheless takes effect as an equitable assignment. B then assigns its entire interest to C which in turn assigns its entire interest to D. Clearly, the assignments to C and D are assignments of equitable choses in action. However, if the assignments to C and D are assignments of the assignor’s entire interest then the end result is that D owns the right that was once vested in B which, in terms of characterisation, is the equitable ownership of the promise made by the debtor to A. The result is that B and C effectively drop out of the picture so that there is only a tripartite relation-
18
(1888) 22 QBD 128 at 131–2. The equivalent New Zealand provision now expressly provides that it applies to equitable choses in action: see Property Law Act 1952 (NZ) s130(1). 20 FCT v Everett (1980) 143 CLR 440 at 447 per Barwick CJ, Stephen, Mason and Wilson JJ. Cf Law Institute of Victoria v Cowan [1973] VR 293 at 302. See also OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons, 1950) at 166–8; FCT Tudsberry, The Nature, Requisites and Operation of Equitable Assignments (London, Sweet & Maxwell, 1912) at 10–12; R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.12. 19
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ship left. If B could have given notice to the debtor for the purposes of rendering the assignment legal, then there seems no reason why D (who took an equitable assignment of an equitable interest) cannot now give notice, render the assignment legal and vest in D the legal right to the chose. The requirements of that notice may be more onerous than those that would have applied if B were giving the notice.21 [5.08] In defence of the literal view. Subject to the exception just noted, there are a number of arguments that suggest the provision was not intended to apply to the equitable assignment of equitable interests.22 [5.09] First, the provision applies to the assignment of any “debt or other legal thing in action”. There is no mention of equitable choses in action. Moreover, if the provision does apply to equitable assignments of equitable interests then on its face it transfers a “legal right”.23 That cannot be correct unless it is limited to the exception suggested above as well as to legal rights that are consequent on an equitable right. That is, rather than the assignor continuing to hold any consequent legal rights on trust for the benefit of the assignee, if the assignment satisfies the statute such consequent legal rights are also assigned.24 [5.10] Secondly, the language of the provision is mandatory. There can be no legal assignment of a legal interest unless its requirements are made out. That mandatory language would need to be ignored in the case of an equitable assignment of an equitable interest.25 If not, it would lead to the result that it is easier to assign a legal chose in action in equity than an equitable chose in action.26 It would make notice to the obligor an essential ingredient27 and the assignment would not take effect until the time of notice.28 In addition, writing requirements would become more stringent as the assignment would need to be under the hand of the 21
See [7.38]. See RP Austin, “The Conveyancing Act, 1919 (As Amended): Section 12 and Equitable Choses in Action” (1974) 7 Syd Uni L Rev 394 at 396–7, 397–8. See also Robinson v The State of South Australia (1928) SASR 42 at 49–50. See further Cronk v M’Manus (1892) 8 TLR 449. 23 There is authority to this effect: see Re Pain [1919] 1 Ch 38 at 44–5 per Younger J; Harding v Harding (1886) 17 QBD 442 at 445 per Wills J. 24 JD Heydon and PL Loughlan, Cases and Materials on Equity and Trusts (6th edn, Sydney, Butterworths, 2002) para 7.27. 25 Ibid, para 7.27. 26 See PR Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 6.030–6.040. 27 See further Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 5, where Atkinson J suggests that it would be strange if the effect of the legislation was that an absolute assignment given for consideration without notice was effective in equity, but an absolute assignment given without consideration and without notice was not, but in the latter, this was instantly cured by the giving of notice. 28 [7.38]. 22
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assignor.29 In this regard, the law appears to be clear: the statutory regime does not in any way impair the efficacy of equitable assignments.30 [5.11] Thirdly, it is doubtful whether the decision most often cited as authority for the provision applying to equitable assignments of equitable interests is authority for that point. The case is Torkington v Magee 31 where Channell J said:32 I think the words “debt or other legal chose in action” mean debt or right which the common law looks on as not assignable by reason of its being a chose in action, but which a Court of Equity deals with as being assignable.
An equitable chose in action would obviously fall into this category. Such a conclusion, however, appears to miss the point that Channell J was making. He observed that the statutory regime originated in a subsection of section 25 of the Judicature Act. He noted that although the first ten subsections (of which the relevant provision was contained in section 25(6)) contained specific provisions, it was important to look at section 25(11), which provided that where there was a conflict between the rules of equity and the rules of the common law the rules of equity were to prevail. He said, “This seems to me to shew that sub-s 6 is one of the matters particularly mentioned in which the rules of equity and common law had conflicted or varied in reference to the same matter, and this gives the clue to the meaning of any doubtful expression.”33 That is, the resolution of such conflicts was the basis for section 25’s existence. It must then follow that since the common law did not deal with equitable interests there could be no conflict, and therefore the section does not apply to equitable interests. The only conflict that existed was that equity recognised the assignment of legal choses in action and the common law did not. Moreover, Torkington’s case concerned the assignment of a contractual right, and not the assignment of an equitable right and it was the common law’s approach to the assignment of legal rights that Channell J was directing his comments to. He thought the assignment fell within the regime because, in line with his understanding of the provision set out above, it concerned a right the
29 Alternatively, it has been suggested that if the writing requirements under this section and the writing requirements under the various equivalents of the Law of Property Act 1925 (Eng) s53(1)(c) (see [7.26]) are to be kept separate, it may be necessary to draw a distinction (if possible) between “equitable choses in action” for the purposes of s136 and an “equitable interest or trust subsisting at the time of disposition” for the purposes of s 53(1)(c). It may also be necessary to distinguish an absolute assignment as per s136 from a “disposition” as per s53(1)(c): see JD Heydon and PL Loughlan, Cases and Materials on Equity and Trusts (6th edn, Sydney, Butterworths, 2002) para 7.27. 30 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 461 per Lord Macnaghten. Cf as to assignments by way of gift, [7.21]. 31 [1902] 2 KB 427 (reversed on another point [1903] 1 KB 644). 32 Ibid, at 430–1. 33 Ibid, at 430.
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assignment of which would have been recognised by a court of equity prior to the passing of the Judicature Act.34 In addition, the quotation set out above and relied on for the argument that the provision includes equitable choses in action appears in a part of his judgment where he attempted (famously) to define the meaning of “chose in action”.35 He came to the conclusion that the phrase had a wide meaning and would capture rights clearly not meant to be covered by the provision. He gave the example of a transfer of shares. He then made the abovementioned statement in an attempt to limit the reach of the provision rather than widen it. [5.12] Fourthly, another judgment often cited for the view that the provision is intended to capture those rights which before the Act were capable of “lawful” assignment, whether in law or equity, also does not appear to be strong authority for this point. The judgment is that of Griffith CJ in the Queensland Supreme Court in King v Victoria Insurance Co Ltd.36 In that case he said:37 [T]he test to be applied for determining the validity of an assignment of a ‘chose in action’, which is in accordance with . . . [the Act], is whether the subject matter of the assignment and the circumstances under which it is made are such that before the Act a court of law or equity would have considered the assignment a lawful one, and would have given in respect of it such relief as, according to the practice of the court, was appropriate.
This statement was not made for the purposes of clarifying the section, but rather to negative an argument that the section had done away with the rule preventing the assignment of bare rights to litigate. The answer to that argument was that the statutory regime requires the assignment to be “lawful” and not against public policy.38 Later, the Privy Council said that it did not wish expressly to dissent from the views of the Court below as to the construction of the Judicature Act but preferred to express no opinion on what, if any, limitation should be placed on the meaning of phrase “legal chose in action”.39
34 Ibid, at 432. See RP Austin, “The Conveyancing Act, 1919 (As Amended): Section 12 and Equitable Choses in Action” (1974) 7 Syd L Rev 394 at 397. 35 [2.05]. 36 (1895) 6 QLJ 202 ([1896] AC 250). See also Manchester Brewery Co v Coombs [1901] 2 Ch 608 at 619 per Farwell J; Re Pain [1919] 1 Ch 38 at 44 per Younger J. See also the discussion of King v Victoria Insurance Co Ltd in Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at 116–21 per Roskill J. 37 (1895) 6 QLJ 202 at 204. 38 See RP Austin, “The Conveyancing Act, 1919 (As Amended): Section 12 and Equitable Choses in Action” (1974) 7 Syd L Rev 394 at 395. See also Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at 121. 39 [1896] AC 250 at 256. The Privy Council held that the assignment did not savour of maintenance and therefore did not have to resolve this issue.
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[5.13] Fifthly, the case with the strongest statement that the statutory regime applies to the assignment of equitable choses in action is Re Pain,40 but it too is not strong authority for this view. In that case Younger J said:41 [T]he assignments in the present case do fall within the section; for, although prior to that Act the interest of the plaintiff in this case, being properly recoverable only in a Court of Equity, was strictly a “chose in equity”, not cognisable in a Court of Law, the expression in the section “legal choses in action” includes chose in equity within its scope. These, since King v Victoria Insurance Co—although the Privy Council decision there merely indicated negative approval of a view of the Colonial Court on an analogous Colonial statute—have been treated as including “all rights the assignment of which a Court of law or Equity would before the Act have considered lawful”; or, in the words of Channell J in Torkington v Magee, as including a “debt or right which the common law looks on as not assignable by reason of its being a chose in action, but which a court of Equity deals with as being assignable”.
It can be seen, however, that the authority relied upon by Younger J was that of Torkington v Magee and King v Victoria Insurance Co Ltd, both of which, as noted, cannot stand as authority for this point. [5.14] Sixthly, if the provision was meant to be merely procedural, with its purpose being to allow the assignee to sue without joining the assignor, then an equitable assignee of an equitable interest could already do that by an absolute assignment before the provision was enacted. It therefore adds nothing to the efficacy of equitable assignments of equitable rights. [5.15] Seventhly, it makes perfect sense to confine the word “trustee” to the trustee in bankruptcy, and this may be what the drafter had in mind as he was mainly concerned with the assignment of debts.42 [5.16] Further arguments for the substantive view. Five further reasons may be raised against the statutory regime being merely procedural.43 [5.17] First, the provision clearly allows for the assignment of interests in circumstances where, prior to its enactment, the assignment would not be upheld by equity for lack of consideration.44 In Re Westerton,45 Sargant J suggested that the legislation had improved the position of the assignee procedurally by allowing the 40
[1919] 1 Ch 38. Ibid, at 44–5. 42 See RP Austin, “The Conveyancing Act, 1919 (As Amended): Section 12 and Equitable Choses in Action” (1974) 7 Syd L Rev 394 at 398–9. 43 See further Torkington v Magee [1902] 2 KB 427 at 431 per Channell J. 44 Cossill v Strangman [1963] NSWR 1695 at 1698–9. 45 [1919] 2 Ch 104 at 111. 41
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assignee to sue at law in its own name. At the same time he appeared to recognise a substantive improvement to the assignee in the relaxation of the need for consideration. He said:46 It does seem to me that the aim of the sub-section was to reform procedure and to make it unnecessary for an assignee who had an out and out assignment to go through the double process that was formerly necessary in the case of an unwilling assignor. . . . To that extent, . . . the position of the assignee as a question of procedure was improved; he could come at once to law, and come not in the name of the assignor but in his own name as assignee. But if that is so and by means of that simplification of procedure the assignee has been relieved from taking preliminary proceedings in equity, there seems to me to be nothing very startling in the further conclusion, that the assignee has also been relieved from the terms which equity imposed as a condition of assisting him in obtaining the legal right, if at law the question of consideration was regarded as wholly immaterial; and I think that it must have been so regarded for this reason, that at law the action was brought in the name of the assignor, so that there was no question at all of any transaction between the assignor and the assignee under which the question of consideration could arise. If that be so and if since the Judicature Act 1873, the assignee can come directly in his own name and sue as effectually as he could have done in the name of the assignor, it appears to me that there is no reason for continuing against the assignee those terms which were imposed by equity as a condition of granting relief. The position of the assignee has in this respect been improved once and for all by the sub-section of the Judicature Act in question, which has conferred on him a legal right to sue, and in my judgment I ought not to consider that legal right as being in any way dependent upon the question whether the assignment was made for valuable consideration or not, provided it complies with the express conditions of the sub-section.
[5.18] Secondly, under a statutory assignment although the contract between the assignor and obligor continues to exist, the assignor retains no interest in the right assigned, and therefore has no cause of action if the obligor fails to perform the relevant obligation.47 As noted earlier, in the case of an equitable assignment of a legal right the assignor maintains a cause of action because the obligation is still owed to the assignor at law.48 [5.19] Thirdly, despite the Judicature Act reforms being said to be procedural in nature, it must be recognised that section 25 was concerned with resolving conflicts between law and equity. Generally, it resolved those conflicts in favour of the equitable rule. It is suggested that this was intended to have substantive 46
Ibid, at 113–14. Read v Brown (1888) 22 QBD 128 at 132 per Lord Esher MR; Durham Bros v Robertson [1898] 1 QB 765 at 773 per Chitty LJ; Bacon v Yatchaw Irrigation and Water Supply Trust (1898) 23 VLR 485; Re Pain [1919] 1 Ch 38 at 49 per Younger J; Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101. 48 [4.05]. 47
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consequences.49 In addition, the only conflict it could have been resolving with respect to assignments was the fact that the common law generally did not recognise the assignment of legal choses in action and equity did. Moreover, the argument that the provision is procedural dictates that the only change was to allow an assignee to bring an action in its own name without joining the assignor. However, the requirement that the assignor be joined was a rule of equity, so it can hardly be argued that by dropping that requirement the section was allowing a rule of equity to prevail. [5.20] Fourthly, the idea that the provision is procedural in the sense that it changed procedure to allow an assignee to bring an action in its own name may have only superficial appeal. The argument that this evidences the procedural nature of the provision is that prior to the provision if an assignee wished to enforce the assigned right it was required to get the consent of the assignor to lend its name to the suit at law or, if that was not forthcoming, obtain an order from equity forcing the assignor to lend its name to the suit at law. The provision is said to have merely done away with either having to get consent or having to get such an order.50 However, as noted earlier, prior to the Judicature Act, the common law courts had already stopped requiring the assignee to obtain such an order and allowed the assignee to bring an action in the name of the assignor.51 Thus, the real change brought about by the provision was the ability of the assignee to bring an action in its own name. This can be explained only on the basis that the provision is substantive in nature, in that it passes the legal title to the assignee. In fact, the provision says nothing about joinder, nor does it expressly state that the assignee can bring an action in its own name. The relevant words are, “Any absolute assignment shall be . . . effectual in law to pass and transfer the legal right . . . and all legal and other remedies . . . and the power to give a good discharge . . . without the concurrence of the assignor”. The reference to the “concurrence of the assignor” qualifies only the issue of discharge, and the accepted ability of the assignee to bring an action in its own name must come from the previous words which are clearly directed to vesting legal title in the assignee. There is no need to mention the issue of joinder because the assignee owns the legal right and so, of course, it 49 RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 2.065, 2.115. Similarly it is difficult to see how s 25(7) of the Judicature Act which “construed” time provisions in contracts in accordance with the equitable rule, namely, that they were not of the essence, as opposed to the common rule which did treat them as conditions, could be said to be merely enacting a procedural change. 50 As noted earlier, [4.24], it has been argued by some commentators that the provision is procedural in the sense that prior to its enactment the common law had come to recognise the assignment of choses in action, and this provision did away with the need to join the assignor. This is, with respect, a strange position to adopt. The requirement that all interested parties had to be before the court was a procedural requirement of equity. It is not clear how this provision resolved a conflict between law and equity in favour of equity if it did away with that requirement. 51 [2.12].
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need not join the assignor.52 Moreover, the fact that the assignee can provide a discharge without the concurrence of the assignor is also substantive as it means that, unlike the position prior to this enactment, the obligation must no longer be, in part, owed to the assignor. It is therefore suggested that the true essence and limit of the provision’s procedural nature are that it did not make anything assignable at law that was not, prior to the enactment, assignable in equity.53 [5.21] Fifthly, and most pragmatically, even if the procedural view is correct, if the view is then taken that the common law has not developed at all since 1873, so that it has never managed to recognise the transfer of legal rights, that result will reflect a rather unsophisticated system of commercial law. [5.22] The priorities issue. Finally, something must be said about the procedural view of the provision and the issue of priorities. According the judgment of Morse J in Harding Carpets Ltd v Royal Bank of Canada,54 there appear to two aspects to this issue. [5.23] The first simply dictates that because the provision is merely procedural the interest of the assignee is equitable, and therefore in any priority dispute the rules governing competing equitable assignments operate.55 That is, priority goes to the party first giving notice rather than applying the first in time rule and/or the bona fide purchaser rule.56 This argument is simply met with the points put forward above that suggest that the provision is not procedural but substantive. Thus, the starting point for this argument is undermined.
52 Quaere whether it logically follows that the enforcement of a partial assignment under the Western Australia Act (Property Law Act 1969 (WA) s20(3)) which recognises the legal assignment of partial interests in debts and choses in action would not require an assignee to join the assignor even as a matter of procedure to enforce its claim. If, as the provision appears to accept, a debt may now be recovered piecemeal in a court of law, and if the assignee of part of a debt owns the legal right to that part of the debt, then the enforcement of that part by the assignee could not place the debtor in the position in which he or she may later be sued by the assignor for that same part. 53 See Compania Colombiana de Seguros v Pacific Steam Navigation Co (1965) 1 QB 101 at 114–21 per Roskill J. 54 [1980] 4 WWR 149. See [5.5]. 55 See also Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 at 620 per Mummery J (in this case Mummery J also rejected the argument that the rule in Dearle v Hall applies only to transactions involving equitable interests and not transactions that involve equitable dealings with legal interests). 56 There is some authority for applying the bona fide purchaser rule, eg Ellerman Lines Ltd v Lancaster Maritime Co Ltd (The Lancaster) [1980] 2 Lloyd’s Rep 497 at 503 per Goff J; Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] AC 1 at 19 per Viscount Finlay; Ward v Duncombe [1893] AC 369 at 392 per Lord Macnaghten. See also F Oditah, “Priorities: Equitable Vesus Legal Assignments of Book Debts” (1989) 9 OJLS 513 at 529–31. Cf Compaq Computer Ltd v Abercorn Group Ltd [1993] BCLC 602 at 621 per Mummery J.
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[5.24] The second aspect is more sophisticated. It dictates that because the provision expressly adopts, as a priority rule (for a competition between an equitable assignee and a statutory assignee), the rule that applies between competing equitable assignees, then the interest of the statutory assignee must be equitable, and therefore the provision must in turn be procedural in nature. The argument for the provision adopting this priority rule is said to lie in the words that the assignee takes “subject to equities having priority over the right of the assignee”. The problem with this argument is that it is not entirely clear that these words are meant to operate as a priority provision. Apart from this reference to the word “priority” the provision deals only with the tripartite relationship between the assignor, assignee and obligor/debtor. It may have been thought by the legislator that because the right vested in the assignee is legal then to ensure that the rule that an assignee takes subject to the equities the obligor has against the assignor prior to receiving notice of the assignment continues to apply to such assignments, it was necessary to state this expressly. However, unfortunately, the word chosen was “priority” which is generally used to describe disputes between competing assignees.57 [5.25] It is also important to note that the original provision which is still reflected in section 12 of the Conveyancing Act 1919 (NSW) (but not any other Australian jurisdiction and not in England) said that the assignee takes “subject to equities having priority over the right of the assignee if this Act had not passed”.58 It is suggested that these final words are important. If we assume that this provision is meant to govern priorities (as well as defences the obligor may have against the assignor), then these words tend to suggest that the effect of the provision is in fact substantive. That is, they suggest that for the purposes of priority it is necessary to consider what the position of the assignee would have been if the Act was not passed. If the Act had not been passed, the assignee’s interest would have been equitable, and so you apply the rules governing competition between competing equitable interests. There would have been no need to expressly state this if, in fact, the provision was procedural, because in that case the assignee’s interest would only ever have been equitable. Therefore, even if it is accepted that the provision is intended to govern priorities and that it expressly adopts the rules governing competing equitable assignees, this does not prove the argument that the provision is procedural. In fact, as noted, it can equally be seen as strengthening the case against the procedural view. 57 One might argue that the reference in the section to the subject to equities rule evidences that it is a procedural provision because a true transfer at law would not adopt that rule. However, if the common law accepted the assignment of choses in action it is not clear whether it would or would not have adopted such a rule: see [8.67]. 58 The Australian Capital Territory provision uses a different expression but still captures this idea. S 12(4) of the Conveyancing Act 1919 (ACT) states; “However, the transfer is subject to all equities that would have been entitled to priority over the right of the assignee apart from this section”.
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[5.26] In the result, it is difficult to come to any firm conclusion whether or not the provision was meant to govern priorities. It is suggested that in any case the correct priority rule to apply between a statutory assignee and an equitable assignee should be determined by the policies underlying priority rules, and not a strained or questionable construction of this provision. There is certainly a strong case that this aspect of the regime should be made clear.
(d) Conclusion [5.27] Conclusion. For the reasons set out above, it is suggested that the statutory provisions for legal assignment, which have as their genesis section 25(6) of the Judicature Act 1873, are substantive in effect. They provide for the transfer of legal interests so that the assignee becomes the owner at law of the subject chose in action. The assignor retains no interest and no cause of action against the obligor.59 The provisions are procedural only to the extent that they do not make assignable anything that prior to the enactment could not have been assigned in equity.
59 Of course where the assignment is by way of mortgage the assignor will obtain an equity of redemption. Moreover, when claiming redemption, the assignor, despite there being a legal assignment, may be a necessary party to any suit that is on foot between the assignee and obligor: Re Pain [1919] 1 Ch 38 at 49–50.
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6 Assignable Contractual Rights (a) Introduction [6.01] Purpose of the part. This part investigates the process of assigning contractual rights. It consists of two chapters. The first deals with the identification of assignable contractual rights and the second deals with the formalities for an assignment. [6.02] Purpose of the chapter. The first issue that must be addressed when deciding to assign a contractual right is to determine whether or not the right is assignable. This chapter is concerned with that issue. As regards the underlying theme of the book, this chapter seeks to explain those rules which are relevant to the issue of assignability by reference to the principle of transfer. Those rules are: 1. An assignor can assign no greater right than it has, nor can an assignee obtain a right greater than that held by the assignor. 2. Only non-personal contractual rights may be assigned. 3. It is not possible by assignment to increase or vary the obligations or burdens of an obligor. 4. It is possible to assign only rights and not obligations. Rule 1 is clearly a statement of the nemo dat rule which is the hallmark of the legal concept of transfer and needs no further discussion insofar as the theme of the book is concerned. The chapter will focus on rules 2, 3, and 4. [6.03] Structure of the chapter. The first requirement for an assignable contractual right, at least under the current property model of assignment, is that it be a chose in action. This issue is dealt with in the next section. Closely associated with the need for a chose in action is the requirement that the subject matter be present property. It is therefore necessary in this chapter to discuss the distinction between present and future property. Following this there is a section on the division and separation of contractual rights. After this there is a long section on restrictions.1 1 It is possible to view the requirement of a present chose in action as a restriction on assignability, however, the restrictions dealt with in the “restrictions” section of this chapter are more concerned with the placing of positive restrictions on assignment as opposed to positive requirements of assignability.
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The first part of this section deals with public policy restrictions on assignment. The second part deals with the notion of personal contractual rights. The third part looks at contractual provisions dealing with assignment. The fourth part ties parts 2 and 3 to the principle of transfer. The fifth part looks at the rule which prohibits an assignment from varying or increasing the obligations or burdens of the obligor insofar as that rule relates to assignability. Finally, the sixth part looks at the assignment of contractual burdens.
(b) The Requirement of a Chose in Action (i) Contractual Rights as Choses in Action [6.04] Introduction. For a contractual right to be assignable it must first be characterised as a chose in action. The meaning of “chose in action” was dealt with in Chapter 2.2 This section identifies those contractual rights that are choses in action. [6.05] Debts.3 A debt is a right to receive a payment.4 Apart from being expressly made assignable under the statutory regime,5 a contractual debt whether it is payable immediately or not, is a chose in action6 and may be assigned. Whether or not a memorandum of assignment captures a debt is a question of construction.7 For example, where a memorandum refers only to the fruits of a contract it may not capture the right to the obligation to pay.8 An assignment of a debt requires the creditor to assign its rights against the debtor.9 Moreover, an assignment of the benefit of a contract may not capture an obligation to pay, that is, a debt, that had accrued prior to the assignment.10
2
[2.02]–[2.06]. As to the assignability of causes of action under s 82 and 87 of the Trade Practices Act 1974 (Cth): see Chapman v Luminis Pty Ltd (No 5) (2002) Australian Trade Parctices Reports (ATPR) (Digest) 46,214; National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514; Park v Allied Mortgage Corp Ltd (1993) ATPR (Digest) 46,105. See also Pritchard v Racecage Pty Ltd (1997) 142 ALR 527. Cf the position of a trustee in bankruptcy: Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238. 4 Westralian Farmers Co-operative Ltd v Southern Meat Packers Ltd [1981] WAR 241 at 244. 5 [5.03]. 6 Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548 at 574 per Lord Goff. 7 [6.34]. 8 [6.33]. 9 See Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 13 per Latham CJ and cf at 28–30 per Dixon J. This does not extend to the right to determine whether a sum is payable under a contract: see [6.54]. 10 [6.34]. 3
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[6.06] Right to Damages. An accrued right to sue for damages for breach of contract is a chose in action.11 Some older cases suggest that a mere right to sue for breach of contract is not a chose in action because, if it were, it would be assignable and that would be at odds with the law of maintenance and champerty.12 However, the better view is that the law does not deny the character of a chose in action to a right to bring an action for damages for breach of contract, but recognises that the assignability of that chose in action is subject to overriding public policy considerations.13 It cannot be correct that the degree of interest the assignee has in the subject matter of the assignment can affect the nature of that subject matter as a piece of property. Therefore, a conclusion that a right is a bare right of action and therefore not assignable does not necessarily deny that the right may still be a chose in action; it is merely a conclusion that the right is either not a chose in action or, more likely, is a chose in action but is not assignable for public policy reasons.14 In addition, if the secondary right to damages for breach of contract were not a chose in action, the recognised ability of liquidators and trustees in bankruptcy to assign such rights would be anomalous.15 [6.07] The right to performance. The benefit (or right to performance) of a contract is a chose in action.16 The recognised assignability of a right to receive the benefit of contractual performance demonstrates that it is not necessary for a right to be capable of enjoyment only by action for it to be a chose in action.17 A right to receive contractual performance satisfies the modern enforceability requirement of a chose in action as it is capable of enforcement by action.18 It is enforceable by action because it is possible to sue for damages if there is a breach of contract. Unlike an order for specific performance a claim for damages for breach of contract does not enforce the contract in a primary sense. Nevertheless, 11 Quaere whether some of those heads of damages that do not reflect a financial loss, such as damages for loss of enjoyment or injured feelings, are too personal to be assigned, or whether the assignability of such rights is dependent upon whether the benefit of the primary right to performance is itself personal and not assignable: see Re Campbell [1997] Ch 14 at 19 per Knox J; Haq v Singh [2001] 1 WLR 1594. 12 Eg May v Lane (1894) 64 LJQB 236 at 238 per Rigby LJ (see [2.02]); Dawson v Great Northern and City Railway Co [1905] 1 KB 260 at 270–1 per Stirling LJ. 13 See further [6.59]. 14 See Deputy Commissioner of Taxation v Government Insurance Office of New South Wales (1993) 117 ALR 61 at 70 per Hill J. 15 Eg Ogdens Ltd v Weinberg (1906) 95 LT 567. See also Stein v Blake [1996] AC 243 at 258 per Lord Hoffmann. Cf Re Oasis Merchandising Services Ltd [1998] Ch 170. See [6.67]. 16 Torkington v Magee [1902] 2 KB 427 at 431 per Channell J; Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 420 per Lord Macnaghten. See also Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 504 per Windeyer J; Zhu v Treasurer of New South Wales (2004) 211 ALR 159 at 192–3. 17 Torkington v Magee [1902] 2 KB 427 at 431 per Channell J. Cf Simmons v Harvey [1965] Tas SR 84 at 94 per Neasey J. 18 [2.04]. See also Loxton v Moir (1914) 18 CLR 360 at 379 per Rich J.
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damages are assessed on the basis of putting the plaintiff in the position it would have been in if the contract had been properly performed. Therefore damages enforce the obligation to perform and the correlative right to perform in a secondary sense as they secure performance. It follows that in a legal sense the damages represent the fruits of the contract. Insofar as its characterisation as a chose in action is concerned, it does not matter whether a present right to performance is conditional or unconditional.19 However, in the case of a conditional or dependent obligation, the extent to which the contract is executed or executory will impact on the ability of the assignee to enforce performance.20 [6.08] Miscellaneous contractual rights.21 The assignment of contractual rights is not limited to rights to some positive performance.22 For example, a contractual promise in restraint of trade which is otherwise enforceable is a chose in action and is assignable unless, on construction, it is personal to the assignor.23 A contractual right of pre-emption has also been held to be an assignable chose in action.24 In addition, the benefit of a contractual arbitration provision is a chose in action and is assignable.25 Moreover, a contractual right of indemnity has been classified as a chose in action, although, often, such rights (as opposed to the fruits or perhaps the right to the fruits of such contracts) are construed as personal and not assign-
19 Eg Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190. See also Tooth v Hallett (1869) LR 4 Ch App 242; Brice v Bannister (1878) 3 QBD 569; G and T Earle Ltd v Hemsworth Rural District Council (1928) 44 TLR 758 at 760 per Scrutton LJ. Cf the position when the existence of the right is conditional or contingent, [6.20]. 20 [8.07]. 21 On the assignment of funds standing to the credit of the drawer of a bill of exchange: see AG Guest, Chalmers and Guest on Bills of Exchange, Cheques and Promissory Notes (16th edn, London, Sweet & Maxwell, 2005) para 7.005. 22 It has been held that a right to relief against forfeiture of a lease is a chose in action which will vest in a trustee in bankruptcy and is assignable by the trustee: see Howard v Fanshawe [1895] 2 Ch 581. Quaere whether the extent to which such an order is discretionary may dictate that all the assignor really has is a right to approach a court for an order granting relief against forfeiture; cf Newbolt v Bingham (1895) 72 LT 852; Gill v Lewis [1956] 2 QB 1. 23 Elves v Croffs (1850) 10 CB 241, 138 ER 98; Baines v Geary (1887) 35 Ch D 154; Townsend v Jarman [1900] 2 Ch 698; Welstead v Hadley (1904) 21 TLR 165; Automobile Carriage Builders Ltd v Sayers (1909) 101 LT 419. See also New York Bank Note Company v The Hamilton Bank Note Engraving and Printing Company (1905) 73 NE 48; Sickles v Lauman (1918) 169 NW 670; Coker and Bellamy v Richey (1922) 204 P 945; Torrington Creamery v Davenport (1940) 12 A 2d 780; Cantrell v Lemons (1948) 200 P 2d 911; Mail-Well Envelope Co v Saley (1972) 497 P 2d 364; Saliterman v Finney (1985) 361 NW 2d 175; Alexander & Alexander v Koelz (1987) 722 SW 2d 311; Pino v Spanish Broadcasting System of Florida Inc (1990) 564 So 2d 186. Cf Davies v Davies (1887) 36 Ch D 359 at 394 per Bowen LJ. 24 Dear v Reeves [2002] Ch 1. 25 Rumput (Panama) SA v Islamic Republic of Iran Shipping Lines (The Leage) [1984] 2 Lloyd’s Rep 259; Socony Mobil Oil Co Inc v The West of England Ship Owners Mutual Insurance Association (London) Ltd (The Padre Island) [1984] 2 Lloyd’s Rep 408; Montedipe SpA v JTP-RO Jugotanker (The Jordan Nicolov) [1990] 2 Lloyd’s Rep 11. See further [6.73].
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able.26 Finally, an option is a chose in action27 and is capable of assignment unless, on construction, it is personal to the grantee.28 Interestingly, the assignability of an option is not limited to options in the form of (existing) conditional contracts. An option in the form of an irrevocable offer is also assignable even though an offer to contract is not, as it is personal to the extent of not being a chose in action.29 Where an option in the form of an irrevocable offer is assigned it cannot be the case that the assignee only receives the benefit of the contract not to revoke that accompanies such an offer because, if that were all the assignee received, it would never be in the position of being able to exercise the option.30 [6.09] Rights to rectify or rescind. Rights to rectify or rescind contracts are more problematic. There are cases that have held that a right to rescind or rectify is a chose in action and is assignable.31 However, these cases have involved dealings in land where the right to rescind or rectify has been held to amount to an equitable interest. Where the right of rectification or the right to rescind is an incident of the property conveyed then the grantor will continue to have an interest in the property and the right to rectify or rescind will be assigned when there is a conveyance
26 Eg British Union & National Insurance Co v Rawson [1916] 2 Ch 476; Rendall v Morphew (1914) 84 LJ Ch 517. See further [8.13]. 27 Griffith v Pelton [1958] Ch 205 at 225; Re Button’s Lease [1964] Ch 263; Snape v Kiernan (1988) 13 NSWLR 88 at 95 per Mahoney JA; Westgold Resources NL v St George Bank Ltd (1998) 29 Australian Company and Securities Reports (ACSR) 396 at 433 per Anderson J (affirmed [2000] Western Auistralian Supreme Court, Court of Appeal (WASCA) 85). 28 County Hotel and Wine Co Ltd v London and North Western Railway Co [1918] 2 KB 251 (affirmed [1919] 2 KB 29); Wright v Morgan [1926] AC 788; Griffith v Pelton [1958] Ch 205. See also Re Cousins (1885) 30 Ch D 203; Jacobs v Larkin (1892) 13 NSWR (Eq) 62; Shearer v Wilding (1915) 15 SR(NSW) 283; Whiteley Ltd v Hilt [1918] 2 KB 808; Taita Hotel Ltd v Spelman [1963] NZLR 206; Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279; Briargate Developments Ltd v Newprop Co Ltd [1990] 1 EGLR 283 and see CJ Rossiter, Principles of Land Contracts and Options in Australia (Sydney, Butterworths, 2003) paras 3.15–3.18. See further Sharp v The Union Trustee Co of Australia Ltd (1944) 69 CLR 539; Wilson v Commissioner of Probate Duties (Vic) (1978) 8 Australian Taxation Reports 799; Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd (1999) 9 Butterworths Property Reports 97801; Clayman v Goodman Properties Inc (1973) 518 F 2d 1026. The fact that an option is given to a grantee and its nominee does not of itself render the option personal: see David Jones Ltd v Lunn (1969) 91 WN(NSW) 468. Generally, if an option is not personal and is assignable then it may be exercised by the personal representatives of the offeree: see Carter v Hyde (1923) 33 CLR 115; Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57. See also Kennewell v Dye [1949] Ch 517 (exercise of option against personal representatives). 29 See RA Brierley Investments Ltd v Landmark Corporation Ltd (1966) 120 CLR 224 at 232 per Barwick CJ, Kitto and Windeyer JJ. 30 In the case of an option to acquire an interest in land, the option may vest an interest in land in the optionee. Where that is the case any formal writing requirements need to be satisfied: see CJ Rossiter, Principles of Land Contracts and Options in Australia (Sydney, Butterworths, 2003) para 3.19. 31 Eg Dickinson v Burrell (1866) LR 1 Eq 337; Majestic Homes Pty Ltd v Wise [1978] Qd R 225 at 232; Child v Dynes [1985] 2 NZLR 554 at 560; Misner v Australian Capital Territory (2000) 146 ACTR 1.
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of the property by the grantor.32 The conveyance of property carries with it the transferor’s right to rectify or rescind. Thus, if A sells to B where A has a right to recover the property from B and that right is an incident of the property, then A will continue to have an interest in the property and can assign that equitable interest to C, allowing C to sue B to recover the legal estate.33 However, this result depends on the equity to rescind or rectify being an incident of the property rather than an incident of the contract between the first two parties.34 Whether it is an 32 Dickinson v Burrell (1866) LR 1 Eq 337 at 342. See also Stump v Gaby (1852) 2 De GM & G 623, 42 ER 1015; Majestic Homes Pty Ltd v Wise [1978] Qd R 225 at 232. Despite this there is a view that such an interest is best described as a mere equity, with any full equitable interest being dependent on the exercise of the right to rescind or rectify which in the meantime may be defeated by a bona fide purchaser: see Phillips v Phillips (1861) 4 De GF & J 208, 45 ER 1164 and compare the judgments of Kitto and Taylor JJ in Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265. Cf Prosser v Edmunds (1835) 1 Y & C Ex 481, 160 ER 196. See further Ellis v Torrington [1920] 1 KB 399; De Hoghton v Money [1866] LR 2 Ch App 164. There has been a long debate concerning the reconciliation of the decisions in Dickinson and Prosser : see PH Winfield, “Assignment of Choses in Action in Relation to Maintenance and Champerty” (1919) 35 LQR 143 at 158–9; YL Tan, “Champertous Contracts and Assignments” (1990) 106 LQR 656 at 659. Both cases involved transactions between A and B and then A and C, with the dispute being between B and C. They did not involve transactions between A and B and then B and C, with the dispute being between A and C. The difference in the cases may lie in the fact that Dickinson involved a conveyance of land while Prosser involved an assignment of a chose in action. In the case of a chose in action it has always been the case that if the assignor assigns the chose twice any dispute between the assignees is resolved by the normal priority rules, and this would extinguish the relevance of the rule in Dickinson’s case. 33 Gross v Lewis Hillman Ltd [1970] 1 Ch 445 at 460 per Cross LJ explaining the decision in Dickinson v Burrell (1866) LR 1 Eq 337 at 342. See also Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 at 284 per Taylor J. It has been suggested that such a right to rescind may be asserted by the grantor against subsequent third party purchasers. Thus, where A sells to B who sells to C, C may take subject to rights A could assert against B where those rights are an incident of the property: see Blacklocks v JB Developments (Godalming) Ltd [1982] 1 Ch 183; cf Napier v Williams [1911] 1 Ch 361. Unless there is a statutory provision to the contrary this result seems questionable if C is a purchaser of the legal estate. The Dickinson v Burrell line of cases does not automatically give priority to the party in the position of A; in the case of a priority dispute the Dickinson v Burrell line of cases merely aids in recognising and characterising the interest of A. If there is a priority dispute between A’s interest and C’s interest, the applicable priority rules should dictate the result: see generally Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265; Breskvar v Wall (1971) 126 CLR 376; Phillips v Phillips (1862) 4 De GF & J 208 at 215, 45 ER 1164 at 1166; Cave v Cave (1880) 15 Ch D 639 at 646 per Fry J; Westminster Bank Ltd v Lee [1956] 1 Ch 7 at 18–19 per Upjohn J. See also RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 4.150–4.205 and P Parkinson and D Wright, in P Parkinson (ed), The Principles of Equity (2nd edn, Sydney, LBC, 2003) para 316. 34 Quaere whether this analysis would be applied in relation to a sale of goods. If A sells goods to B giving B possession of the goods and A then agrees to sell the goods to C, if the circumstances are that B is guilty of some fraud the sale to C will usually amount to an election by A to rescind against B, so there is no need for C to rescind against B. If A sells to B who sells to C and A is guilty of some fraud, then by on-selling to C, B will have lost its right to rescind against A. Where A sells to B and is left in possession of the goods and then sells to C, title between B and C is determined by application of statutory exceptions to the nemo dat rule. In the case of contractual rights if A has a contract with B which is vitiated by the conduct of B and B assigns its right to C, then C takes subject to A’s right to rescind by virtue of the subject to equities rule: see [8.62]. The issue that remains unclear and which is discussed below ([6.10]) is where B assigns the benefit of its contract with A to C and where A is the party guilty of some vitiating conduct.
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incident of the contract (a mere equity) or an incident of the subject matter of the contract (equitable interest) will depend on the right and the nature of the subject matter.35 It has been held that the result will be different where the fraud is that of the original seller rather than the intermediate buyer. In Gross v Lewis Hillman,36 it was said that in a sale of property from A to B to C, where the contract between A and B is vitiated by reason of a misrepresentation by A, then, although C may have separate rights against B, C cannot rescind against A by handing back the property to A and receiving from A the price B paid to A. However, in that case A agreed to sell land to B making certain misrepresentations to B. B, as equitable owner of the land, offered to sell the land to C if C paid the purchase price to A and paid B a commission. Upon payment, C took a transfer of the legal estate from A, and it was held that C could not rescind against A. The fact that the transfer was a direct transfer from A to C prevented B’s right to rescind running with the land. However, the court suggested that the result would have been the same if there was a sub-sale by B to C. One reason given for this result is that the misrepresentation was not made to the party claiming relief, that is, C. The misrepresentation was spent upon A and B entering into a contract. However, that alone does not distinguish this case from the case dealt with in the last paragraph. It may be that in this scenario the party in the position of B has a mere equity because the only relief B would be claiming is the restitution of the purchase price, and this (subject to what is said below) may not be a sufficient interest to be transferred upon the transfer of the property. Cross LJ, in drawing a distinction between this case and Dickinson v Burrell 37 which concerned the scenario discussed above, said:38 There, property had been assigned by A to B, in circumstances which, so it was claimed gave A an equitable right to recover it and so an equitable interest in it. A assigned that equitable interest to C, and it was held that C could sue B to recover the legal estate. That case does not appear to me to support the proposition advanced by counsel in the present case. Here, the assignee is not claiming to recover an equitable interest in the property previously conveyed away by his assignor, but is claiming to throw back the property assigned to him not on his immediate assignor but on the party who sold it to his assignor. 35 See Blacklocks v JB Developments (Godalming) Ltd [1982] 1 Ch 183 at 195; National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1238 per Lord Upjohn; Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 at 277 per Kitto J, at 284 per Taylor J; Breskvar v Wall (1971) 126 CLR 376. See also Malory Enterprises Ltd v Cheshire Homes (UK) [2002] Ch 216 at 232–3; Global Minerals v Valerica (2000) 10 Butterworths Property Reports 18,463. Outside dealings in interests in land, generally the transferee under a voidable contract will obtain full beneficial title to the property which is the subject matter of the transaction: see Shalson v Russo [2005] 2 WLR 1213 at 1248–50. Any retention of an interest by the transferor would need to be based on the contract being entirely ineffective: see Halley v The Law Society [2003] EWCA Civ 97. See further [8.62]. 36 [1970] 1 Ch 445. 37 (1866) LR 1 Eq 337. See above n 33. 38 [1970] 1 Ch 445 at 460–1.
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Perhaps here it is necessary for C first to rescind against B so as to revive B’s right to rescind against A.39 [6.10] Ultimately, the nature of the right would be irrelevant if the law recognised that an equity to rescind or rectify was nevertheless assignable.40 The scenario to be considered is where A enters into a contract with B which may be rescinded by B. Can B assign the benefit of that right to rescind to C? Clearly, if the rescission will involve B handing back property to A, C would require B’s co-operation.41 On one view a mere equity is a personal right rather than a right of property, and therefore cannot be assigned.42 Certainly if the right is classified as a personal equity it cannot be assigned. This may occur where the contract is entirely executory and does not create any interests in personal property.43 However, a mere equity is capable of binding third parties taking with notice, so it is not necessarily personal. Nevertheless, in Investors Compensation Scheme Ltd v West Bromwich Building Society,44 Lord Hoffmann said that a right to rescind is not a chose in action and not a part of a chose in action. There was no suggestion that he was limiting his remarks to personal equities. He was dealing with a right to rescind a mortgage over land and said the right was not transferable separately from the mortgage property. Given this context perhaps, his remarks were intended to reflect the line of cases discussed above where the equity to rescind follows a conveyance of the property and is incidental to the property. However, his remark was general in character. Professor Treitel has suggested that the reason for Lord Hoffmann’s remark is that rescission is a remedy and therefore not a chose in action.45 It is true that in understanding choses in action it is necessary to distin39 See Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773. If a contract of sale which is the subject of an assignment contains a contractual right to rescind, then it is important for an assignee of the benefit of that contract to determine whether that right allows for the avoidance of the disposition or the contract. If the latter then that right may be intended to come to an end upon the conveyance and the assignee cannot then rely upon it: see Edinburgh United Breweries Ltd v Molleson [1894] AC 97. 40 This necessarily assumes that the circumstances are such that the assignment to C does not amount to an election to affirm the contract. 41 As noted above (n 34), where A sells goods to B and B can rescind the contract but sells the goods to C, then B will not be able to rescind against A because B cannot return the goods to A. Moreover, if rights to rescind can be assigned, then if the sale to C amounted to an election to affirm the contract, then the right to rescind would be lost and not assigned. 42 Child v Dynes [1985] 2 NZLR 554 at 560 (affirmed on other grounds [1985] 2 NZLR 554); Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 at 675 per Brooking J. 43 RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 4–145. 44 [1998] 1 WLR 896 at 916. 45 GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 674. It may be that Treitel understood Lord Hoffmann to be taking this view of rescission, because when Lord Hoffmann defined a “chose in action” he was careful to distinguish remedies and stated that they are not property in themselves: see [2.05]. Cf Prosser v Edmunds (1835) 1 Y & C Ex 481, 160 ER 196 (here the assignment of a right to set aside was rejected on the basis that it was nothing more than a bare right of action).
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guish the right from the remedy, however, the fact that rescission is a remedy does not necessarily mean there is not some right preceding that remedy. It is suggested that although the legal basis for rescission (legal or equitable) or the type of rescission (ab initio, partial or on terms) may dictate whether one has a right to rescission or merely a right to approach a court for an order of rescission, it is still correct to recognise the existence of a right to rescind46 as long as it is recognised that in some instances this will merely refer to a right of action.47 The real question is whether or not this right is a chose in action. Arguably where the claim for rescission is to the equitable jurisdiction of the court, the discretionary nature of the order dictates that the “rescission” or “right to rescind” cannot be a chose in action. There is some force in this view. However, if the distinction between the right and remedy operates with respect to rescission, then arguably it is only the remedy (or order) that is discretionary and not the selfhelp right to elect to rescind and this is perhaps even more so if the better view today is that the rescinding party merely has a right to approach a court for an order of rescission.48 Ultimately, the right to rescind is either a right that may be enforced by action or a right of action itself and is therefore, at least in theory, capable of being considered a chose in action. In Booth v Commissioner of Taxation,49 Mason CJ pointed to the example of an owner of land having a right to the income from that land. He suggested that such a right is merely an abstract right; it is not a chose in action, although its fruits may be dealt with by contract and it may give rise to a chose in action if infringed. Such a right is enjoyed by anyone buying the subject land as it is inherent in the concept of ownership. Perhaps Lord Hoffmann in the Investors Compensation Scheme case was making a similar claim to a right to rescind in suggesting the right was not transferable separately from the mortgaged property.50 However, it is not clear
46 Some may prefer the expression “right to avoid”, which then leaves the word “rescission” as an expression of the remedy that may follow. However, there is nothing illegitimate in the expression “right to rescind”. 47 In fact Lord Hoffmann referred to a “right to rescind” and stated that “a claim to rescission is a right of action”: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 916. 48 Compare the “enforcement” of an undertaking as to damages upon the termination of an injunction. The undertaking does not found a cause of action. It has been said that in such a case the party claiming damages merely has a right to “apply to the court to request an exercise of discretion to order an enquiry as to damages. There is no ‘right’ to an enquiry until the court’s discretion is positively exercised in favour of ordering an enquiry. Even where it is determined that an injunction should not have been granted, the court retains a discretion not to enforce an undertaking”: Cirillo v Citicorp Australia Ltd [2004] SASC 293 para 73. In such a case, the applicant merely has a hope of being awarded damages; there is no existing chose in action. The right to apply to court to seek enforcement of the undertaking was here described as a “mere right of procedure or a mere equity”: para 93. In the same paragraph it was also concluded that a “right to apply to the Court to seek the exercise of a discretion is not a chose in action”. 49 (1987) 164 CLR 159 at 165, 166.
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whether Lord Hoffmann was suggesting that a right to rescind is transferred only with the subject matter of the contract when it is an incident of that subject matter (as discussed above) or whether he was suggesting that a right to rescind would be transferred with an assignment of the benefit of the contract despite being a mere equity. Finally, although Lord Hoffmann did not express a view on the point, arguably it is possible to declare a trust over a present right to rescind. If that is correct then the right must be property,51 and this would suggest that its non-assignability actually results from a presumption that the parties would not generally intend such a right to be vested in one person while the right to the benefit of the contract was in another. On this view, the right to rescind is a chose in action and is assignable but the manner of its assignment is controlled by the intention of the parties, so that it may be assigned only to a person taking the general benefit of the contract. Alternatively, and more doctrinally, the better view may be that it is not possible to separarte the right to rescind from the general benefit of the contract and then assign or retain that right to rescind because the person then having the right to rescind will not be able to affect restitution because they do not own the benefit of the contract. On its own, the right to rescind is valueless. Moreover, arguably the existence of a right to rescind depends on the contiunued existence of the contract and, in a sense the contract would cease to exist if it were assigned to a third party; this too suggests that it is not possible to separate the right to rescind from the general benefit of the contract. [6.11] Right to terminate. A right to terminate a contract for breach or repudiation does not come into existence until there is a breach or repudiation. Prior to that time it too may be expressed as an abstract right being inherent in the right to performance. Nevertheless, where, prior to any breach of contract, there is an assignment of the benefit of a contract then any right to terminate for breach that does later arise will be vested in the assignee as it is the party with title to the right to performance at the relevant time.52 When the right to terminate comes into existence prior to the assignment of the benefit of the contract, one view may be that it is not a chose in action but a mere personal right of election. This follows from its being a self-help remedy rather than a right that is capable of enjoyment by action. However, it is suggested that the better view is that the right to terminate follows the right to
50 See Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 916 per Lord Hoffmann. 51 Cf P Parkinson, “Reconceptualising the Express Trust” [2002] CLJ 657. 52 See Hain Steamship Co Ltd v Tate & Lyle Ltd (1936) 41 Com Cas 350; Harbour Estates Ltd v HSBC Bank plc [2005] 2 WLR 67. Cf Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2005] FCA 288 (an appeal from this decision is still pending at the time of writing).
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performance; although arising by operation of law upon a breach of contract, it is a contractual right. If the benefit of a contract is assignable then, upon the assignment of the benefit of the contract, any existing rights of termination will follow. It is doubtful that it could be assigned separately from the right to receive performance, either because that separation would be at odds with the intention of the parties to the contract or because the nature of the right itself prohibits such separation.53 That is, the right to terminate cannot continue to exist if separated from the thing that supports it, namely, the general benefit of the contract. It follows that an assignor could not terminate a contract for the breach of an obligation when the assignor know longer owns the general benefit of the contract. It is a basic principle of the law of assignment that, although the obligator’s conscience is bound only upon receiving notice of the assignment, the proper person to grant a discharge to the obligor is the assignee, since the right to terminate a contract is a right to elect to discharge the parties from their obligations under the contract, the right to terminate must vest in the assignee. In addition it would rarely be the case that the decision to assign the benefit of a contract at a time when a right to terminate existed would amount to an election by the assignor to affirm the contract. Nevertheless, general principle dictates that if the assignor elects to affirm prior to the assignment then the right to terminate is extinguished and will not vest in the assignee.54 Moreover, if at the time of the assignment the assignee has notice of the existence of a right to terminate the contract, the taking of the assignment itself would generally not amount to an election by the assignee to affirm the contract.55 [6.12] The duty of utmost good faith in insurance contracts. The duty of utmost good faith is an incident of insurance contracts rather than an obligation arising by reference to a term of the contract. It is doubtful whether the right to this duty can be assigned. It is a duty that is owed by both an insured and an insurer. It is a legal duty rather than a contractual duty. Therefore, breach of this duty does not give rise to a right to damages. Often, as security for an advance a financier will take a mortgage over certain property and, in addition to requiring that property to be insured, will require an assignment of the fruits of that insurance policy or a
53 Another view may be that the right to terminate is merely part of the right to performance, so that an assignment of the right to terminate would in fact involve a division of the right to performance: see [6.48]. 54 Cf as regards the special form of transfer that occurs in the case of bills of lading Hain Steamship Co Ltd v Tate & Lyle Ltd (1936) 41 Com Cas 350 at 356–7 per Lord Atkin, at 364 per Lord Wright MR, where it was held that the indorsee of a bill of lading obtained the right to discharge a contract by reason of deviation even though the deviation was waived by the charterer prior to the indorsement. 55 See further GH Treitel and FMB Reynolds, Carver on Bills of Lading (London, Sweet & Maxwell, 2001) para 5.029.
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charge over the proceeds.56 Clearly the financier taking a mere assignment of the fruits of the contract cannot expect to be benefited or burdened by the duty of utmost good faith. Moreover, even with an assignment of the entire benefit of a contract, the assignee should not expect to have the benefit of this duty as it arises as an incident of the contract, and an assignment does not create privity of contract between the assignee and obligor. It is different with the right to damages that arises as an incident of a contract upon breach because that right does secure performance. An assignee of the right to performance of a contract can expect to have the benefit of any right to damages when there is a breach of contract. However, there are cases where rights under insurance contracts are “assigned” so as to allow the assignee to take over the entire contract. Usually this means the assignee will also take over the burden of the contract. Where such an assignment is valid, the view has been expressed that the assignee should get the benefit of the insurer’s obligation of utmost good faith.57 It is doubtful that this result flows from the “right” to the duty suddenly becoming a chose in action that is assignable. A better analysis, putting aside any relevant statutory provision, is that the “assignment” is really a novation, and in such a case there would be no problem with the duty arising as an incident of the new contract.58 Thus, the result flows from the contract that now exists between the insurer and the “assignee”. Perhaps the point made here would be clearer if this legal incident was thought to involve mutual duties rather than a right to a duty. [6.13] Contracts for the benefit of third parties. In the case of a contract for the benefit of a third party where the circumstances are such that that third party can
56 Eg Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [1990] 1 QB 818. Usually there is no intention to assign the right to the proceeds; rather, the financier is given a charge over the proceeds. In this way, any funds recovered by the financier from the insurer which are in excess of the liability of the debtor will be handed to the debtor and this better reflects the intention of the parties: Colonial Mutual General Insurance Co Ltd v ANZ Banking Group (New Zealand) Ltd [1995] 1 WLR 1140. However, in any given case an insurable interest of the security provider may be intended to be covered by the policy, and often the secured creditor requires that it be named in the contract of insurance and that it be shown a copy of the insurance certificate prior to advancing funds: see P Samuel & Co Ltd v Dumas [1924] AC 431. Where the intention is to assign the right to the proceeds by way of outright assignment then the assignee will be able to keep all the proceeds as it owns the right to them. If the “assignment” were by way of mortgage then the mortgagor would have the right to the excess by reason of its being his or her property; this results from the equity of redemption. Finally in the case of an assignment of an insurance policy by way of security, it is necessary to ask whether the mortgagee takes an assignment of the policy as security for certain security or security for a debt: see Swan and Cleland’s Graving Dock and Slipway Co v Maritime Insurance Co and Croshaw [1907] 1 KB 116 at 122 per Channell J. See further T Scott, “The Characterisation and Protection of Lenders” Interests in Insurance” (2005) 15 J of Banking and Finance L and Practice 253. 57 Bank of Nova Scotia v Hellenic Mutual War Risks Association (Burmuda) Ltd (The Good Luck) [1990] 1 QB 818 at 890 citing the decision of Hobhouse J at first instance: see [1988] 1 Lloyd’s Rep 514 at 547. 58 [3.06].
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enforce the subject right,59 it may be that that right can be considered a chose in action, and in some cases an assignable chose in action. However, it is less likely that such a right can be considered a contractual right. In any case, the issues governing the assignment of such a right will generally be the same as those governing the assignment of contractual rights. Moreover, generally the actual parties to the contract could not by assignment lessen or avoid the right vested in that third party.60
(ii) Contractual Rights as Property Rights [6.14] Limitations set by the notion that a chose in action is merely property for the purposes of transfer. A contractual right is generally considered property for the purposes of transfer.61 There is a presumption in this that contractual rights are property only for the purposes of transfer to a third party. As between the contracting parties their rights and obligations remain personal. If this is correct it follows that a person in the position of a creditor does not own the right to the debt as against the debtor and cannot assign the debt to the debtor. An attempt to do this operates only at the level of contract and is interpreted as a release or set-off.62 Similarly, it has always been held that the termination of a contract does not of itself result in a forfeiture of property for the purposes of claiming relief against forfeiture. Although there can be no doubting the legitimacy of the law characterising rights as property for some purposes and personal for other purposes and that generally contractual rights are property only for the purposes of transfer to third parties, it is not clear that this statement is correct in respect of debts. The action in debt has long been considered an action to recover property of the plaintiff’s which was being detained by the defendant.63 This suggests that as between the parties a debt (thing) is property and the action in debt protects that interest.64 59 See GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 651–71; JW Carter, Carter on Contract (Sydney, Butterworths, looseleaf) paras 17.110–17.230. 60 See further MA Lumsden, “Contract, Rights of Third Parties’ Act 1999 (the ‘Act’): Its Impact on Financiers’ Assignments of Contracts” [2000] JIBL 160; Law Commission for England and Wales, Privity of Contract: Contracts for the Benefit of Third Parties (London, HMSO, 1996) Law Com No 242, paras 2.17, 14.6. 61 [3.26], [4.07]. On contractual rights as “quasi property” see Zhu v Treasurer of New South Wales (2004) 211 ALR 159 at 190–4. 62 However, it has been held that if the liability of obligors is joint and several, then the obligee, could, in order to keep the obligation to perform alive, assign the right to performance to one of the joint and several obligors: see Banco Santander SA v Bayfern Ltd [2000] 1 All ER (Comm) 776 at 779 per Waller LJ. Quaere whether the end result here overcomes any problem with a contracting party contracting with itself on the basis that it is a contract between A on the one side and A and B on the other side: see GL Williams, Joint Obligations (London, Butterworths, 1949) at 47–8. 63 [2.10]. 64 See also Re Ward (1984) 3 FCR 112 at 116 (forgiveness of a debt expressed as a “disposition of property”). Cf In the Estate of McClure (1947) 48 SR (NSW) 93 at 96 per Jordan CJ.
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Moreover, a debt is a chose in action that has a distinct existence outside the contract.65 Today there must be a question mark over the continued doctrinal correctness of the notion that contractual rights, or at least debts, are property only for the purposes of transfer to third parties. In Wreckair Pty Ltd v Emerson,66 McPherson ACJ appeared to recognise an assignment of a debt between the parties to a contract. The relevant facts were that A bailed goods to B for the purposes of B hiring the goods to C. Payments made by C to B were to be shared by A and B on a 60:40 basis. However, because A owed money to B, A agreed that its 60 per cent should be used to reduce that debt. McPherson ACJ said that in the circumstances A had assigned its right to hire to B. There is nothing in the report to suggest that B contracted with C as principal and agent for A, so A could not have been assigning to B any interest it had in a contract with C. Moreover, McPherson ACJ stressed that what was assigned was the contractual right and not the proceeds of the fund created when C paid B. The latter would have been explicable on the basis that A had owned a portion of the fund and that ownership arose from a distinct chose in action not arising under its contract with B; therefore it could be assigned to B. In addition, in Re Bank of Credit and Commerce International SA (No 8),67 it was held that a bank can take a charge over the proceeds of a customer’s deposit account. That is, a bank can take a charge over a debt which it owes its customer. More generally, a debtor can take a charge (or perhaps some other form of proprietary interest) over a debt (or perhaps another obligation) which its owes another. Prior to this case, the possibility of such a security was questioned, not merely because of the obvious conceptual problems but also because its acceptance appeared to require the law to accept that a person could sue himself.68 Nevertheless, the Court gave effect to this security because of the recognised commercial practice of taking such security. It was thought that where there was such a practice and where there was no threat to the consistency of law or any public policy objection, then courts should be slow to declare a transaction conceptually impossible.69 Moreover, in the circumstances of a charge over a deposit, enforcement would take the form not of an action but rather a set-off. Given that 65
[6.34]. [1992] 1 Qd R 700 (also discussed at [6.37]). 67 [1998] AC 214. See also Cinema Plus Ltd v Australia and New Zealand Banking Group Ltd (2000) 49 NSWLR 513. Cf Broad v Commissioner of Stamp Duties [1980] 2 NSWLR 40 at 47–8 per Lee J; Re Charge Card Services Ltd [1987] Ch 150 at 175 per Millett J (affirmed [1989] 1 Ch 497); Esanda Finance Corp Ltd v Jackson (1993) 11 Australian Company Law Cases (ACLC) 138 at 140 per King CJ; Griffiths v Commonwealth Bank of Australia (1994) 123 ALR 111 at 120 per Lee J. 68 See R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 1.40 and 3.12; R Goode, Commercial Law in the Next Millennium (London, Sweet & Maxwell, 1997) at 69–71. Cf R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 16.59–16.67. See further RE Parsons, “Re-Drafting Bank Security Documents Following Charge Card Services” [1987] 3 JIBL 165 at 165. 69 [1998] AC 214 at 228. 66
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reasoning, it is unlikely to be applied in the case of outright sales of intangibles as opposed to security transactions. It may not be applicable outside debts, and even within debts it may be limited to security over bank deposits. Nevertheless, that same reasoning may suggest that if commercial reasons exist to recognise such a charge then similar reasons may exist to recognise a mortgage (that is, a security assignment), over such an interest.70 However, the Court limited its remarks to charges, and, although ultimately basing its decision on commercial convenience, appeared to take some refuge in the fact that a charge does not transfer title.71 It may be that this pragmatic legal reasoning should be viewed as creating no more than a narrow rule to resolve the particular commercial problem faced by the court. Nevertheless, it does confirm that for some purposes debts, and perhaps even contractual rights, may be considered property as between the parties to the contract. Finally, it may be that this commercial result can be achieved by other means. For example, if the substantive view of the statutory regime for legal assignments is adopted72 and there is a series of legal assignments, then although the ultimate assignee’s title is derivative, the ultimate asignee derives that legal title from the previous assignee and not the original assignor. The relation between that ultimate assignee and obligor is a relationship based on property, not contract. It then makes doctrinal sense to speak of an assignment by that ultimate assignee to the original debtor or obligor. However, because the thing being assigned in each case remains the “right to performance promised by the obligor to the assignor”, the result in a sale transaction is to discharge the obligation, but by way of assignment, not release.73 If that is right, then to disagree with the view taken by the House of Lords in Re Bank of Credit and Commerce International SA (No 8) is to put form over substance. 70 It may be argued that it is easier for a court to recognise the appropriation (charge) to the debtor of a debt owed by that debtor than it is to recognise that that debtor owns the debt it owes the creditor, which would be the result of a mortgage. Nevertheless, it has been suggested that the problems in recognising such a mortgage have been overstated (see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 16.61) and, although in the case of a charge the creditor would retain title, a mortgage, although transferring title, transfers title for a purpose, and the mortgagor/creditor retains an interest by way of its equity of redemption. See also DE Allan, “Security: Some Mysteries, Myths, & Monstrosities” (1989) 15 Monash Uni L Rev 337 at 356. 71 Bank of Credit and Commerce International SA (No 8) [1998] AC 214 at 226, 227 (however, the Court also referred to the chargor’s equity of redemption; given that a chargor does not obtain or need an equity of redemption as a charge is automatically terminated upon payment, such references could be construed as references to a mortgage with the equity of redemption vested in the mortgagor being considered sufficient to recognise the taking of a mortgage over an obligation the mortgagee owes the mortgagor). See [3.17]. 72 [5.06]. 73 See Rolston v South Greta Colliery Co (1912) 13 SR (NSW) 6 (here the obligor was required to pay the assignor certain royalties; the assignor assigned this right to the assignee who assigned it to the obligor; in an action by the assignor against the obligor for rent and royalties it was held that the obligor could raise its assigned right by way of set-off). The discharge referred to above does not necessarily follow if the assignment to the obligor is by way of security.
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(iii) Ownership of Contractual Rights [6.15] The assignor must own the chose in action. The above paragraph gives rise to another obvious point, namely, that it is not sufficient that the right in question be identified as a chose in action; the assignor must also own that chose in action. This is not an issue that usually gives rise to much difficulty. Nevertheless, it is easy to make the mistake of thinking you have one type of contractual right but in fact have another.74 Therefore, along with determining whether or not the subject matter of the assignment is a chose in action it is necessary to characterise the contractual right vested in the assignor under the contract. To a certain extent this process of characterisation occurs concurrently with the identification of an assignable right, as it is necessary to identify the right before determining its assignability.75 It should also be added that it is necessary to construe the terms of the assignment to determine to what extent the assignor has assigned that right.76 The assignor’s ownership of the chose is particularly important when the assignor is adjudged bankrupt, as the property of the bankrupt vests in the trustee from the commencement of the bankruptcy.77 If there is a present assignment of an existing accrued right to payment which satisfies any transfer, attachment or perfection requirements for validity against the trustee in bankruptcy and which is entered into prior to the commencement of the bankruptcy, it does not matter that the date for payment arises after commencement so long as the payment is 74 Eg Schneideman v Barnett [1951] NZLR 301 (here an argument to the effect that the intended subject matter of the assignment was “the contract of insurance” (so as to make the assignee the insured) was rejected when the assignor, at the time of the assignment had only the right to receive the proceeds; the assignment of the proceeds was upheld despite adjustment not having taken place at the time of the assignment). Similarly, where a lessor of goods assigns the benefit of the lease without transferring title to the goods to the assignee, all that is usually assigned is the benefit of the promise to pay the hire: see International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 438 per Jacobs JA. Moreover, some rights under such contracts, such as contractual licences to seize, may be personal and will not be carried with an assignment of the benefit of the contract: see Re Davis & Co (1888) 22 QBD 193; Brown v The Metropolitan Counties Life Assurance Society (1859) 28 LJQB 236: see [6.50]. However, presumably such a right would pass with title to the goods and so, perhaps, the better analysis is that the right is assignable but to a limited class: see further The Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 161 per Dixon J: see [6.76]. 75 Eg Dawson v Great Northern and City Railway Co [1905] 1 KB 260. 76 Eg Ogdens Ltd v Weinberg (1906) 95 LT 567 (assignment of all “contracts” was sufficient to assign a right to sue for breach of contract that had accrued at the time of the assignment). 77 See generally IF Fletcher, The Law of Insolvency (3rd edn, London, Sweet and Maxwell, 2002) para 8.005, and see paras 8.029–8.033. In Australia, the commencement of bankruptcy is still determined by reference to the notion of relation back: see generally M Murray, Keay’s Insolvency; Personal and Corporate Law and Practice (5th edn, Sydney, Law Book Co, 2005) paras 2.80–2.95. An assignment caught by relation back in bankruptcy (and not subject to some statutory protection against relation back) will not be effective to vest title in the assignee, cf Re Duck Jarm (1924) 24 SR (NSW) 521. Where a debtor becomes insolvent and there are mutual dealings between the creditor and debtor so as to attract insolvency set-off, the creditor cannot then seek to assign the entire debt but may agree to assign any net balance which may result in its favour: see Stein v Blake [1996] 1 AC 243 at 258 per Lord Hoffmann.
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earned by the assignor and not the trustee in bankruptcy.78 Generally, unless the trustee can set aside the transaction it can obtain no better title than that of the assignor.79 Where the assigned debt accrues prior to the commencement of the bankruptcy but is not payable until the completion of performance under the contract, then, if the trustee carries out the work to complete the contract, the trustee will have earned any payment in respect of that work carried out by the trustee, but the assignee can then claim the sum due under the assignment.80 However, this depends on the trustee executing that work under the contract which is the subject of the assignment and not under a different contract.81 The various cases explaining the above outcomes do not do so uniformly.82 However, at the level of legal doctrine, it is suggested that they may be explained as follows. When an assignor assigns a right to payment which has not yet been earned, the assignee obtains a conditional right to payment. In the normal course of events when the assignor carries out the performance required to earn that payment the assignee’s conditional right will be replaced with an unconditional right to payment.83 That unconditional right is a distinct chose in action, and in the circumstances being dealt with here it comes into existence after the commencement of bankruptcy. It follows that when bankruptcy intercedes and the payment is earned by reason of the trustee performing the act that earns that payment, then by force of the legislation that unconditional right to payment must vest in the trustee. Thus, the trustee obtains the payment because it owns the right to payment. The bankrupt assignor cannot vest that right in the assignee as it is not the assignor’s property.84 It would also follow that where an obligation to pay is independent of any performance the only issue is whether or not it has accrued prior to or after the commencement of bankruptcy.85 78 Ex parte Nichols (1883) 22 Ch D 782; Ex parte Moss (1884) 14 QBD 310; Wilmot v Alton [1897] 1 QB 17; Robinson v Podosky [1905] State Reports (Queensland) (QSR) 118; Re Inglis (1932) 5 Australian Bankruptcy Cases 255; Re De Marney [1943] Ch 126; Re Trytel [1952] 2 TLR 32; Tailby v Official Receiver (1888) 13 App Cas 523 at 538 per Lord Fitzgerald; Re Buring and Chapman (1941) 13 Australian Bankruptcy Cases 72. See also Burn v Carvalho (1839) 4 My & Cr 690, 41 ER 265; Crowfoot v Gurney (1832) 9 Bing 372, 131 ER 655; Re Davis (1888) 22 QBD 193; Alexander v Steinhardt, Walker & Co [1903] 2 KB 208; Re Connolly [1931] Gazette Law Reports (GLR) 551; Robertson v Grigg (1932) 47 CLR 257; Ex parte Rowell (1878) 39 LT 259 (affirmed (1879) 10 Ch D 615). 79 [8.04]. 80 Drew & Co v Josolyne (1887) 18 QBD 590. 81 Tooth v Hallett (1869) LR 4 Ch App 242. 82 An excellent review of the important decisions can be found in Re Buring and Chapman (1941) 13 Australian Bankruptcy Cases 72. 83 The mechanics of this process are discussed at [6.44]. 84 Ex parte Nichols (1883) 22 Ch D 782 at 786 per Jessel MR. 85 In the case of corporate insolvency this explanation does not work, as the property of the insolvent company does not vest in the liquidator. In corporate insolvency the company retains legal title to its property. As to whether beneficial title it taken out of the company: see Commissioner of Taxation v Linter Textiles Australia Ltd (2005) 215 ALR 1. See further IF Fletcher, The Law of Insolvency (3rd edn, London, Sweet & Maxwell, 2002) para 22.057; A Keay, McPherson, The Law of Company Liquidation (4th edn, Sydney, LBC, 1999) at 219. Nevertheless, the result is the same. As Goode states,
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As regards agreements to assign future property entered into prior to the commencement of bankruptcy, when the property which is the subject of the assignment comes into existence, then, assuming the consideration for the assignment is executed, beneficial title vests in the assignee without ever vesting in the assignor. Therefore, it is not property of the assignor and cannot vest in the trustee.86 However, this assumes that without the assignment the property would have vested in the assignor.
(c) The Requirement of Present Property (i) Introduction [6.16] Introduction. It is possible to assign only present property. Therefore, a pre-requisite of assignability is that the subject matter of the assignment exists. For example, a contractual right cannot be assigned if its correlative obligation has been fully performed so as to discharge the right; similarly, if the obligation to perform has been the subject of a release.87 In addition, an agreement to assign an interest in a fund, such as the fund created by the deposit of retention monies under a building contract, cannot take effect until monies are paid into the fund so that it exists.88 This last example reflects the more important practical issue, namely, attempting to assign what is in fact future property. This section is concerned with the identification of present property as distinguished from so-called future property.
“The underlying idea is very reasonable. The liquidator has used the money and other resources of the company to carry out the contract; therefore the fruits of the performance should belong to the general body of creditors free from the prior interest”; R Goode, Principles of Corporate Insolvency Law (3rd edn, London, Sweet & Maxwell, 2005) para 6.26, and note the criticism of this rule as regards its application where, at the time of the bankruptcy or insolvency, the assignor had completed part of the subject performance to earn the debtor’s performance. 86 Re Androma Pty Ltd [1987] 2 Qd R 134; Re Row Dal Constructions Pty Ltd [1966] VR 249. 87 Thus, if an insured has a claim against both its insurer and a tortfeaser and settles with the tortfeaser, giving the tortfeaser a release, but also assigns its claim against the insurer to the tortfeaser, the release may also benefit the insurer: see Colonia Verscherung AG v Amoco Oil Co (1997) 1 Lloyd’s Rep 261. 88 Re Jartay Developments Ltd (1983) 22 Build LR 134; Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350. However, a debt owed to the contractor may arise at the time monies are required to be deposited in the retention fund and even if that deposit is not made an assignment of that debt (as opposed to an assignment of an interest in the fund yet to be created) would be an assignment of present property: see G and T Earle Ltd v Hemsworth RDC (1928) 44 TLR 605 (affirmed [1928] All ER 602, (1928) 44 TLR 758).
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(ii) The Distinction between Present Rights and Future Property [6.17] Future rights and present rights to future performance. Whether or not a contractual right exists is usually not a difficult issue.89 The most problematic issue concerning present and future property in the context of contractual rights is the distinction between the assignment of future contractual rights and the assignment of some present contractual right to receive some performance in the future. The latter is not an assignment of future property and is immediately assignable. [6.18] The distinction between future property and a present right to some future performance is evidenced in two, now famous, contrasting decisions of the High Court of Australia, namely, Norman v Federal Commissioner of Taxation90 and Shepherd v Federal Commissioner of Taxation.91 In Norman v Federal Commissioner of Taxation, the assignor attempted to assign, without consideration, his “right title and interest” to interest payable under a loan which was repayable by the borrower at will and without notice, and his “right title and interest” to dividends that might be declared on certain shares. The assignment of interest was for a threeyear period. The period of the second assignment was expressed to be from 1 January 1957 to 30 June 1958. At the time of this “assignment” his interest in the shares was as a residuary beneficiary of two estates; he had a 1/5th interest in the residuary estates. During the period of this second assignment (in particular, between May and October 1957) and before the beginning of the relevant tax year (1 July 1957–30 June 1958) shares from the relevant estates were transferred to the assignor and, in the relevant tax year, dividends were declared and paid (by cheque) to the assignor; the assignor endorsed the cheques to the assignee. The Commissioner of Taxation took the view that the assignments concerned future property which required consideration to be upheld as a valid agreement to assign and therefore both interest accrued and paid and dividends declared and paid during the relevant tax year were income in the hands of the assignor. He assessed tax accordingly. In a unanimous decision the High Court held that the right to dividends was a mere expectancy. A majority of the High Court took the view that the right to interest was also future property. 89 Examples of future property or mere expectancies include the interest of a beneficiary under the will of a person still living: see Re Ellenborough [1903] 1 Ch 697; the rights under a contract not yet formed: see E Pfeiffer Weinkellerei-Weineinkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150 at 161 per Phillips J; the right to sue for a breach of contract prior to any breach occuring: see Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 44; future book debts and stock in trade: see Tailby v Official Receiver (1888) 13 App Cas 523; Holroyd v Marshall (1862) 10 HLC 191, 11 ER 999; income, such as royalties, which have not been earned: see Re Trytel [1952] 2 TLR 32. 90 (1963) 109 CLR 9. 91 (1965) 113 CLR 385.
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In the majority, Dixon CJ emphasised that at the start of the tax year no interest had accrued and no dividends had been declared. He thought the intention to assign in both cases was an intention to assign “a sum of money which did not exist but which was expected to arise with more or less confidence”.92 In the case of the dividends this depended on a dividend being declared. In the case of the loan, this depended on it not being repaid so as to prevent the accrual of interest. He does not appear to place any particular emphasis on the fact that the assignment referred to the “right” to interest and dividends and not just the “interest” and “dividends”. He thought that to recognise the assignment of the dividends was also contrary to the provisions of the relevant tax legislation. As to interest he concluded:93 “It appears to me that the future interest was the merest expectancy or possibility, having no existence in contemplation of law. After all, it must be remembered that to escape the obligation of including the interest in his assessable income the taxpayer must show that by 1 July 1957 he had denuded himself of all right to the interest. That, I think, could not be correct. After all, there was no more than an expected right with respect to the sums and I do not think the necessary divestment of the future accrual could be made by way of gift”.
Much of Dixon CJ’s reasoning as to interest appears to have been based on the fact that the accrual of interest was dependent on a contingency, that is, that the loan was not repaid. If that is right, such comments do not have general application to a term loan. As is noted below, in the discussion of Shepherd’s case, this also appears to be Kitto J’s understanding of the decision.94 However, Dixon CJ’s reference to “an expected right” may have more general application. Menzies J (with whom Owen J agreed) also held that the rights to dividends and interest were future property. He did note that the question before him concerned “rights” to interest and dividends and not merely “interest” or “dividends”.95 Nevertheless, he said, “I regard interest which may accrue in the future upon an existing loan repayable without notice as having the character of a right to come into existence rather than of a right already in existence”.96 On its face, this comment would limit his decision to questions involving interest on loans that are repayable at will and not term loans. However, he went on to say, “Under the contract of loan now under consideration, there was no liability for or right to interest until it began to accrue”.97 This comment may be of more general application. He thought his comments on interest also answered the dividends issue but added that, at the time of execution of the deed of assignment, the shares 92 93 94 95 96 97
(1963) 109 CLR 9 at 15. Ibid, at 16 (emphasis added). [6.19]. (1963) 109 CLR 9 at 20. Ibid, at 21. Ibid, at 22.
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themselves were future property and, like Dixon CJ, he thought that to recognise the assignment of dividends would be at odds with the relevant legislation. The minority agreed that the dividends were future property. However, McTiernan J held that the right to interest was present property. He thought that the loan created an immediate obligation to pay interest although it could not be claimed until it accrued. That present obligation created a present chose in action or right to interest which could be the subject of an immediate assignment. It made no difference that the loan could be repaid at any time. Until such an event occurred the right remained in existence.98 Windeyer J agreed, saying, “[A] contract to pay a sum of money on a future day, call it interest . . . calculable in amount according to conditions presently agreed, is in my view a presently existing chose in action. . . . [What the creditor assigns] is not, its seems to me, a right to arise in the future but a present contractual right to be paid at a future date a sum of money, to be calculated in the agreed manner”.99 He thought it made no difference that the loan was repayable at will. [6.19] In Shepherd v Federal Commissioner of Taxation,100 the assignor granted a manufacturer an indefinite licence to use a patent in return for a royalty which was based on a percentage of the sale price of the items manufactured. Later the assignor assigned, without consideration, all his “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 [the] royalties”. The Commissioner of Taxation took the view that royalties received were income in the assignor’s hands, the assignment being invalid as an assignment of future property made without consideration. However, a majority of the High Court (Barwick CJ and Kitto J) took the view that the assignor had not assigned a mere expectancy; instead he had assigned part of his existing contractual rights which included an entitlement to receive royalties.101 Barwick CJ thought the issue was purely a matter of construction. That is, it had to be determined by construction whether the assignor had intended to assign “part of the royalties” or “part of the right to the royalties”. The latter was an assignment of present property. He thought the words “all my right title and interest in and to” clearly evidenced an intention to assign the right to the royalties. Although the following words, “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”, was at odds with the intention expressed in the first part of the clause, he was prepared to excuse this on the basis that this part of the clause was not aimed 98
Ibid, at 18–19. Ibid, at 37–8. 100 Cf Cotton v Heyl [1930] 1 Ch 510. 101 A further issue concerned whether or not the deed evidenced an intention to assign as it required payment of an amount “equal” to 90%. 99
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at characterising the intention to assign, but was an inelegant attempt to express the fact that the assignment was an assignment of part of a chose in action. It was also argued, on the basis of Norman’s case, that the property was not a present right capable of immediate assignment because any royalties were entirely contingent upon the manufacturer making and selling items using the patent. Barwick CJ thought this submission was misconceived, saying: That a promise may not be fruitful does not make it incapable of assignment. [Insofar as Norman’s case] dealt with the attempted assignment of the promise to pay interest, it must, in my respectful opinion, depend upon the view that the promise to pay interest in that case inhered in the existence of a principal sum upon which the interest was to be calculated and payable. Consequently, there was there no promise to pay interest, if no principal remained due.
Kitto J also held the assignment to be a dealing in present property, saying:102 [T]here existed . . . [at the date of the assignment] . . . a contractual relationship between the [assignor] and the [manufacturer] which by its terms must continue throughout the ensuing three years, whether [the manufacturer] should wish it to continue or not. [The assignor], therefore, had a vested right in respect of those three years . . .[T]he existence of the [assignor’s] contractual right would be unaffected, though the quantum of its product might be. The tree, though not the fruit, existed at the date of the assignment as a proprietary right of the [assignor] of which he was competent to dispose; and he assigned ninety per centum of the tree.
There can be little doubt that the efficacy of many an assignment will depend upon whether or not the assignor has assigned a present contractual right or a future contractual right or the future fruits of a present contractual right. A dealing in the fruits of a contract is a dealing in the subject matter of the contract as opposed to a dealing in contractual rights. Finally, in distinguishing this case from Norman’s case Kitto J said:103 [I]t is necessary to remember that in respect of the future year the loan agreement [in Norman’s case] 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.
[6.20] It has been suggested that the different results in these two cases show the importance of careful drafting, for although the “fruits” (or even the “right” to the fruits) may not yet exist, such existence being contingent or conditional on some event, there may be some present right flowing from the relationship of the parties which can be the subject of an assignment without having to comply with the rules 102 103
(1965) 113 CLR 385 at 396. (1965) 113 CLR 385 at 396.
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for assigning future property.104 Thus, an assignment of a present contractual right which, upon the occurrence of some condition or contingency, will result in an unconditional right to the fruits can be the subject of a present assignment.105 Nevertheless, in Booth v FCT,106 Mason CJ appeared to disagree with this distinction between the cases. He suggested that the result in Norman’s case did not turn on the drafting of the memorandum of assignment, but was dictated by legal doctrine. He viewed it as an example of the occasional impossibility of identifying “a present right to future income divorced from the proprietary right which generates that future income”.107 He added, “In such cases an attempted assignment deals with future property or an expectancy and operates to vest the future income in the assignee as and when that future income accrues due, but not before it accrues due. Accordingly, the assignment would not be effective to prevent the income being derived or being deemed to be derived by the assignor.”108 There is some force in this statement. In Norman’s case the assignee, in both assignments, attempted to assign his “right to” interest and dividends. He did not merely attempt to assign “interest” and dividends’, that is, the fruits, but rather the right to the fruits. If the result turned on drafting, could the assignor have done any more? In the case of shares, one view might be that the right to dividends is an abstract right; it does not have a separate existence from the ownership of the shares and is not capable of being separately assigned. This may be taking the idea of an abstract right too far. The notion of abstract rights is probably limited to ownership rights which do not carry any expectancy of income unless there are further dealings with the rights, for example, land, patents and copyright. Other ownership rights such as the ownership of a share generally do carry an expectancy of income, but no actual right to income until a contingency occurs.109 On either analysis no amount of drafting can circumvent the result in Norman’s case. However, once a dividend is declared a debt arises which has a distinct existence.110 Alternatively, and particularly if one adopts a bundle of rights theory of ownership, one should be able to assign that part of the ownership in the shares that will carry the right to
104 RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.235. 105 [6.38]. See also In the Estate of McClure (1947) 48 SR (NSW) 93 at 96 per Jordan CJ. 106 (1987) 164 CLR 159. 107 Ibid, at 167. 108 Ibid, at 167–8. The latter statement, according to Cooke P in Hadlee v Commissioner of Inland Revenue [1991] 3 NZLR 517 at 520, cf at 528 per Richardson J (aff’d [1993] AC 524), suggested that Mason CJ was not denying the difference between assigning the fruit and assigning the tree but that for certain purposes, especially tax, it may not be possible to rely on such fine doctrinal distinctions to prevent the income being derived by the assignor: see also FCT v Everett (1980) 143 CLR 440 at 453. 109 See Archibald Howie Pty Ltd v Commissioner of Stamp Duties (1948) 77 CLR 143 at 157 per Williams J; Re Russell [1968] VR 285 at 300 per McInerney J. 110 Norman v FCT (1963) 109 CLR 9 at 40 per Windeyer J.
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dividends when they are declared.111 The problem with this latter argument is that it may require recognition of distinct ownership interests, each deriving from the one ownership interest. The assignment is not an assignment of part of the ownership so as to make the assignor and assignee co-owners of the whole, that is, the “share”, but rather the assignee is intended to own absolutely that ownership right which gives rise to the “right” to dividends. The common law does not allow ownership to be split in this way. There may be more scope for equity to recognise such an interest, but there may be difficulties even here because the interest that needs to be recognised is not akin to an estate in the ownership of the whole, but ownership of an entire part of what would otherwise be considered to be an indivisible ownership interest. In respect of the right to interest, in Shepherd’s case, Kitto J appears to draw a distinction between when the exercise or enjoyment of a right is subject to a contingency and when the continued existence of the right is subject to a contingency. Shepherd’s case fell within the former and was a dealing in present property. Norman’s case fell within the latter category and was a dealing in future property. Barwick CJ, too, was perhaps relying on this distinction when he said that the promise to pay interest (and presumably the correlative right to that interest) existed only as long as principal remained due. There can be no doubt about the legitimacy of that distinction, and on that reasoning an assignment of the right to interest under a term loan (which has been drawn down) would be a dealing in present property. Moreover, and subject to the legitimacy of the drafting approach noted above which relies on a bundle of rights theory, there is no doubt that the efficacy of these transactions will turn on whether one attempts to assign an existing right to performance the enjoyment of which is dependent upon a condition or a contingency, or whether one assigns a right to performance the very existence of which is dependent upon a condition or contingency: there is also the possibility of a mere assignment of “the fruits” prior to their receipt. However, even recognising this distinction, arguably it still does not explain the result in Norman’s case. If the continued existence of a contractual right is dependent upon a contingency in the sense of an event not occurring, such as the repayment of the principal and outstanding interest under a loan, then unless that contingency eventuates the right continues to exist. The more logical proposition is that where the formation of a contract depends on a contingency then any attempted present assignment of such expected rights would be a dealing in future property.112 This may be the basis of Dixon CJ’s reasoning in Norman’s case except that he logically extends this 111 Thus, it has been suggested that the result might have been different if the assignor had assigned, “such of his rights as holder of the shares as would entitle him, if dividends were declared on shares of that class, to be paid the portion thereof attributable to his shares”: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.235. 112 Re Williams [1930] 2 Ch 378.
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principle to an already existing contract; that is, it was not only interest that was future property but the “right” to interest itself depended on the accrual of interest for its existence, and this was despite the fact that the contract from which that right would emanate was already in existence at the time of the assignment.113 He distinguished the “right to income” from the thing or property (that is, the loan) from which income and the right to that income may arise. To continue the metaphor, here the “right to income” was itself the fruit. Moreover, the income itself was not the fruit of that right but rather of the principal. The “right” to income dictated only who should be paid. It may be that it was this point (the idea that the right to interest under a loan does not constitute the tree from which the fruit (interest) derives) that Barwick CJ too was relying upon in the abovementioned quotation to distinguish Shepherd’s case from Norman’s case. The idea here it that a present right to accrued interest is not the “thing” that produces the fruits, and so it does not equate to the tree. Under a loan contract, the right to interest is referable to principal and depends on there being an outstanding balance of principal that must be repaid: the right to interest is not in itself an income-producing asset.114 Interest flows from the outstanding principal. From this, one may argue that even if at law it is possible to distinguish the right to interest from the actual fruits (interest), that right does not come into existence until interest accrues, so any attempted dealing in that right beforehand must necessarily be a dealing in future property. If that is correct then the same result must apply to a dealing with the right to interest under a term loan. The above reasoning distinguishes Norman’s case from Shepherd’s case. In Shepherd’s case because the contract there was nothing more than a contract for income (with no outstanding condition or contingency under the contract having to be met) any dealing in the “right to income” was a dealing in a present right. In such a case it may be correct to view this right as the asset providing the ultimate fruits. However, views could differ on this. In any case, clearly the “right to income” was the tree. The patent itself was not the tree because the notion of a “right to income” from a patent is in fact a mere abstract right. Similarly, it has been held that if a contract of hire-purchase is determinable by the hirer at will then it cannot be said that that contract contains a promise to pay for the goods prior to the accrual of hire. Thus, prior to the accrual of such an obligation there
113 See also Williams v Commissioner of Inland Revenue [1965] NZLR 395 (here the assignor attempted to assign “the first five hundred pounds . . . of the net income” under a trust which he had a life interest in, together with “the right” to receive that sum; this was held to be an assignment of an expectancy, as both the sum and the right to it did not exist at the time of the assignment; the only thing that existed at that time was the assignor’s life interest in the trust which, on construction, he had not assigned). 114 Commissioner of Taxation v The Myer Emporium Ltd (1986) 163 CLR 199 at 217.
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can be no present right to payment.115 On the same reasoning, if one attempts to deal in the fruits of litigation that is still on foot, then it should not matter whether the assignor attempts to assign the sums that may become due or the right to sums that may become due; in either case the transaction will be a dealing in future property.116 Despite the above, arguably there must be some existing contractual right that allows for this right to interest, when it arises, to vest in the other party to the contract and which should be capable of present assignment if it can be identified.117 But again, as with dividends, the assignment of that right causes problems because it is not capable of being identified, as distinct from the other interests that make up the benefit of the contract, because it is not possible to split a single ownership interest in the manner required to achieve such an assignment. In addition, despite recognition that the right to interest is not an income producing right and does not constitute the tree from which the fruit, interest, derives, the High Court of Australia in Commissioner of Taxation v The Myer Emporium Ltd 118 nevertheless recognised the possibility of the existence of a “right” to interest prior to the accrual of interest. In a joint judgment, the Court said:119 That is not to say that a right to interest is not an existing chose in action. It is an existing chose in action unless, perhaps, the borrower can avoid any liability for interest by repaying the loan: see Norman v Federal Commissioner of Taxation; Shepherd v Federal Commissioner of Taxation. But the interest which becomes due is not the produce of the mere contractual right to interest severed from the debt for the money lent. Interest is regarded as flowing from the principal sum. . . . A covenant to pay interest on a principal sum may, according to the terms of the lending agreement, be independent of or accessory to a covenant to repay the principal sum or the covenants may be integral parts of a single obligation. The source of interest is never the mere covenant to pay. Interest is not like an annuity. Annuity payments are not derived from the money paid for the annuity; they are derived solely from the annuity contract.
The result appears to be that if a loan is repayable at any time then a dealing with the “right” to interest, prior to the accrual of any interest, is necessarily a dealing in future property. The same reasoning applies to shares. One expects to earn 115 See Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 159 per Dixon J. See also HJ Wigmore & Co Ltd v Rundle (1930) 44 CLR 222; Blackwood’s Ltd v Chartres (1931) 31 SR(NSW) 619. Cf Independent Automatic Sales Ltd v Knowles and Foster [1962] 1 WLR 974 at 984 per Buckley J. 116 See Glegg v Bromley [1912] 3 KB 474 at 489 per Fletcher Moulton LJ and Parker J, but cf at 484 per Williams LJ. However, once judgment is given there exists an assignable chose in action: see Hambleton v Brown [1917] 2 KB 93. 117 Thus it has been suggested that the result in Norman’s case would have been different if the assignor had assigned, “such of his rights under the contract of loan as would, if the loan were not repaid, entitle him to be paid interest”: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.235. 118 (1987) 163 CLR 199. 119 Ibid, at 217–18.
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some income from being a shareholder or lender and to speak of a “right to income” here is not to speak of a mere abstract right. However, if the loan is repayable at will or if a dividend has not been declared, then that right is a mere expectancy. Similarly if any contract is determinable by one of the parties at any time then arguably that contract does not contain any present promise to perform, and no present right to such performance prior to the accrual of a performance obligation. In the case of a term loan, it may be possible to speak of a present right to interest prior to the accrual of interest, but this will ultimately depend on the construction of the contract.120 Again the right to interest may only determine who is paid interest, it is not necessarily the asset that produces the interest. Moreover, the contract will dictate whether the entitlement to recieve both the repayment of principal and payment of interest constitute one indivisible right (debt) or whether they are two distinct rights albeit that the interest flows from the outstanding principal.121 Where the assignment transfers only the fruits (there being no mention of the “right” to the fruits) then, if those fruits are subject to a contingency, the dealing will be a dealing in future property.122 Finally, the reasoning of the High Court in the Myer Emporium case shows the dangers of placing too much emphasis on the tree and fruit metaphor in order to distinguish between present and future property.123 Although it has its uses it also has its limitations. To take another basic example, under a presently existing lease it is well recognised that one can presently assign the right to rent. However, that “right” is not the asset which produces the fruits, that is, the “rent”. The asset producing the rent is the underlying lease/demise. The right to rent is in a sense the fruit of that underlying lease as much as the rent is.124 However, unlike unpaid rent, the right to rent is present property, and if one wants to collect the rent then one must be vested with the right to that rent. If the above analysis is correct it is necessary to distinguish the chose, (the lease) from the contractual right to performance under the lease. It is the lease that is the asset that produces the rent. This distinction does not make sense if one reasons only through contract as one would then argue that the lease is no more than the mass of contractual rights that make up the lease and the most relevant right in terms of the rent is the right to that rent under the lease. On that reasoning the right to rent must be the thing or tree that produces the fruit rent. Nevertheless, 120 Eg McLeay v Commissioner of Inland Revenue [1963] NZLR 711 (a mortgagee assigned its right to interest for 5 years; the loan could be repaid at will but only after July 1965; the assignment was to come to an end in May 1964; this was held to be an assignment of a present right to the interest which would accrue during the period of the assignment: see further [7.40]). 121 See [6.49]. 122 Eg Williams v Commissioner of Inland Revenue [1965] NZLR 395. 123 See further CS Lyon and JS Eustice, “Assignment of Income: Fruit and Tree as Irrigated by the PG Lake Case” (1961–2) 17 Tax L Rev 293. 124 See generally Inland Revenue Commissioners v John Lewis Properties plc [2003] Ch 513 at 526, 534–5, 539 per Arden LJ, at 546–7 per Dyson LJ.
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the issue here, and the issue in all cases discussing the tree/fruit metaphor, has been an issue of property law, not contract, and for the reasons discussed earlier it is necessary to accept the existence of the contract as a thing.125
(iii) Dealings in Conditional, Contingent and Unconditional Contractual Rights [6.21] Meaning of “conditional”, “contingent” and “unconditional” contractual rights. The words “conditional”, “contingent” and “unconditional” have various meanings in contract law depending upon the context in which they are used.126 Together with the terms “dependent” and “independent”, they may be used to describe the order of performance. Thus, a right is dependent if its enjoyment requires the prior or simultaneous performance of an obligation or the prior or (more rare) simultaneous occurrence of a contingency.127 The terms “conditional” and “unconditional” are also used to describe the effects of discharge of a contract. Here a reference to an unconditional right refers to a contractual right the benefit of which has been earned, so that it survives the discharge of the contract.128 A contractual right does not survive discharge merely because the time for its performance has accrued by the time of discharge.129 In addition, where a right to some performance is conditional upon the prior occurrence of some condition or contingency, and where that condition of contingency occurs the right is then sometimes referred to as being unconditional. Here “unconditional” is not used in the sense that the right will survive discharge (which may or may not be the case), but to express the result that the obligation that is correlative to a right has accrued even if the time for performance has not yet arrived. It follows that during the life of a contract a promisee’s rights vis-à-vis the other party’s obligations may be classified as conditional or contingent in terms of the order of performance, accrued in terms of performance and conditional or unconditional in terms of discharge. [6.22] Importance of the distinction for assignment. Whether or not the assignor is assigning a conditional right, an accrued right or an unconditional right is 125
[3.10]. See further SJ Stoljar, “The Contractual Concept of Condition” (1953) 69 LQR 485; JW Carter, Breach of Contract (2nd edn, Sydney, LBC, 1991) paras 408–10. 127 See the discussion in Ministry of Sound (Ireland) Ltd v World Online Ltd [2003] 2 All ER (Comm) 823 at 839–41. 128 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476–7 per Dixon J; Johnson v Agnew [1980] AC 367 at 396. 129 Cf Hyundai Heavy Industries Co Ltd v Papdopoulos [1980] 1 WLR 1129 at 1141 per Lord Edmund-Davies; Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 597 per Lord Lloyd. Where a right is independent and the time for the performance of its correlative obligation has accrued by the time of discharge, it is by definition unconditional. 126
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important because the nemo dat rule dictates that the assignor cannot assign a right greater than the one it has. In addition, in terms of the order of performance the distinction between conditional and accrued rights is important. If an obligation to pay accrues only upon the occurrence of some condition then the assignee of the right to payment must wait until that condition occurs before it can call for performance.130 Moreover, the condition may not simply order performance but characterise what is acceptable performance. If a present right to a future payment is assigned where the obligation to pay will accrue upon the performance of some obligation by the assignor,131 then the assignee cannot enforce that right to payment prior to the performance of that obligation by the assignor.132 The assignee’s right is contingent upon that obligation not only being performed but being performed by the assignor or vicariously performed by the assignor. This is the result of the obligation (being a contractual obligation of the assignor) defining the nature of the contractual right vested in the assignee. It is not possible to characterise that right independently of the contract. For example, in Tooth v Hallett,133 a builder assigned a right to receive payment under a building contract. The assignment occurred after the time for performance of the contract had expired. At the expiration of that time, the obligor had a right to employ others to complete the work. Soon after the assignment, the builder entered into a creditor’s deed and the trustee of that deed, with the consent of the obligor and using its own funds, completed the work. No amount was due under the contract prior to the trustee taking over the work. It was held that the assignee’s right must be characterised by reference to the contract and was therefore subject to the conditions of the contract, which allowed the obligor to get someone else in to complete the work. If that had occurred here, then clearly anything payable to that third party could be deducted from anything that was due to the assignee. It could make no difference that it was the trustee who completed the work; the assignee could not be placed in a better position simply because the work was carried out by the trustee of the assignor. 130 Eg Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 (here an assignee took a statutory assignment of a right against an insurer but was subject to the same condition as the assignor, namely, that the indemnity was in respect of sums the assignor became legally liable to pay so that such liability had to be first established). Where a right is classified as conditional and the condition is a condition subsequent, then the condition subsequent will be some act that must occur to render the right “unconditional” as that word is used to describe the effect of discharge. Here the condition does not prevent the accrual of the right. Thus, a right to an advance payment may be said to be conditional in the sense that the payee must at some point provide some goods or services to earn that payment: see Pan Ocean Shipping Co Ltd v Creditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161, and see [6.29]. 131 This is to be distinguished from the case where the obligation to pay has accrued at the time of the assignment but it is not yet payable: see G and T Earle Ltd v Hemsworth RDC (1928) 44 TLR 605 (affirmed [1928] All ER 602, (1928) 44 TLR 758). 132 [8.07]. 133 (1869) LR 4 Ch App 242. See also Tooth v Brisbane City Council (1928) 41 CLR 212 at 226 per Higgins J. Cf as to amounts accrued prior to the third party taking over contract Re Trytel [1952] 2 TLR 32. As to bankruptcy and insolvency and the trustee or liquidator completing the contract see [6.15].
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Finally, the distinction between conditional and unconditional rights is important to an assignee as this determines whether an assigned right survives the discharge of a contract. This is an obvious point. However, distinguishing between conditional and unconditional rights can be problematic, and this issue is addressed immediately below. [6.23] Identification of conditional and unconditional contractual rights. The distinction between conditional and unconditional contractual rights ultimately turns on construction and in most cases is straightforward. However, difficulties have arisen in respect of instalment sale contracts. The particular fact scenario has concerned the restitution of payments made under such a contract. Here the limited contractual relevance of the distinction between conditional and unconditional rights, as used to characterise performance obligations and to denote the order of performance, has been expanded to provide a basis for restitution. It is necessary to take a short diversion into these cases as they highlight some of the difficulties of the distinction. [6.24] The restitution context. Both the House of Lords and the High Court of Australia have suggested that the conditional nature of a payment (rather than unjust enrichment) could provide the ground for its recovery after the contract under which the payment was made is discharged for breach or repudiation. There is no intention here to enter into the debate whether such claims are best approached by reference to contract or unjust enrichment, but simply to highlight the difficulties these cases give rise to as regards the characterisation of contractual rights as either conditional and unconditional. [6.25] The decision of the House of Lords is Stocznia Gdanska SA v Latvian Shipping Co.134 Here a shipbuilder terminated contracts for breach by the buyers and sued for amounts that had fallen due under the contracts. The buyers argued that they did not have to pay as there was a total failure of consideration as regards each payment obligation. Lord Goff, obiter, distinguished these construction contracts from contracts of sale and, relying principally on the judgment of Dixon J in McDonald v Dennys Lascelles Ltd,135 said that in sale contracts, “it has been held that the buyer’s remedy is contractual, the seller’s title to retain the money being conditional upon his completing the contract”. [6.26] The decision of the High Court of Australia is that of Baltic Shipping Co v Dillon (The Mikhail Lermontov).136 Here, upon the sinking of a cruise ship in the 134 135 136
[1998] 1 WLR 574. (1933) 48 CLR 457 at 475–9. Baltic Shipping Co v Dillon (The Mikhail Lermontov) (1993) 176 CLR 344.
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middle of a voyage, a passenger sued for damages and restitution of the fare. The restitution claim failed. Mason CJ (with whom Brennan and Toohey JJ agreed) said that in the context of a discharged contract a payment may be recovered by reference either to the intention of the parties or failure of consideration. He suggested that this intention would be made out where the “defendant’s right to retain the payment is conditional upon the performance of his or her obligations under the contract”.137 Gaudron J suggested that failure of consideration has no role where the relevant obligation is not an entire obligation, because here recovery is based on non-fulfillment of a condition. In the case of an entire obligation, she suggested that there is necessarily a failure of consideration unless there is complete performance.138 McHugh J appeared also to reason that recovery is based on intention, suggesting that where a contractual payment is made “conditionally upon the performance of a promise by the payee, the right to retain the moneys after discharge of the contract is dependent on whether the promise has been performed”.139 However, he did add that where “the promise has not been performed, there has been a total failure of consideration by reason of the non-fulfillment of the condition”.140 For these statements, the majority principally relied upon the judgment of Dixon J in Dennys Lascelles. The other members of the Court, Deane and Dawson JJ, suggested that in such cases recovery (restitution) is granted to prevent an unjust enrichment and is based on failure of consideration.141 [6.27] Given the reliance on the decision of Dixon J in Dennys Lascelles, it is necessary to look in some detail at his judgment. In that case Dixon J said:142 When a contract stipulates for payment of part of the purchase money in advance, the purchaser relying only on the vendor’s promise to give him a conveyance, the vendor is entitled to enforce payment before the time has arrived for conveying the land; yet his title to retain the money has been considered not to be absolute but conditional upon the subsequent completion of the contract.
Dennys Lascelles concerned a contract for the sale of land where the price was payable in instalments. Title (or at least delivery of a certificate of title in registrable form) was to be transferred upon the final instalment being tendered. The contract was discharged for breach by the purchaser prior to this time. It was held that the purchaser was not obliged to make payments that had accrued prior to the time of discharge. Moreover, payments that had been made were recoverable, and 137
Ibid, at 351. Ibid, at 386. 139 Ibid, at 389. 140 Ibid, at 389. 141 Ibid, at 375. 142 Ibid, at 477. For a similar statement see Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 65 per Lord Wright. 138
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it is here that Dixon J’s statement to the effect that payments made were not absolute but conditional has been seized upon to ground recovery in contract rather than restitution. [6.28] It is suggested that the interpretation placed on Dixon J’s statement in both Stocznia Gdanska SA v Latvian Shipping Co and The Mikhail Lermontov is incorrect.143 Although most payments made under a contract may be said to be conditional in the loose sense of being related to some performance obligation, the true nature of an obligation must be determined by construction. The contract in Dennys Lascelles concerned an instalment contract for the sale of land, and here the agreed return for each instalment is the other party’s promise to perform rather than the actual performance of that promise. It is this distinction that allows a vendor (prior to discharge) to bring an action to recover an instalment that has not been paid. This is reflected in Dixon J’s reference to “the purchaser relying on the vendor’s promise to give him a conveyance”. It must follow that since the buyer bargained for only the vendor’s promise to perform and that promise was given at formation, that is, prior to the time the instalment became payable, then each instalment (other than the last instalment), in terms of intention, involved an unconditional obligation to pay.144 Therefore, reliance on this case for the proposition that a conditional payment is recoverable by reason of its character as a conditional payment cannot be maintained. In addition, once a determination of the presumed intention of the parties is made it cannot change. Therefore, since Dixon J concluded that, on construction, the instalments were unconditional payments, his later reference to the vendor’s title to retain them being conditional could not have been a reference to the intention of the parties. It is suggested that Dixon J characterised the title to retain the payment as conditional because of the obligation to make restitution that was imposed where there was a total failure of consideration; that imposition may result from a term implied in law or by virtue of an unjust enrichment. He did not mean to use the word “conditional” to describe the order of performance or to characterise performance obligations such as where each payment is matched by concurrent obligations of performance.145 [6.29] It may be that the distinction Dixon J was drawing was accepted by Lord Goff in Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty).146 This case concerned the assignment of rights to hire payments (payable in advance) under a 143 See further JW Carter and GJ Tolhurst, “Conditional Payments and Failure of Consideration: Contract or Restitution” (2001) 9 Asia Pacific Law Review 1. 144 See also Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435 at 464 per Dixon J. See further Dixon J’s citation of Ruddenklau v Charlesworth [1925] NZLR 161 at 164–5, at (1933) 48 CLR 457 at 475–6. 145 See generally SJ Stoljar, “Dependent and Independent Promises” (1957) 2 Sydney LR 217. 146 Pan Ocean Shipping Co Ltd v Creditcorp Ltd (The Trident Beauty) [1994] 1 WLR 161.
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time charterparty. In one particular period an advance payment was made to the assignee and the ship was off-hire for repairs for the entire period covered by the payment. An action for recovery of the payment was brought against the assignee. In the result, the action failed as the debtor had contracted on the basis that it would look only to the assignor for restitution. However, in answer to a submission that the right to payment was conditional in the hands of the assignor and therefore also conditional in the hands of the assignee, Lord Goff remarked that this was to misunderstand the meaning of “conditional”. He took the view that “conditional” simply meant the payment was not final because there was in his view a contractual obligation to repay it if the instalment was not subsequently earned.147 Except perhaps for classifying the obligation to repay as contractual148 (which Lord Goff would have held to be the case whether or not there was an express contractual right to repayment),149 Lord Goff’s response here is consistent with Dixon J’s approach in Dennys Lascelles. That is, the description of the payment as conditional was only for the purpose of noting that it was repayable if not earned. However, as this was a case where the goods had to be immediately available upon the tender of the first instalment, it would appear that in terms of intention this case involved a true conditional payment, so that the submission of counsel was correct, and the assignment should have been characterised as an assignment of a conditional right.150 That is, the obligation to pay was conditional in an order of performance sense, there being concurrent obligations, and conditional in a discharge sense as it had to be later earned by some performance on the part of the assignor. [6.30] Lord Woolf said that the right to receive hire was independent of the obligation to give credit for hire paid but not earned.151 He did not think the right was conditional at all. He said there was “nothing qualified about the right”, there was only an independent right to be repaid.152 It may be that Lord Woolf’s view is also in line with that of Dixon J, but he did not explain how the independent right to be repaid arises. This was not crucial in the case as there was an express contractual regime dealing with that issue. [6.31] A potential problem, the effect of discharge. Where a vendor terminates an instalment contract for the sale of land for breach by the purchaser, the vendor cannot sue for instalments that fall due prior to discharge and are not paid. Arguably 147
Ibid, at 165. Dixon J did not decide whether restitution was contractual or implied in law: see (1933) 48 CLR 457 at 480–1. 149 [1994] 1 WLR 161 at 164. 150 It is a distinct issue whether or not the obligor should be successful in claiming restitution against the assignee: see [8.33]. 151 [1994] 1 WLR 161 at 169. 152 Ibid, at 171. 148
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this result flows from the payment obligation accruing only conditionally at the time of discharge.153 That is, the right to receive payment is never totally divorced from the obligation to perform, and so the right to receive payment is not unconditional at the time of discharge.154 However, as noted above, in terms of intention such instalments (when time for payment falls due) are not only independent of performance in an order of performance sense but independent in the sense of being unconditionally accrued obligations. It is suggested that the better explanation of the effect of discharge here is simply that it would be inconsistent with the discharge of the contract for the vendor to bring an action for part of the price. Therefore, although unconditionally accrued rights survive discharge, it does not follow that it is possible to call for the performance of those obligations after discharge, as opposed to suing for damages for the non-performance of those obligations. In order for a party to call for performance, the performance must not be inconsistent with the discharge of the contract. For example, in the case of a sale of goods by instalments where the price for a particular instalment is paid in advance, the buyer can continue to call for the goods to be delivered after discharge. Moreover, a debt that has been earned by performance can be enforced after discharge. [6.32] Conditional rights and conditional benefits. In the section of this chapter that deals with the assignment of contractual burdens, there is a discussion of the notion of a “conditional benefit”.155 This refers to a class of rights in which the burden forms an intrinsic part of the right held by the assignor. The right carries with it the burden and it is not possible for the assignee to take the right without the burden. This may result in the assignee being required to perform the relevant contractual obligation. However, where there is no assignment of a true “conditional benefit”, but where the right assigned is conditional in the sense of having to be earned by some later performance by the assignor, then, although that obligation defines the character of the assigned right, that right still has an independent existence as a conditional right. It does not carry with it the obligation to perform; it is subject only to the performance of that obligation.
153 See generally on the effect of discharge Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849 per Lord Diplock; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476–7 per Dixon J. Cf Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129; Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574. 154 This explanation makes some sense because, if the right to receive payment was intended to be independent of performance, how could there ever be recovery based on failure of consideration? The answer lies in rejecting any notion that failure of consideration is based on qualified intent: see GJ Tolhurst in S Hedley and M Halliwell (eds), The Law of Restitution, Butterworths Common Law Series (London, Butterworths, 2002) para 19.31. See further [8.33]. 155 [6.104].
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[6.33] Assigning the fruits of a contract.156 A transaction may seek to deal only with the fruits of a contract.157 Whether or not this is the case is an issue of construction. Such transactions may be intended to be no more than promises by one person to another to account to the latter for any payments received under a contract. This is a true dealing in the fruits. Such a transaction operates only as a bipartite relationship. The assignor merely contracts to deal with the subject property in a particular way once it comes into his or her hands. It is an assignment of the subject matter of the contract. Nevertheless, because this agreement may be seen as an agreement to assign the fund (rather than the debt)158 once it comes into existence, equity may give effect to the transaction as an agreement to assign future property. In that case, assuming the formalities for such an assignment are made out, the assignee will obtain a beneficial interest in the proceeds when they are acquired by the assignor if at that point there is still no legal transfer.159 The result may be different if it is clear that the intention is that the fund must first vest beneficially in the assignor or if the assignment is subject to some other contingency. Different considerations apply where the subject matter of a contract involves goods, that is, where A agrees to sell goods to B and, before delivery, B agrees to sell the goods to C. This is dealt with in standard texts on sale of goods. [6.34] Assigning the right to the fruits of a contract. More often, assignments seek to deal with the right to the fruits of the contract. For example, a memorandum of assignment might refer to a “right to rent” or a “right to hire” or a “debt” or “receivable”. For reasons already noted, it may be still legitimate to view such transactions as involving dealings in the fruits of a contract.160 That is, a reference 156 For a discussion of what may constitute the fruits or proceeds of an asset in a broader context see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 1.59–1.69. 157 Eg Commissioner of Taxation v Betro Harrison Constructions Pty Ltd (1978) 37 FLR 150. 158 Pallette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 13 per Latham CJ. 159 Quaere whether, despite an express intention to deal only in the fruits of the contract, equity may, if the consideration for the promise is executed or specific performance is otherwise available, treat the transaction as also involving an agreement to assign the benefit of the contract. There is a view that where there is an absolute assignment of the fruits, or an absolute assignment of part of the fruits which correlates with a distinct and severable right to performance, then the purchaser may have direct rights against the obligor; this assumes that the benefit of the contract is assignable. This result would suggest that the benefit of the contract, that is, the right to performance, has also been assigned: see ICF Spry, Equitable Remedies (6th edn, Sydney, LBC, 2001) at 86–7 and see McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612. The generally accepted position is that an assignment can work forward from an asset to its proceeds but not backwards: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 1.26, 1.59, 1.68, 3.02, 3.37. Therefore arguably this result should follow only if, despite the express reference to the fruits, on construction the assignment is intended also to assign the benefit of the contract. Cf [6.54]. 160 [6.20]. See G & T Earle Ltd v Hemsworth RDC (1928) 44 TLR 605 at 608- 609 (affirmed (1928) 44 TLR 758) (assignment of “all moneys now or hereafter to become due to us . . . for retention moneys”; although retention monies had accrued, none were payable at the relevant time and no sum had been placed in an account as “retention moneys”; nevertheless it was said by Wright J that the “moneys” constituted a specific fund and were capable of being the subject of a legal assignment; the
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to the “fruits” is not necessarily limited to the actual money paid to discharge a payment obligation; a right to some performance may be the fruits of some other underlying asset. Moreover, because the extent of an assignment is dependent upon construction, a memorandum that on its face assigns the fruits or subject matter of a contract may be construed to extend to the “right” to that subject matter.161 Being a matter of construction, it is also a matter upon which opinions may differ. For example, in Palette Shoes Pty Ltd v Krohn,162 the defendant manufacturer made shoes and agreed to sell its stock to the plaintiff. The defendant kept possession of the shoes and sold them to customers as the “agent” of the plaintiff. Every week a discounting took place. The defendant was required to inform the plaintiff of the value of shoes sold to customers, and upon receiving this the plaintiff paid the defendant that value less 5.5 per cent. The defendant was required to pay all monies received by it from customers to the plaintiff’s bank account within 48 hours of receipt of such monies. Upon the liquidation of the defendant the plaintiff claimed for those sums which had been received by the defendant from customers for sales made by the defendant to customers both before and after the liquidation but which had not been deposited into the plaintiff’s account. To achieve this the plaintiff had to claim that the obligation on the defendant to bank these sums into the plaintiff’s account arose by reason of either the plaintiff’s ownership of the monies or an assignment of the right to the monies (that is, the debt) which was not void for being either an unregistered bill of sale or an unregistered assignment of book debts. The registration issues are not relevant here. The relevant clause provided: The [defendant] shall within forty-eight hours after the receipt thereof pay all moneys received by it on account of such boots and shoes supplied by it as aforesaid to the credit of such account and at such bank as the [plaintiff] may from time to time appoint and shall at least once in each month render to the [plaintiff] a statement in writing showing all moneys received by it as aforesaid during the preceding period.
Latham CJ was of the view that the defendants sold the shoes as agent of the plaintiff so that moneys owed by the customers were in fact owed to the plaintiff. The customers never owed moneys to the defendant so there could be no assignment of debts. The defendant merely collected moneys owned by the plaintiff and prior to banking them held them on trust for the plaintiff.163 If that agency assignment was therefore a dealing in the fruits of the contract and, arguably, given the drafting of the memorandum of assignment, the assignment was dealing with the “right” to such moneys, that is the debt created. 161 See Commissioner of Taxation v Betro Harrison Constructions Pty Ltd (1978) 37 FLR 150 at 157 per Bowen CJ. 162 (1937) 58 CLR 1. See also Marathon Electrical Manufacturing Corp v Mashreqbank PSC [1997] 2 BCLC 460 at 464–5. 163 (1937) 58 CLR 1 at 12.
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reasoning was wrong he still thought there was no assignment of debts, that is, the rights to payment under the contracts entered into by the defendant with customers. This was the necessary result of a clause that dealt only with the fruits of any contracts with customers, that is a clause that dealt with “all moneys received”. He said that to assign a debt there must be an intention to assign the right of the creditor (the defendant) against the debtor (customer).164 In this case he construed the clause as creating an obligation on the defendant to account to the plaintiff only after the defendant had been paid by customers. There was no agreement to assign debts; there was only an agreement affecting the fruits of the contract which is a distinct chose in action.165 Rich J also thought no assignment took place by virtue of the abovementioned clause. Any assignment in law or equity was dependent upon the discounting taking place. When a discounting took place he thought that the “proceeds of the debt discounted became in equity the property of the [plaintiffs] that is, in anticipation of payment by the customers”. He was not prepared to say there was no assignment of the subject debt which took effect in equity rather than by virtue of the instrument.166 He made no comment about the fact that the instrument, on its face, dealt only with monies received. Dixon J did not think the agency relied upon by Latham CJ was made out on the facts.167 Moreover, even if made out, this did not mean the monies received by the defendant were owned by the plaintiff. The relationship between principal and agent as regards the obligation to account is one of debtor and creditor involving personal liability only.168 That is, just because A (with authority) sells goods belonging to B does not of itself give B a proprietary interest in the proceeds at law. As to the assignment issue, rather than construing the subject clause itself, he took a view, consistent with the modern approach to the construction of contracts, of the overall transaction between the plaintiff and defendant. That transaction he classified as one involving the discounting of book debts.169 The whole point of the transaction was for the plaintiff to pay a discounted sum derived from valuing shoes which the defendant had under contract agreed to sell to customers. Those sales were on credit terms. It followed that, when construing the “assignment” clause in light of the contract as whole, it was clear that it was not merely a transaction to purchase the fruits of a contract but rather the right to those fruits. Dixon J thought there was an assignment of book debts which was intended to occur when the discounting took place, and, moreover, in equity the assignment could occur only at that point because that was when the consideration for the 164 165 166 167 168 169
Ibid, at 13. [6.56]. A debt is also a distinct chose in action, [6.50]. (1937) 58 CLR 1 at 17–18. Ibid, at 28–30. Ibid, at 30. Ibid, at 27.
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assignment was executed. Until then the debt or its proceeds was the property of the defendant.170 It is suggested that the approach of Dixon J reflects the modern and better view. Finally, McTiernan J thought the effect of the assignment clause was to bind the defendant to pay the plaintiff sums received. It did not operate to assign book debts in law or equity. The defendant was obliged to pay over sums to the plaintiff because it held them on trust for the plaintiff; the monies were the property of the plaintiff. Walker v The Bradford Old Bank Ltd171 is perhaps another example. In that case the assignment was of “all moneys now or hereafter to be standing” to the assignor’s credit in a certain bank account. At the time of the assignment there was £48 in the account. At the time the assignee brought an action against the bank there was in excess of £217 in the account. The assignment on its face appears to be an assignment of the fruits, but the court appeared to reason that the assignment was an assignment of the right to the fruits being a present assignment of a contractual right to an accruing debt, which, being present property, was immediately assignable under the statutory regime for legal assignments.172 A final example is provided by Geroff v CAPD Enterprises Pty Ltd.173 Here the assignor assigned the benefit of a contract at a time when debts had accrued under the contract and were owing to the assignor. A debt is no more than a “right to payment” and is distinct from the actual monies paid.174 However, although the expectation of the payment of such a debt is an expectation that the contract will be performed, and despite that payment being an act in the performance of the contract, a debt has always been considered a distinct chose in action. Thus, an assignment of the benefit of the contract did not on construction carry with it the right to such payments. McPherson JA concluded that what was assigned was the tree, that is, the right to performance of the contract, and although that would carry with it the fruits of performance that came into existence after the assignment it did not carry with it the fruits already accrued. Importantly the “fruits” here were not limited to the proceeds of the debt but the debt itself, that is, the right to payment.175 170 171 172
(1937) 58 CLR 1 at 30–2. (1884) 12 QBD 511. See further F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) at
30. 173
[2003] Queensland Court of Appeal (QCA) 187. See further [6.05]. 175 There must be some limitations to this case. It would not apply if what were assigned were “debts” or “receivables” arising under a contract. Moreover, in the case of a loan that had been drawn down prior to the assignment and where the debt had accrued at the time of draw down with only repayment being deferred, an assignment of the “benefit” of the loan contract would be unlikely to be intended to refer to anything other than the right to recover repayments as they fell due. See further Swan v Cleland’s Graving Dock and Slipway Co v Maritime Insurance Co [1907] 1 KB 116; Schneideman v Barnett [1951] NZLR 301. 174
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[6.35] It should also be noted that an assignment that on its face may deal with the “right to the fruits” may be a dealing with the fruits only when construed in light of the contract as a whole. This result is based on construction and is additional to the case where the “right to the fruits” may be no more than the fruits of some other underlying right. Practical examples of this point of construction are not easy to find. However, if one assigns a “debt” which would normally carry with it the right to enforce payment, but expressly reserves such enforcement rights, then the assignment may be no more than a bilateral agreement between the assignor and assignee to deal with the fruits of the contract. Alternatively, and more likely, when dealing in a debt an assignment of the “right to the fruits” may carry with it the right to claim a sum due, but not to take proceedings to determine whether a sum has fallen due.176 [6.36] Where an assignment seeks to assign the “right” to the fruits of a contract, then, on its face, this appears to be intended to be only a dealing in accrued rights and would operate when the correlative obligation to perform accrues. That is, in the case of a debt, when the debt comes into existence. Of course this may be before the time set for payment.177 Moreover, clearly the assignee’s right will eventually carry forward to those fruits that represent the interest of the assignee.178 However, often at the time such an assignment is entered into the expected receipt of the fruits of the contract is conditional or contingent upon the occurrence of some prior performance or event. An assignment of the “right” to the fruits of a contract does not appear to seek to deal with those conditional or contingent rights, and the question arises whether the dealing is a dealing in future property. Clearly there is an existing contract and the assignor must have some existing right. That right may be expressed as a right to the performance of the contract or at least a right to the promise of performance. The assignment does not seek to deal with that right; it seeks to deal more specifically with the right to the obligation to pay. It therefore becomes necessary to pinpoint the nature of the right vested in the assignor at the relevant time vis-à-vis the debtor’s obligation to pay. Here the movement of contractual rights (in their nature as choses in action) from conditional rights to accrued rights to unconditional rights is important. Prior to looking at that point it is important to note that if the assignor does not assign the “right” to the fruits of the contract, but simply assigns the benefit of the contract at a time when the expected performance is conditional, then that assignment will be an assignment of a present right and 176
[6.54]. See Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 at 379–80 per Dixon and Evatt JJ. See also Edmunds v Edmunds [1904] P 363. 178 See R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.61, especially the discussion of proceeds in relation to insurance. 177
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will pick up that conditional right and carry through to the accrued and unconditional stages.179 Moreover, there can be no doubt that in some cases the existence of a condition or contingency will dictate that a particular right is a mere expectancy. For example, prior to the occurrence of a breach of contract, the right to damages is a mere expectancy, its existence being contingent upon a breach of contract.180 [6.37] In the case of an assignment of a “right” to a payment, on one view such an assignment should be characterised as an assignment of future property if the “assignment” is entered into prior to the accrual of the obligation to pay.181 That is, where the obligation to pay (which may or may not coincide with the time for payment) is conditional or contingent upon some prior event.182 For example, in Wreckair Pty Ltd v Emerson,183 a company agreed to supply the plaintiff with certain pumps. The plaintiff was to hire out the pumps and the proceeds of hire were to be split between the company and plaintiff on a 60:40 basis. However, the company’s 60 per cent was to be used by the plaintiff to reduce the debt owed by the company to the plaintiff. At the time of the winding up of the company A $9,000 had been produced from hire and an issue arose whether 60 per cent of that could be set off by the defendant guarantors against a claim by the plaintiff. The result of that set-off application is not relevant here, however, it was held that the company had assigned a future chose in action, being 60 per cent of the fruits of the hire proceeds. Importantly, McPherson ACJ did not think the subject matter of the assignment was the fund or proceeds of hire, but rather the right to receive or recover the hire, and that right came into existence when the debt accrued, that is, when it
179 The position is more complicated if one assigns the benefit of the contract at a time when there exist either accrued or unconditionally accrued rights: see [6.34] discussing Geroff v CAPD Enterprises Pty Ltd [2003] QCA 187. 180 See Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 44. Cf Re National Express Group Australia (Swanston Trams) Pty Ltd (2004) 209 ALR 694. Whether such “contingent” rights are caught by legislation, such as insolvency legislation, is an issue of statutory construction: see IF Fletcher, The Law of Insolvency (3rd edn, London, Sweet & Maxwell, 2002) paras 9.025–9.037; R Goode, Principles of Corporate Insolvency Law (3rd edn, London, Sweet & Maxwell, 2005) at paras 3.09, 4.26–4.29, 7.32–7.33. See also Secretary of State for Trade and Industry v Frid [2004] 2 AC 506. 181 There is a view that the chose in action represented by a bank account is not a debt until a demand is paid, and so any assignment of the “debt” prior to such a demand is an assignment of future property, that is, the demand is a contingency affecting the existence of the debt: see Schroeder v Central Bank of London Ltd (1876) 34 LT 735 at 736 per Brett J. The better view is probably that the demand impacts only on the time for payment and not the accrual of the obligation to pay, so that there is an existing debt. See further N Joachimson v Swiss Bank Corp [1921] 3 KB 110. 182 Although an obligation to pay may have accrued and time for payment fallen due, that obligation may still be characterised as a conditional obligation in the discharge sense (as opposed to the order of performance and performance sense), if it must later be earned by the performance of some obligation. 183 [1992] 1 Qd R 700 (also discussed at [6.14]).
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became due and owing to the plaintiff under the hire contracts.184 Admittedly, whether any proceeds would ever exist was contingent upon the plaintiff entering into contracts of hire with third parties, but such a contingency did not result in the assignment in Shepherd’s case being held a dealing in future property.185 A similar result would probably follow where there is an assignment of the right to payment under an existing contract for the supply of goods or services but where that supply is to occur “if and when” the buyer requests. [6.38] On the other hand, there are many examples of assignments which refer to an assignment of the right to the fruits, whether expressed as a “right to payment”, a “right to hire”, or a “right to receivables” etc, which have been upheld as assignments of present property even though the obligation to pay has not accrued at the time of the assignment, and even though the assignments on their face do not seek to assign a “conditional” right to payment. For example, an assignment of the right to rent under an existing lease which is entered into prior to any rent accruing has
184 Ibid, at 705. Where an assignment is of future property it may still be sensible to speak of the assignment a future debt in a non-technical sense (see Independent Automatic Sales Ltd v Knowles and Foster [1962] 1 WLR 974 at 985 per Buckley J). However, and subject to any statutory provision to the contrary if the assigned right is a present right to some future payment where the obligation to pay is conditional or contingent upon some event, then that present right cannot sensibly be termed a debt because there is no present obligation to pay: see Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140; Re WF LeCornu Ltd [1931] SASR 425; Independent Automatic Sales Ltd v Knowles & Foster [1962] 1 WLR 974; Bakewell v The Deputy Federal Commissioner of Taxation (South Australia) (1937) 58 CLR 743 at 754 per Latham CJ; Blackwood’s Ltd v Chartres (1931) 31 SR(NSW) 619; Re Gasbourne Pty Ltd (1984) 8 ACLR 618. This does not mean that a debt can exist only if the obligation to pay has “unconditionally” accrued in the sense that that word is used to describe the effects of discharge. Thus, if the time for payment has arrived under a sale transaction there is a debt even if the seller still needs to do some later act to earn that payment. Quaere where the condition or contingency upon which the obligation to pay is dependent is bound to occur or is within the control of the creditor, so that in essence only payment is deferred and not the accrual of the obligation to pay. See further Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 at 379–80 per Dixon and Evatt JJ (if an obligation to pay has arisen by the time of discharge, then although the date for payment may not have arisen by that time there will still exist an assignable chose in action (a debt) even if payment is still dependent on the occurrence of a contingency so long as that contingency, does not involve further performance of the contract), and see further Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1987] 1 Lloyd’s Rep 239. On the characterisation of advance payments as debts see The Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 152–3 per Isaacs J. See also National Cash Register Co Ltd v Stanley (1921) 3 KB 292. 185 See Horwood v Millar’s Timber and Trading Co Ltd [1917] 1 KB 305 (assignment of wages to be earned in the future under a present contract of employment viewed as a dealing in future property). See also Norman v FCT (1963) 109 CLR 9 at 22. See further The Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 160 per Dixon J, suggesting that even an assignment which attempts to assign all the assignor’s “right, title and interest in and to payment under the contract” may evidence an intention to assign the “debt” only when it accrues, that is, future property. Under the Uniform Commercial Code, prior to amendments made in 1972, a distinction was drawn between “accounts” and “contract rights”, the latter referring to payments not yet earned. These distinctions are now subsumed into the definition of “account”: see §9.102.
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been considered an assignment of a present right.186 An assignment of the right to receivables under a hire contract where at the time of the assignment the contract of hire exists but no hire has yet accrued has been considered an assignment of a present right.187 In each of these cases the accrual of the obligation to pay is conditional on the rented property being available during the rental period. It will be recalled that in Shepherd’s case an assignment of the right to “income that may accrue” under a presently existing contract was held to be a dealing in present property.188 In that case Barwick CJ suggested that where there exists a present contract and there is an assignment of the “right” to the fruits of that contract, it will always be an assignment of present property.189 He did not appear to consider the existence of some other contractual right prior to the accrual of the obligation to pay or perform. Admittedly in that case the right to income was not dependent on any condition or contingency under the contract, but was dependent on one party electing to use the subject matter of the contract to produce income. [6.39] It is necessary either to choose between these two sets of cases or to distinguish between them. If the preferred course is to choose between them this must be done by reference to doctrine. One view might be that prior to the obligation to pay accruing, although it might be said in a loose sense that there exists either a conditional right to payment or a contingent right to payment, there is in fact no “obligation to pay”, and therefore “no right to payment”, there is merely a present contractual right to some future performance where that performance will involve the making of a payment.190 Thus, any attempt to deal with the “right to payment or performance” prior to the obligation to pay accruing will be a dealing in future property. This would be the case even if the memorandum of assignment sought to assign the “conditional right to payment”. Any immediate assignment would be dependent upon the assignor identifying the presently existing right: this can be achieved by assigning the “benefit” of the contract if the intention is to assign one’s entire interest in the contract and not, for example, merely an income stream.191 Nevertheless, even if one takes the view that there is no such chose in action as a conditional or contingent contractual right, if the assignor uses such an expression in a memorandum of assignment there can be little doubt about its meaning; the assignor is attempting to assign whatever is then the existing contractual right or part thereof. It is important to note that the case being dealt with here is distinct from that where an obligation to pay exists but where it is only payment that is 186 Booth v The Commissioner of Taxation (1987) 164 CLR 159. See also Lam Soon Australia Pty Ltd v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 42. Contrast the situation where the assignment is of “the rent” or “the rent received” or “the net rent”, as these are mere assignments of the fruits. 187 Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161. 188 [6.19]. 189 [6.19]. 190 The Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 153 per Isaacs J. 191 See Hambleton v Brown [1917] 2 KB 93 at 95 (assignment of the “benefit” of a judgment).
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suspended. Here the condition, that is, the running of time, characterises only the time for performance and not the existence of the “right to payment”.192 [6.40] Alternatively, one could argue that when we speak of conditional, accrued and unconditional contractual rights, we are not talking about different contractual rights. Upon the condition occurring the conditional right is not replaced with an accrued right or unconditional right; rather, the condition is merely lifted from the already existing contractual right. Thus, an assignment of the “right to the fruits”, whether it be drafted in the form of a “right to rent” or a “right to hire” etc, is a dealing in the one and only existing contractual right, so that it must pick up that right whether at the time of the assignment the right is conditional, accrued or unconditional. Of course, for the reasons discussed earlier, this will not help where the dealing is in such unique rights as abstract rights and those rights such as the right to interest under a loan repayable at will.193 [6.41] A question arises under this second analysis whether the idea that there is only one contractual right means that any condition or contingency does not define the subject right while that condition or contingency persists. One view is that the condition or contingency continues to define the chose in action until lifted, so that the assignor whose right is conditional or contingent cannot immediately assign any different right, and this explains why an assignee of such a right cannot immediately call for the performance of the obligation or otherwise seek to enforce it after discharge. Alternatively, it may be argued that the condition or contingency merely defines the obligation of the obligor, and it is because of the nature of that obligation that the assignee cannot immediately call for performance upon taking an assignment of the “right to the fruits” or otherwise enforce that obligation after discharge. It is suggested that the better analysis is that it is not possible to define an obligation without also defining its correlative right: the condition of contingency defines the chose in action while it persists.194 [6.42] Although the second analysis is doctrinally sound, it is doubtful whether it reflects the current law. It appears to be the law that if an assignor clearly intends to deal only in accrued rights then such a dealing, prior to the accrual of that right, is a dealing in future property. For example, if an assignor/seller attempts to transfer the debt under a sale contract prior to property in the goods passing, then he or she will usually be dealing in future property. Although there is clearly some 192
McLeay v Commissioner of Inland Revenue [1963] NZLR 711. [6.20]. 194 Cf Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161 at 165 per Lord Goff. This issue arises in a number of contexts; for example, is the personal rights rule merely a rule as to the nature of the obligor’s obligation (see [6.75]), and do prohibitions on assignment merely characterise the obligor’s obligation (see [6.83])? 193
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existing property at that time, namely, the right to the promise to pay, which would be transferred with an assignment of the benefit of the contract, until property in the goods passes there is no present obligation to pay and therefore no debt.195 As noted above, an assignment of the right to the fruits is concerned with assigning rights to obligations and not merely rights to promises of obligations.196 Similarly, if a party seeks to deal in the proceeds or even the “right” to the proceeds under a building contract, but at the time of the dealing no proceeds have accrued and the dealing is intended to deal only with accrued rights then it will be held to be a dealing in future property.197 Moreover, generally, if an assignor seeks to assign sums due prior to the time an obligation to pay has accrued, it will be a dealing in future property.198 However, on this second analysis, given that there exists only one contractual right to the relevant correlative obligation, the result of such an assignment should be that it is not intended to take effect until the obligation to pay accrues. Whether or not it is a dealing is future property should not arise. [6.43] It should also be noted that the result in cases of sale may be different if, under the contract, the obligation to pay accrued prior to the conveyance of the property. Once such an obligation to pay arises there is a debt.199 The law recognises an accrued obligation to pay under a sale agreement as a debt even though that obligation may still be conditional in the sense of having to be earned by some later performance by the payee.200 However, not all obligations to hand over sums of money result in debts. Thus, where an executory loan agreement is in place, no debt is created, but merely a contingent contractual right to an advance which will result in a breach of contract if it is not forthcoming when a call is made on it.201 195 Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 153–4 per Isaacs J; HJ Wigmore & Co Ltd v Rundle (1930) 44 CLR 222 at 228, 229. See also Re Trytel [1952] 2 TLR 32; Western Wagon & Property Company v West [1892] 1 Ch 271; Webb v Stenton (1883) 11 QBD 518; Law v Coburn [1972] 1 WLR 1238. 196 [6.36]. 197 Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137. Cf Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190. 198 Eg Liverpool & London and Globe Insurance Co Ltd v Hartley & Ford [1927] VR 523. 199 Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 160 per Dixon J. This must be the case even in immediate over-the-counter sales; that is, there is a moment when an agreement for sale is concluded and a right to payment (that is, a debt) accrues, even though payment and transfer of property follow almost instantaneously. Moreover, where a contract states that payment is to be made on a certain day, then a debt will arise on that day even if there is no conveyance by that time because there is nevertheless an obligation to pay: see The Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 154 per Isaacs J. 200 See Marathon Electrical Manufacturing Corp v Mashreqbank PSC [1997] 2 BCLC 460 at 465–6 per Mance J approving a statement made by F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) at 28–9. 201 May v Lane (1894) 64 LJQB 236. The right to the advance, that is, the right to performance, may not be assignable as it may be personal, being based on the confidence placed by the lender in the borrower’s ability to repay, [6.75]. However, in May v Lane, it was suggested by Rigby LJ (at 238) that it was not assignable because it was not a chose in action, and it was not a chose in action because to recognise it as such would be at odds with the law of maintenance and champerty: cf [2.02].
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In such a case it is impossible for the borrower presently to assign a debt as it does not exist. [6.44] The above discussion gives rise to a third view, namely that where a party’s enjoyment of the benefit of a contract is dependent upon some prior act or event occurring, then that person, at that time, has, in addition to his or her right to the promise of performance, a distinct right which is a conditional or contingent contractual right.202 That right is then replaced with an accrued right or an unconditional right, as the case may be, once that condition or contingency occurs.203 On this view, and subject to those cases where it is impossible to identify a present right to the subject fruits as the fruits are in fact generated by a right to the performance of some other obligation under the contract,204 whether or not an assignment of the “right to the fruits” of the contract picks up the present existing conditional or contingent right will be dependent upon construction.205 If on construction it appears that the assignment is intended to deal only with accrued rights, then, if it is entered into prior to those rights accruing it will be a dealing in future property. This view does not choose between the two sets of cases previously discussed, but merely distinguishes them. At present, this view probably represents the law. That is, where there is an existing contract which cannot be terminated by the obligor at will, then the party in the position of the assignor will be the beneficiary of both a present contractual promise (given by the obligor) to pay or perform and a conditional, accrued or unconditional right to an obligation to perform. Whether that assignment picks up that present right to perform is an issue of construction. It must also be kept in mind that an assignment that merely assigns the right to the fruits may also be capable of being construed as an assignment of the general benefit of the contract.206 Clearly that is an assignment of present property, and such a construction is possible if at the time of the assignment the only performance that can be expected under the contract is the receipt of those fruits identified in the assignment. Moreover, there is much to support the idea that one right can be replaced with another. For example, it has always been accepted that when a debt arises under a contract it forms a distinct chose in action even though the right to the payment of that debt is also a right to the performance of a contractual obligation. Thus, if a debt has accrued under a contract and the assignment assigns only the “right to performance” then that assignment will not 202 There is some logic in this in the sense that the promise of performance was the consideration that supported the contract, and to classify that promise as conditional or contingent would call into question the existence of the contract. 203 This appears to be the view adopted in Re Brush Aggregates Ltd [1983] BCLC 320. 204 [6.20]. 205 Re Brush Aggregates Ltd [1983] BCLC 320 at 323. See also Paul & Frank Ltd v Discount Bank [1967] Ch 349 at 363 per Pennycuick J. 206 See [6.33] and cf [6.54].
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pick up the existing debt.207 Similarly, when one is paid money under a contract, the right to that fund replaces the right to payment under the contract.208 [6.45] It follows from an acceptance of the third view that where some present contractual right to an obligation exists, the issue of whether an assignor intends to assign that present right or some future right depends on the facts of each case. Nevertheless, precedent does have a role to play and there is a line of authority dealing with clauses assigning sums due under a contract. For example, an assignment of “debts due or to become due”, or “debts owing or accruing” or “debts due or to accrue due”, “or moneys due or to become due” relates only to present property. On one view such provisions capture both presently accrued obligations to pay and existing contingent obligations to pay.209 On another view such provisions capture only accrued obligations to pay whether payable presently or in the future.210 However, it has been suggested that a reference to sums “due and owing” would not necessarily mean “due and payable”211 but would require the obligation to pay to have accrued.212 The word “due” could refer to either the time of payment or the existence of the indebtedness.213 However, it would appear that once a reference is made to debts which “might become due and owing” then the provision captures future property.214 [6.46] The view that a conditional or contingent contractual right is replaced by accrued and unconditional rights is not without its difficulties. For example, if there is an attempted assignment of an unconditional right to payment prior to the 207
Geroff v CAPD Enterprises Pty Ltd [2003] QCA 187. Nevertheless, precedent does have a role to play and there is a line of authority dealing with clauses assigning sums due under a contract; see Agnew & Bearsley v Commissioner of Inland Revenue [2001] 2 AC 710. See further [6.54]. 209 Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190. 210 HJ Wigmore & Co Ltd v Rundle (1930) 44 CLR 222 at 228. See also Jones v Thompson (1858) EB & E 63, 120 ER 430; Webb v Stenton (1883) 11 QBD 518. 211 Where there is a reference to money “due and payable” the reference to “payable” refers to the time for payment and that time must have accrued: see Helou v PD Mulligan Pty Ltd (2003) 57 NSWLR 74 at 76–7 and the cases there cited. It is a question of construction whether the reference to “due and” as opposed to “due or” is intended to limit the clause to unconditionally accrued rights or whether it is also intended to capture conditionally accrued rights that are due and payable such as an advance payment. 212 Bakewell v The Deputy Federal Commissioner of Taxation (South Australia) (1937) 58 CLR 743 at 768 per Dixon and Evatt JJ. 213 See Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 9–10 per Gibbs CJ. See also HJ Wigmore & Co Ltd v Rundle (1930) 44 CLR 222 at 228 citing David v Malouf (1908) 5 CLR 749 at 752–4 per Griffith CJ. See further Ex parte Sturt & Co, In re Pearcy (1871) LR 13 Eq 309 at 310–11. See further Re Elgar Heights Pty Ltd [1985] VR 657; Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 and see GJ Hamilton, “An Insolvency Riddle: When is a Debt which is Due not a Debt which is Due and Payable?” (1997) 5 Insolvency Law Jnl 78. 214 See The Australian Guarantee Corp Ltd v Balding (1930) 43 CLR 140 at 156–7 per Starke J; Tailby v The Official Receiver (1888) 13 App Cas 523; Re Row Dal Constructions Pty Ltd [1966] VR 249; Yeandle v Wynn Realisations Ltd (1995) 47 Con LR 1; Flood v Shand Construction Ltd (1996) 54 Con LR 125. 208
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obligation to pay becoming unconditional (which if given for value would be upheld as an agreement to assign), then presumably the existing conditional or contingent contractual right to performance must still be vested in the assignor.215 Clearly, when the obligation to pay becomes unconditional, the assignee will take the immediate beneficial interest in that right and, if at that point there is still no valid legal assignment, the assignor will hold its legal interest on trust for the assignee. However, what if, prior to the obligation to pay becoming unconditional, the assignor further assigns the present conditional or contingent right to performance to a second assignee? That is, what happens when the obligation to pay becomes unconditional?216 One view may be that because on this analysis the present right to some conditional performance is a distinct chose in action from the unconditional right to payment and, as the latter has then been assigned away, the second assignee will have no claim to the payment. From a contract perspective, in terms of discharge, a contractual right to performance which is conditional or contingent upon some performance or event is automatically classified as an unconditional right when that performance or event occurs. Moreover, it is quite clear (putting aside the complication of the first assignment in the above scenario) that if there is an assignment of a conditional or contingent contractual right where the condition or contingency is a condition precedent to the performance of the obligation that is correlative to the assigned right, then, although the assignee cannot immediately enforce that right, once the condition is fulfilled or the contingency occurs the assignee can immediately enforce the assigned right without the need for a separate assignment of the accrued or unconditional right.217 The difficulty, is to explain this result from a personal property perspective. 215 Admittedly these are distinctions that are usually not drawn in memoranda assigning rights to payment. In fact an assignee would need to think very carefully before taking such an assignment because, if the word “unconditional” is being used in the sense to describe a right that survives discharge, that is, where the counterperformance has been earned, then under many contracts the obligation to pay and the time for payment will arrive well before that time. That is, the obligation to pay will accrue while the right to payment remains conditional in a discharge sense. Moreover, from the assignee’s perspective the distinction would matter only if it provided some protection from claims for restitution in respect of payments made. However, putting aside the complication of the assignment, generally the receipt of payment pursuant to an unconditional right to payment is no guarantee of protection from such a claim: see [6.28]. Nevertheless, the law seems to be that even if the assignee takes an assignment of a right to advance payments, and even where that right is classified as conditional in the sense that the assignor must perform some condition subsequent in order to earn the payment, the assignee is protected from any claim for restitution following the discharge of the contract: see [8.34]. 216 The assignor will most likely be in breach of duty to the first assignee: see Cotton v Heyl [1930] 1 Ch 510. 217 Of course an assignee can enforce performance as long as the time for performance has arrived, whether or not the right to that performance is at that time still characterised as conditional or unconditional.
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If it is accepted that conditional, contingent and unconditional rights are distinct rights, then, putting aside the third analysis for the moment, one explanation for the above result may flow from the idea of feeding title. That is, at the time of the assignment the assignor had title to only a conditional or contingent right and could assign only such a right. However, clearly, if there were no assignment, then once the obligation to pay had been earned the party in the position of the assignor would be said to hold an unconditional contractual right to payment. Arguably, where there is an assignment, this is then fed through to the assignee. This analysis does have a weakness. The idea of feeding title generally refers to the transmission of a better title to a thing, such as goods. Importantly, the “thing” never changes; only the strength of the title in respect of that thing. In the case of contractual rights, however, the “thing” is the contractual right, that is, in the scenario being discussed the assigned conditional or contingent right to performance. Thus, the application of the feeding of title idea here would seem to change the “thing” which is not possible; it is feeding title to a different thing. The conditional/contingent and unconditional rights are distinct things. It would be different if the second analysis above were adopted because what is assigned is simply the “right to performance under the contract”, so that what is then fed through is simply a better title to that right to performance. Nevertheless, it may be that this aspect of feeding title applies only to transactions involving tangibles and different rules apply to intangibles. It has already been noted in Chapter 3 that the law with respect to intangibles does, in certain respects, operate by its own set of rules.218 Thus, arguably, an exception to the nemo dat rule allows an assignor to assign a debt twice, with any dispute between the assignees being resolved as a priority dispute.219 If it is the case that feeding title explains how an unconditional right is transferred to an assignee without a separate assignment, then, in the case where an assignor first agrees to assign a future unconditional right and later separately assigns to another assignee the remaining present conditional right, then, when the obligation to pay unconditionally accrues the effect of feeding title would arguably be that both assignees were then vested with an unconditional right to performance. That is, the effect is the same as if the assignor assigned the right twice. Thus, any dispute would be resolved as a priority dispute.220 Another way of explaining the transformation of a conditional right to an unconditional is to rely on the third analysis, that is, when the obligation to pay has been earned the conditional or contingent chose in action is replaced by an unconditional one, and this automatically vests in the person who at that time is 218
[3.12]. Ibid. 220 The position would appear to be different with tangibles where it has been held that title is fed to the first transferee: see Patten v Thomas (1965) 66 SR (NSW) 458, [1965] NSWR 1457 and see MG Bridge, The Sale of Goods (Oxford, OUP, 1997) at 397–8. 219
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vested with the right to performance. That is, there is a true replacement and the conditional or contingent right ceases to exist. Thus, upon the obligation to pay being earned the conditional right is extinguished and replaced by the unconditional right. If this analysis is correct, then no issue of priority will ever arise. If the assignor maintains the conditional right or assigns that right to a second assignee, that right will in due course be extinguished and the first assignee, taking the assignment of the unconditional right, will be the only party left with an interest. [6.47] Despite the doctrinal force of the argument above, two problems arise. First, it is generally accepted that a person can assign a chose in action more than once with any dispute between competing assignees being determined by the principles governing priorities. Of course such a dispute will usually only arise where assignments are given by way of security and where the subject matter of the assignment is a debt. Nevertheless, given this ability one can adopt the view that since an assignment of the ‘tree’ will follow through to the ‘fruits’, the assignee of the conditional right must be vested with an unconditional right when such a right accrues with the result that both assignees are vested with unconditional rights. Second, there are arguments based on the nemo dat rule that would allow an assignee who takes a later assignment of the general benefit of a contract to prevail over an assignee who takes a prior assignment of a future debt arising under the contract. Assume that A sells goods to X and takes an assignment of X’s present and future book debts; assume that X enters into an agreement to sell the goods to Y on credit terms but that X maintains title in the goods until the price is paid, next, assume that the contract of sale between X and Y was set out in a document that evidenced an immediate assignment of the benefit of the contract to B which may be the case where B is financing X. On one view the benefit of the contract of sale between X and Y never vested in X, or, if it did, it was always a title conditional upon an assignment to B. Since A’s title is subject to the principle of transfer, it could not have obtained any right to payments under the contract between X and Y. The above explanation is open to the criticism that it requires the agreement for sale to Y and assignment to B to be concurrent events, when logic and the nemo dat rule suggest that X cannot assign a right to B unless that right first vests in X. Thus, on another view the owner of the goods is X, and so X is a necessary party to the contract of sale between X and Y. It follows that the benefit of the contract must have vested at least in part in X. The assignment is a distinct part of the transaction even though one may view the entire dealing as a single transaction. This does not necessarily resolve the matter in favour of A. Much will depend on how one construes B’s involvement. If one takes the view that B had no part in the contract of sale then one is left with a true priority dispute between A and B. A number of questions may then arise, such as, are both interests attached or is one
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floating; when should an agreement to assign take effect for the purposes of priorities; which of A or B’s interest vests first or do both interests vest at the same time—B’s interest is merely dependent on the existence of the contract with Y whereas, unlike the above example where Y’s debt accrues at the time of contract, usually A’s interest would be conditional upon a conveyance of the goods as it is then that a debt would accrue— in any case the priority dispute would be over the debt and B’s initial right would have been replaced by a right to that debt which would have vested in B the same time it vested in A. A different result would follow if B had an interest in the contract of sale. It is still possible for X and B jointly to enter into a contract with Y to sell X’s goods. If that is the case then B is a co-owner of the contractual benefit of Y’s promise to pay and A will take subject to B’s interest.221 Moreover, if, at the time of the agreement to sell to Y and assignment to B, X transferred title in the goods to B the result is likely to be a novation with the contract of sale being between Y and B, here A would have no claim to debts arising under that contract.222 This second view also neglects the possibility of X and B, prior to contracting with Y, entering into an prior agreement to assign which if effective will result in beneficial title vesting in B without first passing through A. If that is possible it may be drawing too fine a point to hold that the formation of the contract between X and Y and the assignment to B cannot be concurrent events. However, putting aside any complications that may arise with floating securities, arguably the interest of A and B would attach at the same time, although the dates of their agreements to assign would differ. Despite all this it is not clear why A’s subjection to the interest of B should be dependent upon whether or not the assignment to B takes place prior to or after the assignment to A or whether normal priority rules between choses in action should apply to resolve the situation. In the context of contracts for the sale of land, and in a more typical purchase money security transaction, the House of Lords in Abbey National Building Society v Cann223 appears to have adopted a version of the first view noted above. Thus, if 221 Similarly, if A provides finance to X and takes a security of X’s present and future property, and if later X and Y undertake to purchase some property as co-owners, then A’s interest in that property will be subject to Y’s interest. That is, because X’s title is always subject to Y’s: the nemo dat rule applies. 222 See Snyder’s Ltd v Furniture Finance Corp Ltd [1931] 1 DLR 398 (here, at 406, it was suggested that the same result should follow even if the assignment to B was not immediate, so long as the contract of sale between X and Y had an express provision to the effect that it might be assigned). A distinct situation is where there is a sale of goods subject to a title retention provision with a subsequent on-sale of the goods on credit terms, together with an assignment of book debts by the buyer/on-seller. Here there is a priority dispute between the assignee and title retention seller: see DM McLauchlan, “Priorities—Equitable Tracing Rights and Assignments of Book Debts” (1980) 96 LQR 90. Contrast the example discussed by Goode in R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.66. 223 [1991] 1 AC 56 (see further Whale v Viasystems Technograph Ltd [2002] EWCA Civ 480 para 72 per Jonathan Parker LJ, where it was stated that the principle flowing from the decision in Abbey National was not limited to “cases involving the purchase of property coupled with the grant of a mortgage [but applies] in every case where an issue arises as to priority as between equitable interests”).
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A provides finance to X and takes a security of X’s present and future property, and if later X purchases property from a third party with finance provided by B, then, if prior to the sale there existed an agreement between X and B to grant a mortgage over the property in favour of B which is to take effect at the same time as the sale of the property to X, B’s interest will take priority over that of A on the basis that the sale to X and mortgage to B constitute one “indivisible transaction”. The party in the position of X obtains only the equity of redemption. The decision in Abbey National rejected the view that for X to grant a mortgage to B the property must first vest in X. The reasoning here is perhaps open to the criticism that the transaction between X and B was a mortgage and not a purchase by them as co-owners, and in terms of the efficacy of the assignment there is no doctrinal reason why A should be subject to B’s interest on the basis of the nemo dat rule rather than a distinct priority rule; the assignment to A would occur at the same time as the assignment to B, although the dates of both agreements to assign would be different. Moreover, for the agreement to assign to B to be effective and attract the maxim that equity treats as done that which ought to be done then it must be a contractual agreement and the consideration for the agreement should be executed or the agreement should otherwise be specifically enforceable. It is not sufficient to have an agreement for security in place or to have an understanding that such an agreement will be entered into.224 In practice, because the execution of the consideration is likely to occur concurrently with the transfer of title to the land and, unless the assignment relates back to the date of the agreement to assign, there would be no need to draw a distinction, between where there is a prior agreement and where the agreement comes into existence only at the time of transfer or contract.225
(d) Division and Separation of Contractual Rights [6.48] Introduction. An important issue of assignability concerns the extent to which it is possible on the one hand to divide up a chose in action (here a contractual right) and assign the parts, and on the other hand assign distinct choses in action arising under a contract separately from other choses in action arising 224 See WJ Gough, Company Charges (2nd edn, London, Butterworths, 1996) at 490–1. See further Gerald Ng, ‘Built on Quicksand: The Purchase Money Security Interest Under the General Law’ (2006) 80 ALJ 53 (discussing the relevance of B being subrogated to the unpaid vendor’s lien). 225 It is of course possible to ensure that the party in the position of X never obtains title that is not encumbered by an interest to B. The transaction could be structured so that the seller, in return for the price, mortgages the property to B and then assigns the equity of redemption to X: see Lloyds Bank plc v Rosser [1989] Ch 350 at 391 per Mustill LJ. However, these structures may or may not, depending on the facts, give priority to B over A.
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under the same contract. Such assignments would result in the separate ownership of the divided or separated choses in action. In addition, there is the issue of fractional assignments, that is, the assignment of partial interests in a single right resulting in the co-ownership of the chose in action.226 Whether a transaction involves a question of division or separation as described above falls to be determined by whether or not the “right” in question is a right within a right or a distinct right itself. This can often be a difficult question. For example, in Australia it has been held that a partner’s entitlement to partnership profits is not a separate right from his or her interest in the partnership, and is incapable of being separated and immediately assigned.227 From this one might logically conclude that if an assignment of such a “right” were possible it would be a case of an assignment by way of division as it is a right within a right. Given that such an assignment is not possible (as it is never possible to divide from one right another right when the latter is an abstract right), and given that it is still possible fractionally to assign an interest in a partnership (even though that will not constitute the assignee a partner),228 one might conclude that such a fractional assignment would take effect in the same way that a partial assignment of a debt takes effect: that is, the assignor and assignee become co-owners of the chose in action to the extent of their respective interests.229 However, it is not clear whether the High Court of Australia in FCT v Everett 230interpreted such a fractional assignment in this way. There, the majority said, “the partner’s fractional interest is an entire chose in action; it is capable of division by assignment into further fractions”.231 It may be that the difference lies in the meaning the court intended to give to the words “fractional” and “division”. The reference to a partner’s share in a partnership being an “entire chose in action” for the purposes of assignment does not deny that that “share is not a thing separate from the share of another partner” but rather 226
As opposed to the whole of a distinct part of a single right, as in a division as described. FCT v Everett (1980) 143 CLR 440. A partner can enter into a contract to deal with his or her future profits and bind those profits (fruits) when they are derived. However, a partner cannot separately assign the right to the fruits, as that does not exist as a distinct present right: see FCT v Everett (1980) 143 CLR 440 at 490–50. Cf Hadlee v Commissioner of Inland Revenue [1991] 3 NZLR 517 (affirmed [1993] AC 524). See also Federal Commissioner of Taxation v Galland (1986) 162 CLR 408. See further B Marks, Alienation of Income (2nd edn, Sydney, CCH, 1982) paras 218–20, 603–22. Contrast the common law position as regards goodwill which (where it constitutes property) is a distinct right, that is, it is distinct from its source, but is inseverable from the conduct of the business; it is also indivisible: see Federal Commissioner of Taxation v Murry (1998) 193 CLR 605; Primelife (Glendale Hostel) Pty Ltd v Commissioner of State Revenue (2004) 9 VR 665; Premetis v 260 Oxford Street Pty Ltd [2005] NSWSC 904 para 48, and see JD Lipton, Security Over Intangible Property (Sydney, LBC, 2000) paras 6.2, 6.3.3, 7.5, 7.7. As regards abstract rights (see [3.22], [6.10]), such rights are merely an aspect or incident of a person’s ownership of certain property and have no separate existence until utilised. Therefore, abstract rights are incapable of division. 228 [4.07]. 229 [4.27], [4.28]. 230 (1980) 143 CLR 440. 231 Ibid, at 449. 227
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a “fractional interest in a surplus of assets over liabilities on a winding up and a fractional interest in the future profits of the partnership business”.232 This “interest in the partnership” is in addition to the “sui generis interest which a partner has in partnership assets, being his beneficial interest in every asset of the partnership, although not including title to any specific property of the partnership”.233 Thus, if two partners assigned each other their share in the partnership they would have achieved nothing. This is not because their interests are in any way fungible, but rather because they are indivisible as between themselves. In addition, because a partner’s interest in the partnership is an entire chose in action and because that interest is not fungible (and although that interest is indivisible as between partners), it is capable of being the subject of a fixed charge.234 [6.49] Divisional and fractional assignments. It is possible to deal briefly with divisional and fractional assignments. As regards division, and subject to what is said in the next paragraph, it is difficult to come up with any example of where the law allows a single right to be divided up into smaller rights. For example, a debt, be it a contractual debt or otherwise, is usually expressed as being indivisible.235 If it were possible to divide a single right the result would be to create two or more contractual obligations which would not only increase the burden of the obligor but ultimately be at odds with the principle of transfer which governs assignments.236 Nevertheless, it is possible fractionally to assign a debt or chose in action in equity, and this is usually expressed as a “partial” assignment. As noted earlier, the result here is that the assignee becomes a co-owner of the debt.237 One possible example of a division of a right concerns the interest component under a loan or bond. It was noted above that although the “right to interest” does not necessarily equate to the tree, that is, the thing producing the interest, there may nevertheless be a present right to interest,238 and it may be assigned.239 The 232 Kelly v Inland Revenue Commissioner (NZ) (1969) 1 ATR 380 at 383 per Woodhouse J. See further Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327–8; United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673; FCT v Everett (1980) 143 CLR 440 at 446. 233 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 at 679 per Stephen J, at 687 per Mason J. See also Sandhu v Gill [2005] 1 All ER 990. 234 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673. 235 Quaere whether the view adopted by the Privy Council in Goss v Chillcott [1996] AC 788 that, in respect of restitutionary claims for money paid the law could now apportion payments made and allow for recovery based on partial failure of consideration, may ultimately lead to a breaking down of the assumption that a debt is indivisible. 236 In Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367, the High Court of Australia expressed the view that the obligation of a guarantor is an obligation to pay the same debt as that of the debtor. It followed that it was not possible then separately to assign the guarantee without also assigning the underlying credit contract because the result would be to create two debts. See [6.100]. 237 [4.27]. 238 [6.20]. 239 Eg McLeay v Commissioner of Inland Revenue [1963] NZLR 711.
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view has been expressed that it is possible equitably to assign the interest component even though the principal and accrued interest constitute one debt.240 This view may be based on the rule that interest, even if capitalised, never loses its character as interest.241 Arguably this is not a case of division but rather a partial assignment of the debt. If principal and interest constitute one debt then the assignment of all or part of the interest component is an assignment of a fraction no matter how it is expressed.242 Alternatively it may be that the better view is that it is possible separately to assign a present right to interest because that right and the right to the repayment of principal are two distinct debts arising under the one contract. Thus, the separate assignment of principal and interest is an example of separation and not division or partial assignment.243 If that is right, then, being a separate chose in action, the right to interest should also be capable of legal assignment.244 Finally, it may be that the result will depend on construction, that is, the facility agreement will dictate whether principal and interest constitute one or two debts.245 Similarly, in the case of a contract for the sale and delivery of goods by instalments, whether or not the price for each instalment constitutes a distinct debt or part of one indivisible debt under the contract is an issue of construction.
240 See P Watts, “The Rending of Charges” (2002) 118 LQR 1 at 2. See also Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at 585 per Callinan J (citing Commonwealth Quarries (Footscray) Pty Ltd v Federal Commissioner of Taxation (1938) 59 CLR 111 at 121 per Dixon and McTiernan JJ). 241 Eg Paton v IRC [1938] AC 341 at 350–1 per Lord Atkin; IRC v Oswald [1945] AC 360 at 379 per Lord Porter; Bank of New South Wales v Brown (1983) 151 CLR 514 at 534 per Brennan J. 242 [4.27]. However, if it is clear that the parties intended to divide up an indivisible debt, a court may not necessarily re-interpret this as an assignment of a fraction for the purposes of upholding the assignment. For example, if under a lump sum building contract the contractor sub-contracts some of the work and attempts to assign a particular amount under the main contract to the sub-contractor as payment, this may be intended to be a division, and if that is the case it may not then be upheld on the basis that, despite the intention to divide, the stated sum forms a fraction of the purchase price. Alternatively, it may be that it is the contract which evidences an intention that there are to be no fractional assignments. This may be the case where the obligation to perform was personal and incapable of vicarious performance: see Delaware County Commissioners v Diebold Safe and Lock Company (1890) 133 US 473. Usually, however, if one subcontracts work and assigns the right to a particular amount to the sub-contractor, this will be construed as a fractional assignment: see Ashby, Warner & Co v Simmons [1936] 2 All ER 697. 243 See Norman v FCT (1963) 109 CLR 9 at 38 per Windeyer J; Goss v Chilcott [1996] AC 788 at 798; Bank of New South Wales v Brown (1983) 151 CLR 514 at 549; 45 ALR 225 per Dawson J. See also the submissions of counsel in Bank of New South Wales v Brown (1983) 151 CLR 514 at 516–17. This may be at odds with the view of bankers that the various current accounts of a customer in fact form one account, which results in the bank having a right of combination. But this right may not necessarily depend on there being only one debt, but rather a number of debts arising under one contract, allowing the bank at some point to draw a balance between the various debits and credits. 244 Cf [7.39]. 245 See The Commissioner of Taxation of the Commonwealth of Australia v The Myer Emporium Ltd (1986) 163 CLR 199 at 218 (“A covenant to pay interest on a principal sum may, according to the terms of the lending agreement, be independent of or accessory to a covenant to repay the principal sum or the covenants may be integral parts of a single obligation”.)
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[6.50] Separation of contractual rights. A separation as described above requires distinct rights.246 A question involving the separation of contractual rights to performance will usually arise in contracts for the supply of goods. For example, a buyer may have ordered 1,000 uniform items only to find out later that he or she required only 500. That party may wish to assign the right to receive 500 of those items. If the contract contains severable rights to each item then it will be possible to assign them and to do so absolutely. However, if the rights are not severable any assignment will be a partial assignment and take effect only in equity.247 Ultimately it is a question of construction whether a contract involves one right or a number of severable rights.248 Rarely, if ever, would an agreement to deliver goods by instalments be considered to be made up of a number of distinct contracts. Where there are distinct rights arising under a contract, whether or not it is possible to assign them separately will depend on the nature of those rights, their relationship to other rights (and duties) and the intention of the parties.249 Generally a court will not recognise the assignment of a distinct right if the vesting of that right in one assignee, while other rights continue to be vested in the assignor or other assignees, could not have been in the reasonable contemplation of the obligor.250 An interesting example of this concerns leases and options to purchase. A question that has arisen from time to time is whether an assignment of a lease carries with it the benefit of an option to purchase. The leading case on this point is Griffith v Pelton.251 That case and the line of cases that have followed it have been criticised, because the court in Griffith v Pelton reasoned that the assignment of the lease carried the benefit of the option because the original parties to the lease had agreed that this would follow. The basis of the criticism is that, although the original parties to a lease (or contract) may agree on the assignability of any right, it is a distinct question whether that right has been assigned. The actual assignment of an assignable right is dependent upon a construction of the memorandum of assignment.252 There is much force in this criticism. However, 246
See Syrett v Egerton [1957] 3 All ER 331. See further Unidroit Principles of International Commercial Contracts (2004), Art. 9.1.4; Principles of European Contract Law (2003), Art. 11:103. 248 See generally Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd [1934] 1 KB 148 at 154; Ross T Smythe & Co Ltd v TD Bailey Son & Co [1940] 3 All ER 60; Rosenthal & Sons Ltd v Esmail [1965] 1 WLR 1117. 249 Don King Productions Inc v Warren [2000] Ch 291 at 318–19 per Lightman J (affirmed [2000] Ch 291). See also Re Clarke (1887) 36 Ch D 348. 250 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 105–6 per Lord Browne-Wilkinson. 251 [1958] Ch 205. See also [8.30]. 252 See generally Denham Bros Ltd v W Freestone Leasing Pty Ltd [2004] 1 QdR 500 at 520–4 per Holmes J; Esther Investments Pty Ltd v Cherrywood Park Pty Ltd [1986] WAR 279 at 283 per Burt CJ, at 300–1 per Brinsden J (here examples of clauses that would and would not capture such an option are discussed). 247
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there is a further issue that needs to be addressed. Contractual rights owe their existence to the consent of the parties. It follows that the parties may shape those rights in their nature as choses in action. One such issue of characterisation, which goes to both assignability and assignment, is whether or not the parties contemplated that various distinct rights under a contract could be separated from one another and individually assigned or withheld. Depending on the facts of each case, it may be that a person in the position of a lessor would not have intended that the lease might be vested in one person and the option to purchase in another. Alternatively a lessee may not have intended that the reversion be vested in one person and the put option in another, with the result that the lessee may be told by one person to buy the land from a third party who may not want to sell it to the lessee! Nevertheless, a definition of “lessor” and “lessee” as including “assigns”, although evidencing an intention to make the lease assignable, would rarely be sufficient to evidence an intention that any assignment of the term carries with it the option. One would generally need some further express provision, especially given that an option to purchase in a lease is a distinct right and does not touch and concern the land so as to run with the reversion or the lease and pass automatically with the reversion or an assignment of the lease. However, where such an intention is made clear and where there is an attempt to assign one without the other, this construction may take effect as a prohibition on assignment either preventing the assignment or making the assignor liable in damages. Nevertheless in any given case the rights in question may be intended to be separated, and when that is the case then whether or not the put option is assigned will depend on the construction of the memorandum of assignment. Presumably the situation that arises with the land being vested in one person and the put option in another is simply that the person with the put option cannot exercise it if he or she is not in a position to deliver the subject matter of the option. Where rights can be separated it is a question of construction whether the assignment does separate them. A simple assignment of the benefit of the contract will usually carry all rights to performance.253 However, in the case of rights that 253 In the case of a memorandum of mortgage which contains a covenant to pay, the assignment of the mortgage will carry with it the benefit of the covenant to pay. Nevertheless, it may be possible to separate the covenant to pay and the security interest and to assign them separately. This would allow for the security interest to be vested in a security trustee in the case of loan syndications and participations, while the benefit of the covenant to pay contained in the mortgage deed remains with the participants. If the debt is not assigned to the assignee of the security interest, then the assignee could not enforce the debt. There is, however, a view that the assignment of the mortgage must carry with it the benefit of the covenant to pay on the basis that they cannot be separated: see Jones v Gibbons (1804) 9 Ves 407 at 411, 32 ER 659 at 661. That is, an assignment of a mortgage necessarily involves an assignment of the debt. However, not all mortgages incorporate a covenant to pay and the security interest remains assignable: see Re Conley v Barclays Bank Ltd (1938) 2 All ER 127. The better view may be that where a mortgage contains a covenant to pay and that covenant is not reserved then it will be transferred with an assignment of the security interest. Moreover, there is clear authority recognising that the benefit of the covenant to pay contained in the mortgage can be assigned without the security interest. Here, the assignor will remain the secured party, but as trustee of the rights and remedies under the
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are not only severable but are considered to have a distinct existence care must be taken expressly to include them in the assignment. For example, in The President of the Shire of Benalla v Turner,254 a contractor assigned the benefit of a contract to the assignee and it was held that this did not extend to the right to recover a deposit upon completion of the work which was paid by the contractor to the employer at the time of contract. In Geroff v CAPD Enterprises Pty Ltd,255 it was held that an assignment of the right to the performance or benefit or “right title and interest” in a contract did not carry with it the right to accrued debts under the contract as they are distinct choses in action.256 There is also a view that where there is an accrued right to sue for damages for breach of contract in existence at the time of the assignment, then a general assignment of the benefit of the contract will not carry with it that cause of action.257 Despite this, for reasons discussed more fully below, it is suggested that because the right to damages is intended to secure performance, such rights will be carried along with any assignment of the general benefit of the contract or any assignment of a specific severable right to performance where the correlative obligation in respect of that right is the subject of the breach of contract. Occasionally a memorandum of assignment may attempt to assign rights some of which are assignable (and have been correctly assigned as regards formalities) and some of which are not assignable (or are assignable but have not properly followed the relevant formalities). If a court can construe these as distinct assignments then they may be upheld; this assumes the subject rights are capable of severance.258 [6.51] The more difficult issue is identifying distinct rights arising under one contract which are by their nature incapable of being separated. Two possible examples were mentioned at the start of this chapter, namely, the rights to rescind and terminate a contract. Perhaps the most problematic example concerns whether or not it is possible separately to assign the right to performance under a contract and the right to damages for breach of contract. Clearly, this may be a matter upon which public policy and party intention may dictate that no such separation be allowed. However, the principal issue here is whether or not such a separation is doctrinally possible. mortgage instrument for the benefit of the assignee: see Morley v Morley (1858) 25 Beav 253, 53 ER 633. Finally the better view may be that it is not necessary that a mortgage contain a covenant to pay for the debt to be assigned along with the mortgage, and that the assignment of the mortgage is sufficient to transfer any debts secured by the mortgage: see generally French v Queensland Premier Mines Pty Ltd [2004] Victoria Supreme Court (VSC) 294. All this is subject to any relevant statutory provision, eg Conveyancing Act 1919 (NSW) s91. 254 (1881) 7 VLR 200. 255 [2003] QCA 187. 256 See further [6.34]. 257 See Madison Pictures Inc v Chesapeake Industries Inc (1955) 147 NYS 2d 50. 258 See Re Burdett ex parte Byrne (1888) 20 QBD 310; Davies v Rees (1886) 17 QBD 408; National Provincial & Union Bank of England v Lindsell [1922] 1 KB 21 (dealing with Bills of Sale legislation).
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There can be little doubt that when a right to damages has accrued it is a distinct right from the right to performance. If it were otherwise, the right to damages would not survive the discharge of the right to performance. The right to bring an action for damages is a secondary right which arises when another party breaches a contract by failing to perform a primary obligation, and comes under a secondary obligation to pay damages.259 A contract is not an agreement to pay damages on breach.260 Moreover, the right to damages, although arising from a contract, is not a performance right; it merely secures performance. However, once a breach occurs, if the contract remains on foot, clearly there will be a distinct right to performance and a distinct right to damages. [6.52] An interesting question is whether it is possible, prior to any breach, to agree to assign the right to claim damages as distinct from the right to receive performance.261 Such an assignment would be a dealing in future property because until a breach occurs there is no “right” to damages. To reach an answer on this issue it is convenient to start with the reverse scenario, that is, is it possible to assign the right to contractual performance divorced from the right to damages? It is suggested that it is not possible to hold back such secondary rights.262 Although secondary rights are, once they accrue, distinct rights, they are intended to secure the right of performance, and therefore must vest, as a matter of law, in the person with the right to performance. Upon payment, damages replace some lost performance. This result cannot be drafted round; the assignee at most can agree to assign back the right to damages.263 Thus, a general assignment of the benefit of a contract will carry with it the right to damages.264 The same result may be reached from another direction; if the assignor assigns the right to performance but keeps back the right to enforce that right to performance then what the assignor is attempting to assign cannot be a chose in action 259 On the secondary obligation to pay damages see Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 848 per Lord Diplock. On the secondary right to damages see Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1993] 1 WLR 138 at 152 per Hoffmann J, [1995] Ch 152 at 163, 165 per Sir Thomas Bingham MR, at 169 per Beldam LJ, at 171–2 per Saville LJ (CA). See also Flood v Shand Construction Ltd (1996) 54 Con LR 125 at 131. 260 Grein v Imperial Airways Ltd [1937] 1 KB 50 at 69 per Green LJ; Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849 per Lord Diplock. 261 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 66 at 99 per Sir Michael Kerr. 262 Whether or not it is possible to achieve this result by getting the assignee to agree that the assignment is to come to an end if the obligor breaches the contract is dealt with later, [7.39]. 263 Similarly, unless notice is not given to the obligor, if the assignor assigns the right to performance the assignee can expect to receive that performance, that is, the fruits of that right to performance. Even if notice is not given, if the assignor receives the performance and that performance leaves some residuum it will be held on trust by the assignor for the assignee. A distinct issue is whether the assignor and assignee can agree that the assignment is to come to an end at a certain point so that the assignee no longer owns the right to performance: see [7.39]. 264 Ogdens Ltd v Weinberg (1906) 95 LT 567.
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because a chose in action must be capable of being enforced.265 Perhaps it is sufficient to constitute a chose in action that the right be merely capable of enforcement, and it does not matter that the ability to enforce remains with the assignor. Nevertheless, it seems anomalous to suggest that the assignee owns the right to performance but not the right to enforce or secure that performance. The latter must follow the former if there is a real intention to transfer ownership even though the right to damages when it exists is a distinct chose in action. [6.53] It does not necessarily flow from the above analysis that it is impossible to agree to assign the right to damages and hold back the right to performance. Clearly, if there is a breach of contract and a right to damages comes into existence, then that right may be assigned subject to overriding policy concerns. It should be no different if the assignor agrees, for value, to assign the right to damages prior to any breach of contract. The assignee should be vested with an immediate interest when a breach occurs. If the above paragraph is correct, it needs to be asked, what happens to the right to performance that remains vested either in the assignor or a later assignee? It may be tempting to conclude that, upon breach, the now existing right to damages replaces that right to performance, although not in the sense that it vests in the assignor; rather, the right to performance is extinguished to the extent that the right to damages replaces some lost performance. The fault in this reasoning is that the notion that the right to damages replaces the right to performance, although often referred to, is not precise. It is only when damages are paid that the right to performance, which is compensated for by those damages, is extinguished. When a breach of contract occurs, the obligation to pay damages that arises upon that breach co-exists with the obligation to perform, and that obligation to perform is discharged only if the contract is terminated (assuming the performance obligation has not unconditionally accrued at the time of discharge) or if damages in respect of that breach are paid.266 This is why it is possible for the innocent party both to apply for an order of specific performance and to claim damages. Thus, damages replace performance but the right to damages or the liability to pay damages does not replace the right to performance or the obligation to perform. It must follow that, despite the assignee having the right to claim damages, the assignor or second assignee could still demand performance and seek specific performance. That problem is not necessarily a good reason for refusing to recognise such an assignment as it can arise between joint promisees. Where the assignor 265 This route is perhaps not as satisfactory as the first because it may be that the availability of an order for specific performance would be sufficient to render the right a chose in action; quaere though whether this should dictate that the right is equitable: see Letts v IRC [1957] 1 WLR 201. In the case of debts, in order to conclude that a chose in action is vested in the assignee, all that may be necessary is for the assignee to be able to sue for the debt: see [6.54]. 266 Cf D Pearce, “Property and Contract: Where Are We?”, in A Hudson (ed), New Perspectives on Property Law, Obligations and Restitution (London, Cavendish, 2004) ch 4 at 104–5.
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further assigns the right to performance, the view may be taken that a right to damages should vest in the second assignee creating a form of priority dispute between the first and second assignee. That view may carry some weight where the assignor assigns two different rights to performance such as an unconditional right to performance and a conditional right to performance because here the latter is replaced with an unconditional right. Thus, in effect the assignor is assigning the same right twice. However, that is not the case where the assignor assigns the right to damages to one assignee and the right to performance to another assignee as damages merely secure performance. It is suggested that the better view is that the nemo dat rule should be applied here so that the second assignee does not obtain a right to damages. [6.54] Separating debts from the benefit of the contract. It was noted above that there is a long accepted view that, although the payment of a debt that accrues under a contract is an act in the performance of the contract and the promisee will have a right to that performance, a debt when it arises under a contract is a distinct chose in action. Therefore, a general assignment of the benefit of a contract will not carry with it the right to an accrued obligation to pay.267 Accepting that position, should it then follow that, prior to the accrual of a debt under a contract, an assignor can express an intention to separate the debt from the contract and assign the debt and keep back the general benefit of the contract? Assume A enters into a contract with B under which A is to perform some service for B and be paid for that service. Further, assume that it is only upon the performance of that service that B’s obligation to pay accrues. Clearly at the time the contract is formed A has a present chose in action and may assign the benefit of the contract. More precisely the chose in action that A has is the benefit of B’s promise to perform. If A wanted to assign the benefit of the contract it is unlikely that A will express that assignment in terms of an assignment of the “promise by B to perform”. A will more likely assign “the benefit of [its] contract with B” or “its right to payment”. In any given case the latter may be construed as an assignment of future property because at the time of formation B is under no obligation to pay.268 But even if that is so, the expression “right to payment” may be construed as intending to assign the benefit of the contract as it exists from time to time throughout the life of the contract; once B comes under an obligation to pay clearly A has a “right to payment”, and this expresses the entire nature of A’s rights and expectations under the contract at that time.269 It would follow then that if there were any dispute over whether a payment was due, the assignee of A could commence proceedings to determine that question. The result should not be any 267 268 269
[6.37], [6.38]. [6.34]. See Westralian Farmers Co-operative Ltd v Southern Meat Packers Ltd [1981] WAR 241 at 244.
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different if A does not enter into any agreement to assign until B actually performs its obligations under the contract and comes under an obligation to pay; that is, when a debt arises under the contract and vests in A. If on the other hand the assignment by A is construed as dealing only in the debt arising under the contract, then, although the assignee may claim for any sums that fall due under the contract, the assignee cannot commence proceedings to determine whether a debt is due. The ability to commence such proceedings is a right that flows from being vested with the benefit of the contract, and when an assignee is vested with a debt, then although the obligation to pay that debt arises under a contract and constitutes the performance of that contract, the assignee is vested with a distinct chose in action and not a contractual right. The leading decision adopting this view and the possibility of such assignment is the decision of the Court of Appeal in Yeandle v Wynn Realisations Ltd.270 This case concerned a contract between a contractor and a sub-contractor under which the sub-contractor was prohibited from assigning the benefit of the contract without consent but could assign “any sum which is or may become due and payable” under the sub-contract without consent. It followed that the sub-contractor could deal only in debts arising under the sub-contract, that is, rights to payment. The memorandum of assignment expressly assigned “debts” arising under the subcontract and did not refer to the general benefit of the contract. Pursuant to the sub-contract an engineer made a determination whether a sum was payable under the contract. The assignee wished to re-open that decision by taking arbitration proceedings. It was held that the assignee could not take such action as it was not vested with the benefit of the contract, or more precisely the right to performance of the contract. The assignee could claim and enforce only amounts that fell due under the contract. This result follows from the debt being a distinct chose in action, and the assignee is not vested with the right to performance of the contract even though what the assignee expects from the debtor is the performance of an act that constitutes the debtor’s performance of the contract. Therefore, it is possible to separate the debt arising under a contract, from the general benefit of the contract and this separation is usually forced on the assignor by way of a prohibition on assignment which is intended to ensure that the obligor always knows the identity of the person it is likely to be in dispute with. However, as the court noted the issue ultimately turns on construction. Thus, putting aside the existence of such a prohibition, whether an assignor intends to deal with a contractual right to performance or only the distinct chose in action represented by a debt turns on construction. References in assignments to “debts” or “sums due” clearly deal with debts, but references to “rights to payment” are more ambiguous. In addition, the court held that although the statutory regime for legal assignments transfers the 270 (1995) 47 Con LR 1. See further Ogdens Ltd v Weinberg (1906) 95 LT 567. Cf Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 at 118. See further [6.118].
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debt or chose in action together with “all other remedies for the same”, the right to commence proceedings to determine whether a sum is due under a contract is not a remedy for a debt. There is no doubt that the analysis in this case has doctrinal appeal. A debt is a an accrued obligation to pay and the right to question whether an obligation to pay has accrued does not logically vest in the person with title to a debt. Nevertheless, this doctrinal point could lead to impracticle results if debtors could stall actions brought by assignees simply by arguing that the claimed debts have not accrued. Perhaps, outside the unique circumstances of Yeandle v Wynn Realisations Ltd, an assignment of a “right to payment” under a contract will be construed to carry some portion of the benefit of the contract to allow the assignee to commence an action to determine whether a payment has accrued. The decision in Yeandle was applied in Flood v Shand Construction Ltd.271 This case also concerned the operation of a prohibition on assignment that was in the same terms as that in Yeandle. Here the memorandum of assignment was expressed to assign all the assignor’s assets “including causes of action”. The assignee sought to pursue a cause of action in damages. It was held that although the assignee could enforce payment of a sum payable, under the contract it could not commence a cause of action under the contract to determine whether such a sum was payable as such causes of action were vested in the person who had the benefit of the contract; the prohibition prevented the assignee obtaining the benefit of the contract despite the drafting of the memorandum of assignment. In the result, the assignee could not take the preliminary steps necessary to determine whether a sum was due and payable under the contract. In arriving at its decision the court gave some consideration to whether damages when liquidated by an order became a sum due under a contract. There is a certain logic to this point to the extent that damages replace and secure performance, and therefore can be viewed as representing the fruits of the contract. However, it is necessary when faced with such an assignment to determine what those damages are replacing. If the proper construction of the assignment is that it is an assignment of debts arising under the contract it would not be right to allow that assignee to claim the damages that are ordered to be paid for the nonperformance of some obligation other than the late or non-payment of a sum due under the contract.272 Evans LJ thought that the prohibition allowed for the 271
(1996) 54 Con LR 125. Where damages are ordered to compensate for the non- or late payment of money under a contract, whether or not an assignee of debts arising under that contract can obtain the entire amount of damages awarded is not without difficulty. Where a debt accrues and is not paid and the promisee sues in damages for breach of contract, the “damages” will comprise two components, the debt and a sum for late payment. Strictly, it is only the latter that is damages. From this the view could be taken that where damages are given for the non- or late payment of money they do not operate as security for the debt (a distinct chose in action) but rather maintain their purpose of securing performance of the contract. If the assignee is not assigned the benefit of the contract, but only the debt arising under the contract, then the right to damages does not vest in the assignee. 272
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assignment of money claims under the contract and this was not limited to debts arising under the contract in a primary sense, but allowed for the assignment of liquidated damages, whether or not technically at that point the claim continued as one for damages or for a debt. What could not be assigned was the cause of action for damages. [6.55] In the case of a judgment debt, it has been held that the right to conduct proceedings is inherent in the right of action and is not incidental to the judgment debt.273 A legal assignment of a judgment debt would carry with it the right to demand the debt, to enforce the judgment and give a good discharge, but not the right to conduct proceedings. Hence, an assignment of the fruits of an action does not give the assignee power to interfere in the proceedings and is therefore not an assignment savouring of maintenance of champerty.274 [6.56] Separating a debt from its proceeds. Another important distinction is between a debt and its proceeds. If an assignor assigns a debt, that is, a right to payment, then the assignee will receive title to the proceeds of the debt when they are paid. However, it is also clear that the debt and its proceeds represent two distinct proprietary interests. Given that distinction, is it then possible to assign a debt but hold back title to the proceeds? In Agnew v Commissioners of Inland Revenue, Lord Millett said:275 While a debt and its proceeds are two separate assets, however, the latter are merely the traceable proceeds of the former and represent its entire value. A debt is a receivable; it is merely a right to receive payment from the debtor. Such a right cannot be enjoyed in specie; its value can be exploited only by exercising the right or by assigning it for value to a third party. An assignment or charge of a receivable which does not carry with it the right to the receipt has no value. It is worthless as a security. Any attempt in the present context to separate the ownership of the debt from the ownership of their proceeds (even if conceptually possible) makes no commercial sense.276
This statement was made in the context of characterising a security interest.277 The Privy Council rejected earlier authority which had recognised the possibility of having a fixed charge over a debt and a floating charge over the proceeds of that debt.278 It also rejected the possibility of having a fixed charge over a debt and an 273
Gould v Skinner [1983] Qd R 377. Glegg v Bromley [1912] 3 KB 474 at 484 per Vaughan Williams LJ. See further [6.59]. 275 [2001] 2 AC 710 at 729. 276 Of course it is possible to take a fixed charge over the proceeds and not the debt: see Re SSL Realisations (2002) Ltd [2005] 1 BCLC 1. It should also be noted that despite this statement the proceeds of a debt do not always represent the fruits of the debt, that is, the right to payment: see [6.20]. 277 The efficacy of such a security in Australia is not clear: see Whitton v ACN 003 266 886 Pty Ltd (1996) 42 NSWLR 123. 278 This restriction does not extend to tangibles: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 1.67. 274
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initial fixed charge over the proceeds of that debt, where the latter was replaced by a floating charge over the proceeds by the act of the chargor collecting the proceeds for its own use and benefit. It was held to be inconsistent with a fixed security for the chargor to have either the discretion to take property out of the reach of the security or the power to extinguish the security.279 The Privy Council also overruled the decision in Re New Bullas Trading Ltd,280 and in doing this rejected the possibility of it being consistent with a fixed charge if property were released from the charge by force of contract, that is, when the release automatically occurred by the occurrence of an event dictated by the contract. Given the overruling of New Bullas (a release case) and the fact that Agnew involved a document that sought to extinguish the charge upon an act of the chargor, the court would no doubt have rejected the notion of extinguishing the charge by force of contract rather than merely releasing property from the charge by force of contract: for example where there is a fixed charge over a debt and its proceeds which upon the chargor’s receipt of such proceeds is agreed to be extinguished and upon that extinction there is granted a floating charge over the proceeds. The decision of the Privy Council in Agnew was approved by the House of Lords in Re Spectrum Plus Ltd 281 This case concerned the efficacy of a security given to secure an overdraft which was expressed to be a “specific” (that is, fixed) charge over book debts. The chargor was free to collect the proceeds of the book debts, but there was a restriction preventing the chargor alienating the debts and the chargor was required to pay sums received into its account with the chargee bank. However, the chargor was free to withdraw funds from that account and use them as part of its cash flow in running its business. The Court of Appeal upheld the characterisation of the charge as being a fixed charge over the debt and its proceeds, reasoning that the deposit into the account was a loan to the bank with title in the funds vesting in the bank. It was thought to be irrelevant that the chargor might be able to withdraw equivalent funds from the account without requiring further consent from the chargee. This reasoning was rejected by the House of Lords and it did not matter whether the account at the time was in credit or debit;
279 Although it is not inconsistent with a fixed charge or a mortgage for the chargor/mortgagor to have the benefit or use of the charged or mortgaged property during the period of the security, it is inconsistent if the chargor/mortgagor can alienate title to the subject property free of the charge or mortgage or freely take the property out of the reach of the charge. The ability to alienate the property or take it out of the reach of the charge without the consent of the chargee is the hallmark of a floating security. In the case of mortgages over tangible property, although the mortgagee has the right to possession, by agreement possession is usually left with the mortgagor. In the case of debts, the ability of the chargor either to assign the debts or to deal with the proceeds in the ordinary course of business is inconsistent with the charge being a fixed charge. 280 [1994] 1 BCLC 485. 281 [2005] 3 WLR 58 (overruling Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142 and Re Bullas Trading Ltd [1994] 1 BCLC 485).
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in this case the account was always in debit.282 The court did not distinguish this regime for a charge from the Agnew line of cases where the “fixed” charge over the debt and its proceeds is expressed to be replaced with a floating charge over the proceeds that are collected by the chargor.283 Ultimately a fixed charge requires control over both the debt and its proceeds.284 It follows that despite any label the parties may put on the transaction if the chargee does not have this control, because the chargor can either keep and use any proceeds it collects or draw freely on an account the proceeds are required to be deposited in or, if only a floating charge operates over the collected proceeds, then this impacts on the character of the entire transaction and renders the charge a floating charge.295 There can be little doubt, as the courts suggested in Agnew and Re Spectrum, that it makes no commercial or legal sense for a lender to take a charge over a debt or an assignment of a debt by way of mortgage but to reserve to the borrower the right to the proceeds.286 The whole point of the security is to ensure that the chargee/mortgagee gets paid if there is a default, and this will not occur with such a transaction. At the very best such an arrangement has limited commercial
282 See [2005] 3 WLR 58 at 96 per Lord Scott. There can be no doubt that a provision requiring such a deposit controls the power of the chargor to use the actual proceeds for its benefit. However, the payment by the chargor into its account with the bank is merely replacing one right of property for another. If the account is not blocked and the chargor is free to withdraw equivalent funds at any time, then it will be to put form over substance to suggest that the chargee is maintaining control over the proceeds. Moreover, despite the title to funds deposited into a bank account becoming the property of the bank (a rule that has often been circumvented in areas such as liability for knowing receipt), it has never been the law that a direction by a creditor to its debtor to pay sums into the creditor’s account with its bank is an assignment to the bank: see [7.07]. 283 See [2005] 3 WLR 58 at 86 per Lord Scott (“If a charge over book debts can be a fixed charge even though the money received by the chargor in payment of those debts is to be subject to only a floating charge, it becomes difficult to quarrel with the proposition that the charge over uncollected book debts . . . can be a fixed charge even though the chargor can freely use for its business purposes the money it receives from its debtors in payment of the debts subject to the charge”.) 284 In Re Spectrum Lord Hope ([2005] 3 WLR 58 at 76), citing S Worthington, “‘An Unsatisfactory Area of the Law’—Fixed and Floating Charges Yet Again” (2004) 1 International Corporate Rescue 175 at 182, affirmed that there are a limited number of ways of ensuring that a charge over books debts is fixed. “One is to prevent all dealings with the book debts so that they are preserved for the benefit of the chargee’s security. . . . Another is to prevent all dealings with the book debts other than their collection, and to require the proceeds when collected to be paid to the chargee in reduction of the chargor’s outstanding debt. . . . A third is to prevent all dealings with the debts other than their collection, and to require the collected proceeds to be paid into an account with the chargee bank. That account must then be blocked so as to preserve the proceeds for the benefit of the chargee’s security. A fourth is to prevent all dealings with the debts other than their collection and to require the collected proceeds to be paid into a separate account with a third party bank.” 285 Interestingly Lord Scott ([2005] 3 WLR 58 at 95–6) emphasised that the bank could not have sold the debts prior to taking steps to extinguish the chargor’s rights to collect and use the proceeds. That step would be characterised as one of crystallising the security, thus the security was a floating security. This point has force if the security is in essence a mortgage. However, if it is a charge in the strict sense then, even if it is fixed, the chargee will not be able to assign the debts as it has no title to the debts since the security does not take effect by way of assignment: see [3.17]. 286 [2001] 2 AC 710 at 729.
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applications.287 However, arguably when the security over the debt is backed up by a floating security over the proceeds, the transaction makes perfectly good commercial sense. Nevertheless, as was emphasised in Re Spectrum, it is necessary to look at the overall rights of the chargor in relation to the assets that are subject to the charge.288 If the debt and its proceeds are expressed to be subject to a fixed charge then any right in the chargor to deal freely with the proceeds and alienate them from the charge is inconsistent with the charge being fixed. However, if one were to take a fixed charge over the right to payment and made it clear that the fixed charge did not extend to the proceeds, then in characterising that charge one could not take into account the rights of the chargor over the proceeds if one were limited to investigating the chargor’s rights in respect of the property that is subject to the charge. The chargor here would not be freely withdrawing property that was caught by the security. Despite that distinction, the decision in Agnew appears to stand in the way of this approach. The broad finding in that case that one cannot have a fixed charge over a debt and a floating charge over its proceeds seems to suggest that, in characterising the fixed charge component, one is not limited to investigating only the property that is expressed to be the subject matter of the charge; one must look at the transaction as a whole.289 That approach is perfectly in line with the approach courts are developing in relation to the construction of chain and network contracts. The decisions in Agnew and Re Spectrum do not deny the legal distinction between a debt and its proceeds. Moreover those decisions are concerned with both the nature of a security interest and the characterisation of particular security interests. As regards nature, the point was made that the notion of taking security over a debt and yet having no chance of being paid by enforcing that security as it does not extend to the proceeds of the debt is nonsensical. As regards characterisation the decisions were concerned with determining whether or not the security, be it technically a charge or a mortgage, was fixed or floating. The decisions were not so much concerned with underlying principles of assignment. It has always been possible to enter into an assignment that ceases at a certain point in time.290 The classic example is the assignment of an income stream until a debt is repaid. Here the assignee obviously obtains an interest in the debt and it proceeds. Nevertheless, if such an assignment is possible it must make perfect doctrinal sense 287
Re Spectrum Plus Ltd [2004] 3 WLR 503 at 520–1 (overruled [2005] 3 WLR 58). See [2005] 3 WLR 58 at 93, 94, 97 per Lord Scott, at 102 per Lord Walker 289 See also Re Spectrum Plus Ltd [2005] 3 WLR 58 at 95 per Lord Scott (“If the accompanying provision were, instead to say that any money received from the debtor would be subject to a floating charge, that provision would, in my opinion, necessarily describe and limit the nature of the charge over the receivable debt. And if the charge were to be expressed to be a fixed charge as respects the receivable debt but a floating charge as respects the money received from the debtor there would be an internal contradiction in the formulation of the charge”.) 290 [7.40]. In the case of a charge (as opposed to a mortgage) the charge will automatically cease once the debt which it secures is discharged. 288
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to have an assignment of a debt where the interest of the assignee is expressed to cease upon the debtor (who presumably has no notice of the assignment) paying the debt to the assignor. However, it is difficult to imagine any commercial use for such an outright assignment. In Re Spectrum Lord Scott appeared to provide some support for such an assignment. He said, “Suppose, for example, a case where an express assignment of a specific debt by way of security were accompanied by a provision that reserved to the assignor the right, terminable by written notice from the assignee, to collect the debt and to use the proceeds for its (the assignor’s) business purposes, ie, a right, terminable on notice, for the assignor to withdraw the proceeds of the debt from the security. This security would, in my opinion, be a floating security notwithstanding the express assignment. The assigned debt would be specific and ascertained but its status as a security would not”.291 Here Lord Scott does not seem to question the efficacy of the assignment but does question its efficacy as a security and places it in the category of a floating security.
(e) Restrictions on the Assignment of Contractual Rights (i) Introduction [6.57] Rules governing restrictions on assignment. The following section investigates public policy restrictions on assignment and the rules that dictate that personal contractual rights may not be assigned and that it is not possible by assignment to vary the obligations of the obligor. It also looks at the related issue of the extent to which parties may expressly prohibit assignment.
(ii) Public Policy Restrictions [6.58] Public policy generally. Clearly public policy may impact upon assignability. Public policy may dictate that a certain right be assignable.292 More often public policy restricts assignability. For example, if the effect of an assignment would be to increase the risk that the obligor will not receive its performance, the assignment may be ineffective for varying the risk accepted by the obligor under the contract293 291
[2005] 3 WLR 58 at 92. Eg: see Mercantile Law Amendment Act 1856 (Eng) s 5; Law Reform (Miscellaneous Provisions) Act 1965 (NSW) s 3, giving a surety who has discharged the secured debt a right to an assignment of any security for the debt. 293 [6.39]. An assignment may also improperly increase the risk that the obligor will have to perform. 292
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or it may be ineffective by reason of public policy. Thus, it is against the public interest to allow a public officer to assign his or her unearned salary if that assignment increases the risk that the officer will not then render the required performance in respect of that salary.294 Such salaries are given to ensure due discharge of obligations and to maintain the dignity of the office. Moreover, although it is possible to agree to assign present and future income,295 it may not be possible to assign salaries where the effect would be to deprive employees of their means of supporting themselves and their families.296 In addition, many statutory provisions exist which limit
294 For this rule to apply the office must be a public one connected to public service in which the public has an interest in both the performance of the duties and the readiness of the officer to perform them. That is, the pay must be given at least in part to induce the officer to keep himself ready to perform. If this requirement is necessary then the principal is quite limited, but where it does apply arguably it will also capture accrued income. It may be that this requirement is limited to salaries and pensions which are given as retainers for future services: see Re Mirams [1891] 1 QB 594 at 595, and see the discussion in Field v Battye [1939] SASR 235 at 248–9. See also Stone v Lidderdale (1795) 2 Anst 533, 145 ER 958; Wells v Foster (1841) 8 M & W 149, 151 ER 987; Re Huggins (1882) 21 Ch D 85 at 91 per Jessel MR; Lucas v Lucas [1943] P 68; Arbuthnot v Norton (1846) 5 Moore 219, 13 ER 474; Palmer v Bate (1821) 2 Brad & B 673, 129 ER 1125; Cooper v Reilly (1829) 2 Sim 560, 57 ER 897; Re Hilliard [1907] VLR 375; Crouch v The Victorian Railways Commissioners [1907] VLR 80. See further Marr v The Admiralty (1926) SC 842. Cf the position for non-public officers including persons who serve a public function, such as a member of the clergy, but who are not paid by the state: see Feistel v King’s College Cambridge (1847) 10 Beav 491, 50 ER 671; Re Drummond’s Trusts (1907) 4 Tas LR 9 (cf Berkeley v King’s College Cambridge (1830) 10 Beav 602, 50 ER 714); Re Mirams [1891] 1 QB 594 (cf Grenfell v The Dean and Canons of Windsor (1840) 2 Beav 544, 48 ER 1292, chaplin paid by state). See also Re Robinson (1884) 27 Ch D 160; Watkins v Watkins [1896] P 222; Paquine v Snary [1909] 1 KB 688 (unsecured maintenance payments) and cf Harrison v Harrison (1888) 13 PD 180 (secured maintenance payments). It has been held that public officer pensions given in respect of past services may be assigned unless specific statutory provisions prohibit assignment: see Willcock v Terrell (1878) 3 Ex D 323; Crowe v Price (1889) 22 QBD 429. Moreover, the assignment of the right to income of a public officer may be upheld if it is not to take effect until the death of the assignor: see Arbuthnot v Norton (1846) 5 Moore 219, 12 ER 474. Where a pension is given to a public officer in recognition of services to the nation, then, subject to any express terms of the grant, the assignment of such an interest would depend on whether a transfer would rob the pension of its purpose: see Davis v The Duke of Marlborough (1818) 1 Swan 74, 36 ER 303. See further Krasner v Dennison [2001] Ch 76 at 99 per Chadwick LJ. In the private sector express prohibitions may appear in contracts for the purpose of securing the employee’s performance: see Sacks v Neptune Meter Co (1932) 258 NYS 254 at 260 per Untermyer J. See further FCT Tudsbery, The Nature and Requisites and Operation of Equitable Assignments (London, Sweet & Maxwell, 1912) at 38–45; DW Logan, “A Civil Servant & His Pay” (1945) 61 LQR 240. As regards the assignability of moneys recoverable from the Crown: see Ex parte Patience (1940) 40 SR (NSW) 96 at 103 per Jordan CJ. For a complete list of the cases that have dealt with the assignment of wages and pensions see The Digest, Choses in Action (London, LexisNexis, 1990) viii, paras 963–1017. 295 Davies v Davies (1887) 36 Ch D 359. See also Crouch v Martin (1707) 2 Vern 595, 23 ER 987. 296 King v Michael Faraday and Partners Ltd [1939] 2 KB 753. Cf Syrett v Egerton [1957 3 All ER 331 at 334; Bridge Wholesale Acceptance Corp (Aust) v Burnard (1992) 27 NSWLR 415 at 423 per Clarke JA, at 425 per Meagher JA. See also RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.195. It has been held to be against public policy for a person to assign income and property to an assignee as security for a debt where the effect would be to create a relationship of serfdom between assignor and assignee: see Horwood v Millar’s Timber & Trading Co Ltd [1917] 1 KB 305.
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or prohibit assignment on grounds of public policy.297 Such prohibitions may be drafted in terms that render the right inalienable or a prohibtion may be expressed to render the assignment void as against the obligor.298 Insofar as the assignment of choses in action is concerned, the most well known public policy limitation has been the law’s concern to prevent maintenance and champerty.299 [6.59] Maintenance and champerty.300 Maintenance involves the support of litigation. However, the mere financing of litigation itself is not wrongful; there is nothing wrong with a lender advancing sums it knows are to be used in litigation. For example, where a bank lends money at interest for the purpose of financing a customer’s litigation, this may be considered a part of its ordinary business. The loan itself is not necessarily stirring up or intermeddling in litigation, and if it were it is nevertheless done with legal justification. The agreement to indemnify derives from and is given in the course of what the community considers to be a legitimate business transaction.301 To render an agreement for maintenance wrongful there must be some intermeddling or stirring up of litigation without legal justification. 297 Eg Army Act 1955 (UK) s 203(1); Superannuation Act 1972 (UK) s 5(1); Social Security Administration Act 1992 (UK) s 187; Pensions Act 1995 (UK) s 91; Reserve Bank Act 1959 (Cth) s 25(c); Superannuation Act 1976 (Cth) s 118; Social Security (Administration) Act 1999 (Cth) s 60. See also National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514; Fisher v Harrison [2003] EWCA Civ 1047. 298 Compare Commonwealth Employees Rehabilitation and Compensation Act 1988 (Cth) s 112(1) and Veterans Entitlements Act 1986 (Cth) s 125. 299 The impact of the offences of maintenance and champerty to the development and recognition of the assignment of choses in action has already been mentioned and has been well documented: see [2.09]. See further PH Winfield, “Assignment of Choses in Action in Relation to Maintenance and Champerty” (1919) 35 LQR 143; PH Winfield, “The History of Maintenance and Champerty” (1919) 35 LQR 50; OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 46–9; A Walters, “A Modern Doctrine of Champerty” (1996) 112 LQR 560 at 561. For a statement setting out the reasons for the demise of the law’s concern with the offences of maintenance and champerty insofar as they were used to maintain discipline, protect litigants and uphold the impartiality of the legal system see Giles v Thompson [1994] 1 AC 142 at 153 per Lord Mustill. 300 Although the criminal offences in relation to maintenance and champerty as well as the torts have been abolished in most jurisdictions, this has not affected any rule which treats a contract as contrary to public policy: see Criminal Law Act 1967 (Eng) s 13(1) and (2). Law Reform (Miscellaneous Provisions) Act 1955 (ACT) s 68; Civil Law (Wrongs) Act 2002 (ACT) s 151A; Maintenance, Champerty and Barratry Abolition Act 1993 (NSW) ss 3 and 4; Wrongs Act 1958 (Vic) s 32; Crimes Act 1958 (Vic) s 322A; Criminal Law Consolidation Act 1935 (SA) sch 11. In Western Australia the common law of maintenance and champerty still applies. See also Trendtex Trading Corp v Credit Suisse [1982] AC 679 at 695 per Lord Wilberforce and 702 per Lord Roskill; Monk v ANZ Banking Group Ltd (1994) 34 NSWLR 148 at 151 per Cohen J; Roux v Australian Broadcasting Commission [1992] 2 VR 577 at 605 per Byrne J; Re Motivor Pty Ltd v Sims (1996) 19 ACSR 440 at 445 per Drummond J. 301 Martell v Consent Iron Co Ltd [1955] 1 Ch 363 at 416–7 per Jenkins LJ. See also Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1 (interest of shareholder in outcome of proceedings of company). See also Re Daley; Ex parte National Australia Bank Ltd (1992) 8 Australian Corporations and Securities Reports (ACSR) 395 and cf Monk v Australia and New Zealand Banking Group Ltd (1994) 34 NSWLR 148.
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Hence, at least where the common law of maintenance and champerty applies, references are sometimes made to lawful and unlawful maintenance.302 Champerty is a form of wrongful maintenance where the supporter not only wrongfully helps maintain the suit but does so for a share in the proceeds.303 It follows that champerty requires maintenance.304 However, to attract a public policy prohibition an agreement has only to savour of wrongful maintenance or champerty.305 Moreover, because this area is driven by public policy, what amounts to “wrongful” maintenance or champerty has changed over time.306 An agreement savouring of wrongful maintenance or champerty is against public policy and therefore unenforceable. An assignment savouring of wrongful maintenance or champerty is ineffective. The practical issue is to determine when an assignment savours of maintenance or champerty. There may have been moments in the past when it was thought that the multiplication of suits alone was something to be feared. In that environment any agreement savouring of maintenance or champerty would be unenforceable because it could have that result. This would not be the case today when an overriding policy concern is access to justice. 302 See Clairs Keeley v Treacy (2003) 28 WAR 139 at 151 per Templeman J (see also Clairs Keeley v Treacy (2004) 29 WAR 479 and Clairs Keeley v Treacy [2005] WASCA 86). 303 It does not require an undertaking to carry on the suit: see Ball v Warwick (1881) 50 LJQB 382 and compare Rees v De Bernardy [1896] 2 Ch 437. See further the definitions collected throughout the decision in British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 and see especially at 1012 per Cozens-Hardy MR and at 1013 per Fletcher Moulton LJ. See also Awwad v Geraghty & Co [2001] QB 570 and Martell v Consett Iron Co Ltd [1955] 1 Ch 363 at 399 per Jenkins LJ. See further Giles v Thompson [1994] 1 AC 142 at 161; First City Corporation v Downsview Nominees Ltd [1989] 3 NZLR 710 at 754 per Gault J ([1990] 3 NZLR 265, CA; [1993] AC 295, PC); Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440 at 445 per Drummond J; Clyne v The New South Wales Bar Association (1960) 104 CLR 186. 304 See Thai Trading Co v Taylor [1998] QB 781 at 788 per Millett LJ. See also Hartley v Russell (1825) 2 Sim & St 244, 57 ER 339; Haseldine v Hosken [1933] 1 KB 822 at 831 per Scrutton LJ; Clairs Keeley v Treacy (2003) 28 WAR 139 at 151 per Templeman J (see also Clairs Keeley v Treacy (2004) 29 WAR 479 and Clairs Keeley v Treacy [2005] WASCA 86). Quaere whether the extension of champerty to cover the purchase of a mere right of action allows for the recognition of champerty where maintenance is not contemplated: see County Hotel and Wine Co v London & NW Railway [1918] 2 KB 251 at 258; Giles v Thompson [1994] 1 AC 142 at 153 per Lord Mustill. See also, as to whether champerty is a species of maintenance or an aggravated form of maintenance, PH Winfield, “The History of Maintenance and Champerty” (1919) 35 LQR 50 at 57. The notion that it may be an aggravated form of maintenance has led to comments to the effect that a lawful justification for maintenance will not necessarily excuse champerty. This is no longer the law. Anything justifying maintenance will also justify champerty: see below n 324 and see YL Tan, “Champertous Contracts and Assignments” (1990) 106 LQR 656 at 657. 305 Fitzroy v Cave [1905] 2 KB 364 at 371 per Cozens-Hardy LJ. 306 Some of the most important changes concern the conduct of litigation: see Giles v Thompson [1994] 1 AC 142; Thai Trading Co v Taylor [1998] QB 781; Bevan Ashford v Geoff Yeandle (Contractors) Ltd [1999] Ch 239; Smits v Roach (2004) 60 NSWLR 711. Cf Hughes v Kingston Upon Hull City Council [1999] QB 1193; Awwad v Geraghty & Co [2000] QB 570. See also R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2003] QB 381; Thornley v Lang [2004] 1 WLR 378; Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 218 ALR 166; Project 28 Pty Ltd v Barr [2005] NSWCA 240; QPSX Ltd v Ericsson Australia Pty (No. 3) (2005) 219 ALR 1. See further GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 431.
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In any case, generally, the fact that a party to a suit was being maintained was not a defence to the action unless there was an abuse of process or a risk to the administration of justice, in which case a stay might have been granted.307 However, if the right the plaintiff sought to enforce was founded on an agreement for champerty it would be unenforceable. Thus, if the plaintiff was an assignee, the assignment was a champertous agreement and the assignee had no other legitimate interest in the suit then the assignment would be ineffective; there would then be consequent repercussions for the efficacy of the suit.308 When the tort of maintenance existed it might allow the successful party to the action to sue the maintainer for costs if the other party to the action could not pay the costs. However, it was necessary to evidence loss or damage by reason of the maintenance. Maintenance and champerty can also impact on third parties. For instance, although a solicitor can conduct litigation despite having knowledge that his or her client has entered into a champertous agreement, the solicitor may not be able to recover costs if the solicitor actively participated in the agreement, even though they are not a party to the agreement.309 The most well known example of an assignment savouring of champerty was the assignment of a bare right of action.310 Such an assignment was considered champertous even though the maintenance component of champerty was not automatically made out. However, an assignment of a cause of action may savour of maintenance or champerty because it may be given in recognition for the support of litigation or for the purposes of commencing or continuing a suit that the assignor may not have commenced; in short it may be the result of intermeddling in the disputes of others or may be for the purposes of stiring up litigation. Generally, a person will have a bare right to litigate where the right is not related to or dependent on any property, or where that person does not have the underlying 307 See Martell v Consett Iron Co Ltd [1955] 1 Ch 363; Roux v Australian Broadcasting Commission [1992] 2 VR 577 at 608; Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150 para 25; Bandwill Pty Ltd v Spencer-Laitt (2000) 23 WAR 390; Quach v Huntof Pty Ltd (2000) Motor Vehicle Reports 263; Clairs Keeley v Treacy (2003) 28 WAR 139 (see also Clairs Keeley v Treacy (2004) 29 WAR 479 and Clairs Keeley v Treacy [2005] WASCA 86). See further Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 218 ALR 166. 308 But this was not relevant if the plaintiff had a legal right against a defendant which was independent of any collateral illegal arrangement with a third party: see Carpenter v Boyce (1896) 22 VLR 248 at 253; Laurent v Sale & Co [1963] 1 WLR 829. 309 Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199. See also Re Thomas Jaquess v Thomas [1894] 1 QB 747; Wild v Simpson [1919] 2 KB 544. See also Wood v Downes (1811) 18 Ves 120, 34 ER 263. 310 See generally on bare rights Prosser v Edmonds (1835) 1 Y & C Ex 481, 160 ER 196; May v Lane (1894) 64 LJQB 236; Torkington v Magee [1903] 1 KB 644; Dawson v Great Northern & City Railway Co [1905] 1 KB 260; Glegg v Bromley [1912] 3 KB 474; Defries v Milne [1913] 1 Ch 98; City Hotel & Wine Company v L & NWR Railway Company [1918] KB 251; Laurent v Sale & Co [1963] 1 WLR 829; Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 at 119–21 per Roskill J; Trendtex Trading Corp v Credit Suisse [1980] QB 629 at 656 per Lord Denning MR ([1982] AC 679, HL); Poulton v Commonwealth (1953) 89 CLR 540 at 602 per Williams, Webb and Kitto JJ; Re Timothy’s Pty Ltd and Companies Act [1981] 2 NSWLR 706 at 710 per Needham J.
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property which the cause of action seeks to protect. For example, a cause of action in tort for personal injury is a bare right to litigate. An action for breach of contract, at least where the claim is for an unliquidated sum, is another example.311 Where the right of action protected some underlying property and where the assignment transferred that property then the assignment did not involve a bare right of action. Moreover, in such a case the assignee’s interest in the underlying property was usually sufficient to protect the assignment from being rendered ineffective by reason of maintenance or champerty.312 For example, a tenant with a right to sue a landlord for the breach of a lease covenant has as interest in the lease which is more than a bare right. Similarly, a person who has a right to bring an action for conversion of a cheque will have an interest in the instrument. However, if the tenant or holder were merely to assign the right to sue and keep back the proprietary interest in the lease or cheque, he or she would be assigning a bare right of action. If the assignee took an interest in the lease or cheque he or she was more likely to be immune from any claim of maintenance or champerty. Similarly, the purchaser of real or personal property could take an assignment of an action for breach of contract in relation to that property.313 However, this assignment of underlying property together with the right of action worked only if the property was not transferred solely for the purpose of bringing the cause of action or solely for the purpose of obtaining the cause of action.314 Thus, motive would appear to have been relevant315 and an assignment of property prior to any suit being commenced was more likely to be upheld than an assignment of property once the suit was on foot. Moreover, although it was possible to assign a right to damages for breach of covenant if there was, in addition, a conveyance of property to which the suit was incidental, that conveyance would not help if the action was for tortious waste.316 Other interests were also recognised as being sufficient to avoid claims of maintenance or champerty. However, it was not clear where the line was drawn.317 A 311 See the discussion in County Hotel and Wine Co v London & NW Railway [1918] 2 KB 251 at 258–61 per McCardie J. See also May v Lane (1894) 64 LJQB 236; Torkington v Magee [1903] 1 KB 644, and see [2.02]. 312 See Monk v Australia and New Zealand Banking Group (1994) 34 NSWLR 148 at 151 per Cohen J. See also Re Kenneth Wright Distributors Pty Ltd [1973] VR 161; Dickinson v Burrell (1866) LR 1 Eq 337. 313 Ellis v Torrington [1920] 1 KB 399. 314 Prosser v Edmonds (1835) 1 Y & C 481, 160 ER 196; Ellis v Torrington [1920] 1 KB 399 at 412–13 per Scrutton LJ. See also Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703 per Lord Roskill; Williams v Protheroe (1829) 5 Bing 309, 130 ER 1080; Re Cambrian Mining Co (1882) 48 LT 114; First City Corporation v Downsview Nominees Ltd [1989] 3 NZLR 710 at 754 per Gault J ([1990] 3 NZLR 265 CA; [1993] 3 All ER 626 PC). Cf De Hoghton v Money (1866) 2 LR Ch App 164. See further Castellain v Preston (1882) 8 QBD 617 and see Glegg v Bromley [1912] 3 KB 474 at 490 per Parker J. 315 See PH Winfield, “Assignment of Choses in Action in relation to Maintenance and Champerty” (1919) 35 LQR 143 at 149–51. Cf OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 53. See further [6.64]. 316 See Defries v Milne [1913] 1 Ch 98. 317 See the remarks of Parker J in Glegg v Bromley [1912] 3 KB 474 at 490.
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creditor of the assignor might have a sufficient interest. Instead of relying on its right of subrogation, an insurer could take an assignment of a cause of action in tort after compensating the insured.318 That is, it was proper for an insurer to take an assignment to support and enlarge that which it had already acquired by way of subrogation.319 Moreover, where the insurer was potentially liable to the insured, it was not maintenance for the insurer to fund the insured’s litigation against a third party due to the insurer’s substantial pecuniary interest in the result.320 It was also held that a mortgage of a suit for the purposes of putting the mortgagor in funds to pursue his or her suit was not champertous.321 Exceptions were also made for common interests,322 charity323 and family ties.324 If the right of action arose out of some other right that was assigned prior to the right of action coming into existence, then the assignee could exercise that right without any question of the assignment savouring of maintenance or champerty. For example, if a person took the assignment of a contractual right prior to any breach of contract that assignee could later sue if there was a breach of contract by the obligor. Certain rights were considered property rights in themselves and not bare rights, and these could be assigned.325 The principal example was a debt.326 Thus, it is said that the prohibition on the assignment of bare causes of action does not 318 King v Victoria Insurance Co Ltd [1896] AC 250; Compania Columbiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101. 319 See Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703 per Lord Roskill. See also Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101. 320 Schultz v The Ocean Accident & Guarantee Corp Ltd (1923) 23 SR (NSW) 153. 321 See Cockell v Taylor (1851) 15 Beav 103, 51 ER 475. Cf OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 54–5. See also Morrison v Young (1872) 3 VR (L) 35 (distinguishing the improper mortgage of a right to litigate from a mortgage of an interest in an existing suit). See further Anderson v Radcliffe (1858) EL BL & EL 806, 120 ER 710. 322 See the judgment of Danckwerts J in Martell v Consett Iron Co Ltd [1955] 1 Ch 363 (affirmed [1955] Ch 363: see especially at 416–19 per Jenkins LJ suggesting that the common interest exception was subsumed into a business exception). See also Wood v The Freehold United Quartz Mining Co Registered (1870) 1 VR (Eq) 168; Plating Co v Farquharson (1881) 17 Ch D 49; Bradlaugh v Newdegate (1883) 11 QBD 1 at 11 per Lord Coleridge CJ; Alabaster v Harness [1895] 1 QB 339; Greig v National Amalgamated Union of Shop Assistants (1906) 22 TLR 274; Neville v London “Express” Newspaper Ltd [1919] AC 368 at 389 per Viscount Haldane; Holden v Thompson [1907] 2 KB 489; Schulz v The Ocean Accident and Guarantee Corp Ltd (1923) 23 SR (NSW) 153; Baker v Jones [1954] 1 WLR 1005. 323 See Martell v Consett Iron Co Ltd [1955] 1 Ch 363 at 387 per Danckwerts J (cf [1955] 1 Ch 363 at 421 per Jenkins LJ and 427 per Hodson LJ). See also Stevens v Keogh (1946) 72 CLR 1 at 12 per Latham CJ; Brew v Whitlock [1967] VR 449; Condliffe v Hislop [1996] 1 WLR 753. 324 See Hutley v Hutley (1873) LR 8 QB 112 (however it has been suggested that the comment made in this case to the effect that an interest which may justify maintenance does not necessarily justify champerty is no longer good law: see Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440). See also Guy v Churchill (1888) 40 Ch D 481; Cole v Booker (1913) 29 TLR 295. 325 Cockell v Taylor (1852) 15 Beav 103 at 117, 51 ER 475 at 481. See further RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.480. 326 Comfort v Betts [1891] 1 QB 737; Fitzroy v Cave [1905] 2 KB 364. See also County Hotel and Wine Co v London & N W Railway [1918] 2 KB 251 at 258–60 per McCardie J.
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apply to debts.327 This is so even if litigation is necessary to enforce the debt and even if the assignor retains some interest in the proceeds of the litigation. However, at the same time it has been said that if the object of a transaction was that of unlawful maintenance or champerty, then the transaction would not be saved by dressing it up as the assignment of a debt.328 In addition to these exceptions, equity early on rejected any necessary link between assignment and maintenance and champerty.329 The efficacy of equitable assignments was dependent on adopting this view. As noted earlier, in the case of an equitable assignment of a legal right the action was brought in the name of the assignor in the common law courts. The assignee could, after giving an indemnity as to costs, obtain an order forcing the assignor to lend its name to that action if the assignor did not volunteer this. In short the assignee maintained the action, but its underlying interest was sufficient to negate any claim of unlawful maintenance; moreover the indemnity was required to prevent the action being held to be an abuse of process, the abuse arising by reason of the nominal plaintiff being unable to pay the costs of the successful party. In addition, equity accepted the legitimacy of assigning the fruits of the action, whether by way of security or outright sale.330 Such an assignment is contingent upon a successful outcome to proceedings. The property the subject of the assignment does not exist until a judgment is given. The assignee will usually have no right to interfere in the litigation in any way nor insist on the action being carried on.331 However, if, in addition to the assignment of the fruits of the action, the assignee has a right to interfere with or participate in the litigation, the assignment may be invalid if it constitutes what would be considered today as a wrongful intermeddling in litigation imperilling the interests of the defendant or an unacceptable risk to the administration of justice.332 It is here that defining maintenance and champerty by 327 Camdex International Ltd v Bank of Zambia [1996] 1 WLR 864; Re Daley; Ex parte National Australia Bank Ltd (1992) 8 ACSR 395. See also Gould v Skinner [1983] 1 Qd R 377; Hauber v The Halifax Fire Insurance Co Ltd [1940] SASR 341 (judgment debts). 328 In determining the efficacy of an assignment of a debt it is necessary to consider any other rights assigned along with the debt: see eg Re Paris Skating Rink Co (1877) 5 Ch D 959. 329 The mere fact that an assignee may choose to enforce a right when the assignor would not does not necessarily lead to an improper maintenance of an action. The mere possibility of litigation being increased by recognising assignment is not of itself sufficient. See also Wood v Griffith (1818) 1 SW 43 at 55–6, 36 ER 291 at 295–6. 330 Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 702 per Lord Roskill and Glegg v Bromley [1912] 3 KB 474. See also Davis v Freethy (1890) 24 QBD 519. The assignment of the proceeds of insurance policies is another example of a transaction that has been generally immune from a claim of maintenance: see Aron v Miall [1929] 98 LJKB 204. 331 See Glegg v Bromley [1912] 3 KB 474. 332 It was also held that if the purchaser of the fruits of an action gives the seller an indemnity against costs the agreement may be impeached as savouring of maintenance: see the discussions of the conflicting cases on this point by PH Winfield, “Assignment of Choses in Action in relation to Maintenance and Champerty” (1919) 35 LQR 143 at 155–6 and OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 55–6.
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reference to intermeddling tends to blur the line between maintenance and champerty and abuse of process. Maintenance and champerty may result in a stay being granted for an abuse of process, but arguably are only factors to be taken into account and are not of themselves conclusive.333 The ability to interfere in litigation and/or keep out of the reach of court procedure is perhaps more important to determining whether a stay ought to be granted than determining the legitimacy of any maintenance. Much will depend on the circumstances, and it may be necessary to keep distinct the situation where a third party simply maintains a suit and where the third party takes an assignment of the suit. An assignee taking an assignment of a bare cause of action without justification may be said to be intermeddling in the affairs of others. That lack of interest would be sufficient to impugn the assignment; that is because the plaintiff assignee will be seeking to enforce a right it obtained from a champertous assignment. The intermeddling may be sufficient to warrant a stay, although the assignee would clearly be subject to court procedures. But quaere the extent to which the defendant ought to be able to raise the efficacy of the assignment in requesting a stay. Should that be a matter that concerns only the assignor and assignee? Clearly the court would not want to enforce an agreement that is at odds with public policy. For the most part these issues can be put to one side.334 The concern here is only with the efficacy of the assignment, and that generally will depend on whether the assignee has what is considered today as a sufficient interest. This is discussed in detail below. However, it may be noted that even with a sufficient interest, if the assignee takes an assignment of a cause of action for an improper motive, such as to traffic in litigation for a profit, the assignment will be ineffective. [6.60] When does an issue of maintenance or champerty arise? As already noted, although the criminal offences and torts of maintenance and champerty have been abolished, this has not affected any rule that treats a contract as contrary to public policy. Thus, an assignment may still be set aside for savouring of maintenance or champerty. In the assignment context, the issue of maintenance or champerty arises where there is an assignment of a bare cause of action, where the assignee seeks to make a profit from the suit,335 where the assignee has some interest in sums recovered in the suit and where the assignee can take over the litigation.336 However, the fact that a transaction such as an assignment may increase litigation is itself not sufficient to raise an issue of maintenance or champerty unless combined with other factors.337 As noted earlier, today an overriding policy 333
[6.66]. See further ibid. 335 See further [6.64]. 336 However, this is less likely to raise an issue of maintenance or champerty if the interests of the assignor and assignee do not diverge: see Giles v Thompson [1994] 1 AC 142. 337 See ibid. 334
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concern is that of access to justice, the third party funding of litigation and the resulting promotion of suits that may otherwise not have come to court is an important element in providing that access.338 Although an assignee commencing a claim in its own name may not necessarily be seen as providing the assignor with access to justice, the mere fact that the assignee might pursue the claim when the assignor would not is not in itself a strong reason for staying the action. [6.61] The requirement of a sufficient interest by way of a “genuine commercial interest” or a “genuine and substantial interest”. An assignment of a right of action will not savour of wrongful maintenance or champerty if the assignee has a sufficient interest in the suit.339 The ownership of the chose in action that results from the assignment is not a sufficient interest; the assignment may be no more than a method by which a third party funder of the litigation takes over the litigation and subordinates the interest of the assignor. The required interest will, of course, be made out if the assignee takes an assignment of the property which the cause of action is incidental to. Thus, no issue of illegitimate maintenance or champerty will arise in the case of an assignment of the benefit of a contract prior to there being any breach of contract. However, in the case of assignments of bare rights of action, although a sufficient interest may still be made out by charity, common interest or family ties (at least to the extent that these grounds still have an independent existence), the modern formulation of a sufficient interest is that of a “genuine and substantial interest” or a “genuine commercial interest”. These expressions derive from the decision of the House of Lords in Trendtex Trading Corporation v Credit Suisse 340 and have been the subject of much litigation.341 338
See Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 218 ALR 166 at 185–7 per Mason P. Ellis v Torrington [1920] 1 KB 399 at 406 per Bankes LJ. 340 [1982] AC 679 at 694 per Lord Wilberforce (genuine and substantial interest required), at 703 per Lord Roskill (genuine commercial interest required). Although the decision in Trendtex is the leading authority, the notion of a commercial or business interest was first authoritatively stated in Martell v Consent Iron Co Ltd [1955] 1 Ch 363. The High Court of Australia has yet to determine whether the principles adopted in Trendtex form part of Australian law, cf Mutual Pools & Staff Pty Ltd v The Commonwealth of Australia (1994) 179 CLR 155 at 173 per Mason CJ. Nevertheless, as the cases in n 342 below suggest, there is a considerable number of decisions of lower courts that have applied these principles and it is relatively safe to suggest that these principles or some analogous principle will be applied to determine the legitimacy of assignments of contractual claims. As regards choses in action arising from torts the relevance of the Trendtex principles in Australia is more problematic: see [6.62]. 341 Eg Giles v Thompson [1994] 1 AC 142; Kaukomarkkinat O/Y v “Elbe” Transport-Union GmbH (The Kelo) [1985] 2 Lloyd’s Rep 85; Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499; Bourne v Colodense Ltd [1985] ICR 291; Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440; First City Corporation Ltd v Downsview Nominees [1989] 3 NZLR 710 ([1990] 3 NZLR 265, CA; [1993] 3 All ER 626, PC); Tharros Shipping Co Ltd v Bias Shipping Ltd (1995) 1 Lloyd’s Rep 541; McFarlane v E E Calendonia Ltd (No 2) [1995] 1 WLR 366; Roux v Australian Broadcasting Commission [1992] 2 VR 577; Monk v Australian and New Zealand Banking Group (1994) 34 NSWLR 148; National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514; Commonwealth v Ling (1993) 118 ALR 309; Beatty v Brashs Pty Ltd (1995) 13 Australian Company Law Cases (ACLC) 925; Re Daley; Ex parte National Australia Bank Ltd (1992) 8 Australian Corporations and Securities Reports (ACSR) 395; Jeffree v NCSC (1989) 15 Australian Company Law Reports (ACLR) 217; Re Timothy’s Pty Ltd and the Companies 339
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In that case, Trendtex was contracted to supply cement to an English company. Payment was to be by a letter of credit issued by the Central Bank of Nigeria. Trendtex was financed by Credit Suisse with repayments being made from payments received under the letter of credit. The Central Bank of Nigeria repudiated its obligations under the letter of credit, leaving Trendtex with no way of paying Credit Suisse. Trendtex commenced an action against the bank in November 1975. However, Trendtex had no real way of funding that litigation. If Credit Suisse wanted to be paid it had only one option, namely, to guarantee all the costs incurred by Trendtex in its action against the Bank.342 This it did in November 1975. Later, on 6 September 1976, Trendtex assigned to Credit Suisse (by way of security) all its claims against the English cement company, “until the claims of the assignee are covered”. In addition, on 26 November 1976, to the extent of Trendtex’s indebtedness to Credit Suisse, it “surrendered” (by way of security) its claim against the Bank. Trendtex was successful in its action in the Court of Appeal. However, an appeal to the House of Lords was lodged. In an attempt to settle the matter, on 4 January 1978, Trendtex entered into an agreement with Credit Suisse which recited inter alia, that Trendtex was indebted to Credit Suisse for US$1,500,000, that Credit Suisse would attempt to recover that sum by negotiating a settlement with the bank, that Credit Suisse had received an offer from a third party to buy Trendtex’s claim for US$800,000, that Trendtex would release to Credit Suisse all its residual rights against the Bank and that Trendtex was not opposed to that sale. Credit Suisse then assigned the cause of action to the third party for US$1,100,000. Soon after this the matter settled for US$8,000,000. The third party made a profit of US$6,900,000. Trendtex (the assignor) claimed that the agreement of 4 January 1978 should be set aside as savouring of maintenance or champerty. The House of Lords, although granting a stay to Credit Suisse on the basis that the agreement of 4 January 1978 was governed by Swiss law and its efficacy was to be determined by a Swiss court, held that under English law, despite the sufficiency of Credit Suisse’s interest in the litigation, the agreement of 4 January 1978 was void. Act [1981] 2 NSWLR 706; Pickering v Sogex Services (UK) Ltd (1982) 20 BLR 66; J C Scott Constructions v Mermaid Waters Tavern Pty Ltd [1984] 2 Qd R 314; South East Thames Regional Health Authority v Y J Lovell (London) Ltd (1985) 32 Building Law Reports (BLR) 127; In the Marriage of Sheehan (1990) 97 Federal Law Reports (FLR) 190; Lovell v Western Australian Police Union of Workers [1991] Aust Torts R 68,575; Government Insurance Office (NSW) v K A Reed Services Pty Ltd [1998] VR 829; South Australian Management Corp v Sheahan (1995) 16 ACSR 45; Gore v Justice Corporation Pty Ltd (2002) 189 ALR 712; Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 1041; Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 218 ALR 166; Project 28 Pty Ltd v Barr [2005] NSWCA 240. See also Laurent v Sale & Co [1963] 1 WLR 829 (approved by Lord Wilberforce in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 695); In re Trepca Mines Ltd (No 2) [1963] 1 Ch 199, (approved by Lord Wilberforce in Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 695); Martell v Consent Iron Co Ltd [1955] 1 Ch 363; Poulton v Commonwealth (1953) 89 CLR 540. See further C Campbell, “An Examination of the Champertous Assignment of Bare Causes of Action” (1999) 27 Australian Business Law Review (ABLR) 142. 342 See also Total Liban SAL v Vitol Energy SA [1999] 2 Lloyd’s Rep 700.
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Lord Wilberforce, with whom Lord Edmund-Davies, Lord Keith of Kinkel and Lord Roskill agreed, expressed the necessary interest as a “genuine and substantial” interest. He said that if the only parties involved had been Trendtex and Credit Suisse there could be no question of the agreement being invalid for maintenance or champerty because of Credit Suisse’s genuine and substantial interest in the success of the litigation; it had guaranteed the costs of the litigation, taken a security interest in the litigation or its proceeds, and accepted a surrender of Trendtex’s residual interest. The vice, however, was the appearance on the face of the document of the possibility of the cause of action being sold to a third party. This, he said, “manifestly involved the possibility, and indeed the likelihood, of a profit being made, either by the third party or possibly also by Credit Suisse, out of the cause of action”. He continued, “in my opinion this manifestly “savours of champerty”, since it involves trafficking in litigation—a type of transaction which, under English law, is contrary to public policy”.343 One might question his emphasis on the “possibility” of a further assignment. Most choses in action assigned to assignees are capable of further assignment and that mere possibility of assigning to someone who may not have a sufficient interest should not generally impact on the efficacy of the initial assignment. Here, however, the whole purpose of the settlement agreement was in fact to give effect to that possibility, which was expressed on the face of the document. Lord Roskill, with whom Lord Edmund-Davies and Lord Keith of Kinkel agreed, expressed the necessary interest as a “genuine commercial” interest. In stating that the rule that one cannot assign a bare right to litigate was not dead,344 he said:345 [A]n assignee who can show that he has a genuine commercial interest in the enforcement of the claim of another and to that extent takes an assignment of that claim to himself is entitled to enforce that assignment unless by the terms of that assignment he falls foul of our law of champerty, . . . If the assignment is of a property right or interest and the cause of action is ancillary to that right or interest, or if the assignee had a genuine commercial interest in taking the assignment and in enforcing it for his own benefit, I can see no reason why the assignment should be struck down as an assignment of a bare cause of action or as savouring of maintenance.
He held the settlement agreement to be champertous. It was not an agreement to recoup Credit Suisse’s losses; its object was to allow for the cause of action to be sold to a third party for the purposes of the third party making a profit from it. He concluded that such “an agreement . . . offends for it was a step towards the sale of a bare cause of action to a third party who had no genuine commercial interest in the claim in return for a division of the spoils”.346 It follows from this that an 343 344 345 346
[1982] AC 679 at 694. Ibid, at 703. Ibid. Ibid, at 704.
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assignment to an assignee with a genuine commercial interest can still savour of maintenance or champerty if the assignment is construed as not being given for the purpose of protecting that commercial interest but rather to profit from and traffic in litigation. More generally, despite a legitimate interest, if there still exists an unacceptable risk to the administration of justice the assignment will be ineffective.347 [6.62] The meaning of “genuine and substantial interest” and “genuine commercial interest”. As already noted, the meaning of “genuine and substantial interest” and “genuine commercial interest” has been the subject of much litigation, not all of it involving assignments. The expressions are probably not meant to be interpreted as legislative terms.348 If it were otherwise there would be a conflict between them with Lord Roskill’s “genuine commercial interest” being a narrower formulation. The better view may be that he used the word “commercial” because of the commercial nature of the Trendtex case. The “commercial interest” formulation is not dependent upon a commercial transaction. For example, in Bourne v Colodense Ltd,349 the plaintiff’s union agreed to finance an action against the defendant. The action failed and the plaintiff was ordered to pay costs. This order was made on the understanding that the union was financing the action. The union refused to pay and the defendant petitioned for a receiver to be appointed to the plaintiff to take proceedings to enforce the plaintiff’s rights against the union. It was held that the defendant had a commercial interest in the enforcement of the plaintiff’s rights otherwise he or she would be left with a worthless order for costs. That commercial interest was sufficient to protect him or her from any claim of champerty because there was no attempt to get out of the union any more than what the defendant was entitled to under the order for costs.350 It follows that what amounts to a sufficient interest will be context-specific. For example, with respect to governments, it has been said that the interest required is that of a genuine and substantial governmental interest.351 Often, as in Trendtex, the interest will arise because the assignee’s only chance of being paid a debt or damages owed to it by the assignor is to help maintain the assignor’s action against a third party. However, it is not necessary for the assignee 347 See Bandwill Pty Ltd v Spencer-Laitt (2000) 23 WAR 390; Clairs Keeley v Treacy (2003) 28 WAR 139 (see also Clairs Keeley v Treacy (2004) 29 WAR 479 and Clairs Keeley v Treacy [2005] WASCA 86). See also Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 Federal Court Reports (FCR) 474 (assignment requiring assignor to give particular evidence in court). See further [6.65]. 348 See Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499 at 505 per Sir John Megaw, discussed below. 349 [1985] ICR 291. 350 It has been suggested that this case leads to the conclusion that a commercial interest is not based upon the relationship of the parties nor on the type of transaction between them, but rather the motivation for taking the assignment: see YL Tan, “Champertous Contracts and Assignments” (1990) 106 LQR 656 at 664. 351 Commonwealth v Ling (1993) 118 ALR 309.
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to be in the position of suffering some loss for a sufficient interest to arise. For example, in The Kelo,352 a shipper’s agent took possession of goods for the consignee. The goods were damaged and the consignee assigned its right of action against the shipowners to the agent. It was held that the agent had a genuine commercial interest in the discharge and delivery of the goods because he or she habitually acted as agent for the consignee and it made commercial sense for him or her to deal with these types of claim as a legitimate part of their business activity. The assignee must have an interest “in the assignor or its business affairs or activities which the assignment may in some way protect”.353 Thus, the extent of the assignment must correspond with the interest that that assignment protects. The interest cannot derive from the assignment itself.354 That is, the concept of a “genuine and substantial interest” or a “genuine commercial interest” “does not embrace an interest arising from an arrangement voluntarily entered into by the assignee of which the impugned assignment is an essential part. . . . Rather the expression refers to a commercial interest which exists already or by reason of other matters, and which receives ancillary support from the assignment”.355 These expressions are helpful where the interest flows from some transaction such as in the Trendtex case. In that case there was a clear interest as Credit Suisse was a substantial creditor of the assignor with a right to enforce the debt at the time of the assignment.356 Without the assignment, it had no chance of being paid. Even more directly, Credit Suisse provided the finance that allowed Trendtex to perform its obligations under the supply contracts. However, in some cases the interest may be in the litigation357 In Re Movitor Pty Ltd v Sims,358 Drummond J said of an interest in litigation:359 [I]f an interest in litigation is to be sufficient to justify its maintenance by an outsider, including its maintenance in circumstances that involve champerty, that it be an interest in the litigation separate from the benefit the outsider seeks to derive from his support 352
Kaukomarkkinat O/Y v “Elbe” Transport-Union GmbH (The Kelo) [1985] 2 Lloyd’s Rep 85. Monk v Australian and New Zealand Banking Group (1994) 34 NSWLR 148. 354 National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 540. See further Martell v Consett Iron Co Ltd [1955] Ch 363 at 415–16 per Jenkins LJ; Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 1041. See also Project 28 Pty Ltd v Barr [2005] NSWCA 240 at para 41 per Ipp JA (“[The interest] must be distinct from the benefit that the person supporting the action seeks to derive from the litigation. It must be something beyond a mere personal interest in profiting from the outcome of proceedings”). 355 National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 540–1. 356 See also Re Timothy’s Pty Ltd [1981] 2 NSWLR 706; Monk v Australian and New Zealand Bank Group Ltd (1994) 34 NSWLR 148 at 153. 357 Eg Kaukomarkkinat O/Y v “Elbe” Transport-Union GMBH (The Kelo) [1985] 2 Lloyd’s Rep 85. 358 Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440, discussed further at [6.64]. See also Giles v Thompson [1994] AC 142 at 163 and Beatty v Brashs Pty Ltd [1998] 2 VR 201. 359 (1996) 19 ACSR 440 at 446. 353
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for the litigation. If the agreement to assist another’s litigation could itself provide an interest by the outsider in the litigation sufficient to take the agreement out of the area of maintenance and champerty, the rule against maintenance and champerty could always be easily circumvented.
In determining the existence of a sufficient interest, the transaction must be looked at as a whole.360 In addition, the assignment must be characterised at the time of the assignment.361 It is not necessary for the interest of the assignee to derive out of the same contract as that of the assignor and obligor. It is sufficient if the interest derives from the same transaction. Thus, if A sells goods to B in circumstances where A is in breach of contract and B is obliged under a separate contract to sell the goods to C, then as part of that overall transaction C will have a sufficient interest in B’s rights against A especially if B is not in a position to pay damages to C.362 In Brownton Ltd v Edward Moore Inbucon Ltd,363 A contracted with B for B to advise A as to the suitability of a computer system to be supplied by C. The system turned out to be unsuitable and A sued B (in contract and tort) and C (in contract). A and B settled out of court on terms that A would accept an amount paid by B into court as full settlement against both B and C provided that satisfactory arrangements could be made with C in respect of costs. C refused to forgo its costs and A and B agreed that A would accept the amount paid into court, B would indemnify A in respect of any claim by C for costs and A would assign to B its cause of action against C. B believed that its liability overlapped with C’s and damages recovered against C would reduce B’s liability.364 C claimed the assignment was champertous, arguing that although B had a genuine commercial interest in the litigation there was one head of damage in which no such interest existed. The Court of Appeal dismissed this argument, noting that the transaction must be looked at in its totality, and although the contracts between A and B and A and C were separate they were part of the same commercial transaction in which both B and C were sued in respect of the same damage. If C had properly performed its obligations it followed that B’s damages to A would be less. It did not matter that the pre-existing interest was a contingent liability, as opposed to a pre-existing debt which was the case in Trendtex. Whether that would have made a difference if the pre-existing interest arose out of a distinct transaction was left open. Sir John Megaw did not think that Lord Roskill’s statement in Trendtex to the effect “an assignee who can show that he has a genuine commercial interest in the 360 Giles v Thompson [1994] 1 AC 142 at 164 per Lord Mustill; Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499; Kaukomarkkinat O/Y v “Elbe” Transport-Union GMBH (The Kelo) [1985] 2 Lloyd’s Rep 85; Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440. 361 Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499 at 509 per Lloyd LJ. See further [6.64]. 362 See Total Liban SA v Vitol Energy SA [2000] 1 All ER 267. 363 [1985] 3 All ER 499. 364 See now the Civil Liability (Contribution) Act 1978 (Eng) which allows for contribution where liability is in respect of the “same damage” without regard to whether it arises in contract or tort.
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enforcement of the claim of another and to that extent takes an assignment of that claim”365 was to be taken literally. It is not necessary that the assignee’s commercial interest relate to every facet of the cause of action.366 B had a genuine commercial interest in reducing the amount it would have to pay in damages, and any sum recovered by A against C would reduce B’s liability to A, and this interest existed prior to the assignment. Nor did he take literally Lord Roskill’s statement that the assignee must have a “genuine commercial interest . . . in enforcing [the claim] for his own benefit”.367 The words “for his own benefit” he thought were clearly chosen because of the particular facts of the Trendtex case. Credit Suisse did not purchase the cause of action to “enforce” it at all but to re-sell it for someone else to “enforce” it for their own benefit. Here on the other hand B was clearly going to enforce the claim for B’s own benefit. Similarly in The Kelo,368 Staughton J concluded that these words were not to be taken literally and an assignee with a genuine commercial interest would not fall outside the Trendtex test merely because it enforced the assigned right for the benefit of the assignor. The interest must be more than a mere personal interest. For example, in Monk v Australia and New Zealand Banking Group,369 a company payee assigned to its directors (one of whom was Mr Monk) the right to bring an action for conversion against the bank in respect of certain cheques without any transfer of property rights in the cheques. The assignment was expressed to be limited to the choses in action the assignor might have against the defendant. The ANZ Bank at the time had a judgment against Mr Monk and a bankruptcy notice had been issued against him. Cohen J did not think that the obtaining of a judgment by Monk so as to enable him to satisfy the debt upon which his bankruptcy notice was based was a sufficient commercial interest. It was in reality a personal interest to obtain a debt he could use as a set-off against the judgment debt, and in that respect he was “in no stronger position than he would be if he had obtained an assignment of a cause of action for negligence by a customer of the Bank who claimed to have suffered injuries arising from unsafe premises”.370 He continued, “in the authorities where the Trendtex test has been applied, the commercial interest has gone beyond a mere personal interest in profiting from the outcome of the proceedings and has required an interest by the assignee in the assignor or its business affairs or activities which the assignment may in some way protect”.371
365
[1982] AC 679 at 703. [1985] 3 All ER 499 at 505. 367 [1982] AC 679 at 703. 368 Kaukomarkkinat O/Y v “Elbe” Transport-Union (The Kelo) [1985] 2 Lloyd’s Rep 85 at 89–90. 369 (1994) 34 NSWLR 148. In this case Re Daley; Ex parte National Australia Bank Ltd (1992) 8 ACSR 395 was distinguished on the basis that it involved an assignee who was the sole shareholder and who was also a guarantor of the assignor. 370 (1994) 34 NSWLR 148 at 153. 371 Ibid. 366
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Finally, the ability to claim a genuine and substantial interest or a genuine commercial interest as a defence to an allegation of maintenance or champerty may not be limited to actions concerning rights deriving from contracts and may extend to tort actions.372 [6.63] Liability for costs. Although a court can make a costs order against a third party maintainer,373 the fact that a maintainer is not liable for costs is not determinative of wrongful maintenance.374 Generally, a genuine commercial interest 372 See First City Corporation Ltd v Downsview Nominees [1989] 3 NZLR 710 ([1990] 3 NZLR 265, CA; [1993] 1 NZLR 513 PC). See also Roux v Australian Broadcasting Commission [1992] 2 VR 577 at 607 per Byrne J (here it was held that an employer has a legitimate commercial interest in maintaining a libel action brought by its employee on the basis that the employer, in that case, “rightly or wrongly, might see in the material complained of a threat to its own public image and effectiveness, in as much as its procedures were under criticism”; such an employer “might also see that it has a moral, if not a legal, obligation to protect its employees where they have been subjected to perceived hurt for the performance of their duties at its employees”.). Cf Monk v Australian and New Zealand Banking Group (1994) 34 NSWLR 148 at 152 (action in conversion) See further Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499; Beatty v Brashs Pty Ltd [1998] 2 VR 201; South Australian Management Corp v Sheahan (1995) 16 ACSR 45 at 57–8; National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514 at 538–9; Deloitte Touche Tohmatsu v Cridlands Pty Ltd (2003) 134 FCR 474. Despite some Australian authority suggesting that the principles of Trendtex may be applied to allow for the assignment of some types of tort action, the prior decision of the High Court in Poulton v Commonwealth (1953) 89 CLR 540 at 602 (obiter) held that such actions could not be assigned, and for the present this must remain the position. See further Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 1041 paras 43–54, and see Mutual Pools & Staff Pty Ltd v The Commonwealth of Australia (1994) 179 CLR 155 at 173 per Mason CJ. 373 Eg Gore v Justice Corporation Pty Ltd (2002) 189 ALR 712. See also Project 28 Pty Ltd v Barr [2005] NSWCA 240 para 101. 374 See Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440 at 453. See also Bell Wholesale Co Ltd v Gates Export Corp (1984) 52 ALR 176; Rajski v Computer Manufacture & Design Pty Ltd [1982] 2 NSWLR 443; Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 117 ALR 253. In addition, an assignment is not invalid merely because it would deprive the defendant of the right to apply for security for costs which it would have been able to do if the assignor had continued the action: see Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1. An application for a stay pending security for costs will usually be refused unless there is an abuse of process or a risk to the administration of justice. The usual course is to let the matter proceed and later make a costs order against the third party: see Abraham v Thompson [1997] 4 All ER 362; Hodges v State of New South Wales (1988) 77 ALR 1; Singh v Observer Ltd [1989] 2 All ER 751. If an abuse of process arises by reason of a third party maintainer not being liable for the costs of the successful defendant, this would not be cured by an order for security for costs from the nominal plaintiff: see Project 28 Pty Ltd v Barr [2005] NSWCA 240. See further as to orders for security for costs against a person who is maintained Farmer v Mosley Holdings Ltd [2001] 2 BCLC 572; Ramsey v Hartley [1977] 1 WLR 686; Condliffe v Hislop [1996] 1 All ER 431. Cf Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 142 ALR 198. See also Freehill Hollingdale & Page v Bandwill Pty Ltd [2000] WASCA 150 para 25; Bandwill Pty Ltd v Spencer-Laitt (2000) 23 WAR 390; Quach v Huntof Pty Ltd [2000] Motor Vehicle Reports 263; Clairs Keeley v Treacy (2003) 28 WAR 139 at 151 per Templeman J (see also Clairs Keeley v Treacy (2004) 29 WAR 479 and Clairs Keeley v Treacy [2005] WASCA 86); Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd (2005) 218 ALR 166. However, an assignee can be in no better position than the assignor, and if an assignor brings an action which for some reason fails, then an assignee’s action may be stayed pending payment of outstanding costs and struck out if costs are not paid: see Sinclair v British Telecommunications plc [2001] 1 WLR 38.
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will save an assignment from a claim of maintenance or champerty, there is no further requirement that there be liability for costs.375 However, if there is an inability to subject a maintainer to court procedure, this may be a relevant factor in determining whether proceedings ought to be stayed on the basis of an abuse of process. [6.64] Motivation for assignment. If an assignee does not have a sufficient interest in the suit, the fact that the assignee is acting out of good motives will not help him or her. For example, in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd,376 an insurer paid out certain claims and took an assignment of causes of action because this offered it an advantage not available under contribution legislation. Without the assignment most actions would not have been litigated due to the small amounts involved. Despite this commendable behaviour, in paying out all claims the insurer had encouraged litigation the proceeds of which would all go to itself. Therefore the transaction was tainted with maintenance and champerty. The more important issue is whether or not a questionable motive is saved by a sufficient interest. The fact that an assignment is made to an assignee for the purposes of commencing or continuing an action is not of itself sufficient to impeach the assignment on the basis of public policy.377 Such assignments often occur where the assignor does not have sufficient funds to commence or continue litigation but where the assignee does.378 Such assignments, particularly assignments for the purpose of commencing litigation, appear to be intended to stir up litigation and are not necessarily aimed at providing access to justice when the assignee is taking over and benefiting from the litigation. Presumably the assignment itself is efficacious if a sufficient interest in the assignee can be found. It has been said that it would not be proper to take an assignment of a sum, said to be owing, on terms that the assignee would pay the assignor a proportion of any amount recovered, when the parties knew that the debt was contested and that proceedings would have to be initiated to enforce the debt and the assignee intended to conduct that litigation at his own risk and expense for no other purpose than obtaining a share in the spoils.379 Such a scenario clearly raises an issue of maintenance and champerty but arguably would be negated by evidence of a sufficient interest. 375 See Tharros Shipping Co Ltd v Bias Shipping Ltd [1995] 1 Lloyd’s Rep 541 at 557. Cf McFarlane v E E Calendonia Ltd (No 2) [1995] 1 WLR 366. See also Roux v Australian Broadcasting Commission [1992] 2 VR 577; Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440 at 453. 376 (1995) 132 ALR 514. See also Martell v Consett Iron Co Ltd [1955] Ch 363; Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440. Cf Giles v Thompson [1994] 1 AC 142, discussed at [6.65]. 377 Fitzroy v Cave [1905] 2 KB 364 (assignment of debt not invalid despite being for the ulterior purpose of allowing the assignee to make the debtor bankrupt). Cf JC Scott Constructions v Mermaid Waters Tavern Pty Ltd [1984] 2 Qd R 413 . 378 Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1. 379 See Laurent v Sale & Co [1963] 1 WLR 829.
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There can be little doubt that if an assignee has a legitimate interest in a suit and the extent of the assignment corresponds with the extent of that interest then the actual motivation for the assignment will not carry much weight in determining the legitimacy of the maintenance or champerty. For example, in Re Daley; Ex parte National Australia Bank Ltd,380 the National Australia Bank had a judgment debt against the debtor and sought to take out a sequestration order for failure to comply with a bankruptcy notice. The debtor claimed he had a counterclaim, setoff or cross-demand exceeding the amount of the judgment debt. That counterclaim arose in the following manner; after judgment was obtained the debtor acquired all the issued share capital in a company which owned all the shares in another company; the debtor had introduced the latter company as a customer to the bank and had personally guaranteed its indebtedness to the bank. The debtor became a director of both companies which by the time of these proceedings had ceased trading. The companies had claims against the bank for wrongfully honouring cheques. The companies assigned to the debtor all their right, title and interest in the debts said to be owing from the Bank and the right to sue for the recovery of those debts. The consideration for the assignment was that the assignee was to fund the litigation and pay A$1.00. The assignee was to receive the benefit of any judgment given in favour of the assignor. The debtor gave an undertaking that he would cause the companies to release the Bank from payment of so much of any judgment entered against it in the proceedings as was equal to the debt he owed the Bank. He gave the court a further undertaking that the fruits of the action would be paid to the two companies, enabling the companies to pay their creditors. The Bank argued that the assignments were void as amounting to the assignment of bare causes of action. The clear purpose of the assignment was to allow the debtor to counterclaim against the Bank for a sum greater than he owed the Bank. Heerey J held that the assignments did not infringe the law of champerty and the assignee had a genuine commercial interest in the subject suit. He reasoned that the assignee was the sole beneficial shareholder of the companies and had guaranteed their liability. Commercial morality did not require the debtor to stand by and become bankrupt, with the result that the claims of the companies would not be pursued. There was no prejudice to other creditors of the companies, the companies could not pay their debts and the challenged assignments were the only way other creditors were likely to be paid.381 More fundamentally, the assignment concerned debts and the prohibition on assigning bare rights of action does not apply to debts. Nevertheless, despite the existence of what would otherwise be a legitimate interest in the suit, if the motivation for stirring up litigation is not to protect that 380
(1992) 8 ACSR 395. Cf Monk v Australian and New Zealand Banking Group (1994) 34 NSWLR
148. 381
Cf Jeffree v NCSC (1989) 15 ACLR 217.
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interest then that motivation may be taken into account and may render the assignment ineffective. For example, if a person has an interest in seeing that a contract is performed but nevertheless stirs up litigation and maintains a suit brought by the promisor under the contract not to protect that interest but rather to embarrass the other party to the suit and hopefully have that party wound up this would amount to wrongful maintenance; this would be particularly so if the funds provided to maintain the suit were repayable only if the suit was successful.382 Separately an issue of abuse of process may arise here. If the intention was to protect the maintainer’s commercial interest the method suggested may not be appropriate and it may be more acceptable to pay the promisor what he or she is owed under the contract and take an assignment of the cause of action against the promisee. Here, unless there is some threat to the administration of justice, the assignee is not necessarily stirring up litigation and is, in any case, as an assignee, amenable to court procedure.383 The issue of motivation is most likely to be raised when it appears that the assignee may make a profit from the suit. As a general statement, it may be said that if an assignee enters into an assignment for the sole purpose of making a profit from the litigation then the assignment will be set aside.384 For example, in Re Movitor Pty Ltd v Sims,385 the liquidator of a firm of chartered accountants entered into a “debt retrieval agreement” with an insurer which did not oblige the insurer to provide moneys to pursue claims, but rather permitted the liquidator to submit proposals to the insurer from time to time. The insurer had complete discretion to accept or reject a claim and, if accepted, to accept on any terms it thought fit. If the insurer decided to accept a proposal it was said to agree to provide “insurance”. The insurer did accept a proposal to provide insurance in respect of an action against the former directors of the firm. The relevant terms were that the insurer was to provide the necessary funds for the liquidator to be able to bring the action together with an indemnity against part of the costs if the action failed. In return, if the action was successful the insurer was to be both reimbursed and paid 12 per cent of the net proceeds. The insurer was also entitled to be involved in the conduct of the litigation. It was held that the insurance involved both maintenance and champerty. The insurer had no commercial interest in the litigation prior to the provision of insurance. Its sole interest was the opportunity to make a profit from supporting litigation and that interest derived from the insurance arrange382 See JC Scott Constructions v Mermaid Waters Tavern Pty Ltd [1984] 2 Qd R 413 at 429–30 per McPherson J and cf Fitzroy v Cave [1905] 2 KB 364. 383 JC Scott Constructions v Mermaid Waters Tavern Pty Ltd [1984] 2 Qd R 413 at 429 per McPherson J. 384 See Giles v Thompson [1994] 1 AC 142 and Quach v Huntof Pty Ltd [2000] Motor Vehicle Reports 263 (in both these cases hire companies did not seek merely to profit from litigation but rather made their profits from hiring out motor vehicles with the proceeds of litigation being used as one method of paying hire charges). 385 (1996) 19 ACSR 440.
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ment itself. Accepting that issues of maintenance and champerty are to be decided by taking the whole transaction into account, Drummond J said it was not legitimate to separate, for the purpose of suggesting there was an anterior interest, the “debt retrieval agreement” from the provision of “insurance” under the particular proposal. Moreover, the good motive of the insurer in providing funding to liquidators for the purpose of recovering monies that would not otherwise be recoverable was irrelevant. In addition to the above, it should be added that despite a genuine or commercial interest in the suit, if the assignee takes the assignment solely for the purpose of making or attempting to make a profit that motivation may impeach the assignment.386 However, the mere fact that an assignee may make a profit is not alone sufficient to impeach the assignment if it is backed up by a legitimate interest. That is, if an assignee with a legitimate interest takes an assignment the extent of which is commensurate with that interest and it turns out that the assignee is better off by reason of the assignment, this alone does not taint the assignment with champerty or maintenance. Thus, Sir John Megaw in Brownton Ltd v Edward Moore Inbucon Ltd 387 said:388 An agreement to assign is not champertous merely because the assignee, or the assignor, or both has as a part of his genuine commercial interest the contemplation that he will be better off as a result. If, however, “contemplation of making a profit” is confined to such situations as existed in Trendtex where the assignee’s intention was, not himself to pursue the action, but to sell the cause of action for a higher price . . . there is obvious good reason why such a transaction may be regarded as champertous. . . . [I]f there were a prospect of some excessive profit, that might properly be a factor in deciding whether the commercial interest was genuine.
In this passage there is a suggestion that it is alright for the assignee to pursue the action and make a profit so long as the purpose is not to make a profit from a further “resale” of the assigned rights. However, this profit motive must form a legitimate part of the assignee’s genuine commercial interest.389 In the same case, 386 See Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 703–4 per Lord Roskill. Lord Wilberforce left open the question whether Credit Suisse (with its accepted genuine and substantial interest) would have been required to hand over surplus funds it received upon settlement if it had not assigned the cause of action to the third party. 387 [1985] 3 All ER 499. See also South East Thames Regional Health Authority v Y J Lovell (London) Ltd (1985) 32 BLR 127. 388 [1985] 3 All ER 499 at 506. 389 Presumably the possibility of profit would form part of the commercial interest of a receivables financier: see Camdex International Ltd v Bank of Zambia [1996] 1 WLR 864. Similarly litigation funders who contract with liquidators do so for profit: see Clairs Keeley v Treacy (2003) 28 WAR 139 at 155 per Templeman J (see also Clairs Keeley v Treacy (2004) 29 WAR 479 and Clairs Keeley v Treacy [2005] WASCA 86). However, that legitimate interest will not help if there is nevertheless an abuse of process, such as where a litigation financier is given control of proceedings over that of the liquidator: see Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80; Re Oasis Merchandising Services Ltd [1998] Ch 170.
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Lloyd LJ suggested that the ultimate basis for the decision in Trendtex was that the court could not determine whether the third party had a genuine commercial interest, and not the fact that Credit Suisse or the third party could derive a profit from the assignment. If that were not the case he thought it was difficult to reason why the House of Lords would have upheld the assignment if it went no further than Credit Suisse, subject to leaving open the question whether it could maintain any profit. He emphasised that the validity of any assignment must be judged at the time of the assignment. This is why the possibility of further assignment to an unknown third party is problematic. In making this point he did note that, “it would be difficult to tell at [the time of the assignment] whether the assignment would be likely to result in a profit, and if so how great” and “even in those cases where the size of the profit could be fortold with certainty, there would arise the question, necessarily uncertain, whether the profit was out of all proportion to the interest”.390 Perhaps Lloyd LJ would regard the extent of the profit as relevant to the genuiness of the interest claimed. [6.65] Protection from claims of maintenance and champerty outside sufficient interest. As noted above, it has always been possible to defeat an allegation of maintenance or champerty by having a sufficient interest, and that is how assignments are protected. The modern doctrine of a sufficient interest was set out in the Trendtex decision. However, in Giles v Thompson,391 Lord Mustill said that the tests laid down in that case were “addressed to transactions of the kind then before the House; they are not to be understood as if they had statutory force”.392 That statement must be read in the context of an earlier statement he made to the effect that the grounds for denying recognition of an assignment of a bare right of action had “achieved an independent life”.393 He reiterated that the public policy concern remains the protection of the purity of justice and the interests of vulnerable litigants.394 The reason for controlling maintenance and champerty in giving effect to that policy is the prevention of what today amounts to intermeddling in the disputes of others without legal justification and the stirring up of litigation without legal justification.395 All aspects of the transaction must therefore be investigated to determine whether there is such intermeddling or stirring up of litigation without a sufficient interest or legal justification. In Giles v Thompson, the plaintiffs were injured in motor accidents caused by the defendants. For the purposes of having access to a car while their cars were being 390
[1985] 3 All ER 499 at 509. [1994] 1 AC 142. 392 Ibid, at 164. 393 Ibid, at 153. 394 Giles v Thompson [1994] 1 AC 142 at 164 per Lord Mustill. 395 Ibid, at 164 per Lord Mustill; see also Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440 at 445 per Drummond J. 391
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repaired, the plaintiffs hired cars from a hire company. The hire agreements provided that the hire company was to have the right to pursue the actions against the defendants in the plaintiffs’ names using solicitors of its choice. The hire charge was not payable until the outcome of the proceedings was known. If the proceedings were successful the hire charge was to be paid out of the damages. It was known in the insurance industry that if hire companies did not provide this type of transaction the number of claims for damages in respect of substitute vehicles would be quite low. In this case the hire companies funded the plaintiffs’ claims and pursued the actions, including a claim for damages in respect of the hire charges. The defendants claimed that the agreements were champertous or otherwise contrary to public policy. The court held that the agreements were not champertous. There was no “wanton and officious intermeddling” in the dispute between the motorists and the defendants. The company simply allowed the motorists to get on with the claim and awaited a favourable result. The motorists were merely required to press on with the claims, and the agreements made sure that appropriate funds reached the companies so as to discharge the hire charges; however the motorists were still under a personal obligation to pay the hire charges, and the companies were not in the position of having to look solely to the fruits of the action.396 In the result the hire companies still made their money out of hiring and not from profiting in litigation.397 There was no risk of exploiting motorists as the balance of the transaction was in favour of the motorist, as he or she was receiving professional and financial assistance to recover a valid claim that would otherwise go unsatisfied. [6.66] Maintenance and champerty and its relationship to stays for abuse of process. It was noted above that despite wide use of the principles set out in the Trendtex decision by Ausralian courts, the High Court of Australia has yet to rule on the application in Australia of those principles. Recently the New South Wales Court of Appeal in Fostif Pty Ltd v Campbells Cash & Carry Pty Ltd,398 took the view that the ultimate question when determining whether or not a stay ought to 396 Cf Rees v De Bernardy [1896] 2 Ch 437. Quaere whether the result may have been different if the assignee were to look solely to the fruits of the litigation for payment and if motorists were required to press on with the claims: see National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514. See also Fraser v Buckle [1996] 2 ILRM 34 at 38–9, approving a statement of Balyney J in McElroy v Flynn [1991] ILRM 294 (“I agree that a contract by a person to communicate information on terms of getting a share of any property that may thereby be recovered by the person to whom the information is to be given . . . is not champerty. . . . But if the arrangement come to is not merely that information shall be given, but also that the person who gives it and who is to share in what may be recovered shall himself recover the property or actively assist in the recovery of it . . . then I think the arrangement is contrary to the policy of the law and void”). See further D Capper, “A Modern Doctrine of a Champerty?-A Postscript” (1997) 113 LQR 49. 397 See also Quach v Huntof Pty Ltd [2000] Motor Vehicle Reports 263. 398 (2005) 218 ALR 166. At the time of writing special leave to appeal from this decision to the High Court of Australia has been granted but the appeal is yet to be heard. See also QPSX Ltd v Ericsson Australia Pty Ltd (No 3) (2005) 219 ALR 1.
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be granted depends on abuse of process. That is, a stay of proceedings is granted when there is an abuse of process or a tendancy to abuse process. The existence of a third party funding litigation by way of maintenance or champerty does not of itself constitute an abuse of process. In an application for a stay it is not the champertous nature of an agreement that must be considered, but whether the champertous agreement has a tendency to lead to an abuse of process.399 In an important passage Mason P said:400 In my opinion, a conclusion about abuse of process must stem from a finding directed at the actual or likely conduct of the party in whose name the litigation is brought (or its agents). The court is not concerned with balancing the interests of the funder and its clients. Indeed, it is not concerned with the arrangements, fiduciary or otherwise, between the plaintiff and the funder except so far as they have corrupted or have a tendency to corrupt the processes of the court in the particular litigation. It is only when they have that quality that the defendant has standing to complain about them. Even at common law, the aspects of public policy hostile to champerty were concerned with the interests if the opposing parties, not the party who had entered in the champertous arrangement. . . . The additional vice of champerty compared with mere maintenance lay in the attempted profiting from the assistance provided. But a profit motive is no longer the touchstone of illegality, even at common law. Many people seek profit from assisting the processes of litigation, including lawyers, expert witnesses, printers, couriers, forensic accountants. A desire to earn a “success fee” may have a tendency to corrupt processes and that tendency may be greater if the fee is higher and the activity is unregulated. But such a finding should focus clearly on the dangerous tendency, not the profit as such. . . . In general, it is simply no business of a defendant to be taking up the cudgels on behalf of the funded litigants who are either parties or represented persons, invoking interlocutory processes ostensibly on behalf of the funded litigants but in reality in its own interest. . . . Defendants may in proper cases seek security for costs and they may obtain special costs orders against funders if the proceedings fail. But they have no entitlement “to be protected from litigation where the Appellants have been indemnified by an intermeddler, against the negative effect of adverse costs orders”.
The decision in Fostif does not appear to deny that the legitimacy of an assignment of a cause of action will depend on the existence of what constitutes today a genuine commercial interest in the proceedings. What the case does deny is that a dismissal or stay of proceedings will be granted simply on the basis of the existence of maintenance or champerty. Perhaps it then follows that the efficacy of any third 399
(2005) 218 ALR 166, at 187 per Mason P. See also Domson Pty Ltd v Zhu [2005] NSWSC 1070. Ibid, at 190–90 (disagreeing with a statement made earlier in Clairs Keeley (No 2) v Treacy (2004) 29 WAR 479 at 493 viz: “It is not acceptable for the litigation to be pursued in such a way that the interests of the plaintiffs are subservient to those of the funder. That would be an abuse of process”.). See also Clairs Keeley v Treacy [2005] WASCA 86. 400
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party funded litigation is a wholly distinct issue from the efficacy of an assignment of a cause of action. In the latter, the funder and plaintiff is the assignee, who is clearly subject to court procedure; however, the legitimacy of the assignee’s interest will be dependent upon the efficacy of the assignment which itself depends on the extent of the assignee’s interest. The decision is Fostif was applied by the New South Wales Court of Appeal in Project 28 Pty Ltd v Barr.401 This case concerned a third party funding litigation which, if successful, would have allowed the plaintiff to exercise an option to purchase land from the defendant (a land developer) and then sell the land to the third party, which itself was a land developer in competition with the defendant. The third party funder had no interest in the transaction other than being a land developer and wanting the land. This was held to not to amount to a genuine commercial interest as it was not rights-based. It was based on a mere hope.402 However, that alone did not determine whether or not a stay ought to be granted, as that ultimately depended on whether or not the funding arrangement had the tendency to lead to an abuse of process. Moreover, it was held that the mere existence of an arguable genuine commercial interest did not determine whether or not a stay ought to be granted.403 The factors that are relevant in determining the existence of an abuse of process were also discussed. [6.67] Trustees in bankruptcy. The law has always given a great degree of latitude to trustees in bankruptcy and liquidators.404 Generally, they can assign a bare right of action, including an assignment, in return for a share in any net proceeds.405 It has been held that such assignments may be valid even though they are assignments to the bankrupt who will in turn be legally aided.406 The power to traffick 401
[2005] NSWCA 240. Ibid, at para 42. 403 Ibid, at para 57. 404 Norglen Ltd v Reed Rains Prudential Ltd [1997] 2 AC 1. 405 Ramsey v Hartley [1977] 1 WLR 686. See also Kitson v Hardwick (1872) LR 7 CP 473; Seear v Lawson (1880) 15 Ch D 426; Re Park Gate Waggon Works Co (1881) 17 Ch D 234; Guy v Churchill (1888) 40 Ch D 481; Ngyen: Ex parte Official Trustee in Bankruptcy (1992) 120 ALR 424; Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80; Stein v Blake [1996] AC 243; Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440; UTSA Pty Ltd v Ultra Tune Australia Pty Ltd [1997] 1 VR 667 (affirmed (1996) 21 ACSR 457); Buiscex Ltd v Panfida Foods Ltd (1998) 28 ACSR 357; Re Daniel Erat Consulting Services Pty Ltd (1999) 162 ALR 429 at 437 per Branson J; Domson Pty Ltd v Zhu [2005] NSWSC 1070. See also Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238 (assignment of the right to sue for contravention of s 52 of the Trade Practices Act 1974 (Cth): see [6.05]). Because the insolvency legislation in both Australia and England does not vest the company property in the liquidator, the company must be named as assignor, Brookfield v Davey Products Pty Ltd (1996) 14 ACLC 303; Bank of Melbourne Ltd v HPM Pty Ltd (1997) 26 ACSR 110. 406 Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1 (here an assignor liquidator who was incapable of financing the action itself assigned the cause of action to a director in return for a share in the proceeds; the director could be legally aided; without the assignment the defendant would have escaped liability; the assignment was held not to be invalid merely because the assignee was legally aided or because the defendant could not apply for security for costs against the individual assignee; even if 402
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in litigation which would otherwise be against public policy is thought to be firmly based on the existence of the statutory power of sale.407 It is thought that the exercise of that power could not involve the doing of an unlawful act or an act contrary to public policy. The policy behind this leniency is that claims of maintenance and champerty against the trustee or liquidator should be excluded so as to allow the trustee or liquidator to get on with realising the estate. A finding of maintenance or champerty would frustrate the trustee or liquidator in efficiently carrying out his or her statutory duty in the interests of creditors. The exemption allows a liquidator or trustee with no monies to spend on litigation to recoup some damages for creditors and, by distributing the risk, avoid the loss that would accrue to creditors if the liquidator or trustee alone brought proceedings and lost.408 The exception is limited to the “property” of the company or bankrupt as relevantly defined by the legislation.409 It has been held in England that this leniency or exemption does not extend to or apply to an agreement to assign the fruits of an action (as opposed to the right of action), so that the validity of such an assignment must be determined on normal grounds.410 Ultimately this should depend upon whether or not such “fruits” fall within the statutory meaning of property, and Australian cases have taken the opposite view.411
(iii) Personal Contractual Rights and Obligations [6.68] The personal rights rule. It is a rule of assignment that personal contractual rights may not be assigned without the consent of the obligor.412 This is the the liquidator improperly exercised statutory power to assign this did not affect the assignment; the fact the assignee was eligible for legal aid and the assignor was not was a relevant matter for the legal aid board). See also Stein v Blake [1996] AC 243. Cf as to whether upholding an assignment of a cause of action to a bankrupt (during the term of the bankruptcy) properly reflects the policy of the legislation: see Temsign Pty Ltd v Biscen Pty Ltd (1998) 157 ALR 83; Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352 paras 30–1. As to the limits of this power: see IF Fletcher, The Law of Insolvency (3rd edn, London, Sweet & Maxwell, 2002) para 22.062; A Keay, McPherson The Law of Company Liquidation (4th edn, Sydney, LBC, 1999) at 340. See also Freeman v Joiner (2005) 219 ALR 136. 407 Re Daniel Erat Consulting Services Pty Ltd (1999) 162 ALR 429 at 438 per Branson J. Cf Re William Felton Co Pty Ltd (1998) 28 ACSR 228; Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80; Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440; Re Oasis Merchandising Services Ltd [1998] Ch 170. See Insolvency Act 1986 (Eng) s 167 and Sch 4 and s 314 and sch 5; Bankruptcy Act 1966 (Cth) s 134; Corporations Act (2001) s 477(2). 408 Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1. 409 Insolvency Act 1986 (Eng), s 436; Corporations Act 2001 (Cth) s 9; Bankruptcy Act 1966 (Cth) s 5. See Re Oasis Merchandising Services Ltd [1998] Ch 170; Re Ayala Holdings Ltd (No 2) [1996] 1 BCLC 467. See also Re William Felton Co Pty Ltd (1998) 28 ACSR 228. 410 Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80. See also Re Oasis Merchandising Services Ltd [1998] Ch 170. 411 Re Movitor Pty Ltd v Sims (1996) 19 ACSR 440 at 450 per Drummond J; Re Tosich Construction Pty Ltd (1997) 23 ACSR 126. 412 This rule is obviously subject to statutory provisions to the contrary. Various statutory provisions exist that create exceptions to this rule. Many of these are enacted to aid in the transfer of businesses which would otherwise become extremely complicated or impossible to achieve: see [6.101].
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“personal rights” rule. In addition, a contractual obligation may not be vicariously performed if it calls for the personal performance of the obligor. Although the delegation or vicarious performance of a duty is distinct from the assignment of a right (or even the assignment of a duty), it is necessary to discuss the delegation of duties in this section for two, and perhaps three, reasons. First, the approach to determining whether a right or obligation is personal is the same, and many of the leading cases concern the delegation of duties rather than the assignment of rights. Secondly, often an assignment of a right goes hand in hand with a delegation of a duty. That is, the assignor makes it a condition of the assignment that the assignee agree to perform the assignor’s outstanding duties under the contract. The third reason is that if a party’s obligations are personal then in some cases this will impact on the nature of their rights.413 For example, where a builder’s duties are personal this impacts on its rights under the contract as it would not be possible for such a builder to convey all its property and assign its business to an assignee, and for that assignee to then enter into contracts with any sub-contractor to complete works left unfinished by the builder at the time of the assignment.414 There is a view that the personal nature of an obligation can even render a right to payment for that obligation personal if the assignor’s obligation to perform accrues after receipt of the payment.415 Usually, though, the fact that an obligation is personal will not prevent that obligor assigning the right to payment for that obligation.416 It should also be noted at the outset that, although there may be an inhibition on the assignability of a right, such as where the right is personal or where there is a prohibition on assignment, the contract to assign may still be valid. It follows that the assignor will be in breach of contract and liable in damages to the assignee for failing to assign. Moreover, the contract to assign may be given effect to as a bilateral transfer in the sense that it attaches to the fruits of the contract, requiring 413 It may also follow in some cases that if an obligation can be vicariously performed this will impact on the assignability of the obligor’s rights: see King v West Coast Grocery Co (1913) 129 P 1081. See also Williams v Nicoski [2003] WASC 131 para 53. Cf note 428. 414 Knight v Burgess (1864) 33 LJ Ch 727. See also Southway Group Ltd v Wolff (1991) 57 BLR 33 at 45 per Parker LJ. 415 Pennsylvania R Co v Huston (1936) 81 F 2d 704. The basis of this view may flow from comments made by Pollock: see the discussion in Goldschmidt & Loewenick v Diamond Fibre Co (1919) 174 NYS 800 (affirmed (1921) 130 NE 918). In any case, it is a view that has been applied in numerous decisions of the courts of the United States, particularly in the context of a sale of business where the seller/assignor will cease to exist and where the buyer/assignee is to take over all contracts and perform the obligations of the assignor; often the right is assignable but not until work is complete: see Arkansas Valley Smelting Co v Belden Mining Co (1888) 127 US 379; Delaware County Commissioners v Diebold Safe & Lock Co (1890) 133 US 473; Burck v Taylor (1894) 152 US 634; Johnson v Vickers (1909) 120 NW 837; Schlessinger v Forest Products Co (1910) 76 A 1024; Paige v Faure (1920) 127 NE 898; Paper Products Mach Co v Safepack Mills (1921) 131 NE 288; Crane Ice Cream Co v Terminal Freezing & Heating Co (1925) 128 A 280; Salmon Lake Seed Co v Frontier Trust Co (1931) 153 A 671; Folquet v Woodburn Public Schools (1934) 29 P 2d 554. See further [8.48]. 416 Crouch v Martin (1707) 2 Vern 595, 23 ER 987; Russell and Co Ltd v Fryers (1909) 25 TLR 414.
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the assignor to account to the assignee for those fruits once they are in the hands of the assignor. Generally, this will be relevant only where the obligor’s performance leaves some residuum in the hands of the assignor. [6.69] The relevance of intention. It appears to be generally accepted that, subject to a statutory provision to the contrary, the parties may inhibit the assignability of a contractual right or the delegation of a contractual duty as a matter of contractual intent.417 One way this can be done is to make the right or duty personal.418 That is, in general terms and in the case of a right, the obligor must evince an intention that he or she wishes to perform only for the other party to the contract.419 In the case of an obligation, the obligee must evince an intention that he or she requires the subject contractual obligation to be performed only by the obligor. It follows that whether a contractual right or obligation is personal or not as a matter of contractual intent is an issue of construction.420 The presumed intention as to the nature of any particular right or obligation must be derived by construing the entire contract in light of its surrounding circumstances421 and its own subject matter.422 As a general statement it may be said that a right will not be personal if, on construction, “it can make no difference to the person on whom the [corresponding] obligation lies to which of two persons he is to discharge it”.423 This is the essence of the investigation. The focus is not on whether the parties contemplate
417 Fitzroy v Cave [1905] 2 KB 364 at 368 per Collins MR; Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 673 per Collins MR ([1903] AC 414 HL); Davies v Collins [1945] 1 All ER 247 at 250 per Lord Greene MR. Cf GW Keeton and LA Sheridan Equity (3rd edn, Chichester, Barry Rose Books, 1987) at 229. 418 Express prohibitions on assignment are dealt with at [6.82]–[6.90]. 419 Lumley v Gye (1853) 2 E & B 216, 118 ER 759; Boston Ice Co v Potter (1877) 25 Am Rep 9. 420 Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 ([1902] 2 KB 660, CA); National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41; Australis Media Holdings Pty Ltd v Telstra Corp Ltd (1998) 43 NSWLR 104 at 118–9. 421 The importance of the surrounding circumstances should not be underestimated. For example, in Re Cousins (1885) 30 Ch D 203 a testator granted an option to his son to purchase a hotel; his son was already a hotel owner; in the particular town where the hotel stood it was important that a hotelkeeper have an interest in as many hotels as possible; thus the option gave the son a personal advantage which only a hotel owner could get and this evidenced the personal nature of the option, cf Jacobs v Larkin (1892) 13 NSWR (Eq) 62. 422 Shayler v Woolf [1946] 1 Ch 320 at 322 per Lord Greene MR; Davies v Collins [1945] 1 All ER 247 at 249 per Lord Greene MR; Fitzroy v Cave [1905] 2 KB 364; J Miller Ltd v Laurence and Bardsley [1966] 1 Lloyd’s Rep 90. 423 Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668–9 per Collins MR. Cf Denham Bros Ltd v W Freestone Leasing Pty Ltd [2004] 1 Qd R 500 at 517–18 per Holmes J, who after quoting this test from Tolhurst’s case asked, “what was the intention of the parties as to assignability. . . . The issue . . . is not whether the substitution of an assignee will operate adversely to the person obliged, because of the particular skills of, or the relationship of confidence he has with, the original contracting party, but whether he will, without his consent, be made worse off by the assignment”.
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assignment, but rather on whether it can reasonably be presumed that they contemplated that rights are personal.424 In this way the rule promotes assignability.425 It follows that the effect of making a right personal is to prevent the party who has the benefit of that right from transacting with the right in a way that would make the obligor account to a third party. Clearly this prevents the assignment of the right, and it does this by characterising the contractual right in its nature as a chose in action and robbing it of its characteristic of being transferable.426 It is important to note that although a contract is construed at the time of formation, it may be the intention of the parties (at the time of formation) that a right will be personal only up to a certain point in time. For example, a conditional right to performance may become unconditional and this may change its intended assignability. In addition, if the presumed intention of the parties was that the assignor’s right was made personal solely for the purpose of securing the assignor’s performance, then it may be that the right becomes assignable once the assignor performs the relevant obligation. It may also be noted that the fact that a right to performance is considered personal will not in all cases necessarily dictate that the right to sue for damages for the obligor’s failure to perform the correlative obligation will also be personal.427 Turning to obligations, an obligation will not require personal performance if, on construction, it can make no difference to the person having the corresponding right which of two persons performs it. Here the focus of the investigation is on
424 See David Jones Ltd v Lunn (1969) 91 WN(NSW) 468 at 478. If the right is not held to be personal and is assignable, intention may still be important in determining the manner of assignment. For example, on construction it may be found that it was not in the contemplation of the parties that the assignor could assign certain rights of performance and keep back others, creating a situation whereby the obligor is bound to account to both the assignor and assignee. Cf Parramatta Design & Developments Pty Ltd v Concrete Pty Ltd (2005) 219 ALR 373 (one issue before the court in this case was whether a purchaser of land could use architects’ plans which were prepared (free of charge) for the previous owner; this depended upon whether the vendor’s licence to use the drawings was assignable; the court took the view that this depended upon whether or not there was an express of implied term allowing assignment). 425 Cf LA DiMatteo, “Depersonalization of Personal Service Contracts: The Search for a Modern Approach to Assignability” (1994) 27 Akron L Rev 407. DiMatteo argues that the personal rights rule restricts assignability at a time when greater assignability is required. He argues that assignability should depend upon whether or not the assignment “materially changes” the duty to be performed. If the obligor is not adversely affected by the assignment then the assignment should be upheld, cf Frissell et ux v Nichols (1927) 114 So 431 at 434; Swarts v Narragansett Electric Lighting Co (1904) 59 A 77. In his view assignability should depend on whether the assignment should in fact be of concern to the obligor. He suggests that this is the test ultimately adopted in the Uniform Commercial Code §2.210(2). See also Restatement of Contracts 2d §317(2). 426 See [6.75], [6.91], [6.92]. 427 See Madison Pictures Inc v Chesapeake Industries Inc (1955) 147 NYS 2d 50 and compare Paper Products Mach Co v Safepack Mills (1921) 131 NE 288. See also Uniform Commercial Code §2.210(2). See further Restatement of Contracts 2d §322(2)(a).
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whether the parties contemplated personal performance, and not whether they contemplated vicarious performance.428
A. Personal Contractual Rights [6.70] Personal contractual rights and construction: Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd. Perhaps the most famous case in the law of assignment of contractual rights, and certainly the leading authority for the view that intention determines the personal or impersonal nature of a contractual right, is Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd.429 The relevant facts were that Tolhurst owned land that contained chalk quarries. He sold part of the land to the Imperial Portland Cement Company for the purpose of that company establishing a cement works on the land. The parties also entered into a contract on terms providing that Tolhurst would, for a term of 50 years or for such shorter period (not being less than 35 years) as he was possessed of chalk available and suitable and capable of being quarried, supply to the company, and the company would take and buy at least 750 tons per week, and so much more, if any, as required by the company for the whole of its manufacture of cement upon the land. Later the Imperial Portland Cement Company assigned this right to the Associated Portland Cement Manufacturers Ltd, together with a sale of the land works and business. The Imperial Cement Company went into voluntary liquidation and ceased to carry on business. Tolhurst claimed that he was no longer bound by the contract owing to the assignor’s attempted assignment and liquidation. The House of Lords held by a majority that Tolhurst was bound by the contract because the right in question was not intended to be personal to the assignor. The Earl of Halsbury LC thought that the duration of the contract, the persons involved and the nature of the contract itself led to this conclusion.430 Lord Macnaghten, with whom Lord Shand agreed, thought that it could not “make the slightest difference to anybody who the proprietors of the cement works or the actual manufacturers may be, provided they are in a position to carry out the terms of the original contract”.431 This result depended 432 “simply and solely on the true meaning and effect of the contract”, and in this regard he thought it was not right 428 If a party negotiates a term allowing it to delegate all its obligations under the contract then this indicates an intention that that party is not concerned personally to perform for the other party to the contract. see Williams v Nicoski [2003] WASC 131 para 53. However, this does not necessarily mean that the right to that performance is not personal. Although the impersonal nature of an obligation may be relevant to characterising the correlative right to that obligation, the obligor remains liable for the non-performance of the obligation and therefore the identity of the party receiving the benefit of that performance may remain important. 429 [1903] AC 414. 430 Ibid, at 416. 431 Ibid, at 417. 432 Ibid.
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to construe the contract literally, limiting it to the named parties. The factors giving rise to this interpretation were that the contract was intended to run for up to 50 years and at least for 35 years and the cement company had set up business right next to the quarry. He thought that it was the plain intention of the parties that the reference in the contract to Tolhurst and the reference in the contract to the company should be read as including the heirs, executors, administrators and assigns, owners and occupiers of the quarries and the successors and assigns, owners and occupiers of the cement works.433 Lord Lindley agreed that the rights and obligations on their face did not call for any personal confidence or personal skill, but based his ultimate decision on a construction of the entire contract. He said:434 [T]he nature of the agreement and the time it was to last negative the idea that it was confined to the parties to it. The word “assigns” does not occur in the agreement. But this does not shew that the benefit of the contract is not assignable. An agreement for a lease, and even an option to require a lease or a renewal of a lease, is assignable in equity even although there is no mention of executors, administrators, or assigns.
The result in the case was that the obligor had not contracted to supply the personal needs of the assignor; rather, on construction, he had contracted to supply the needs of any person taking over the cement works who took an assignment of the right. Thus, as a matter of intention, it made no difference to the obligor whom he supplied. The obligation to supply was limited by the extent of his quarry and the extent of any cement works that could be constructed on the relevant land.435 This meant the obligor was required to act on the orders of the assignee. This decision is often contrasted with Kemp v Baerselman.436 In that case, in return for an exclusive dealing arrangement, a farmer agreed to supply a baker with all the eggs the baker required for one year. In due course the baker sold his business to a large company and attempted to assign his rights in the contract to the company. The farmer refused to supply eggs to the company and the court upheld his action. One of the reasons for the decision was based on construction. It was thought that the existence of the exclusive dealing arrangement made the right personal. Since the baker’s duty to deal exclusively with the farmer could not be assigned, the company would take the right without being burdened by an 433 See also National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41. Cf Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker and Sons (1897) 77 LT 180 at 183, 184 per Kekewich J. See further Birmingham Breweries Ltd v Jameson (1898) 67 LJ Ch 403. 434 [1903] AC 414 at 423. Lord Robertson at 421–2, dissented on the ground that the assignment varied the obligation of the obligor: see [6.96]. 435 See CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 584. See also Matson v White (1950) 220 P (2d) 864. 436 [1906] 2 KB 604. See also Moore v Collins [1937] SASR 195; Proctor v Union Coal Co (1923) 137 NE 659; Crane Ice Cream Company v Terminal Freezing & Heating Company (1925) 128 A 280; Sargent Glass Company v Matthews Land Company (1904) 72 NE 474; Arkansas Valley Smelting Company v Belden Mining Company (1888) 127 US 379. Cf King v West Coast Grocery Company (1913) 129 P 1081; La Rue v Groezinger (1890) 24 P 42.
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important term of the bargain. This suggested that the right was itself personal. This decision shows why it is important to look not only at the contract as a whole, but at how a party’s obligations may impact upon the nature of other rights.437 Moreover, the right to supply was considered personal because, on construction, the obligation was to supply the personal needs of the assignor. [6.71] Assignability by use of definitions provisions. The assignability of the rights under the contract in Tolhurst’s case did not depend on an express or implied term that the benefit of the contract was assignable. Rather, the court interpreted the meaning of any reference to the parties in the contract and said that references to the parties included references to assigns. Many contracts deal with assignment in this way; that is, rather than having a clause stating that the benefit of the contract is assignable, the definitions provision of the contract states that a reference to the parties includes a reference to their assigns.438 Importantly, the Court did not hold that such provisions resulted in the obligor agreeing to enter into a contract with an assignee or that the obligor was agreeing to a future novation of the contract. The effect of such a provision, be it express or implied, is that contractual rights are not personal and are therefore assignable.439 However, it should be noted that, despite the presence of such a provision, if other terms of the contract are inconsistent with assignability then the subject right will be construed as not being assignable.440 Nevertheless, dealing with the issue of assignability by way of a definitions clause can have its advantages. For example, in the case of a typical all monies security which defines the “bank” to include its assigns, the bank may assign the benefit of the security to an assignee who may be intending soon after to enter into a syndicate with the bank to provide further finance to the borrower, and that finance provided by that assignee will then be secured by the security as the assignee is deemed to be the “bank” under the security.441 Ultimately, of course, the use to which such definitions can 437
See also Don King Productions Inc v Warren [2000] Ch 291 at 319 (affirmed [2000] Ch 291). See Denham Bros Ltd v W Freestone Leasing Pty Ltd [2004] 1 Qd R 500; American Smelting & Refining Co v Bunker Hill & Sullivan Mining & Concentrating Co (1918) 248 F 172. The assignability of statutory rights will often turn on whether the person benefitted by the statutory provision can be construed to include that person’s assigns: see Garrisons Pty Ltd v The Solicitors’ Trust [2004] TASSC 139. 439 Cf Calaby Pty Ltd v Ampol Pty Ltd (1990) 71 NTR 1 at 17–18 per Angel J (overruled (1991) 110 ALR 343). 440 See CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 581–2; Swarts v Narragansett Electric Lighting Co (1904) 59 A 77; Paige v Faure (1920) 127 NE 898; Montgomery v De Picot (1908) P 305. 441 Where the assignee is a security trustee, arguably the beneficiaries of that trust, despite not being parties to any agreement to assign, would also be the bank’s “assigns” because the trust is fully constituted at the time of the assignment and they take their interest in the security by virtue of the assignment to the trustee, and not merely by reference to the terms of the trust; that is, the trustee never obtains a title unencumbered by the interests of the beneficiaries: see Corin v Patton (1990) 169 CLR 540 at 579 per Deane J; Fitzroy v Cave [1905] 2 KB 364 at 373. Arguably, such beneficiaries, being assigns, are not limited to bringing action against the trustee but have direct rights against the borrower. 438
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be put will depend upon a construction of the entire security memorandum, and particularly the “secured moneys” provisions: for example, if the “all obligations” provision secures “repayment” obligations it cannot be used to secure a payment obligation. It addition, without an express provision to the contrary it is unlikely that such an assignment will secure moneys already owing to the assignee at the time of the assignment. Moreover, it will be rare for the secured creditor to be able to take assignments of unsecured debts from other creditors of the debtor and have them characterised as secured debts under the security.442 There may be other limitations to this technique. Courts have suggested that a narrow (contra proferentem) approach should be taken to the construction of “all obligations” provisions in security documents despite any lack of ambiguity. It has also been suggested that some control must be exercised over assignability when it is based solely on such definition provisions. There has also been a suggestion that in some cases such an assignment may constitute a clog on the equity of redemption.443 It may be that this technique is best suited to refinancing structures where the original mortgagee is a primary lender in the refinancing. [6.72] Inherently personal and impersonal rights. Statements can be found in cases to the effect that a right may be inherently personal or inherently impersonal.444 This arises more in the context of vicarious performance of obligations and is dealt with in more detail in the section dealing with vicarious performance.445 Generally, however, it is suggested that where a right is one that is obviously personal or impersonal, this conclusion is simply one that would represent the common intention of the parties, and therefore it is personal or impersonal by virtue of construction. Lord Lindley, in Tolhurst’s case made this point clear when he expressly based his decision on a construction of the entire contract rather than basing it solely on his determination that the particular right involved did not on its face call for personal confidence or personal skill. It follows from this that there is no rule that prevents the assignment of rights that are considered inherently personal, and a right that would otherwise be considered inherently personal may be made assignable by the parties.446 If it were held in any particular case that, despite 442 See Kova Establishment v Sasco Investments Ltd [1998] 2 BCLC 83; Re Clark’s Refrigerated Transport Pty Ltd [1982] VR 989 at 995–6. Cf Webb v National Australia Bank (1990) 5 Butterworths Property Reports 11,395. See further J O’Donovan and J Phillips, The Modern Contract of Guarantee, English Edition (London, Sweet & Maxwell, 2003) paras 5.82–5.85. 443 See Thomas v Silvia (1994) 14 ACSR 446 (and see R Burgess, “Assignment of Debt— Modification of Mortgagor’s Rights” [1996] JBL 247), where the relevant authorities are discussed. The fact that the assignor is a bank may also limit the class of potential assignees: see Argo Fund Ltd v Essar Steel Ltd [2005] 2 Lloyd’s Rep 203. 444 Eg Peters v General Accident Fire & Life Assurance Corporation Ltd [1938] 2 All ER 267 at 269, 270 per Sir Wilfred Greene MR. 445 [6.78]. 446 See Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 235; CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 581–2. See also Wilson v Commissioner of Probate Duties (Vic) (1978) 78 ATC 4278 (affirmed on other grounds [1979] VR 592).
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the intention of the parties to make a right assignable, it remained inherently personal and not assignable, the better reason for that result would be that the right is so personal that it is not capable of being a chose in action.447 [6.73] Personal rights: some relevant factors. Since the personal nature of a right is an issue of construction each case is dependant upon its own facts. Therefore there is little use comparing results in cases and that exercise can be misleading. What is more important is the proper application of principles of construction, and this is best dealt with in standard texts on contract law. However, a survey of the cases does suggest that certain factors are taken into account in determining whether a contractual right has a personal quality. It must be emphasised that these factors do overlap and are not conclusive. In all cases the primary focus must be on the operative provisions of the contract. It is suggested that the most important factors to be found in the decisions are as follows: Personal confidence attached to right (or obligation). If one party to a contract makes a contractual promise to the other party because of some personal confidence it places in that other party, then not only are the second party’s obligations likely to be personal but so too may be some of his or her rights. For example, if one party places confidence in the other party’s discretion and impartiality in determining whether the contract is being properly performed or places confidence in the other party’s co-operation in agreeing to variations of the contract, or if the contract requires a high degree of post-contract co-operation, then the second party’s rights are likely to be personal.448 A further example is the provision of credit. When a creditor promises to make a loan to a borrower it does so on the basis of its assessment of the borrower, the use to which the loan is to be put and the borrower’s ability to repay. This is a personal confidence it places in the borrower which generally makes that right to draw down on the loan a personal right.449 In the case of a contracts for the sale of goods or provision of services the identity of the purchaser is usually irrelevant to the seller. The seller’s only concern is that it be paid.450 However, if a contract for the sale of goods or for the provision of services is not a cash transaction but provides for a period of credit, this is an important factor to consider in determining the assignability of the right to
447 This issue was left open in CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 582. 448 Mallyons Ltd v The South Australian Harbours Board [1933] SASR 166; Goldschmidt & Loewenick v Diamond State Fibre Company (1919) 174 NYS 800 (affirmed (1921) 130 NE 918); Arkansas Valley Smelting Company v Belden Mining Company (1888) 127 US 379. 449 [6.75]. 450 Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414. See also Whiteley v Hill [1918] 2 KB 808 (benefit of a hire purchase agreement); J Miller Ltd v Laurence and Bardsley [1966] 1 Lloyd’s Rep 90 (benefit of contractual mooring rights).
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delivery or supply.451 For example, in Cooper v Micklefield Coal and Lime Co,452 the obligor supplied coal to the assignor (a coal merchant) on credit terms. It was held that this right to supply on credit terms was personal, as it was given to the assignor by the obligor because of the confidence the obligor placed in the debtor’s ability to repay. This confidence was based on an assessment of the debtor’s experience and ability to run the business. However, the fact that a contract allows for the provision of credit should not be thought to render the rights under a particular contract personal in all cases. If it did then rights under many supply contracts would not be assignable. Although the issue ultimately rests on the presumed intention of the parties, the provision of credit will usually assume more importance where the subject contract is in essence a credit contract, for example, a bank loan. In the case of a contract for the supply of goods on credit, the essence of that contract is that of sale and not credit so that the provision of credit, is merely a factor to be taken into account in determining the nature of any rights under that contract. It is also important to note that there is an overlap here with the rule that prohibits an assignment where the assignment would vary the obligation of the obligor. For reasons that are discussed later, this rule is concerned with legal and not merely factual variations, that is, where the assignment would have the effect of varying the obligation agreed to under the contract or the legal burden of the contract. An assignment by the borrower of its rights under a loan contract may contravene this rule because it is of the essence of that contract that the lender accept a certain level of risk that the borrower will not repay. An assignment may vary that allocation of risk. Although most contracts are concerned to some extent with allocations of risk, in the case of a credit sale contract, an assignment of the right to supply would rarely vary the allocation of risk under the contract in a legal (as opposed to a factual) sense. That risk is not the essence of the contract.453 It is also important to keep in mind that in all these cases the assignor is still liable to make the payment or repayment, as the case may be. There is no replacement of credit. It is only if the assignment would materially change the risk of the obligor receiving its performance that the right to supply will not be assignable. 451 See Arkansas Valley Smelting Co v Belden Mining Co (1888) 127 US 379; Paige v Faure (1920) 127 NE 898; Goldschmidt & Loewenick v Diamond State Fibre Company (1919) 174 NYS 800 (affirmed (1921) 130 NE 918). 452 (1912) 107 LT 457. See also Cole v Wellington Dairy Farmers Co-op Association Ltd [1917] NZLR 372; Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1019 per Viscount Simon LC. 453 It may be argued that despite being a credit sale, if the assignment in fact increases the chances of the assignor being paid, for example, if the assignment is conditional upon the assignee paying, then the obligor should have no complaint, as it will still have its action against the assignor. See FC Woodward, “Assignability of Contract” (1905) 18 Harv LR 23 at 27–31. The problem with this view is that it appears to be based on whether or not the obligor ought to have a problem with the assignment, which is not the test. The test is based on the presumed intention of the parties and is not a purely objective test but rather objective from the position of the parties.
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This is most likely to be the case where the assignor intends to cease to exist after the assignment, which often occurs in the case of the sale of a business.454 It may also be the case in a credit sale where the period of credit is long.455 Here the nonassignability of the right flows not so much from its being personal but because an assignment would vary the legal risk accepted under the contract by the obligor. A further example of personal confidence in the context of sale of goods is where the right to supply a buyer, which is the subject matter of an assignment, is based on the capacity of the assignor to supply a commodity.456 However, it may be difficult for a buyer to prove such a construction where the contract has built in protective provisions allowing for inspection and cancellation in the case of a defective supply. It should be noted that although it may appear odd to speak of a right to supply rather than an obligation to supply, that terminology is correct where a supplier is required by law to sell all its goods to a buyer such as a government body or producers’ association which is responsible for safety standards and on-sale.457 Moreover, where a buyer is obliged to purchase certain goods from a supplier the supplier can be said to have a “right” to supply which may be assignable if it is not personal to that supplier.458 Another example of personal confidence concerns insurance contracts.459 Subject to any relevant statutory provisions,460 the benefit of a contract of general insurance is thought to be personal and not assignable by the insured.461 454 However this does not affect assignability where the right assigned is a conditional benefit and where the obligor has agreed to look only to the assignee for payment: see Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414, and see [6.121]. 455 See Minnetonka Oil Co v Cleveland Vitrified Brick Co (1910) 111 P 326. 456 See CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 582. 457 See also Mallyons Ltd v The South Australian Harbours Board [1933] SASR 166 at 172 (here the appellant paid for the right to shunt trucks). 458 See Manchester Brewery Co v Coombs [1901] 2 Ch 608. 459 See further [6.95]. The assignment of policies of marine and life insurance is specifically governed by statute: see the discussion in MA Clarke, The Law of Insurance Contracts (4th edn, London, LLP, 2002) ch 6; KCT Sutton, Insurance Law In Australia (3rd edn, Sydney, LBC, 1999) paras 2.129, 2.130. 460 Eg Insurance Act 1902 (NSW) ss 14–16. Statutory provisions exist that allow third parties to take the benefit of an insurance policy in certain situations although the mechanism by which this is achieved varies, eg Insurance Contracts Act 1984 (Cth) s 50 and see the discussion in GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 666–9. See also Insurance Contracts Act (Cth) s48; Third Parties (Rights Against Insurers) Act 1930 (Eng); and see Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363; Re OT Computers Ltd [2004] Ch 317; Centre Reinsurance International Co v Freakley [2005] 2 All ER (Comm) 65. See further Contracts (Rights of Third Parties) Act 1999 (Eng). See generally MA Clarke, The Law of Insurance Contracts (4th edn, London, LLP, 2002) ch 5; N Legh-Jones, J Birds and D Owen, MacGillivray on Insurance Law (10th edn, London, Sweet & Maxwell, 2003) paras 20.1–20.16. 461 Peters v General Accident Fire & Life Assurance Corp Ltd [1937] 4 All ER 628; [1938] 2 All ER 267, CA. See also Minucoe v The London and Liverpool and Globe Insurance Co Ltd (1925) 36 CLR 513 at 524; Royal Insurance Co Ltd v Mylius (1926) 38 CLR 477; Bank of New South Wales v Northern British and Mercantile Insurance Co (1882) 3 NSWR (L) 60; Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199.
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That is, it is not possible to assign the right to the indemnity. This in part is because the insurer’s decision to offer insurance is based on its assessment of the level of risk posed by the insured. This is an aspect of personal confidence.462 However, if the personal nature of such a policy is solely based on risk it may be possible to assign the contractual right to the indemnity if to do so will not change that level of risk.463 Where that is possible the assignee becomes the insured. This may occur where the assessed risk relates more to the nature of the property than any assessment of the insured. Therefore, it is more likely that a policy of home insurance would be assignable than a policy of car insurance.464 The distinction being drawn here is between “the level of risk” on the one hand and “the same risk” on the other. However, although the decision to insure may be made by reference to the level of risk posed, ultimately what is promised by the insurer is an indemnity for the loss of the insured, and this also renders the insurance contract personal. It follows that any “transfer” of the right to the indemnity is usually achieved by novation.465 Any true assignment is usually limited to an assignment of the right to recover for the loss suffered or which may be suffered by the assignor. That is, an assignment of the right to any proceeds under the policy.466 This may be done to reinforce the position of a secured creditor.467 Since the contract is one of indemnity, such an assignment is an assignment of a cause of action, namely a right of damages for a breach of contract; those damages secure performance and therefore, in a secondary sense, may be viewed as the fruits of the contract. Moreover, although not constituting a right of performance, damages do secure performance and the assignment of the right to damages is, in a sense, an assignment of the benefit of the contract and this shows that the contract is not personal for all purposes; it is personal to the extent that an assignee cannot become the insured. If the assignment of the right to the proceeds was no more than an assignment of a debt, then the assignee could not commence proceedings to determine whether a sum was payable 462 New York Underwriters Insurance Company v Central Union Bank of South Carolina (1933) 65 F 2d 738. Like credit contracts such contracts may also not be assigned, because to allow for such an assignment would breach the rule that prohibits variations of the obligor’s obligation: see [6.95]. 463 See generally MA Clarke, The Law of Insurance Contracts (4th edn, London, LLP, 2002) para 6–3D. See also Minucoe v The London and Liverpool and Globe Insurance Co Ltd (1925) 36 CLR 513 at 524 per Starke J. 464 It is possible for a vendor to take out general insurance on behalf of a purchaser if the information given to the insurer relates to the purchaser: see Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 at 210. 465 See Overall v Victoria Insurance Co Ltd [1929] Gazette Law Reports (GLR) 69 at 73. 466 Eg Aron & Co v Miall (1929) 98 LJKB 204. See also Swan & Cleland’s Growing Dock & Slipway Co v Maritime Insurance Co [1907] 1 KB 116; Peters v General Accident & Life Assurance Corp Ltd [1937] 4 All ER 628 at 633 (affirmed [1938] 2 All ER 267); Amalgamated General Finance Co Ltd v CE Golding & Co Ltd [1964] 2 Lloyd’s Rep 163 at 167 per Diplock LJ. 467 [6.12].
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under the contract. Finally, the benefit of such contracts may also be personal to the insurer. This may be the case where the continued solvency of the insurer is of concern to the insured.468 It should also be noted that if the benefit of a contractual promise can be said to be given more in respect of the subject matter of the contract than to the other party, then it is less likely that any personal confidence will attach to that right. For example, a manufacturer’s warranty is more concerned with the subject matter of the contract than the identity of the buyer. Generally, however, whether a contract involves such a level of personal confidence as to render rights under it non-assignable depends on the facts of each case. For example, a right to collect refuse from certain property may involve no personal confidence, but when that right involves the removal of refuse from a military camp in time of war the identity of personnel going on to such property becomes a matter of personal confidence.469 Reliance on the skill, taste, judgment or expertise of the other party.470 These factors may be grouped by reference to a personal right of (or personal obligation to) service. For example, a contractual right to the services of an employee is generally personal and incapable of assignment.471 An employee has a right to choose whom he or she will work for and cannot be forced to work for an employer against his or her will. That decision involves an issue of personal taste or judgement.472 If a business is sold, or if there is a corporate amalgamation, then, subject to a legislative provision to the contrary,473 employment contracts are terminated and the new owner or new company must enter into fresh contracts with the
468
See MA Clarke, The Law of Insurance Contracts (4th edn, London, LLP, 2002) para 6–3D. Bruce v Tyley (1916) 21 CLR 277. 470 This factor could also be viewed as part of personal confidence: see Cooper v Mickefield Coal and Lime Co Ltd (1912) 107 LT 457. 471 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014. See also American Colortype Co v Continental Colortype Co (1903) 188 US 104; Board of Education of the Borough of Flemington v State Board of Education (1911) 81 A 163. See further M Freedland, The Personal Employment Contract (Oxford, OUP, 2003) at 493–501. Cf Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 (here an Authority assigned workers to work with a particular employer, the workers had no say in their placement); and see Hamilton v Letherbridge (1912) 14 CLR 236. 472 In many cases the real concern of the employee is the type of work, and not necessarily the identity of the employer. However, an employee also places personal confidence in the ability of his or her chosen employer to pay wages. 473 Legislative provisions do exist to vary this position as it can be inefficient when a business is sold without any detriment to employees. For example, in England see Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981/1794), (as amended), regs 4A and 5(1). See further Wilson v St Helens Borough Council [1999] 2 AC 52, and see GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 694, 704. See also C Bourn (ed), The Transfer of Undertakings in the Public Sector (Aldershot, Ashgate, 1999); M Freedland, The Personal Employment Contract (Oxford, OUP, 2003) at 506–14. A similar result can be obtained by orders made under other pieces of legislation, eg Corporations Act 2001 (Cth) s 413, and see Royal Victorian Institute for the Blind Ltd v RBS.RVIB.VAF Ltd (2004) 206 ALR 581. 469
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employees.474 There is an overlap here with the rule preventing an assignment from varying the obligations of the obligor. If the benefit of an employment contract were assigned this would result in the obligor having to account to the new employer, and this by its very nature may result in a change to the substance of the obligations agreed upon under the contract, if the employee must now satisfy some personal requirements of the new employer and if the obligation to supply the personal needs of a third party was not incorporated into the contract of employment.475 In the case of a contract for the supply of goods, if the buyer’s obligation is not merely to pay but to inspect the goods or carry out some other obligation upon delivery, that reliance on the buyer’s skill, taste or judgement may impact on the construction of the buyer’s rights.476 Other examples of where there has been some reliance on the personal skill, taste, judgement of expertise of the other party include the rights of a publisher to the benefit of its agreement with an author, the rights of an author to the benefit of its publishing agreement477 and the benefit of a share-farming agreement where only one of the parties has farming experience and the other relies on that first party.478 Again, however, each case is dependent on its own facts. Length of time over which the contract is to run. This was one of the factors taken into account in Tolhurst’s case and there it was suggested that the contract was not personal, as it had to be expected that in a contract operating for over 50 years the parties might sell their respective businesses. However, where the length of time is not so long that it would be greater than the working life of a person, this factor would assume less importance. The linking of obligations to the personal requirements of the assignor. Contracts for the supply of goods or services may be intended to satisfy the personal needs of the other party. Such contracts are often contracts to supply “if and when” 474 Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 (this decision might have been different if the transfer had occurred by sale of shares: see at 1021 per Viscount Simon LC, at 1026, 1030 per Lord Atkin). See also Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437; Housing Guarantee Fund Ltd v Yusef [1991] 2 VR 11. Cf O’Brian (Inspector of Taxes) v Benson’s Hosiery (Holdings) Ltd [1980] AC 562. See further United States Shoe Corp v Hackett (1986) 793 F 2d 161 at 163–4 (“a merged firm ‘ceases to exist’ only in the sense that it has no separate existence. It is sometimes misleading to talk of a firm as an “it”. The corporation is just the legal identity of a complex set of contracts, and these contracts . . . are what matter. When the firm ceases to have a separate identity, the contracts live on.”). 475 See Denham v Midland Employers Mutual Assurance Ltd [1955] 2 QB 437 (although it is not possible to transfer the contractual right to the services of an employee, it may be possible under the contract of employment to require the employee to act under the instructions of a third party and therefore in a sense “transfer” the use and benefit of the employee’s services). 476 See Arkansas Valley Smelting Co v Belden Mining Co (1888) 127 US 379 and see FC Woodward, “Assignability of Contract” (1905) 18 Harv LR 23 at 28–30. 477 Stevens v Benning (1855) 6 De G M & G 223, 43 ER 1218; Hole v Bradbury (1879) 12 Ch D 886; Griffith v Tower Publishing Co Ltd [1897] 1 Ch 21. Cf Lyon v Creati (1892) 18 VLR 629. 478 Moore v Collins [1937] SASR 195.
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required.479 In such cases the buyer’s benefit of the contract will be personal.480 There is an overlap here with the personal confidence factors discussed above. For example, where a supply contract is for the personal needs of the buyer but is a long term contract, it is personal not only because it is a personal needs contract but because the seller bases its decision to enter into such a contract on the character, stability, commercial competence, creditworthiness and resources of the buyer. It will not necessarily aid the assignability of such a contract that there is a minimum or maximum weekly, monthly or annual quota, as the seller will have budgeted and planned for the expected orders of the buyer.481 The result would be different in a contract of supply where the number of goods to be delivered is fixed with no discretion in the assignor to vary this. In the case of building contracts, usually it is of no consequence whom the employer pays or whom the builder does the work for. Therefore, and subject to what is said below, rights under such contracts are generally not considered personal.482 However, if the work is dependent upon orders given by the employer (assignor) rather than by reference to any express terms of the contract, then assignment may not be possible because the builder (obligor) may have contracted on the understanding that it will comply with the orders of that particular employer.483 This will be the case only if the transaction taken as a whole evidences that the assignee and not the assignor will be issuing such instructions.484 For example, where the assignment of contractual rights occurs at the same time as a sale of the underlying property to the assignee. Again, like the other factors this factor is not conclusive. Dispute resolution. It has been suggested that it is in the nature of some contracts, particularly building contracts, that disputes will arise and therefore the builder will have intended to deal only with the particular employer it contracted with.485 It is quite true that parties may be concerned about the identity of the person they may arbitrate or litigate with, and if a contract is of such a kind that disputes are likely to occur this may suggest that rights arising under that contract are personal. However, the mere incorporation of an arbitration or dispute 479 This of course assumes that such an arrangement results in a contract and not just a standing offer: see Burton v The Great Northern Railway Co (1854) 9 Exch 507, 156 ER 216; Great Northern Railway Co v Witham (1873) 29 LT 471. 480 Cooper v Mickefield Coal and Lime Co Ltd (1912) 107 LT 457. 481 See Crane Ice Cream Company v Terminal Freezing & Heating Company (1925) 128 A 280. 482 Charlotte Thirty Ltd and Bison Ltd v Croker Ltd (1990) 24 Con LR 46 at 56. 483 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 at 77 per Staughton LJ ([1994] 1 AC 85 HL), citing Kemp v Baerselman [1906] 2 KB 604. See also Bovis International Inc v The Circle Ltd Partnership (1995) 49 Con LR 12 at 22 per Staughton LJ. Cf Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 (intention to supply the personal needs of any person taking the subject land and an assignment of the benefit of the contract); Matson v White (1950) 220 P (2d) 864 (intention to supply the owners of certain land with their personal water needs). 484 The power to issue such instructions may be seen as being as much a duty as a right. 485 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 105.
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resolution clause will not automatically suggest that there are likely to be disputes. Nor will it automatically render other contractual rights personal. In fact, depending on whether or not the right to arbitrate is construed as personal, it too is capable of assignment.486 Moreover, it is important that this factor not be taken too far. As mentioned earlier, one of the original reasons given for the view that contractual rights were personal and not assignable was the threat of debtors’ prison.487 That threat made it important for debtors to choose their creditors carefully. Any recognition by the law of the possibility of creditors assigning debts upset that decision of the debtor as the assignee might be more litigious than the assignor. The possibility of assigning a right to a person more litigious than the assignor still exists, and, although the end result may no longer be a debtors’ prison, there remains the burden of the cost of litigation. This, it could be argued, makes it imperative not only for debtors to choose and know their creditors but for all contract parties to know and choose whom they are dealing with. The weakness in this last point is that it requires people to have a choice whom they contract with for every need and want as well as access to information to achieve this. This is as false today as it was in the time of debtors’ prisons, and if this factor were taken too far it could render most contractual rights personal. [6.74] The problem with companies. Generally, a party contracts on the understanding that employees, managers or partners may resign,488 or companies may be restructured.489 However, the fact that one party to a contract is a company is no reason to assume that the personality of that party is not material.490 A person may contract with a particular company for the skill that that company is held out to have. Therefore certain obligations of that company may not be vicariously 486 Like any other contractual right, whether or not the right to arbitration is assignable depends upon the construction of the clause in light of the surrounding circumstances: see Shayler v Woolf [1946] 1 Ch 320; Rumput (Panama) SA & Belzetta Shipping Co SA v Islamic Republic of Iran Shipping Lines (The Leage) [1982] 2 Lloyd’s Rep 259). Cf Cottage Club Estates Ltd v Woodside Estates Co (Amersham) Ltd [1928] 2 KB 463 at 466 per Wright J. See further Court Line Ltd v Aktiebolaget Gøtaverken (The Halcyon the Great) [1984] 1 Lloyd’s Rep 283 at 289 per Staughton J; Montedipe SpA v JTP-RO Jugotanker (The Jordan Nicolov) [1990] 2 Lloyd’s Rep 11; Baytur SA v Finagro Holding SA [1992] 1 QB 610. 487 [2.08]. 488 See Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 at 454 per Brett LJ. See also Phillips v Alhambra Palace Co [1901] 1 QB 59. 489 See Sally Beauty Co Inc v Nexxus Products Co Inc (1986) 801 F 2d 1001 at 1009 per Posner J citing United States Corp v Hackett (1986) 793 F 2d 161 at 163–4. 490 Hence the inclusion of change of control provisions in contracts that mirror restrictive assignment provisions. Previously, the personal nature of a contract with a company may have been evidenced by reference to the powers contained in its memorandum and articles. In addition, the existence of such powers may have limited the field of potential assignees. This perhaps is not as relevant today, given the demise of the ultra vires doctrine: see further Wetherell Bros Co v United States Steel Co (1952) 200 F 2d 761.
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performed, nor certain rights assigned. For example, in Griffith v Tower Publishing Company Ltd, and Moncrieff,491 the receiver of a corporate publisher attempted to assign its rights under a certain publishing agreement to another publisher. The plaintiff argued that he entered into the publishing contract with that company because he liked the style and form in which that company published its books and he was impressed with the efficiency of the company’s manager. It was held that the rights were not assignable; they were personal to the company because of the confidence placed by the plaintiff in the corporate publisher. In short, an author may place the same type of confidence in a corporate publisher as he or she would an individual publisher, and such a company would wish to maintain its good reputation despite changes in members and officers and despite the fact that it could dismiss a manager. Such a party could act on the assumption that the company would appoint someone who would maintain the company’s reputation if the author entered into the agreement because he or she was impressed with a particular manager.492 It should be noted, though, that because a company may operate only through its officers there will usually be an implied right allowing the company to delegate duties to competent persons. However, as Griffith’s case shows, there may be cases where a person has contracted with a company because of the particular expertise of a certain officer. Where there is such a reliance, the duty cannot be performed by anyone other than that officer.493 Despite what was said above, the ability of a company to vary its management and even its ownership does present problems for persons contracting with it. For example, a company can change its ownership by a sale of shares without a sale of assets. Moreover, the management of the company may completely change for the sole purpose of changing the personality of the company and the way it operates. The management of the company may also be placed in the hands of a receiver or liquidator.494 In each of these cases, even though there has been no assignment or sub-contracting, one party to the contract has completely changed character. Here it may be legitimately argued that certain contractual rights have been dealt in a manner equivalent to an assignment and certain duties delegated. 491 [1897] 1 Ch 21. See also Stevens v Benning (1855) 6 De GM & G 223, 43 ER 1218; Hole v Bradbury (1879) 12 Ch D 886. See further Reade v Bentley (1857) 3 K & J 271, 69 ER 1110; Johnson v Raylton, Dixon & Co (1881) 7 QBD 438. 492 See further M Freedland, The Personal Employment Contract (Oxford, OUP, 2003) at 493–501. 493 Eg Southway Group Ltd v Wolff (1991) 57 BLR 33. See also Smith v Board of Education of City of Liberal (1924) 222 P 101 (this case concerned a contract with a partnership of architects; one of the two partners left the firm and was replaced; it was held that the obligations of an architect are generally personal as they require special knowledge, skill and taste and involve an element of personal confidence; here a change in the firm meant that the services of one of the architects was not available and that rendered the contract unenforceable; the Board had contracted for the skill of both the partners.). As to partnerships see also Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker and Sons (1897) 77 LT 180; Robson v Drummond (1831) 2 B & Ad 303, 109 ER 1156, The British Waggon Company and the Parkgate Waggon Company v Lea and Co (1880) 5 QBD 149. 494 Griffiths v Secretary of State for Social Services [1974] QB 468. See also Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1021 per Viscount Simon LC, at 1026, 1030 per Lord Atkin.
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[6.75] Is the “personal rights” rule misconceived? As will be seen in the next section, the notion that a personal obligation cannot be delegated makes sense, because the effect of a delegation is that a third person will carry out the relevant duty. However, arguably, an assignment of a contractual right could have one of three effects. First, the effect may be that the obligor is by virtue of the assignment required not only to perform to and for the benefit of the assignee but to follow the orders or satisfy the needs of the assignee. This type of assignment is rare; usually it is not possible by assignment to require the obligor to follow the instructions or satisfy the personal needs of the assignee. However, Tolhurst’s case is a clear example that an assignment may have this effect, and the reasons for this are discussed later.495 Secondly, the effect of an assignment of a contractual right may be that the obligor must perform to and for the benefit of the assignee, but is required to perform only the obligation it promised the assignor and only to the standard promised to the assignor. However, there is a third possibility. If under an assignment of a contractual right the assignee purchases title to a right which the assignor has against the obligor, and if an assignment does not create privity of contract between the obligor and assignee, then arguably the effect of an assignment should be that the obligor continues to perform to the assignor but for the assignee; the performance is for the assignee as it is the assignee who owns the benefit of the right to performance and it is the assignee who can sue for breach of contract if the obligor fails to perform to the assignor.496 This is not to say that only the contingent right to damages has been assigned; the primary right to performance is now owned by the assignee, but that performance obligation remains an obligation to be performed to the assignor. Arguably any other result would change the promise made by the obligor to the assignor in breach of the principle of transfer. That is, the promise must remain a promise to the assignor. If this is right, then the personal nature of a right becomes irrelevant because in all cases the obligor continues to perform to the assignor. For example, a right to have one’s portrait painted may be viewed as a personal right; it cannot by assignment be turned into an obligation to paint a portrait of the assignee. However, on this reasoning the right may be assigned but the obligor continues to paint a portrait of the assignor. A further point may be that even if this is not the necessary legal effect of all assignments of contractual rights, is it one that the assignor and assignee can agree to where the assignment would otherwise be ineffective as an assignment of a personal contractual right. The above possibility on its face takes no account of notice and dictates that this must be the effect of an assignment whether or not notice has been given. Clearly 495
[6.121]. This view is supported by Corbin: see AL Corbin, Corbin on Contracts (St Paul, Minn, West Publishing, 1951) iv, para 865. 496
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that is not the law. There is no doubt that upon receipt of notice the obligor can generally obtain a discharge only by accounting to the assignee and that prior to notice the obligor can obtain a discharge only by performing to the assignor.497 To give this third possibility any weight it is necessary to confine it and suggest that it is concerned only with characterising the effect of the transfer to the assignee which is an aspect of the assignor/assignee relationship, and it is not concerned with the effects of the overriding relationship between the assignee and obligor which, although arising at the time of the assignment, binds the conscience of the obligor only upon receipt of notice of the assignment. At a practical level then, this third possibility is concerned only with equitable assignments and suggests that in the case of an assigned contractual right no part of the obligor’s duty to account to the assignee can be based on the transfer of the right. If that sets the proper parameters of this third possibility and if this third possibility is correct, it would put not only the “personal rights” rule in jeopardy but arguably the entire institution of assignment of choses in action. The result would be that the accepted duty of an obligor to account to the assignee must derive from some other doctrine which is grounded on receipt of notice of the transaction between the assignor and assignee. Very often in commercial assignments, the assignment is given because the assignor is going to cease to exist or cease to be interested in the contract. For example, in the case of building contracts, an assignment of the rights under such a contract by the owner of the relevant property is usually made where, at the same time as the assignment, the owner/assignor sells the land to the assignee. In that case, it would be nonsense to suggest that the obligor must still perform to the assignor and that the assignee, in owning that right to performance, would then be getting the benefit of that performance. Moreover, at a doctrinal level, it is suggested that this result need not and cannot follow. The fact that an assignee, when taking an assignment of a contractual right, buys title to a right to a duty owed by the obligor to the assignor does not lead to the result that the assignee can expect the obligor to perform only to the assignor.498 In fact, rather than this result being dictated by the principle of transfer, it is totally at odds with it. That is, to say that the obligor must continue to perform to the assignor gives no effect whatsoever to the actual transfer of the right to performance.499 Therefore, not only must the obligor perform to and for the assignee directly, this result cannot be drafted around by the assignee and assignor in an attempt to circumvent the personal rights rule.500 Unlike contracts for the sale of goods where it is possible to transfer 497
[8.06]. That characterisation may be relevant in determining the value of the right vested in the assignee and the standard of performance the assignee can expect: [8.08]–[8.12]. 499 [3.10]. 500 To achieve this effect the assignor would have to assign only the contingent right to damages. As to that possibility see [6.50]–[6.53]. 498
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title and leave the seller in possession, it is not possible to do this in the case of a contractual right because it is not possible to have a “transfer of title to the right” without an actual transfer of the right itself. However, as noted, an equivalent result can be achieved if the obligor is not given notice of the assignment or is required by the assignee to perform to the assignor. Here, the obligor will obtain a good discharge by continuing to perform to the assignor. However, this results from the need to bind the conscience of the obligor before the assignee can expect a personal accounting. This does not deny that prior to that notice the obligation is still owed to the assignee by virtue of the transfer and that that transfer can take place only if it does not involve a personal right. Despite the above, if one adopted the view that the personal rights rule was not so much a rule about rights but rather obligations, then this third possible effect of an assignment may be correct, at least where the transaction involves a right correlative to a personal obligation. That is, if one takes the view that party intention only characterises the obligation as personal are not the right to the perforamace of that obligation then that correlative right to performance remains assignable. This view has been put forward to explain the effect of clauses prohibiting assignments and is dealt with in that context later.501 If correct, then a right that is correlative to a personal obligation remains assignable, with the result that the obligor continues to perform to the assignor, and the rules on receipt of notice of an assignment do not change this position because those rules cannot change the nature of the assigned right. It is sufficient to note here that the personal rights rule has always been understood as a rule concerning the characterisation of contractual rights. The fact that the process of determining the nature of rights is one that focuses on the intention of the obligor when agreeing to the obligation does not change this. It is not possible to characterise the right to an obligation without looking at the obligation. There would seem to be an underlying view behind this “personal obligations” analysis that parties may characterise obligations as a matter of intention, but if the right to that obligation is property, that is, a chose in action, the parties may not, as a matter of intention, deal with the peculiar property aspects of that right, in particular its assignability. However, it is suggested that although the attachment of the title “property” to a right will depend on legal principles and policy, when a right owes its existence to the intention of the parties, the parties can fashion its characteristics in any way they think fit. The effect of making a right personal is to make it incapable of being dealt with in a manner that would result in the obligor having to account to a third party. This clearly prevents assignment, and this is achieved by the parties evidencing an intention to rob the right of its characteristic of being transferable. Where that is the case, although the assignor can agree
501
[6.83].
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to account to an assignee for the fruits of such a contract this does not assign the benefit of the contract so as to affect the obligor.502 It is suggested that the weight of Anglo-Australian authority is that a personal right may not be assigned. However, one case that may provide some indirect support for the above argument is the decision of Chitty J in Western Wagon and Property Co v West.503 This case concerned the assignment of rights by a borrower under a loan contract. Despite notice of the assignment being given to the lender, when the assignee made a call under the loan agreement the lender made the advance to the borrower. The assignee brought an action against the lender/ obligor for the amount of the advance or alternatively damages for breach of contract. The assignee’s action failed, and this can be correct only if the assignment was not effective; otherwise, it would appear that the obligor could continue to perform to the assignor. It is accepted law that an agreement for a loan does not create a debt, and therefore any attempt immediately to assign a debt will fail.504 However, there is a contract in existence and if the right to performance is considered assignable (which was not really questioned by the court), then the only right that could possibly be assigned is the right to make a call for an advance. If that is the case, it appears incorrect to suggest that the lender can continue to conform to the demands of the assignor. Chitty J’s reasoning for rejecting the efficacy of the assignment is not convincing. First, he focused on the point that equity would not compel a lender/obligor to make an advance and would leave the parties to their contract law remedy, that being damages for breach of contract.505 Thus, at no point could the assignee compel the lender to pay the assignee. He recognised that it was important not to base assignment on the availability of specific performance, and on one view he does not do this because under the remedial model for equitable assignments, when an assignment is upheld by reason of the protection equity will afford, that generally relates to remedies the assignee has against the assignor. However, on another view, Chitty J does appear to base the efficacy of the assignment on the availability of specific performance. Many contractual rights to performance are unlikely to be the subject matter of an order for specific performance due to the adequacy of damages, but this does not mean they are not assignable (at law or in equity) or that the obligor need perform only to the assignor. This then was not a good reason for rejecting the assignment; the assignee should have had an action for damages for breach of contract. 502 The assignor could also agree to assign the benefit of the contract to the assignee in the sense of creating merely a bilateral relationship between them. However, because that agreement cannot bind the obligor, it achieves no more than an agreement to assign the fruits. 503 [1892] 1 Ch 271. 504 May v Lane (1894) 64 LJQB 236; Western Wagon and Property Co v West [1892] 1 Ch 271; Law v Coburn [1972] 1 WLR 1238. 505 [1892] 1 Ch 271 at 275. Similarly, a lender cannot obtain specific performance of a contract to borrow: Rogers v Challis (1859) 27 Beav 175, 54 ER 68.
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Chitty J’s second line of reasoning was that the contract was not to lend out of a particular fund, and so no money in the hands of the lender was ever owned by the assignee or assignor prior to the lender parting with it.506 This reasoning appears to be based on the requirement that the subject matter of an assignment must be identifiable and the assignment failed sufficiently to identify the property. However, as Chitty J notes, this was not an assignment of a right to a fund but an assignment of a right to some contractual performance. If the assignment failed on this ground then it is difficult to see how any assignment of a contractual right to performance could be upheld. This reasoning cannot therefore be sustained. It is not clear why Chitty J did not reach his desired result by the much easier route of holding that all the rights of the borrower under the loan agreement were personal and not assignable, as they were granted by the lender because of the confidence it placed in the borrower’s ability to repay and in the probability of the obligor repaying. That probability is reduced if the right to performance is vested in an assignee while the unassignable duty to repay stays with the assignor. This, of course, is distinguishable from where a borrower gives a lender a direction to pay. This may occur where the loan is for the purpose of purchasing goods or land. In fact, where the lender intends to take security over the subject property it will usually insist on paying the money directly to the owner/vendor of the property. It may be that Chitty J’s reference to specific performance was aimed at this point; that is, he may have reasoned that the contract was too personal to be the subject of an order for specific performance and therefore the rights under the contract were too personal for assignment. [6.76] Limited class of assignees. It is possible that a right may be assigned to only a limited class of assignees.507 For example, in Tolhurst’s case the right to the supply of chalk, although being a distinct chose in action and not a mere abstract right,508 could not be assigned separate from those to the land and cement works.509 Usually it is also not possible to assign the benefit of what would otherwise be an assignable contract to a competitor of the obligor.510 506
[1892] 1 Ch 271 at 276. Outside dealings with choses in action and contractual rights, in assessing the efficacy of such a limitation one would have to consider the applicability of the restraints on alienation doctrine: see Re MacLeay (1875) LR 20 Eq 186; Re Rosher (1884) 26 Ch D 801; Re Brown [1954] 1 Ch 39. 508 [6.70]. See also [6.10], [6.20] (abstract rights). This point is distinguishable from that of abstract rights, such as the right to the income from ownership of land which is not at all transferable but which nevertheless follows a sale of the land. 509 Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 423 per Lord Lindley. See also CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 584. See further Doe v Reid (1830) 10 B & C 849, 109 ER 664; Clegg v Hands (1889) 44 Ch D 503 at 520 (see also Caerns Motor Services Ltd v Texaco Ltd [1995] 1 All ER 247); White v Southern Hotel Co [1897] 1 Ch 767; Birmingham Breweries Ltd v Jameson (1898) 67 LJ Ch 403; Manchester Brewery Co v Coombs [1901] 2 Ch 608. 510 See Mallyons Ltd v The South Australian Harbours Board [1933] SASR 166 at 174 per Angas Parsons J. See also [6.80]. 507
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A further example of a limited class of assignees concerns the assignment of guarantees. For an assignee to obtain the benefit of a guarantee it is necessary to assign both the principal contract and guarantee.511 Contracts of general insurance are another example. Where there is a legal requirement that the insured have an insurable interest, if the benefit of the contract is assignable then, at least in the case of a legal assignment,512 it will be necessary for the assignee to have an interest in the property insured.513 If the interest the assignee relies upon for its insurable interest is the interest vested in the assignor, then the transfer of that interest must occur at the same time as the assignment. If the interest in the property vests in the assignee prior to the assignment, and the assignor is left without an insurable interest, then the policy will lapse.514 Where the assignment is merely as assignment of the right to the proceeds of the insurance policy, no such interest is required. Finally, although the limited class in the above examples flows from the nature of the subject matter of assignment, if it is possible to have an express prohibition on assignment then it must be possible expressly to limit the class of potential assignees. However, once that class is identified, it is doubtful whether the obligor 511
[6.100]. MA Clarke, The Law of Insurance Contracts (4th edn, London, LLP, 2002) para 6–4E. 513 In Australia the insured under a contract of general insurance is not required to have an insurable interest. The right of recovery is dependent upon the insured suffering a loss: see Insurance Contracts Act 1984 (Cth) ss16 and 17: see also s18. In those rare cases where it is possible to assign the right to the benefit of the indemnity, arguably the assignee is not under this regime required to hold an insurable interest but recovery is still dependent upon the assignee suffering a loss being a loss which is indemnified under the policy: see further Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170 at 180–1. Although the provisions which relax the need for an insurable interest or an interest in law or in equity in the subject property are stated to apply to the parties to the contract, nevertheless, because the extinction of the need for such an interest was an important factor in the reform of this area, and given that some of the reforms were designed to allow third parties to take the benefit of insurance contracts and to recognise some assignments that did not require an insurable interest in the assignee, it is doubtful whether the requirement for an insurable interest in an assignee could be introduced by resorting to a narrow construction of the provisions: see The Australian Law Reform Commission, Insurance Contracts (Rpt No 20) (Canberra, Aust Government Printers, 1982) paras 130, 144. See further [8.13], [8.25]. 514 The policy would not lapse if the insured retained an interest such as an equity of redemption: see Rayner v Preston (1881) 18 Ch D 1. See also Thomas v National Farmer’s Union Mutual Insurance Society Ltd [1961] 1 WLR 386. As regards the effect of involuntary assignments or assignments by operation of law, such as to a trustee in bankruptcy: see N Legh-Jones, J Birds and David Owen, MacGillivray on Insurance Law (10th edn, London, Sweet & Maxwell, 2003) paras 20.12–20.14. Legislative provisions governing marine insurance require the assignor to assign the entire beneficial interest in the policy, and it has been held that if the assignment takes place before the loss has been incurred then the whole beneficial interest in the policy will not have been assigned if the assignor retains any insurable interest is the subject matter insured: see Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81 at 105 per Slesser LJ; Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825 at 851–2 per Mance LJ. It would appear that if the general legislative regime for the assignment of legal choses in action is used instead of these specialist provisions (and its use is not abrogated by these specialist provisions) then its requirement for an “absolute” assignment will also require the insured to transfer its entire interest in the insured property: see Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825 at 855–6 per Mance LJ. 512
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can complain that a particular member of that class is distasteful to him or her so as to prevent an assignment to that person. Such distinctions may arise where A terminates a contract with B for a repudiation by B and enters into a contract with C only to find that C, has assigned the benefit of the contract to B.515
B. Personal Obligations [6.77] Personal obligations and construction. Generally, a party to a contract has a right to have the obligations and benefits it bargained for performed or rendered by the other party.516 However, in many cases the promise given by the promisor is to ensure that a certain performance is tendered. Here the obligation to perform is not personal and it may be vicarious performed. As with contractual rights, whether or not an obligation is personal must be deduced from construing the entire contract in light of its surrounding circumstances. It is not sufficient for a party to have a mere expectation of personal performance. It is necessary that the obligation personally to perform flows from the terms of the contract.517 The relevance of construction was made clear by Lord Greene MR in Davies v Collins 518 where he said:519 Whether or not in any given contract performance can properly be carried out by the employment of a sub-contractor must depend on the proper inference to be drawn from the contract itself, the subject-matter of it, and other material surrounding circumstances.
That case concerned a contract for the cleaning and repair of a garment. It was held that the presumed intention of the parties was that no part of the cleaning and repair service could be vicariously performed, although tasks such as delivery could be.520 This result did not flow simply from a construction of the obligation but from a construction of the entire contract. In particular, much weight was placed on the construction of a limitation clause in the contract. The existence of that clause increased the risk to the customer and evidenced the personal nature of the obligation.521 515 See FC Woodward, “Assignability of Contract” (1905) 18 Harv LR 23 at 26–7. See also La Rue v Groezinger (1890) 24 P 42; Boston Ice Company v Potter (1877) 25 Am Rep 9. 516 Humble v Hunter (1848) 12 QB 310 at 317, 115 ER 885 at 887 per Lord Denman CJ; Boston Ice Co v Potter (1877) 25 Am Rep 9. 517 See E Brown Pty Ltd v Florence [1966] SASR 214. 518 [1945] 1 All ER 247. 519 Ibid, at 250. See also Dr Jaeger’s Sanitary Woollen System Company Ltd v Walker & Sons (1897) 77 LT 180 at 186 per Lindley LJ; Fitzroy v Cave [1905] 2 KB 364; Shayler v Woolf [1946] 1 Ch 320 at 322 per Lord Greene MR; Edwards v Newland & Co [1950] 2 KB 534 at 538 per Somervell LJ; J Miller Ltd v Laurence and Bardsley [1966] 1 Lloyd’s Rep 90; Southway Group Ltd v Wolff (1991) 57 BLR 33 at 48 per Parker LJ, at 52 per Nourse LJ, at 53 per Bingham LJ. 520 In Edwards v Newland & Co [1950] 2 KB 534 at 540, Tucker LJ suggested that where there is express or implied authority for a bailee to part with possession, the contract ceases to be one of pure bailment. 521 [1945] 1 All ER 247 at 250 per Lord Greene MR.
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Once an obligation is found to be personal it cannot be vicariously performed by a sub-contractor even if that sub-contractor is more talented than the contractor.522 This is perhaps an obvious point when it comes to artistic obligations, but it is applied elsewhere too. For example, in Johnson v Raylton, Dixon & Co,523 it was held that if a manufacturer is retained to produce certain goods, it is generally not sufficient to supply goods of equal or better quality from another manufacturer.524 Such a conclusion may be rebutted by evidence that in the particular trade and in respect of the particular goods there is a practice that manufacturers are at liberty to supply goods of the kind ordered made by other manufacturers.525 Strong evidence of custom or trade would be required to allow a manufacturer to supply goods from another manufacturer when the first manufacturer was a manufacturer only and not a dealer in those goods. In such circumstances it is generally assumed that the purchaser contracted with the particular manufacturer “in reliance on the general excellence of the work of the [manufacturer], and is entitled in the absence of any express stipulation to the contrary, to have, in performance of the contract, goods of the manufacturer’s own make”.526 However, even in such cases it is usually not necessary for every part of a manufactured item to be made by the manufacturer. It is in the nature of manufacture that materials for producing the manufactured item come from elsewhere. Those materials are not the subject matter of the contract; it is the finished product that is the subject matter of the contract.527 [6.78] Inherently personal obligations. Despite the nature of an obligation being generally dependant upon construction, courts have taken the view that some obligations, such as the obligation to write a book, are inherently personal. Here the focus of the court is on the subject matter of the contract.528 For example, in 522 The British Waggon Co and the Parkgate Waggon Co v Lea & Co (1880) 5 QBD 149 at 153 per Cockburn CJ. 523 (1881) 7 QBD 438 at 444 per Cotton LJ at 452–3 per Brett LJ. 524 Cf (at 447) the powerful remarks of Bramwell LJ, who thought the proposition that goods had to be made by the contracted manufacturer was applicable if the goods were of a peculiar make or if the brand or name is known in the market. However, he did not think it applied to articles not so situated in the market, “articles of which one maker’s make is as good as another’s, and which have no special repute or name or other distinction”. In such circumstances he thought it a matter of indifference to the buyer what goods it was ultimately given. He thought this was a pure question of law and considered arguments such as the possibility of lower prices if the manufacturer of such goods could perform any given contract by using substitute goods especially in times of low production. 525 Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 at 444 per Cotton LJ. 526 Ibid, at 445–6 per Cotton LJ, at 454 per Brett LJ (who described the result on the basis of an implied term). See also New England Cabinet Works v Morris (1917) 115 NE 315. 527 Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 at 454–5 per Brett LJ. 528 This is not unique in contract law. Terms implied in law are implied by reference to the nature of the contract and not the intention of the parties. The onus then falls on the party claiming that the term should not be implied. Even the distinction between offers and invitations to treat can sometimes be based on the nature of the transaction rather than on intention. For example, it is generally presumed that an advertisement to hold an auction amounts to an invitation to treat with the subsequent bids being the offers.
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Edwards v Newland & Co,529 it was held that it was in the nature of a bailment by way of “hire of custody” (that is, a bailment for storage) that it be personally performed. Somervell LJ stated,530 “it may also be said that the class of case with which we are dealing, namely, the storage of furniture, does come within the principle . . . namely, that there is a type of contract in which the personal care of the other contracting party is the essence of the contract”. Denning LJ said531 that the result depends on the circumstances as many bailments allow for sub-bailment.532 However he thought that in the case of a contract to store furniture, “the personal skill and care of the contractor is of the essence of the contract”. As can be seen from the above quotations, in such cases it is usually said that personal performance is the “essence” of the contract.533 It has also been said that the type of obligation which falls into this category is where there is a clear reliance on some personal quality of the other party, such as personal skill, taste or judgement.534 It is not clear that this search for such personal qualities is necessarily in line with the presumptive “essence” approach as these factors are also important in determining the intention of the parties. In any case, where the presumption applies, the onus must fall on the person claiming otherwise to show that the presumed intention of the parties was that the obligation was not personal.535 Arguably, there is no need to adopt a presumptive approach. Moreover, if the presumptive approach is dropped, this does not mean that previous cases will not be relevant. There is a difference between applying a presumption based on the nature of the contract and applying precedent to identify a factor taken into account in characterising an obligation as a matter of construction. The latter approach is often used in contract; for example, many contractual terms are now held to be conditions or warranties or intermediate terms by reference to precedent. However, ultimately each contract should be looked at on its own facts. In the case of a contract to write a book, although generally it may be expected that the publisher requires the author to write it, it may be that the publisher is more concerned about having the book written than with who writes it. In some cases, the publisher may want only some final say in the employment of a ghost writer 529
[1950] 2 KB 534. See also Pennsylvania R Co v Huston (1936) 81 F 2d 704. [1950] 2 KB 534 at 539. 531 Ibid, at 542. 532 In many bailments for repair it will be necessary for the repairer to send certain parts off to specialists repairers or restorers. In such cases the bailment is not personal. In Edwards (at 542) Denning LJ gave the example of a bailment for carriage which may allow for sub-bailment for part of the journey. 533 Eg Fratelli Sorrentino v Buerger [1915] 1 KB 307 at 314 per Atkin J (affirmed [1915] 3 KB 367); Edwards v Newland & Co [1950] 2 KB 534 at 539 per Somervell LJ; The British Waggon Co & The Parkgate Waggon Co v Lea & Co (1880) 5 QBD 149 at 153 per Cockburn CJ. See also Walker Electric Company v New York Shipbuilding Company (1917) 241 F 569. 534 Fratelli Sorrentino v Buerger [1915] 1 KB 307 at 313 per Atkin J (affirmed [1915] 3 KB 367). 535 Edwards v Newland & Co [1950] 2 KB 534 at 539 per Somervell LJ; see also Tucker LJ at 540 and Denning LJ at 542. 530
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for an autobiography or novel by a sports star, model or pop star. In other cases the subject matter or nature of the book may dictate that it need not be written or put together by the hired author.536 To take the view that a contract is of a particular type is perhaps to take a too simplistic view of the range and complexity of contracts. There would be very few obligations to which courts would be comfortable in applying such a presumption. Courts are more likely to prefer to base a decision on intention.537 In addition, characterising the type or subject matter of a contract is itself an exercise in construction.538 The better view may be that the “inherently personal” presumptive approach should be subsumed into construction, so that it means no more than that certain obligations may be so obviously personal that the common or presumed intention of the parties must be that the obligations cannot be vicariously performed.539 Thus, where a person is hired to carry a cargo which is of a type that “every gang of lorry thieves, and every lorry thief, will strive with every nerve to steal”, the conclusion that the nature of the load renders the obligation personal is no more than a conclusion as to the presumed intention of the parties.540 [6.79] Personal obligations: some relevant factors. Where an obligation is not inherently personal, the onus of proving that it is personal lies with the party so claiming.541 The determination of this question is a matter of construction. As in the case of personal rights, it is possible to identify a number of factors taken into account by the courts when carrying out this construction exercise. Nevertheless these factors are not conclusive or exhaustive, and merely represent the most often recurring factors in the cases. In addition, the following list of factors is not limited to cases concerned with “not inherently” personal obligations and is also drawn from cases which were concerned with inherently personal obligations because, despite those cases supposedly characterising the subject matter of the contract, many of them provided the clearest statement of the relevant factors. In 536 See Lyon v Creati (1892) 18 VLR 629. See also Browne & Company v John P Sharkey Company (1911) 115 P 156. 537 Swarts v Narragansett Electric Lighting Co (1904) 59 A 77 at 77–8 (this case involved a contract to install electrical apparatus under the supervision of the contractor; the court held the contract was personal and could not be assigned; after giving the classic example of a contract to paint a picture the court said: “In the present matter the court is unable to say, as a matter of law, to what extent the personal service may have been important. The construction and installation of electric pumps is not a matter of such common knowledge that the court can say how far it should or should not be held to call for personal service, but apparently the contract implies it.”). See also Ashmore v Corporation of Lloyd’s (No 2) [1992] 2 Lloyd’s Rep 620 at 631 per Gatehouse J. 538 Wong Mee Wan v Kwan Kin Travel Services Ltd [1996] 1 WLR 38 at 42 per Lord Slynn of Hadley. 539 See CB Peacocke Land Co Ltd v Hamilton Milk Producers [1963] NZLR 576 at 581–2. 540 Garnham, Harris & Elton, Ltd v Alfred W Ellis (Transport) Ltd [1967] 1 WLR 940 at 946–47 Paull J. 541 Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 417 per Lord Macnaghten; National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41 at 46 per Clauson J.
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addition, it should be noted that there is a degree of overlap between the factors. The factors are: The extent to which personal confidence is attached to an obligation.542 The notion of a personal confidence is an all-encompassing factor, and many of the other factors listed here could be seen as sub-groups of this factor. However, there will be many contracts which involve a distinct type of obligation that are best characterised in terms of trust and confidence: for example, a private contract to drive school children from school.543 In addition, a seller or supplier will usually have contracted on the basis of the confidence it places in the buyer’s personal ability to pay. However, a buyer can have a third party carry out the duty to pay as it is irrelevant to the seller who actually pays.544 In the case of a credit sale, if the credit is being provided by allowing the buyer to provide a promisory note to the seller or to accept a bill of exchange, this generally cannot be delegated to an assignee of the benefit of the contract, as this would be to replace the assignor’s credit with that of the assignee. The seller agrees to give credit on the basis of the assignor’s ability to pay.545 The extent to which personal skill, taste, judgement or expertise is attached to an obligation. These factors are more likely to be evidenced in service contracts than in contracts for the supply of goods.546 For example, such personal performance is likely to attach to a person hired to paint a picture or to write a play or book or to perform at a venue.547 Similarly an obligation of personal skill would attach to the services of a lawyer or physician. However, examples are not limited to the arts or such professions: For instance, it has been held that an architect cannot sub-contract his or her responsibilities of design.548 In Mallyons Ltd v The South 542 It is possible to add to this the solvency of the performing party, as this is relevant to its ability to carry out the obligation: see Swarts v Narragunsett Electric Lighting Co (1904) 59 A 77. 543 See Foloquet v Woodburn Public School (1934) 29 P 2d 554. 544 Cooper v Micklefield Coal and Lime Co Ltd (1912) 107 LT 457 at 458 per Hamilton J. 545 There may be cases where, despite there being a credit sale, the financial responsibility of the assignor was not material in inducing the obligor to contract with the assignor. This may be the case where there is made available some real security such as a mortgage. Here, arguably the obligation to supply a negotiable instrument may be delegated: see Montgomery v De Picot (1908) 96 P 305. 546 CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 582. See also Stevenson & Sons v Maule & Co (1920) SC 335 (vicarious performance in contracts for services should be rare unless the work can only be carried out by a sub-contractor as it increases costs, delays, complexity and misunderstandings without being advantageous to the client). 547 Griffith v Tower Publishing Co [1897] 1 Ch 21; Stevens v Benning (1855) 6 De G M & G 223, 43 ER 1218; Reade v Bentley (1857) 3 K & J 271, 69 ER 1110. See also Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668 per Collins MR; Fratelli Sorrentino v Buerger [1915] 1 KB 307 at 313 per Atkin J (affirmed [1915] 3 KB 367); Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 at 444 per Cotton LJ; Southway Group Ltd v Wolff (1991) 57 BLR 33 at 52 per Bingham LJ; Don King Productions Inc v Warren [2000] Ch 291 at 319 (affirmed [2000] Ch 291). 548 Moresk Cleaners Ltd v Hicks [1966] 2 Lloyd’s Rep 338. See also Miller Construction Co v First Industrial Technology Corp (1991) 576 So 2d 748 at 751; Smith v Board of Education (1924) 222 P 101. Where part of the design involves specialist knowledge, such as that of an engineer, and the contractor independently employees such persons, the architect will not be liable for the work of that specialist even if he recommended him, unless he did not recommend a reputable consultant. In such a case, the architect
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Australian Harbours Board,549 a person was hired because of his personal skill and the confidence the other party placed in his ability to shunt trucks. However, if goods are bailed for some general repairs together with some specialist repairs and the repairer does not hold itself out as doing that specialist work, then he or she will be able to sub-contract that specialist work to a specialist.550 Moreover, in the case of a very mundane task, such as beating a carpet, it will usually be presumed that the customer is not concerned with the identity of the person carrying out the task.551 Outside these more obvious cases, decisions may differ on very similar facts. For example in Robson v Drummond,552 the defendant hired a carriage from its maker, Sharpe, for five years, rent payable yearly and in advance, on condition that the carriage be kept in repair and painted once a year by the maker. The maker retired from the business, the business was dissolved and all his interest was assigned to Robson who at all times was the other silent partner in the business. Robson offered to perform the duties previously carried out by Sharpe. The defendant refused to go on with the contract and Robson and Sharp brought an action against him. The claim was dismissed on the ground that the defendant might have been induced to enter into the contract by reason of the personal confidence he placed in Sharpe.553 The Court did not have to decide what the position would have been if the partnership had continued and the action was brought in the joint names of the partners. Littledale J said there would have been no objection to either partner suing on a contract entered into by one of them for the benefit of the firm. However, if the partnership did continue the firm would not have been able to enforce the contract if performance by the partnership was dependent
can be liable only if a problem arises with the consultant’s work that an architect of ordinary competence ought reasonably to be aware of and fails to warn its employer: see Investors in Industry Commercial Properties Ltd v South Bedfordshire District Council [1986] 1 All ER 787. 549 [1933] SASR 166. See also G H Myers & Co v Brent Cross Service Co [1934] 1 KB 46 at 55 per Parcq J. See further Standard Chautaugua System v Gift (1926) 242 P 145 at 146 (contract to select lecturers, musicians and entertainers); Corson v Lewis (1906) 109 NW 735 (contract for legal services); Deaton v Lawson (1905) 82 P 879 (contract for the services of a physician); Swarts v Narragensett Electrical Lighting Co (1904) 59 A 77 (provision of electrical services); Walker Electric Company v New York Shipbuilding Company (1917) 241 F 569 (contract for the supply of electrical parts for a battleship). 550 Edwards v Newland & Co [1950] 2 KB 534 at 542 per Denning LJ. Similar principles apply to all contracts for work and materials where the work involves further specialist work and the contractor does not have the skills to perform that work. In such cases it will be implied that the work may be vicariously performed. The customer’s consent to the sub-contracting will not necessarily extinguish the duty of the contractor to the customer for the performance of that obligation, especially if the contractor holds itself out as performing that type of work either itself or through sub-contractors: see Stewart v Reavell’s Garage [1952] 2 QB 545. In some cases the contractor’s obligation may be limited to exercising due care in choosing the sub-contractor: see above note 548. 551 See Thomas Stevenson & Sons v Robert Maule & Son [1920] SC 335. 552 (1831) 2 B & Ad 303, 109 ER 1156. See also Humble v Hunter (1848) 12 QB 310, 116 ER 885. 553 (1831) 2 B & Ad 303 at 307, 109 ER 1156 at 1158 per Lord Tenterden CJ, at 307–8, 1158 per Littledale J, at 308, 1158 per Parke J.
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upon the personal performance of the retired partner.554 Here, however, the contract was entered into in the name of one partner and the existence of the partnership was unknown to the defendant. Robson v Drummond was distinguished in The British Waggon Company and the Parkgate Waggon Company v Lea and Co.555 In that case, Parkgate Co hired out wagons to the defendant, Lea, and was under an obligation to keep the wagons in repair. The company (together with its liquidators), upon being voluntarily wound up, assigned its rights under this contract to another company, British Waggon Co, which in turn undertook to carry out the obligation to keep the wagons in repair and took possession of the repairing stations. The court held that the first company could sub-contract the duty to repair and would still be liable for any non-performance of that duty. Coburn CJ said:556 [W]e cannot suppose that in stipulating for the repair of these wagons by the company— a rough description of work which ordinary workmen conversant with the business would be perfectly able to execute—the defendants attached any importance to whether the repairs were done by the company, or by any one with whom the company might enter into a subsidiary contract to do the work. All that the hirers, the defendants, cared for in this stipulation was that the wagons should be kept in repair; it was indifferent to them by whom the repairs should be done.
The divergence in the results of these cases may suggest that the approach to characterising obligations is flawed. The only thing in Robson’s case that objectively appears capable of being a personal obligation is the duty to paint which the defendant could not complain of if Sharpe had stayed in business and had an employee carry out.557 However, as long as it is understood that the result depends 554 That is, although it may be possible for the partnership to continue to perform a contract made with the partnership as opposed to an individual partner even when a particular partner has left, there may be contracts that are entered into with the partnership solely because of the skills of a particular partner: see [6.74] and see Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker & Sons (1897) 77 LT 180. See also Phillips v Alhambra Palace Co [1901] 1 QB 59. 555 (1880) 5 QBD 149. The decision in this case was approved by Lord Lindley in Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 425 and Parker LJ in Southway Group Ltd v Wolff (1991) 57 BLR 33 at 43. See also Edwards v Newland & Co [1950] 2 KB 534 at 538 per Somervell LJ. 556 (1880) 5 QBD 149 at 153. See also Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1019 per Viscount Simon LC where he said that the point of the British Waggon case “was that the contract which the Parkgate Co had made with Lea for the repair of certain wagons did not call for the repairs being necessarily effected by the Parkgate Co itself, but could be adequately performed by the Parkgate Co arranging with British Waggon Co that the latter should execute the repairs. . . . [T]he contract of repair was duly discharged by Parkgate Co by getting the repair satisfactorily effected by a third party. In other words, the contract bound the Parkgate Co to produce a result not necessarily by its own efforts, but if it preferred by vicarious performance.” 557 See OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 45. Cf the comment of Cockburn CJ in The British Waggon Co and the Parkgate Waggon Co v Lea & Co (1880) 5 QBD 149 at 153 and that of Kekewich J at first instance in Dr Jaeger’s Sanitary Woollen & Co v Walker (1897) 77 LT 180 at 183. See also Phillips v Alhambra Palace Co [1901] 1 QB 59.
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upon construction and not simply a characterisation of the nature of the obligation, the variance in results should not be seen as troublesome.558 Moreover, there are some important differences between the cases.559 The British Waggon case involved a contract with a company, whereas Robson v Drummond involved a partnership. It is more likely that personal confidence would be found in the latter especially if it is expressed to be made with the existing partnership only.560 In addition, in Robson v Drummond the defendant did not know of the partnership or the existence of the silent partner. Finally, the decision in the British Waggon case is problematic. In that case the assignor ceased to exist, however, presumably it was still the party liable to the obligor for the non-performance of its contractual duties. What then would have happened if the contract rights had been assigned and the assignee consented vicariously to perform the assignor’s duties but failed to do so? The obligor would be left in the situation whereby rights are enforceable against him or her but the party liable to perform obligations for the obligor had ceased to exist. Except for unconditionally accrued obligations the assignee’s rights are dependent upon the continued existence of the contract and the contract may not survive the extinction of the assignor unless it vests in some legal representative of the assignor.561 If that is not the case, one answer, not available at the time of the decision, is that the assignee contractually consented to perform the duties and the obligor, being the third party beneficiary of that agreement, may enforce it. Alternatively, it would be necessary to show that this was an instance where a duty was assigned along with the right making the assignee directly liable to the obligor for the non-performance of the duties.562 In addition to service contracts, there will be sale contracts where the buyer relies on the personal skill of the vendor.563 However, often it will not matter to the buyer who supplies or delivers the goods.564 Moreover, where a contract exists and orders under that contract depend upon the personal idiosyncrasies of the buyer, that duty may not be vicariously performed as the seller has agreed to accommodate that buyer. However, the actual placing of orders according to the buyer’s wishes could be carried out by a third party.565 558 See also Schupack v McDonald’s System Inc (1978) 264 NW 2d 827 and compare Re Sunrise Restaurants (1991) 135 BR 149, [1991] Bankr Lexis 1841. 559 Interestingly in Phillips v Alhambra Palace Co [1901] 1 QB 59, the decision in Robson v Drummond was discussed without criticism whilst the decision in the British Waggon case was not mentioned. 560 Phillips v Alhambra Palace Co [1901] 1 QB 59 at 65 per Kennedy J. Cf [6.74]. 561 [8.36]. 562 [6.101]. 563 Cooper v Micklefield Coal and Lime Co Ltd (1912) 107 LT 457 at 458 per Hamilton J. See also Sally Beauty Co Inc v Nexxus Products Co Inc (1986) 801 F 2d 100. 564 Tolhurst v Associated Portland Cement Manufacturers Ltd [1903] AC 414 at 417 per Lord Macnaghten; Don King Productions Inc v Warren [2000] Ch 291 at 319 (affirmed [2000] Ch 291). 565 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 at 77 per Staughton LJ (on appeal [1994] 1 AC 85); Bovis International Inc v The Circle Ltd Partnership (1995) 49 Con LR 12 at 22 per Staughton LJ.
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The requirement of personal attendance or supervision. Personal attendance or supervision is also an important indicator and overlaps to some extent with the second mentioned factor. For example in Kollerich & Cie SA v The State Trading Corp of India,566 a seller was given an option to appoint one of two inspectors to inspect the loading and stacking of certain bags. If carried out the seller would have been absolved from liability for shortage or bursting bags. The seller appointed one of the inspectors and, although that inspector issued the relevant certificate, the actual work was performed by a third party. It was held that the seller was not absolved from liability to the buyer. On construction it was held that the inspection had to be carried out by one of the two nominated inspectors. Any other construction was nonsense. There was no point in nominating an inspector if he or she could sub-contract the work to a third party. Similarly although it may be normal practice in certain businesses to have an employee, apprentice or student carry out some or all of the work,567 this may not excuse the employer’s obligation of supervision. Reputation. Where a contractor is chosen because of some previous experience with the contractor or because of a recommendations provided by friends of the employer or because of the contractor’s public reputation, then some, if not all, of the contractor’s obligations are likely to be personal.568 Term of contract. In many large or long-term contracts, a contracting party may be concerned about changes in the way the other party performs its contracts, as that may affect it receiving the performance contracted for.569 In such a case, the obligations of the other party are likely to be personal. However, equally, in a longterm contract it may be expected that the identity of the parties may change over time, and this assignability may suggest that obligations can also be vicariously performed.570 Nature of the service or product. Where the excellence or value of the service or product depends on the input of the other party it is more likely that the obligation is intended to be personal.571 In many cases a manufacturing contract will not be with an individual, but rather a firm or company; however, when a contract is made with a firm or company having a reputation and where there is reliance on that reputation, then the purchaser can refuse goods not manufactured by that firm or company.572 This is most likely to be the case in respect of goods of 566
[1980] 2 Lloyd’s Rep 32. Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 at 444 per Cotton LJ, at 454 per Brett LJ. 568 Ibid, at 444 per Cotton LJ; Southway Group Ltd v Wolff (1991) 57 BLR 33 at 49 per Parker LJ. 569 Cooper v Micklefield Coal and Lime Co Ltd (1912) 107 LT 457 at 459 per Hamilton J. 570 Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 (where the excessive term of the contract suggested that rights and duties were not personal). 571 Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 at 444 per Cotton LJ; New England Cabinet Works v Morris (1917) 115 NE 315. 572 The reputation of the manufacturer need not be a public reputation; the buyer may rely on his or her own experience or that of friends. 567
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excellence573 and custom-made goods,574 however, because ultimately the issue is one of construction, it is not solely determined by the nature of the goods and therefore may apply to more mundane items when the nature of the service or transaction is looked at as a whole.575 For example, in Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker & Sons,576 a manufacturing firm was retained by a company to produce certain garments that would carry the company’s logo. The Court of Appeal held that the contract concerned special goods requiring the personal responsibility of all three partners of the firm. In coming to this conclusion the Court did not limit its investigation to the goods; it also investigated the financial terms of the contract which evidenced the personal nature of the obligation as the firm had a right to inspect the books of the company, and that so long as the company owed money to the firm on any debenture, the company had to accept drafts drawn by the firm on the company up to certain amounts. (7) Need for co-operation. Where the contract requires a substantial degree of post-contract co-operation and amplification of terms it is likely that duties under that contract are intended to be personal.577 This is often the case in building contracts where it is impossible to set out and define every aspect of the work at the time of contract. Therefore, overlapping with some of the above factors in helping to make those post-contract decisions an employer may place great trust and confidence in a contractor’s or developer’s reputation and experience.578 In such cases, the more discretion vested in a person the more likely it is their duty is personal.579 [6.80] Limited class of delegatees. An obligation may be delegated only to a person with the requisite skill to perform the obligation. Other factors may also be relevant in limiting the class of potential delegatees. For example, in Sally Beauty 573
Johnson v Raylton, Dixon & Co (1881) 7 QBD 438 at 444 per Cotton LJ, at 447 per Bramwell LJ. Eg Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker & Sons (1897) 77 LT 180. 575 See further on performance and manufacturers [6.77]. 576 (1897) 77 LT 180. 577 Arkansas Valley Smelting Co v Belden Mining Co (1888) 127 US 379. 578 Eg Southway Group Ltd v Wolff (1991) 57 BLR 33 (here the extent of trust and confidence placed in the developer was evidenced by the amount of details still to be determined; for example, there was at the time no determination as to the number, size and placement of windows, doors, walls or toilets; in addition the location of the stairway, lifts and entrance foyer was still to be decided; moreover the development was one part of a larger development of the surrounding area of which the developer had intimate knowledge; such knowledge was crucial to the making of decisions; thus even if delegation was possible it had to be a person who had an interest in the entire development rather than a person who was interested in carrying out the work only in a way least burdensome to him- or herself; taken together this evidenced the personal nature of these obligations even though the actual party to the contract was a company and the developer in question was a member of that company; however, to all intents and purposes he was the company). See also Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1992) 57 BLR 57 at 77 per Staughton LJ ([1994] 1 AC 85 HL); Charlotte Thirty Ltd & Bison Ltd v Croker Ltd (1990) 24 Con LR 46; Australis Media Holdings Pty Ltd v Telstra Corp Ltd (1998) 43 NSWLR 104 at 118–20; Johnson v Vickers (1909) 120 NW 837. 579 Yellow Cab of Cleveland Inc v Greater Cleveland Regional Transit Authority (1991) 595 NE 2d 508 at 511. 574
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Co Inc v Nexxus Products Co Inc,580 a manufacturer of hair care products entered into an agreement with a distributor which was later taken over by a successor. That successor was a wholly-owned subsidiary of another manufacturer of hair care products. The majority of the court did not conclude that the distributor’s obligations were personal.581 Nevertheless they concluded that there could be no delegation to such a competitor without the consent of the manufacturer. The manufacturer had contracted for the distributor’s “best efforts”, and this was its consideration for refraining from contracting with other distributors. It was thought that such a successor was unlikely to use its “best efforts”. The decision of the majority was subject to a powerful dissent from Posner J. He did not think the delegatee’s owner was a true competitor as it made hair care products for a different end of the market and sold them in different types of outlets. In addition, the delegatee distributed products for a number of other manufacturers, and it would not be in its interests to refrain from using its “best efforts” as it would soon obtain a reputation for not doing so and put its other distribution agreements in jeopardy. He cautioned against approaching such cases with a professional mind set which views the situation as one involving a conflict of interest. Such conflicts, although an impediment to professional practice, may be an accepted and legitimate part of business for commercial people. [6.81] Vicarious performance, repudiation and termination. If a contract requires personal performance then the hiring of another person to carry out that performance may amount to a breach or repudiation of the contract, and, if not, then the performance of that obligation by that third party may in some cases put it out of the power of the obligor to perform, thus giving rise to a breach or repudiation.582 In most cases, whether or not there has been a repudiation will be a matter of degree.583 In addition, it has been held that where a personal obligation rests on the partners of a firm,584 it is not possible for those partners unilaterally to terminate their obligation to perform by having one of the partners leave the firm and dissolve the partnership. In such a case, the other party is given an election to terminate the contract or to affirm it.585
580
(1986) 801 F 2d 1001. Cf Berliner Foods Corp v Pillsbury Co (1986) 633 F Supp 557. 582 The British Waggon Co and the Parkgate Waggon Co v Lea & Co (1880) 5 QBD 149 at 153 per Cockburn CJ; Edwards v Newland & Co [1950] 2 KB 534 at 537–8 per Somervell LJ. 583 Eg Fratelli Sorrentino v Buerger [1915] 1 KB 307 ([1915] 3 KB 367 CA). 584 That is, where the contract is made with the individual partners and not the firm and no provision exists in the contract for it to continue despite a change in the firm. 585 Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker & Son (1897) 77 LT 180. Upon the dissolution of a partnership there remains an obligation on the partners to perform and complete contracts that are on foot at the time of the dissolution. 581
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(iv) Contractual Provisions Dealing with Assignment [6.82] Introduction.586 As already noted, an express contractual provision may allow for the assignment of a right which otherwise may have been construed as being personal and not assignable.587 Usually, however, contractual provisions attempt to limit or prohibit assignability.588 These may be directed towards contractual rights to performance or even an equity of redemption.589 This section is concerned with the effect of such prohibitions.590 [6.83] The doctrinal operation of a prohibition on assignment. Before turning to the legitimacy and legal effect of prohibitions on assignment it is necessary to consider how such provisions may operate. That is, if one assumes that a prohibition may render any attempted assignment ineffective, how is that achieved at a doctrinal level? At present, this is a point that has not been considered in detail by the courts. In Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd,591 the Federal Court approved a statement of Untermyer J in Sacks v Neptune Meter Co,592 where he suggested that prohibitions on the assignment of contractual rights do not impeach the rule against restraints on alienation because such provisions merely condition the obligation to perform rather than the right itself.593 That is, because the contractual restraint conditions the obligation to perform it does not affect the assignability of the right. The result of this analysis would appear to be that the right may 586 For a discussion of relevant American authorities see G Grismore, “The Effect of a Restriction on Assignment in a Contract” (1933) 31 Michigan L Rev 299; G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, paras 7.7–7.9. 587 [6.72]. 588 There are various commercial reasons why a party may wish to inhibit assignability and why another party would demand assignability: see A McKnight, “Contractual Restrictions on a Creditor’s Right to Alienate Debts: Part 1” [2003] JIBL 1 at 3; WF Manning, “Assignment Clauses in Mining and Petroleum Joint Ventures” [1986] Australian Mining and Petroleum Law Association Yearbook 119; RA Epstein, “Why Restrain Alienation” (1985) 85 Columbia L Rev 970 at 982. See also G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, para 7.9. There are also legal reasons for including a prohibition on assignment, for example, to preserve a right of set-off that may not be available against an assignee. 589 Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142 at 150. 590 A contractual prohibition on assignment cannot stop the relevant property of a bankrupt vesting in the trustee in bankruptcy: see Krasner v Dennison [2001] Ch 76 at 99 per Chadwick LJ. See further G Grismore, “The Effect of a Restriction on Assignment in a Contract” (1933) 31 Michigan L Rev 299 at 311, and see Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1 and Gathercole v Smith (1880) 27 Ch D 1. 591 (1993) 113 ALR 225 at 234–7. 592 (1932) 258 NYS 254 at 262 (see below [6.85]). 593 (1993) 113 ALR 225 at 235. It may be noted that Untermyer J drew a distinction between a provision that seeks to negate the power to assign and a provision containing a promise not to assign. The latter he held gives rise only to a right to damages and does not impact upon the efficacy of the assignment. The court in Devefi (at 235) also appeared to recognise this distinction.
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continue to be assigned but the obligor has a right to elect to continue to perform to the assignor.594 A related but alternative analysis would be that despite the prohibition, the assignor can still assign title to the right even though it cannot alienate the chose itself. The possibility of making that separation was rejected earlier.595 One can see the logic in this explanation if such prohibitions merely operate at the level of contract. However, what appears to lie at the heart of this explanation is the view that it is possible to characterise a contractual right divorced from its correlative obligation, and that contract may be used to inhibit transferability as a matter of contract law but cannot change the inherent characteristics of a right of property as a matter of property.596 Thus, if a right of property has the characteristic of being inherently transferable, the parties to the contract may inhibit that as between themselves as a matter of contract, but this does not change the fact that the right has this inherent characteristic. It may be that the court in Devefi, although citing the decision of Untermyer J, was not in fact adopting this analysis because in the end it concluded that the assignment was ineffective because “there was no subject matter to which the purported assignment . . . could attach”.597 This would appear to recognise that the prohibition there robbed the subject right of its transferability In any case it is suggested that this contract explanation cannot be sustained for the following reasons. First, as to the right and its correlative obligation, it is not possible to characterise the right to some contractual obligation divorced from the obligation itself.598 The fact that the personal nature of a right depends upon the construction of the correlative obligation (taken in the context of the contract as a whole) shows that there is a relationship between the right and obligation that cannot be separated. That is, whether or not a right is personal depends upon whether the obligor intended to perform the obligation only for the benefit of the other party to the contract. This is expressly recognised by Untermyer J when, after stating that the restriction is imposed on the duty to perform, he said that the “restriction then becomes a condition of the acquisition”.599 594 See also Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd (1999) 9 Butterworths Property Reports 97801 at 17,363–17,364. It is possible to draft a prohibition that operates as a condition subsequent to an assignment giving the obligor a right to disregard it: see Re Buring and Chapman [1941] Australian Bankruptcy Cases 72. 595 [3.10], [6.75]. 596 See also Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd (1999) 9 Butterworths Property Reports 97801 at 17,363–17,364. Similar reasoning appears to lie behind Millett LJ’s comment in Hendry v Chartsearch Ltd, The Times, 16 Sept 1998, that as between the parties to it, an ordinary commercial contract is not property but obligation and therefore there is no objection to making the benefit of the contract non-assignable. Although it is true that a contractual right is only property for certain purposes, there may be an underlying belief here that individuals cannot tamper with the characteristics of something the law considers property. See further [6.75]. 597 Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 239. 598 See further [6.75]. 599 (1932) 258 NYS 254 at 262.
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Secondly, as to intention and the characterisation of rights as choses in action, although the issue whether or not a right is property is a matter to be determined by those principles and policies that determine the existence of property, it does not follow that the intention of the parties to a contract is irrelevant as regards the characteristics of that right in so far as its nature as a chose in action is concerned. When a right owes its existence to a contract between parties, it must be correct that the contract can define the characteristics of that right both in terms of contract and property. Therefore, it is not only impossible to divorce a contractual right from its correlative obligation, it is not possible to separate the transferability of that right from the correlative obligation. Hence if an obligation is personal so too is its correlative right and, if a contract contains a prohibition on assignment, it renders the subject right unassignable.600 It may be that the point Untermyer J was really getting at was no more than that although the parties to a contract may render a right incapable of transfer this does not prevent the “assignor” dealing with the subject matter of the contract once it is in the hands of the assignor, as the assignor will then be transacting in new and different rights. A further problem with the contract explanation is that it appears to suggest that the presence of a prohibition allows the assignor to transfer title to the right to performance without transferring the actual right to performance, that is, the chose or thing as distinct from the title to the chose or thing. This result cannot be achieved from the perspective of personal property because, unlike tangibles where title and possession can be vested in different people, the nature of contractual rights as choses in action does not allow a transfer of title without a transfer of the actual right to performance. Moreover, if it were possible to separate the title from the thing or chose then arguably the rule that prevents the assignment of personal rights would be misconceived.601 That is, the existence of a personal contractual right would not prevent the assignor assigning the title to that right, because in all instances he or she could argue that the obligation to perform remained an obligation to the assignor. An assignment of a contractual right involves a transfer of both the title and the thing or chose, and this is why an assignee can call for performance. In short, it is suggested that the doctrinal efficacy of a prohibition on assignment lies in the ability of the parties to a contract to mould those rights they bring into existence and rob those rights of what would otherwise be their inherent transferability. Thus, although it is no doubt correct to suggest that contract operates 600 Similarly, the better view is that a prohibition contained in a security which prohibits dealing with the secured property so as to give a third party some priority does not merely operate at the level of contract but creates an equity binding on third parties taking with notice: see R Goode, Legal Problems in Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 5.40. See further WJ Gough, Company Charges (2nd edn, London, Butterworths, 1996) ch 10. 601 [6.75].
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through promises, it arguably does not follow that any prohibition on assignment, no matter how it is drafted, must amount to a mere promise not to assign. This would no doubt be the case if a prohibition operated only as a matter of contract, but it is not the case where the prohibition is intended to characterise the chose. [6.84] Fundamental efficacy issues. In England, pursuant to the decision of the House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd,602 full effect will be given to contractual provisions prohibiting assignment. That is, any purported assignment will be ineffective. In Australia, the High Court in Broadcast Australia Pty Ltd v Minister Assisting the Minister for Natural Resources (Lands)603 referred to the analysis in Linden Gardens with apparent approval. Prior to this a majority of the High Court in Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd 604 approved the analysis of the effect of a breach of such a prohibition contained in Don King Productions Inc v Warren605 and Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd.606 Don King Productions concerned the application of certain aspects of the Linden Gardens case and the reference to it may suggest a broader acceptance of the approach adopted in Linden Gardens. The decision in Devefi was handed down prior to the decision in Linden Gardens. However, the analysis adopted by the Full Federal Court in Devefi, is in line with Linden Gardens at least to the extent of recognising the validity of such clauses. In addition, there are now a number of decisions of Australian courts that have expressly adopted the reasoning in Linden Gardens, and it is reasonably safe to conclude that until the High Court has an opportunity to look at the issue in detail the reasoning of the House of Lords will be applied by Australian courts.607 There is, however, one decision of the High Court of Australia which appears to stand in the way of adopting the approach taken by the House of Lords in Linden 602
[1994] 1 AC 85. (2004) 204 ALR 46 at 51. 604 (2000) 202 CLR 588 at 601. See further Bruce v Tyley (1916) 21 CLR 277 at 292 per Isaacs J (approval of prohibition on sub-letting a contract). 605 Don King Productions Inc v Warren [2000] Ch 291 at 319 (affirmed [2000] Ch 291). 606 (1993) 113 ALR 225 at 234–7. 607 Eg Minister for Land and Water Conservation v NTL Australia Pty Ltd [2002] NSWCA 149 paras 8, 19–22 (reversed on another point Broadcast Australia Pty Ltd v Minister Assisting the Minister for Natural Resources (Lands) (2004) 204 ALR 46); Australian Olympic Committee Inc v The Big Fights Inc [1999] FCA 1042 paras 119–20; Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd (1999) 9 Butterworths Property Reports 97801; Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396 at 415 (affirmed [2000] WASCA 85); Re Turner Corp Ltd (in liq) (1995) 17 ACSR 761 at 767; International Polymers Pty Ltd v Custom Credit Corp Ltd (1995) 8 ANZ Insurance Cases 61-234 at 76,634; Caboche v Ramsay (1993) 119 ALR 215 at 232; Modern Weighbridge and Scale Services Pty Ltd v Australian National Railways Commission (Supreme Court, Sth Australia, 6 Sept 1995 per Millhouse J). See also Vangale Pty Ltd v Kumagai Gumi Co Ltd [2002] QSC 137 paras 56–67. For earlier authorities see Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1; Specialised Transport Pty Ltd v Dominiak (1989) 16 NSWLR 657. 603
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Gardens and which requires further analysis before it can be said without question that such provisions are efficacious in Australia as a matter of law. That case is Hall v Busst,608 and in particular, the statement made by Dixon CJ to the effect that a contractual restraint on alienation can give rise only to a right to damages. In Caboche v Ramsey,609 Gummow J said that Dixon CJ’s statement was restricted to restraints involving interests in land and where “the restraint is imposed upon dealings with debts or other choses in action, or with the benefit of performance of contracts involving personal skill and confidence, further, more detailed, principles apply both as to the interpretation and efficacy of such provisions”. For this proposition he referred to the decision in Devefi and Linden Gardens. The Court in Devefi suggested that Hall v Busst represented a “distinct body of principle [dealing] with restraints upon alienation of land”.610 However, earlier Needham J in Reuthlinger v MacDonald611 said that the doctrine of restraints on alienation applied to both realty and personalty,612 and, moreover, the doctrine applied to mere contractual restraints because the majority of the High Court in Hall v Busst did not limit it to restraints that were conditions of a grant.613 Hall v Busst concerned the sale of an island. On the day the sale contract was entered into the parties entered into a separate indenture in which the grantor/purchaser agreed not to transfer, assign or lease any part of the island without the consent of the grantee/vendor.614 The indenture was executed after the sale contract. In due course, the purchaser agreed to sell the land to a third party and that third party entered into possession. The vendor brought an action for damages for breach of contract. That action failed in a majority decision of the High Court. Dixon CJ began by stating the general principle that where a restraint is made a condition of a grant it is void on the ground of repugnancy. However, to this he added the alternative ground of public policy.615 This case, however, was different because the restraint was contained in a separate contract and imposed by way of covenant. Dixon CJ posed the question whether such a restraint should 608 (1960) 104 CLR 206 at 217. Earlier in The Commissioner of Stamp Duties New South Wales v Yeend (1929) 43 CLR 235, a case concerning a stamp duty issue, the fact the contract contained a prohibition on assignment did not even get a mention by the Court. 609 (1993) 119 ALR 215 at 232. 610 Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 236. 611 [1976] 1 NSWLR 88 (affirmed Reuthlinger v MacDonald unreported, New South Wales Court of Appeal, 20 Oct 1976). 612 [1976] 1 NSWLR 88 at 97. Cf Caboche v Ramsey (1993) 119 ALR 215 at 226–8, 231–2 where Gummow J accepts that the restraints on alienation doctrine applies to both realty and personalty but distinguishes it from contractual restraints relating to debts and choses in action. 613 [1976] 1 NSWLR 88 at 99–100. See also John Nitschke Nominees Pty Ltd v Hahndorf Golf Club Inc (2004) 88 SASR 334. 614 The vendor was also given a first option of purchasing the land if the buyer requested consent. This was also held by the majority to be unenforceable on the facts. The minority (Kitto and Windeyer JJ), rather than construing the agreement to contain both a prohibition and right of pre-emption, construed it as merely granting a right of pre-emption and held it to be enforceable. 615 (1960) 104 CLR 206 at 217.
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be treated differently as there was “no fetter upon alienation which does more than sound in damages, that is, unless a doctrine of equity intervenes to make it bind the land”.616 In the result he held that the provision in question should not be treated differently because it was nevertheless aimed at securing an indefinite, unqualified prohibition on alienation without consent. It was, in short, as effective as a condition subsequent to the grant would have been.617 However, he limited the ground upon which it was invalid to that of public policy. Fullagar J agreed, but specifically said that the provision was repugnant. He did not expressly add the alternative public policy ground.618 Menzies J, the last member of the majority, agreed with the reasons given by both Dixon CJ and Fullagar J, but added that he thought the provision was as contrary to the public interest as a restraint on marriage. From the facts of the decision itself, whether or not the view is taken that Hall v Busst must be applied to personalty, it is possible to distinguish it from the prohibitions being dealt with in this section. As was pointed out by Needham J in Reuthlinger v MacDonald,619 it appears clear that in Hall v Busst the restraint was not operative until the transfer of the land to the purchaser was completed. There is no doubt that it is repugnant or otherwise against public policy for a prohibition on assignment to attempt to deal with the fruits of a contract once those fruits are in the hands of the assignor.620 But this (and Hall v Busst in terms of its ratio) says nothing about the situation in which the prohibition seeks to prevent the assignment of existing contractual rights where the enjoyment of those rights is contingent on some event or is conditional upon the assignor performing some obligation, and where the right to some performance has unconditionally accrued but the time for performance has not yet arrived.621 [6.85] The restraints on alienation doctrine. The above analysis still leaves the issue whether upholding such provisions is at odds with the principle prohibiting restraints on alienation. If it is, then such provisions can have one of two effects, 616
Ibid. Ibid., at 218. Cf Caldy Manor Estate Ltd v Farrell [1974] 1 WLR 1303 (distinguishing between a covenant whereby a right of re-entry is provided for upon breach of the covenant so as to destroy the grant and a provision that would not destroy the transfer to the third party but make the covenantor liable to the covenantee in damages; the doctrine of repugnancy applied to the former). For an example of where a restraint was upheld because it was not so indefinite and imposed for a valid collateral purpose: see Reuthlinger v MacDonald [1976] 1 NSWLR 88 (affirmed Reuthlinger v MacDonald unreported, New South Wales Court of Appeal, 20 Oct 1976) and see Elton v Cavill (No 2) (1993) 34 NSWLR 289. 618 (1960) 104 CLR 206 at 223, 225. 619 [1976] 1 NSWLR 88 at 100 (affirmed Reuthlinger v MacDonald unreported, New South Wales Court of Appeal, 20 Oct 1976). 620 The situation is different where the transferor retains title in the subject matter of the contract by way of security or obtains an interest in the subject matter under some other contract. This is more likely to occur though in dealings with tangible property. 621 See further [6.86]. 617
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either they are completely without effect or, despite an assignment in the face of such a provision being valid, the promise not to assign may still be recognised, thus putting the assignor in breach of contract with the obligor. The argument that prohibitions on the assignment of contractual rights constitute an improper restraint on alienation was raised and rejected by the House of Lords in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd.622 Lord BrowneWilkinson rejected the argument on the basis of both authority and principle. In terms of authority he simply referred to the line of cases upholding such clauses.623 As to principle he took the view that the restraints doctrine was limited to land because it is a finite resource. He thought there was no public policy reason overriding a prohibition on the alienation of tangible property and no public need for a market in choses in action.624 Lord Browne-Wilkinson’s latter statement is problematic. First, as already noted, it would appear that the restraints doctrine is not necessarily limited to interests in land.625 Moreover, market economies need credit and there is a very real need for a market in debts. This market encompasses both unconditionally accrued rights to payment and conditionally accrued rights to payment. Thus, international conventions dealing with factoring and receivables financing have express provisions overriding any such prohibitions.626 In addition, whatever may have been the historical factual scenario for the operation of the restraints on alienation rule, it is clear that part of the thinking behind these Convention provisions is that such prohibitions would be at odds with the principle against restraints on alienation. Likewise, but to a lesser extent, the restraints rule was one factor influencing the insertion of provisions in the Restatement of Contracts 2d627 and Uniform Commercial Code,628 to restrict the effect of such prohibitions. Admittedly, it may be that in these instances, although the restraints rule was referred to, what was really in mind was some broader notions of public policy than the more narrow repugnancy principle that has historically underpinned the restraints doctrine.629 622
[1994] 1 AC 85 at 106–7. There is a long history of such clauses being upheld in the context of hire purchase agreements: see eg Wickham Holdings Ltd v Brooke House Motors Ltd [1967] 1 WLR 295. See also Simmons v Harvey [1965] Tas SR 84. 624 [1994] 1 AC 85 at 107. 625 See Caboche v Ramsey (1993) 119 ALR 215 at 226, 232 per Gummow J. 626 Eg Unidroit Convention on International Factoring, Art 6; United Nations Convention on Assignment of Receivables in International Finance, Art 11. See further Unidroit Principles of International Commercial Contracts (2004) Art 9.1.9(1) and Principles of European Contract Law (2003) Art 11:301. 627 §322 and note official comment (a). 628 §2–210, 9–406. 629 The “repugnancy” principle is not without its critics, and it has been argued that the law should acknowledge that public policy underlies it: see GL Williams, “The Doctrine of Repugnancy” (1943) 59 LQR 343, (1944) 60 LQR 69, 190; M Schnebly, “Restraints Upon the Alienation of Legal Interests” (1935) 44 Yale LJ 961, 1186, 1380. See further K Mackie, “Contractual Restraints on Alienation” (1998) 623
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Perhaps the most powerful statement that the restraints on alienation rule is irrelevant was that of Untermyer J in the New York Court of Appeal in Sacks v Neptune Meter Co.630 He said:631 We think both upon principle and upon authority . . . a covenant against assignment, which in substance provides that the obligation shall be unenforceable in the hands of the assignee, is available to the obligor as a defense. . . . In so holding we do not sanction unlimited restraint upon the alienation of property within the accurate definition of that term. There is a perceptible distinction between the right of a contracting party to impose conditions upon the exercise of a contractual right and the imposition on the owner in fee of undue restraint in respect to the alienation of his property. A grantor cannot transfer complete ownership of tangible property and still control its devolution, because such control is repugnant to the absolute character of the grant. . . . But that rule does not apply where the restraint is upon the alienation of an estate for years and the grantor has received a reversionary interest in the property. Even more conspicuously would the rule seem to be inapplicable where no transfer of title has occurred and the restraint is only of contractual rights. I have been unable to discover that the rule against restraints on alienation has ever been applied to choses in action . . . . [W]here the subject-matter is a chose in action, neither public policy nor consistency requires that it be enforceable against the promisor except in accordance with the terms on which his promise was made. The limitation is not so much imposed on the obligee’s right of alienation as on the obligor’s duty to perform. The restraint then becomes a condition of acquisition.
The crucial distinction that Untermyer J makes is at the end of the first paragraph. Arguably, the focus of the repugnancy principle is the situation where A absolutely transfers property to B and in that transfer there is a condition aimed at preventing B transferring the property to a third party. Here, after the transfer to B, A drops out of the picture (it being an absolute transfer) and there are therefore good reasons why A should have no say in what B does with the property.632 In the case of an assignment of a contractual right the person in the position of A, that is, the obligor, remains in the picture and therefore does have a vested interest in the identity of the person it performs for. Moreover, in the case of a contract, it is only at a very theoretical level that it can be said that upon the formation of a contract one party transfers its promise to the other party.633 It follows that there is no initial grant to the assignor which is made the subject of a condition restraining 12 JCL 255. See also Hall v Busst (1960) 104 CLR 206 at 217 per Dixon CJ; Nullagine Investments Pty Ltd v The Western Australian Club Inc (1993) 177 CLR 635 at 649 per Brennan J. 630 (1932) 258 NYS 254. 631 Ibid, at 261–2. 632 The doctrine does not apply where what is given is a determinable interest such as a gift “to A until he alienates and then to B” as opposed to a gift to “A but if he alienates then to B”: see Caboche v Ramsey (1993) 119 ALR 215 at 227 per Gummow J. See also Re Scientific Investment Pension Plan Trusts [1999] Ch 53. 633 [3.11].
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alienation. The only time such a transfer occurs is where one party actually receives the fruits of the contract. Therefore, the subject matter being dealt with is not the same as that to which the repugnancy principle applies. Before moving on, it is still necessary to determine whether the decision in Hall v Busst is nevertheless at odds with the above argument. It will be recalled that in Reuthlinger v MacDonald, Needham J suggested that the High Court in Hall v Busst did not limit the restraints rule to restraints that are conditional upon a grant, but extended it to restraints imposed by way of covenant.634 Ultimately, however, the most authoritative interpretation of Hall v Busst is that of Brennan J in Nullagine Investments Pty Ltd v The Western Australian Club Inc,635 viz: In this country a court may hold invalid restraints on alienation imposed not only by conditions annexed to a gift or grant of an estate in land but also by covenants and agreements. But the grounds on which a condition subsequent to the gift or grant of an estate of freehold may be held invalid are not necessarily the same as the grounds on which invalidity strikes a covenant or agreement in an instrument which does not itself give or grant the estate the alienation of which is restrained. In the former case, as Dixon CJ said in Hall v Busst, ‘[t]he invalidity may be put on the ground of repugnancy to the grant or upon public policy or for that matter is may conceivably be attributed to an indirect effect of Quia Emptores’. In the latter case, the only basis for holding the covenant or agreement invalid is public policy.
From this we are left with only the argument that, although not repugnant, such provisions may be against public policy. That is, although a contract creates rights between the parties and these rights may be choses in action, these rights are not created by gift, grant or transfer and the issue falls within the “latter case”. [6.86] Public policy limitations. Turning then to public policy, from what was said earlier, there would appear to be an argument that such prohibitions should not be upheld when they relate to debts, or at least certain types of debts.636 It is also no doubt at odds with public policy to uphold a provision that seeks to
634
[6.84]. (1993) 177 CLR 635 at 649 per Brennan J. See also John Nitschke Nominees Pty Ltd v Hahndorf Golf Club Inc (2004) 88 SASR 334. 636 There may also be an argument that public policy should inhibit the efficacy of such clauses (whether relating to debts or not) when the obligor has no legitimate reason for preventing the assignment. If this is the case, then it should be similarly applied to the personal rights rule and perhaps determined by the rules governing restraints of trade—but quaere the relevance of that doctrine when the right would not exist but for the agreement of the parties and the assignor is not, by agreeing to the prohibition, giving up some pre-existing freedom: see Oakdale (Richmond) Ltd v National Westminster Bank plc [1997] 1 BCLC 63; Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 (affirmed (2001) 110 FCR 157). See also Re Turcan (1888) 40 Ch D 5 at 9; Syrett v Egerton [1957 3 All ER 331 at 334. At present no such rule of public policy is applied to provisions making contractual rights personal. 635
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control the power of a promisee to deal with the fruits of a contract once they are in the hands of that promisee.637 More problematic, in terms of public policy, is the efficacy of a clause that seeks to prohibit the assignment of accrued rights under a contract, that is, where at the time of the assignment the obligation to perform has accrued (conditionally or unconditionally) but where the performance has not been tendered to the assignor.638 The situation may be that the assignor has paid the full contract price and now wishes to assign the right to counter-performance. In some cases the actual assignment may be entered into before the counter-performance has accrued or been earned. Nonetheless, it is arguable that the prohibition should have no effect once the counter-performance (the right to which is the subject of the assignment) has been earned.639 However, perhaps the better view is that in such a case the prohibition should not be effective if its only purpose was to secure that performance which has now been received. Moreover, clearly, where the obligation to perform involves a payment of money and where that obligation accrues, the right to payment is then a debt and any prohibition on the assignment of that debt is rendered ineffective by reason of the public policy limitations already outlined. Outside these cases, there may be good reasons for the obligor still wanting to prohibit the assignment even where the assignor has a conditional or unconditional right to the obligor’s counter performance.640 637 Re Turner Corp Ltd (in liq) (1995) 17 ACSR 761 at 767. See further R Goode, “Inalienable Rights” (1979) 42 MLR 553. For a similar argument distinguishing prohibitions on the assignment of copyright and prohibitions on the assignment of licences to use copyright see DFC Thomas, “Contractual Prohibitions on the Assignment of Copyright” (2004) 120 LQR 218, and see JWH Group Pty Ltd v Kimpura Pty Ltd [2004] WASC 39. In Linden Gardens Lord Browne-Wilkinson expressed no concluded view on this point: see [1994] 1 AC 85 at 107, but his statement to the effect that there are no public policy arguments against restrictions on the transfer of tangible property other than land would appear to be against it. 638 In the case of a provision that seeks to forfeit accrued rights upon any attempted assignment, it may be that such a provision would attract the jurisdiction of equity to relieve against forfeiture: see Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 237. But quaere the form such relief may take. In some cases perhaps it could be by way of specific performance whilst still invalidating the attempted assignment. In others it could be by way of restitution of the payments made which earned the accrued right which is the subject of the forfeiture. However, it is perhaps more problematic where the performance earning the accrued right and which is the subject of the forfeiture is something other than the payment of money. In any case there is the problem that what are being forfeited are contractual rights which, as between the parties, are personal rights and arguably not property for the purposes of relief against forfeiture: see further Bysouth v Shire of Blackburn & Mitcham (No 2) [1928] VR 562 at 573–5 and cf Hodder & Tolley Ltd v Cornes [1923] NZLR 876. Relief therefore would need to be based on some other head of jurisdiction, particularly if the contract has been terminated: see generally Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315. 639 See generally G Grismore, “The Effect of a Restriction on Assignment in a Contract” (1933) 31 Michigan L Rev 299 at 306–7. 640 See R Goode, “Inalienable Rights” (1979) 42 MLR 553 at 555 and see Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 105–6 per Lord Browne-Wilkinson. The same reasons may not prevent a declaration of trust of such accrued rights because a trust does not generally provide the beneficiary with the same direct rights that an assignee has against the obligor. See also Restatement of Contracts 2d §322(2)(a) which states that, unless a different intention is indicated, a prohibition
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Beyond the above points, it is difficult to come to any firm conclusions.641 However, if the view were adopted that such clauses are completely at odds with public policy and therefore ineffective, this would appear to be inconsistent with the position that personal contractual rights are not assignable when it is clear law that the distinction between personal and non-personal contractual rights depends on the intention of the parties.642 That is, Anglo-Australian law has not adopted a position that a right should be considered assignable despite the express personalisation of the right by the parties if there either is no material detriment to the obligor or no reasonable person in the position of the obligor would object to the assignment. Therefore, if prohibitions are not enforceable, this rule may be circumvented by simply stating in the contract that the right in question is personal. Perhaps the better view is that the great weight of public policy limitations relates to debts, perhaps broadly defined,643 rather than other rights to performance under a contract.644 In this way it may be possible to maintain consistency with the personal rights rule which generally applies to obligations to perform acts other than the payment of money. Moreover, it may be that in Linden Gardens, Lord Browne-Wilkinson intended his comment that there was no market in choses in action to be limited to the type of transaction before him, namely, an assignment of a right to performance.
does not prohibit the assignment of a right to damages for breach of the whole contract or the assignment of contractual rights arising from the assignor’s complete performance of the contract. 641 However, if a prohibition is unenforceable as being against public policy, it is necessary to have a rule that also prevents the attempted assignment being a repudiation of the contract because if it were a repudiation then the debtor would have an opportunity to terminate the contract and thus defeat the assignment to the extent that the assignment concerned rights that had only conditionally accrued prior to discharge, and thus also defeat the public policy that sought to allow for the assignment. 642 Fitzroy v Cave [1905] 2 KB 364 at 368 per Collins MR; Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 673 per Collins MR; Davies v Collins [1945] 1 All ER 247 at 250 per Lord Greene MR. Cf GW Keeton and LA Sheridan Equity (3rd edn, Chichester, Barry Rose Books, 1987) at 229. 643 For example, under the United Nations Convention on Assignment of Receivables in International Trade, an amount is fully earned when an invoice is issued: see UNCITRAL Analytical Commentary on the Draft Convention on Assignment of Receivables in International Trade, A/CN.9/489/Add 1, 22 May 2001 para 27. 644 However, many jurisdictions have statutory provisions prohibiting the assignment of certain unearned wages. Thus, even if a broad view is taken of “debts”, there will still exist other examples of rights to payment or performance that cannot be assigned for public policy reasons. There are no doubt other examples of unconditional obligations to pay, whether liquidated or unliquidated, which may or may not constitute debts, where there exist legitimate reasons for prohibiting the assignment of the right to such payments, for example, bank guarantees; compare ICC Uniform Rules for Demand Guarantees, Art 4 with the United Nations Convention on Independent Guarantees and Stand-by Letters of Credit, Art 10. Generally, however, the public policy considerations that limit the effectiveness of prohibitions seeking to stop the assignment of debts are probably limited to trade debts. Statutory provisions may also prohibit the assignment of other rights such as certain tenancies: see Burton v Camden London Borough Council [2000] 2 AC 399. See also Unidroit Principles of International Commercial Contracts (2004), Art 9.1.9(2), which upholds a prohibition in relation to performance rights other than rights to payment. However, such an assignment is effective if the assignee neither “knew nor ought to have known of the agreement”.
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Finally, one further possible public policy consideration that may override a prohibition concerns assignments by way of security. A view could be adopted that a prohibition should be ineffective to the extent that it prevents a person assigning contractual rights by way of security. At present there is no authoritative decision on this point, and there are no doubt arguments for enforcing prohibitions even though this would prevent security assignments.645 At present the cases have dealt with the efficacy of prohibitions on the basis of construction without reference to any such public policy consideration. Thus, a clause prohibiting assignment is likely also to prohibit a mortgage but perhaps less likely to inhibit charging the right. If a clause evidences an intention to inhibit any form of alienation then, subject to overriding public policy considerations, it will evidence an intention to prohibit declarations of trust and possibly charges.646 However, despite a charge operating by way of encumbrance rather than by way of transfer, there are numerous cases that have referred to an assignment taking effect by way of charge and a charge taking effect by way of an assignment.647 Even the statutory regime for legal assignments refers to assignments by way of charge.648 Therefore, until there is a clear authority on this point, there remains the possibility that a reference to an assignment in a prohibition may extend to a charge.649 [6.87] The meaning of a prohibitions. Prior to determining the legal effect of a prohibition, it is necessary to determine its extent.650 This is part of the process of determining its meaning. For example, on construction a prohibition may only
645 See G McCormack, Secured Credit Under English and American Law (Cambridge, Cambridge University Press, 2004) at 231. 646 Eg see Veterans Entitlements Act 1986 (Cth) s125. 647 [3.17]. 648 [5.03]. 649 See further Re Turner Corp Ltd (1995) 17 ACSR 761; International Polymers Pty Ltd v Custom Credit Corp Ltd (1995) 8 ANZ Insurance Cases 61-234 at 76,634; Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396 at 415 (affirmed [2000] WASCA 85); Modern Weighbridge and Scale Services Pty Ltd v Australian National Railways Commission (Supreme Court, Sth Australia, 6 Sept 1995 per Millhouse J). See also A Flannery, “Security Over Contractual Rights and Tripartite Agreements” (2002) 13 JBFLP 179; PG Turner, “Charges of Unassignable Rights” (2004) 20 JCL 97. It may be noted that it is clearly accepted as legitimate to incorporate into a security document a provision prohibiting further dealings with the secured property that would result in some third party taking priority over the secured party. Such provisions do not inhibit the further transfer of the secured property but do bind third parties taking with notice: see R Goode, Legal Problems in Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 5.40. See further WJ Gough, Company Charges (2nd edn, London, Butterworths, 1996) ch 10. Finally, if the view is adopted that a prohibition on assignment prevents an assignment but does not prevent a charge then some control on the enforcement of that charge is necessary, because often a charge is enforced by an order for assignment. 650 It is still not clear whether the approach of the courts will be to give prohibitions their normal and natural meaning or whether they will be construed in a narrow manner: see Don King Productions Inc v Warren [2000] Ch 291 at 319 (affirmed [2000] Ch 291). Prohibitions in leases have a history of being restrictively construed: see P Butt, Land Law (4th edn, Sydney, LBC, 2001) para 1592 and see Old Papa’s Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11.
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prohibit legal assignments, thus still allowing an equitable assignment.651 However, unless expressly stated, such a construction is likely to be rare.652 In practice an important issue has been whether the prohibition is directed only to future rights and not accrued rights,653 or whether it prohibits only outright assignments and not assignments by way of security.654 In some instances a prohibition against assignment may, on construction, only prohibit subcontracting.655 Another possibility was suggested in British Gas Trading Ltd v Eastern Electricity Plc,656 where Leggatt LJ said of a clause which stated that “neither party shall transfer or assign its rights or obligations hereunder without the prior approval of the other party” that the concern of the clause was not merely with assignment but with novation.657 Certainly in contracts that are generally thought to be personal, such as contracts of general insurance, a prohibition of “assignment” without consent may be interpreted as dealing with novation as this is how such contracts are “transferred”.658 However, ultimately the meaning of such a 651
Spellman v Spellman [1961] 1 WLR 921 at 925 per Danckwerts LJ, cf at 928 per Willmer LJ. See R v Chester & North Wales Legal Aid Area Office (No 12) [1998] 1 WLR 1496. 653 See Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 106 per Lord Browne-Wilkinson. See also R v Chester and North Wales Legal Aid Area Office (No 12) [1998] 1 WLR 1496; Circuit Systems Ltd v Zuken-Redac (UK) Ltd [1997] 1 WLR 721 (affirmed on another point [1999] 2 AC 1); Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107; Yeandle v Wynn Realisations Ltd (1995) 47 Con LR 1; Flood v Shand Construction Ltd (1996) 54 Con LR 125. See further ANC Ltd v Clark, The Times, 31 May 2000; Foamcrete (UK) Ltd v Thrust Engineering Ltd [2002] BCC 221. Cf City of Omaha v Standard Oil Co (1898) 75 NW 895 at 896. 654 Inter-Southern Life Insurance Co v Humphrey (1919) 84 So 625; Aetna Insurance Co v Smith, McKinnon & Son (1918) 78 So 289; Stokes v Liverpool & London & Globe Insurance Co (1925) 126 SE 649. As noted above there may be public policy considerations that deny efficacy to provisions that attempt to stop a person using choses in action as security. See also Uniform Commercial Code, §9-318(4). 655 Such a construction is unlikely where there exists a separate provision dealing with subcontracting: see Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103 per Lord Browne-Wilkinson; Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262. See also Re Griffin [1899] 1 Ch 408 (here the words “this receipt is not transferable” on a deposit receipt did not prevent the fund from being the subject of an equitable assignment) and Anning v Anning (1907) 4 CLR 1049 at 1067 per Isaacs J. See further Restatement of Contracts 2d, §322; Uniform Commercial Code, §2-210(3). 656 Unreported English Court of Appeal, 18 Dec 1996. See also Argo Fund Ltd v Essar Steel Ltd [2005] 2 Lloyd’s Rep 203. 657 This construction gives effect to the distinction drawn in the clause between “transfer” and “assign”. It also gives effect to the reference to transferring obligations contained in the clause. However, depending on the factual matrix, it may also be possible to give meaning to such a clause by construing it as dealing with assignment and sub-contracting. Given that a novation requires the consent of the obligor it is doubtful whether one would usually need such a clause to provide protection against a novation. However, detailed novation clauses do allow the parties to agree the procedure for and effect of a novation in advance; for example, see Argo Fund Ltd v Essar Steel Ltd [2005] 2 Lloyd’s Rep. 203. 658 See Minucoe v The London and Liverpool and Globe Insurance Co Ltd (1925) 36 CLR 513 at 524 per Starke J. Cf Mercantile Finance Corp Ltd v New Zealand Insurance Co Ltd [1932] NZLR 1107 at 1112 per Reed J (the fact that an insurer consents to an “assignment” does not result in a new contract with the assignee; therefore, such consent does not preclude the insurer asserting that the policy was avoided for fraud by the insured at the time of the consent to the assignment). 652
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clause is a question of construction and the point being made here is simply if, in terms of meaning, the clause does not extend to the transaction in question there is no need to go on to look at its legal effect.659 Another aspect of the meaning of a prohibition concerns its form. Prohibitions against assignment come in three principal forms, and more than one may be used in any particular contract.660 First, the parties may promise that they will not assign their rights under the contract (or only assign them to a limited group).661 This is usually expressed as the parties “shall not assign” or the parties “shall not assign without the consent of the other party” or “this contract is not to be assigned”.662 Secondly, a prohibition may be drafted to negate the power to assign. These may be expressed in terms that the parties “cannot assign” or contract rights are “not assignable” or “any assignment is void” or the parties “shall not be entitled to assign”.663 Provisions stating that a party “may not” assign probably also fall within this group. Clearly there may be some fine lines between these first two groups, and often a provision will combine them.664 Moreover, even if the words of promise are used, when read in the context of the contract as a whole the provision may amount to a prohibition.665 Thirdly, a provision may simply state that in the event of any assignment the other party has a right to “terminate” the 659 See Todd Petroleum Mining Co Ltd v Shell (Petroleum Mining) Co Ltd [2005] NZCA, CA155/05, 23 Sept 2005, para 93. It may also be relevant to consider the impact of legislation. The fact that a contract contains a prohibition on assignment may not prevent the “property” being “transferred” for some purposes governed by legislation, such as becoming part of the property of a partnership: see Don King Productions Inc v Warren [2000] Ch 291. 660 It should also be noted that a prohibition may be implied: eg see Friary Holroyd and Healey’s Breweries Ltd v Singleton [1899] 1 Ch 86 (reversed on the facts [1899] 2 Ch 261, (1899) 81 LT 101) discussed at [8.30]. Such an implication may be made if the assignment would result in a breach of contract: see Auckland City Council v Union House Ltd 11/8/2004 New Zealand Court of Appeal 162/03, noted by DW McLauchlan, “Interpretation and Necessary Implication” (2004) 21 New Zealand Universities Law Review 331 (here is was held that an assignment would be prohibited if it necessarily led to a breach of a confidentiality provision; given that it is not necessary to give an assignee notice of an assignment, much less a copy of the contract which evidences the assigned rights, it would be rare for an assignment to have such a result). 661 Often this limitation results from the nature of the subject right: eg Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414. 662 Eg Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; United Dominions Trust (Commercial) Ltd v Parkway Motors Ltd [1955] 1 WLR 719 (the result in this case was overruled in Wickham Holdings Ltd v Brooke House Motors Ltd [1967] 1 WLR 295); Belize Motor Supply Company v Cox [1914] 1 KB 244. See also Burck v Taylor (1894) 152 US 634; Portuguese-American Bank of San Francisco v Welles (1916) 242 US 7; Fortunato v Patten (1895) 41 NE 572; City of Omaha v Standard Oil Co (1898) 75 NW 859. 663 Eg Wickham Holdings Ltd v Brooke House Motors Ltd [1967] 1 WLR 295; Hendry v Chartsearch Ltd The Times, 16 Sept, 1998; Allhusen v Caristo Construction Corp (1952) 103 NE 2d 891. 664 Eg Wickham Holdings Ltd v Brooke House Motors Ltd [1967] 1 WLR 295. 665 Eg in Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225, the prohibition was in the form of a promise not to assign, but in the context of the contract which involved the performance of various personal obligations, the court (at 237, 239) appeared to conclude that it had the effect of a true prohibition because earlier in its judgment (at 236) the court distinguished between a true prohibition and a promise not to assign.
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contract. These may be coupled with a forfeiture provision.666 Where the assigned right is not an unconditionally accrued right, such a clause effectively gives power to the innocent party to stop the assignment by electing to terminate the contract. The forfeiture provision seeks to deal with any unconditionally accrued rights. Such provisions may be drafted in a form that suggests that contractual rights are automatically forfeited upon assignment.667 However, it is suggested that the better construction is that the assignment merely gives the obligor a right to elect to terminate the contract (or to elect to forfeit), otherwise, the law would have provided the assignor (in the case of a termination) with a method of getting out of the contract by taking advantage of its own wrong.668 Finally, a prohibition may not wholly prohibit assignment but merely require the consent669 of the obligor.670 Usually such consent is expressed in terms that it is not to be unreasonably withheld,671 or such a condition may be specified by legislation in some instances. Generally, where the clause states that there is to be no assignment without consent with no reference to consent not being unreasonably withheld, the effect of the attempted assignment without consent will be the same as if the clause were a simple prohibition on assignment.672 There may 666 There is a line of cases dealing with such forfeiture provisions under wills whereby a gift is made but forfeited if assigned: see eg Wilkinson v Wilkinson (1819) 3 Swans 515, 36 ER 958; Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148; Re Bond (1940) 35 Tas LR 96. See also Attwood and Reid Ltd v Stephens [1932] NZLR 1332. 667 Eg Hoddart & Tolley Ltd v Cornes [1923] NZLR 876 (combination of a promise not to assign and a forfeiture provision). 668 See Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 at 735 (affirmed (2001) 110 FCR 157); Hodder & Tolley Ltd v Cornes [1923] NZLR 876. See also Attwood & Reid Ltd v Stephens Excavators Ltd [1932] NZLR 1332. See further New Zealand Shipping Co Ltd v Société des Ateliers et Chantiers de France [1919] AC 1 at 9 per Lord Atkinson; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 441; Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568 at 577 per Samuels JA; MK and JA Roche Pty Ltd v Metro Edgley Pty Ltd [2004] NSWSC 744. 669 There is a view that where the word “approval” is used rather than “consent”, it is more limited than consent. That is, a right of approval is narrower than a right of consent: see British Gas Trading Ltd v Eastern Electricity Plc, unreported, English Court of Appeal, 18 Dec 1996. There can be any number of other variations. For example, rather than require consent a clause may prohibit assignment unless the assignee agrees to assume the assignor’s obligations: see Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228. 670 Eg Hospital for Sick Children (Board of Governors) v Walt Disney Productions Inc [1966] 1 WLR 1055. Such clauses may be drafted negatively; for example, a party “may not assign without consent”; or positively, for example, “may assign with consent”. A consent provision may also flow from the definitions clauses, for example, where a definition provisions has words to the effect that “a reference in this contract to a party includes its permitted assigns”. 671 At present, there is little authority determining what will amount to an unreasonable withholding of consent in this context. It is likely that the principles developed in relation to the assignment of leases will be applied: see Cathedral Place Pty Ltd v Hyatt Australia Ltd [2003] VSC 385. Such principles have been applied in respect of assignments of options: see St Hilliers (Developments) Pty Ltd v Radmanovich [2002] NSWSC 524, (2002) 11 Butterworths Property Reports 20,191. 672 See Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; New Zealand Payroll Software Systems Ltd v Advanced Management Systems Ltd [2003] 3 NZLR 1. As to the possibility of implying a term that consent is not to be unreasonably withheld or that the obligor will do nothing to prevent the assignment see Pryors Tours Pty Ltd v Minister for Transport [2003] WASCA 129. On its
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be an exception if, on construction, it may be said that the obligor’s intention was to allow assignment subject to the right in the obligor later to elect to refuse to recognise the assignment, that is, where consent is meant to operate as a condition subsequent to the assignment rather than a condition precedent.673 Where consent is not to be unreasonably withheld and the assignor fails to seek consent in circumstances where the obligor could reasonably withhold that consent, the assignment will be ineffective as between the assignee and obligor. Where the assignor fails to seek consent in circumstances where the obligor could not have reasonably withheld that consent, it was suggested by Evans LJ in Hendry v Chartsearch Ltd 674 that the assignment may be effective. He distinguished the position with respect to leases of land where the view is taken that consent cannot be considered to be withheld if it is not asked for.675 Millett LJ on the other hand was prepared to follow the line of authority dealing with leases, although he distinguished a commercial contract from a lease on the basis that as between the parties such a contract was not generally viewed as property but obligation. In his view it was “wrong in principle to entertain the hypothetical question whether the defendants could have objected to the assignment if they had been asked for it”. Henry LJ also took a different view from that of Evans LJ. He suggested that “prior consent never applied for is never withheld or refused (whether reasonably or otherwise)”. [6.88] The legal effect of a prohibition. The legal effect of a prohibition on assignment depends on construction.676 In any given case, an attempted assignment in the face of a prohibition on assignment may give rise to the following effects:677
face, where there already exists an express consent provision, the implication of such a term controlling the exercise of discretion does not satisfy the tests for an implication of a term in fact. However, in Australia it is not clear what effect the growing acceptance of an obligation to perform in good faith may have in controlling an otherwise unfettered discretion. 673 See Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 (affirmed (2001) 110 FCR 157). 674 The Times, 16 Sept, 1998. 675 See Eastern Telegraph Co Ltd v Dent [1899] 1 QB 835; Barrow v Isaacs & Son [1891] 1 QB 417; McMahon v Docker (1945) 62 WN(NSW) 155. A lease creates an interest in land and it is not possible wholly to deprive the lessee of its ability to assign that property. However, the lessor may take a covenant against assignment with a right of re-entry for breach. An assignment in breach of the covenant is effective to vest the legal title but that title is defeasible; Old Grovebury Manor Farm Ltd v W Seymour Plant Sales & Hire Ltd (No 2) [1979] 1 WLR 1397; Williams v Frayne (1937) 58 CLR 710 at 731 per Dixon J (citing Williams v Earle (1868) LR 3 QB 739). If the lessor unreasonably refuses consent, the lessee may assign without it. 676 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; Bawejem Ltd v MC Fabrications Ltd [1999] 1 All ER (Comm) 377. 677 Clearly, a prohibition cannot affect an assignment of a right which occurred prior to the parties agreeing to the prohibition: see Foamcrete (UK) Ltd v Thrust Engineering Ltd [2002] BCC 221. This list also leaves aside the possibility that in any particular case the assignee may be liable in tort for inducing a breach of contract.
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1. The clause may invalidate the assignment but the agreement to assign may still be valid so that the assignor is liable to the assignee for breach of contract in failing in its promise immediately to assign.678 In addition, the assignor may or may not be in breach of contract with the obligor.679 2. The assignment may be valid, but the assignor will be liable to pay damages for breach of contract to the obligor. 3. The clause may invalidate the assignment, and in the circumstances of the case the agreement to assign may also be invalid, so that the assignor is not liable to the assignee for breach of contract in failing in its promise immediately to assign. In addition, the assignor may or may not be in breach of contract with the obligor. 4. The attempted assignment may amount to a breach of contract or repudiation giving the obligor the right to terminate performance and thus defeat an assignment even if it were valid. At present, although prohibitions on assignment have cropped up in a number of cases over time,680 the legal effect of such clauses has not been the subject of much detailed judicial analysis. Nevertheless, there is a history of such clauses being upheld in the sense of rendering a purported assignment ineffective.681 Moreover, it is suggested that the presumed intention of the parties in most cases is likely to be 678 Where damages are available, the normal principles governing damages for breach of contract and restitution for payments made apply and it is relevant to determine whether the assignment is by way of sale or security. Moreover, except where the assignee has already exercised a right to terminate the contract, or perhaps except where the assignee has recovered damages for breach of contract, there may be a possibility that the contract between the assignor and assignee may still be recognised as an agreement to assign in the sense of a bilateral assignment between the assignor and assignee, so that any property which is the subject of the assignment coming into the hands of the assignor is held for the benefit of the assignee: see Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 236. Cf R v Chester and North Wales Legal Aid Area Office (No 12) [1998] 1 WLR 1496 at 1501 per Millett LJ. 679 If a prohibition cannot impact on arrangements between the assignor and assignee, and if a prohibition generally exists for the benefit of the obligor and may be overridden by consent, then if the obligor chooses to perform to and for the benefit of the assignee this may amount to an implied consent and prevent the obligor being in breach of contract in not performing to the assignor. However, except where a prohibition has an express or implied consent provision incorporated in it, it may be questioned whether mere consent is sufficient. If the right in question is not transferable by reason of the agreement made between the assignor and obligor, then, doctrinally, the only way to change this is by a formal renegotiation of the contract. See further Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1018 per Viscount Simon LC. However, it is likely such a term would be implied: see [6.92]. 680 Eg Abbott v Philbin [1961] AC 352, [1960] 1 Ch 27, [1959] 2 All ER 270; Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142 at 160 per Slade J (overruled on another point, Re Spectrum Plus Ltd [2005] 3 WLR 58); Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548. 681 Eg In re Turcan (1888) 40 Ch D 5; United Dominions Trust (Commercial) Ltd v Parkway Motors [1955] 1 WLR 719 (overruled [1967] 1 WLR 295); Hospital for Sick Children (Board of Governors) v Walt Disney Productions Inc [1966] 1 WLR 1055; Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262 at 264–5; Reed Publishing Holdings Ltd v Kings Reach Investments Ltd (unreported, 25 May 1983, English Court of Appeal); Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85. See also Brice v Bannister [1878] 3 QB 569 at 580–1 per Bramwell LJ.
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reflected in legal effect 1. This was the result in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd.682 The assignment in that case concerned the assignment of certain rights to performance under a contract. The relevant clause stated: The employer shall not without the written consent of the contractor assign this contract . . . [and] . . . the contractor shall not without the written consent of the employer assign this contract, and shall not without the written consent of the architect . . . sublet any portion of the works.
It was argued that the clause had the legal effect set out in 2 above. This was rejected in favour of legal effect 1. Lord Browne-Wilkinson (with whom the other Law Lords agreed) said:683 [A] prohibition on assignment normally only invalidates the assignment as against the other party to the contract so as to prevent the transfer of the chose in action: in the absence of the clearest words it cannot operate to invalidate the contract as between the assignor and the assignee and even then it may be ineffective on the grounds of public policy. . . . [T]he existing authorities establish that an attempted assignment of contractual rights in breach of a contractual prohibition is ineffective to transfer such contractual rights. . . . If the law were otherwise, it would defeat the legitimate commercial reason for inserting the contractual prohibition, viz to ensure that the original parties to the contract are not brought into direct contractual relations with third parties.
The result in the case was that the prohibition was intended to invalidate any tripartite assignment, that is, an assignment that creates not only a relationship between the assignor and assignee but also a relationship between the assignor, assignee and obligor.684 However, the contract between the assignor and assignee was valid and breached because the assignor had failed to perform its promise immediately to assign. Finally, despite Lord Browne-Wilkinson’s reference to clear words being necessary to invalidate the contract between the assignor and assignee, it is difficult to see how the transaction between the assignor and obligor can in any way impact upon the efficacy of the contract between the assignor and assignee except where some public policy issue renders the contract of assignment unenforceable or otherwise illegal.685 However, Lord Browne-Wilkinson did note that even with clear words such a provision could be against public policy. 682
[1994] 1 AC 85. Ibid, at 108. See also Burck v Taylor (1894) 152 US 634; City of Omaha v Standard Oil Company (1898) 75 NW 859. The principal English case to the contrary, Tom Shaw and Co v Moss Empires Ltd (1908) 25 TLR 190, was explained away as an example of a prohibition not being able to invalidate an accounting between assignor and assignee once the fruits of the contract are in the hands of the assignor—if this explanation was not acceptable Lord Browne-Wilkinson (at 108) said that Tom Shaw was wrongly decided. 684 [1994] 1 AC 85 at 104 per Lord Browne-Wilkinson. 685 See Bruce v Tyley (1916) 21 CLR 277. See further F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 8.7 at 260–1 and cf RP Meagher, JD Heydon and MJ Leeming, Meagher Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.465. 683
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What remains unclear from the decision in Linden Gardens is that Lord Browne-Wilkinson made no statement as to whether the assignor was liable to the obligor for breach of contract in attempting to assign its rights under the contract other than what may be implied from his statement that legal effects 2 and 4 are unlikely ever to represent the intention of the parties.686 In practice, of course, clauses can be drafted to ensure that a purported assignment in the face of such a prohibition is a breach of contract; however, there is a real issue as to the position where that is not the case. As regards leases, the position appears to be clear: an assignment will amount to a breach of contract.687 However, in the case of a lease the assignment is effective. This issue was addressed by Millett LJ in Hendry v Chartsearch Ltd.688 That case concerned a clause that stated that the relevant party was not “entitled” to assign. It was not like the clause in Linden Gardens that was in the form of a promise not to assign. Millett LJ said that a clause must take effect according to its tenor. He thought the assignment was effective as between the assignor and assignee but was ineffective to create a breach of contract between the assignor and obligor. As between assignor and obligor it was simply without effect. It followed that there was no tripartite assignment binding the obligor. Earlier in R v Chester and North Wales Legal Aid Area Office (No 12),689 a case involving a prohibition in the form that the relevant party “shall not assign”, that is a promise not to assign, Millett LJ concluded that the prohibition prevented equitable assignments, and said that “equity will not enforce the performance of an obligation [that is, a promise to assign] which constitutes a breach of a prior contract with a third party [that is, the obligor]”.690 It is clear that Millett LJ was alive to the distinction between a promise not to assign and a clause that negated any power to assign. In Hendry, he noted that a prohibition need not take the form of a covenant not to assign or reserve a power to treat an assignment without consent as a repudiatory breach of contract. It was sufficient, he thought, if the clause was in a form that disentitled a party from assigning. However, it would appear that he was of the view that no matter what form a clause takes, its effect is to render any assignment ineffective. If the clause states that a party “shall not assign” its rights, that is, a promise not to assign, and if it is thought that such a clause prevents any attempted assignment 686 [1994] 1 AC 85 at 104. The Restatement of Contracts 2d §322(2)(b) expressly gives the obligor a right to damages but also recognises the efficacy of the assignment. 687 MacDonald v Robins (1954) 90 CLR 515 at 520 per Dixon CJ. 688 The Times, 16 Sept, 1998. 689 [1998] 1 WLR 1496. 690 Ibid, at 1501. See also Australian Olympic Committee Inc v The Big Fights Inc [1999] FCA 1042 paras 119–20; Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 at 735 (affirmed (2001) FCR 157). See further New Zealand Payroll Software Systems Ltd v Advanced Management System Ltd [2003] 3 NZLR 1 at 7, suggesting that a purported assignment in the face of a prohibition was a breach of contract and the only question was whether it should be compensated for in damages or whether it should simply be held that the assignment never occurred. However, general principle dictates that if it constitutes a breach of contract it must give rise to a right to damages.
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being efficacious (as was held in Linden Gardens), then how can it be said the assignor has breached its obligation to the obligor because the end result is that it has not assigned the contract?691 However, perhaps the more logical result is that an attempted assignment in the face of a “promise not to assign” would still be a valid assignment but would put the assignor in breach of contract with the obligor.692 On the other hand an attempted assignment in the face of a clause stating that the assignor “cannot assign” would render the attempted assignment ineffective but would not create a breach of contract between the obligor and assignor as there is no breach of promise.693 The distinction here is that arguably a clause stating that a party “cannot assign” renders the contractual right incapable of transfer, whereas a mere “promise not to assign” amounts to a personal assumption of obligation not to do that which one would otherwise be empowered to do. An issue which then arises is whether the law should draw such a fine doctrinal distinction between a “promise not to assign” and a clause preventing assignment, that is, a true prohibition on assignment.694 Arguably, if the legal effect of a provision is dependent on construction then the distinction is a real one and may represent the intention of the parties. It is this distinction that in fact would allow for the different legal effects set out in legal effects 1 and 2 above. Some help here may be obtained from the personal rights rule. As with a prohibition, whether or not a right is personal depends on construction. In addition, as with a prohibition, the designation of a right as personal ends its transferability by robbing the chose in action of that characteristic.695 The designation of a right as personal shares nothing in common with a mere promise not to assign as the latter does not seek to characterise the chose and operates merely at the level of contract, leaving the obligor with a remedy in damages if the other party to the contract assigns the subject right. Moreover, there does not appear to be any authoritative decision 691 See also Minister for Land and Water Conservation v NTL Australia Pty Ltd [2002] NSWCA 149 para 29. 692 Fortunato v Patten (1895) 41 NE 572. See also Hodder & Tolley Ltd v Cornes [1923] NZLR 876; Attwood & Reid Ltd v Stephens Excavators Ltd [1932] NZLR 1332 (quaere whether these two cases may be explained away on the basis that the prohibition prohibited only legal and not equitable assignments: see Specialised Transport Pty Ltd v Dominiak (1989) 16 NSWLR 657 at 662 per Young J); Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 236. See further MacDonald v Robins (1954) 90 CLR 515 at 520 per Dixon CJ. 693 There is a line of American cases that have held that such a clause does negate the power to assign: see G Grismore, “The Effect of a Restriction on Assignment in a Contract” (1933) 31 Michigan L Rev 299 at 305–6 and see Sacks v Neptune Meter Co (1932) 258 NYS 254 at 262 per Untermyer J. 694 For a discussion of the American cases drawing this distinction: see G Grismore, “The Effect of a Restriction on Assignment in a Contract” (1933) 31 Michigan L Rev 299; G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, para 7.9. 695 On one view a prohibition on assignment renders a right personal: see Burwood Project Management Pty Ltd v Polar Technologies International Pty Ltd (1999) 9 Butterworths Property Reports 97801. See also Australian Olympic Committee Inc v The Big Fights Inc [1999] FCA 1042 paras 119–20 per Lindgren J.
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which has held that an attempted assignment of a right, which was in turn determined to be personal, resulted in the assignor being liable to pay damages to the obligor for breach of contract by reason of the attempted assignment. Thus, arguably, this distinction is in fact already being drawn. However, there are arguments that a distinction between promises not to assign and true prohibitions on assignment should not be drawn.696 Unless very well advised, contractual parties themselves are unlikely to appreciate this distinction for it to represent their presumed intentions.697 In addition, in many cases, the language of promise and the language of prohibition may be difficult to distinguish and both may appear in a provision. As already noted, in Devefi, where the court clearly recognised the distinction between promises and prohibitions, a clause that on its face encapsulated a promise not to assign appeared to be construed by the court, when read in light of the contract as a whole, as a prohibition.698 Moreover, the issue here is analogous to that arising in the case of options. An option may be explicable on the basis of either an offer coupled with a contract not to revoke or a conditional contract. Logically, a revocation of an option under the irrevocable offer theory would still be effective (as there is only a promise not to revoke) but would amount to a breach of contract not to revoke, whereas such a revocation under the conditional contract theory would be totally ineffective and not amount to a breach of contract.699 However, in Goldsbrough Mort v Quinn700 Isaacs J, who appeared to prefer the irrevocable offer theory,701 said that a revocation was nevertheless ineffective and in any case the court could order specific performance.702 In his view, the revocation was ineffective at law.703 He went on to state that what was sold to the promisee was an option and not merely the promise to give an option.704 Perhaps this statement suggests that the irrevocable offer theory did not have his total allegiance or it might be no more than a statement reflecting the fact that the presence of valuable consideration meant there was no longer a mere offer of an option that could be revoked prior to acceptance. O’Connor J was also of the view that no matter what theory was used, the court could order specific performance.705 That is, in his view, whether or not the revocation was valid at law giving 696 Cf Allhusen v Caristo Construction Corp (1952) 103 NE 2d 891. See also G Grismore, “The Effect of a Restriction on Assignment in a Contract” (1933) 31 Michigan L Rev 299. 697 One should also ask, “why incorporate such a provision”? The breach of the promise is unlikely to result in a claim to substantial damages and, as Gilmore points out, in many cases where a damages claim is brought, the assignor will be insolvent or have ceased to exist: see G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, para 7.9. 698 [6.87]. 699 See Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 76 per Gibbs J. 700 (1910) 10 CLR 674. 701 Ibid, at 690–2. 702 Cf Ibid, at 679 per Griffith CJ. 703 Ibid, at 691. 704 Ibid, at 692. 705 Ibid, at 686.
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rise merely to a right to damages, equity would still order specific performance, making the revocation ineffective. This would suggest that fine distinctions which may be drawn from the express language of a contract will not be drawn if that would defeat the purpose of the transaction or provision.706 Another example, but pointing in the opposite direction, is the decision in Cowell v Rosehill Racecourse Co Ltd.707 In this case, on the accepted evidence that a contractual licence contained a promise not to revoke, it was held that a revocation was nevertheless effective as the licence was not coupled with a grant. The result was that the licensor was liable in damages for breach of contract.708 It is unlikely that the High Court would have come to a different conclusion if the licence were expressed as “irrevocable”. Again, however, as with options, this result is informed by the context of the subject matter. Thus, no one would argue that the ratio of Cowell’s case necessarily applies to documentary credits so as to make an irrevocable documentary credit (which is simply stated to be irrevocable) revocable upon the petition of the buyer. Finally, it may be noted that the court in Linden Gardens, which was a case involving a promise not to assign, did not appear to draw the distinction between a promise and a prohibition.709 This must represent the position in England for the time being and although it is at this point that the decision in Linden Gardens appears to differ from the decision in Devefi, where the distinction was recognised, the result in Defevi itself shows that in practice it is a distinction that will rarely be drawn as it will rarely represent the intention of the parties.710 That is, unless there are clear words to the contrary, the intention behind such provisions is to invalidate 706 However, it is quite clear that, if a party does not simply attempt to revoke an option but rather sells the legal interest in the subject property to a third party, that third party may, if it does not have notice of the option, get good title and the optionee will be left with an action for damages against the optionor: see Blacktown Municipal Council v Doneo [1971] 1 NSWLR 157 at 162 per Taylor AJA. See further DJ Farrands, The Law of Options (Sydney, Law Book Co, 1992) at 26–34. 707 (1937) 56 CLR 605. Cf Forbes v NSW Trotting Club Ltd (1979) 25 ALR 1. 708 This is not the position in England where it is clearly recognised that equity may grant an injunction to restrain the revocation: see K Gray and SF Gray, Elements of Land Law (4th edn, Oxford, OUP, 2005) para 4.82. There has been mention in Australian cases of the possibility of an injunction issuing to prevent revocation: see Bingham v 7-Eleven Stores Pty Ltd [2002] QSC 209; Cathay Developments Pty Ltd v Laser Entertainment Pty Ltd [1998] NSWSC 82. In at least one case the decision in Cowell was explained away on the basis that the result was dictated by the separation between law and equity in New South Wales that existed in 1937: see Leonard George Munday v ACT [1998] Supreme Court, Australian Capital Territory (SCACT) 62 at para 172. 709 Cf Barker v Stickney [1919] 1 KB 121 where a publisher promised not to assign copyright except subject to the conditions of the contract between the author and publisher. It was held in that case that an assignment of that right was valid and the assignee was not required to pay the author royalties. The point was not taken that this provision amounted to a prohibition, and perhaps this was because everyone assumed it was a mere promise not to assign which could not prevent the transfer. 710 For American authorities on this point see Burck v Taylor (1894) 152 US 634; City of Omaha v Standard Oil Company (1898) 75 NW 859. See also G Grismore, “The Effect of a Restriction on Assignment in a Contract” (1933) 31 Michigan L Rev 299 at 303 n 10. Cf Fortunato v Patten (1895) 41 NE 572.
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any attempted assignment.711 In short, such provisions, whether drafted as promises or true prohibitions, are intended to characterise the contractual right as a chose in action and rob it of its transferability. Two questions then arise. First, is it the case that no matter how a prohibition is drafted, from a contractual perspective it will be sufficiently promissory to give rise to a breach of contract by the assignor by reason of the attempted assignment? Secondly, if the answer to the first question is in the affirmative, then how is it possible to distinguish prohibitions on assignment from personal contractual rights, given that an attempted assignment of the latter does not appear to result in a breach of contract giving rise to an obligation to pay damages?712 Often, attempts to assign personal rights arise in the context of the assignor selling a business or otherwise ceasing to exist with the result that the obligor is excused from performance.713 In such circumsatnces, any breach or repudiation will flow from the assignor’s decision no longer to perform its obligations under the contract.714 If these obligations are fully performed the obligor is simply excused from further performance by reason of the assignor having no further interest in the contract. In the case of a promise not to assign, it will not be difficult to imply an obligation that the parties will not attempt to assign. This would simply flow from a co-operative construction of the promise. If that is right, then the attempt to assign gives rise to a breach of contract, making the assignor liable in damages to the obligor.715 Such damages will be nominal because, as the weight of authority suggests, the assignment will be ineffective so that the obligor has suffered no substantial loss. There may also be an argument that a clause in the form that the parties “cannot assign”, that is, a prohibition, may still imply a promise not to attempt to assign which would give rise to an action for breach if such an attempt were made. 711 This may also be the point Dixon CJ was making in Hall v Busst when he applied the restraints rule to a contractual prohibition even though he accepted that a breach of such a prohibition could result only in an award of damages: see [6.84]. That is, such clauses are intended to prevent transfers and the obligor may seek to achieve this by either negating the assignor’s power to assign or using the persuasion that comes from receiving a promise not to assign. 712 Cf Australian Olympic Committee Inc v The Big Fights Inc [1999] FCA 1042 paras 119–20, where, in answer to a submission that there was an implied term prohibiting assignment, Lindgren J said that if that were correct, then the effect of the prohibition would be to render the subject right personal, and any purported assignment would amount to a breach of contract and perhaps a wrongful repudiation. See also JG Starke, Assignment of Choses in Action in Australia (Sydney, Butterworths, 1972) at 66, suggesting that in the first instance it is necessary to determine whether a prohibition rendered the contract personal and, if not, whether it, in any case, rendered any assignment inoperative. 713 Eg Kemp v Baerselman [1906] 2 KB 606; Robson v Drummond (1831) 2 B & AD 303, 109 ER 1156; Dr Jaeger’s Sanitary Woollen System Co Ltd v Walker and Sons (1897) 77 LT 180. In the case of a personal right to insurance, the attempted assignment will simply result in the policy lapsing: see Peters v General Accident & Life Assurance Corp Ltd [1937] 4 All ER 628. 714 See Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014. 715 See John Young & Co Kelvinhaugh Ltd v the Rugby Group Plc (Queen’s Bench Division, HT 00/337, 19 Dec 2000, at para 24 per Judge Richard Seymour QC).
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If that is not the case then the law is straightforward; an attempted assignment in the face of such a prohibition or in the face of a contract containing personal rights is ineffective and does not give rise to a breach of contract. If this is not the position then a distinction needs to be drawn between such prohibitions and personal contractual rights. That is, if an attempted assignment in the face of a prohibition gives rise to a breach of contract, this needs to be distinguished from an attempted assignment of a right that is construed to be personal as the latter does not appear to give rise to a breach of contract. It may be that a difference arises in the fact that a right is generally found to be personal by virtue of construing the entire contract. That is, the personal nature of the right is usually implied by construction rather than being found in an express provision.716 Moreover, it should be noted that this process of construction determines whether the right is personal rather than whether it was intended to be assignable. In addition, it does this by determining whether the obligor intended to perform its obligations solely for the benefit of the other party to the contract. This may dictate that any attempted assignment of such a right would not amount to a breach of contract as it is difficult to imply from this a promise not to attempt to assign. What, then, of an express provision making a right personal? On one view this should be subject to the same analysis above as regards personal rights implied by construction, as it addresses the personal nature of the right rather than expressly addressing assignability. However, perhaps when an express personal rights provision is incorporated into a contract, it is reasonable to conclude that the contracting parties would see the relationship between this and a true prohibition. What other reason could there be for making a right expressly personal other than to prohibit assignment?717 Often a clause will state that rights are personal and then go on to state that rights are not assignable.718 If that is right, then where the right is made personal by reason of an express provision, a right to damages should flow from an attempted assignment if such a right to damages also flows from an attempted assignment in the face of a true prohibition. If it is possible to imply a promise not to attempt to assign in the latter, it must also be possible similarly to imply it in the former. Strictly, however, there is no distinction between the effect of non-compliance with an obligation that is express and one that is implied. That is, even if the existence of an obligation is implied by construction, its existence as a contractual obligation must be because it is a term of the contract which gives rise to a right to damages upon breach. Thus, whether a right is personal by reason of an express 716 The reference to “implied by construction” is used to describe the origin of the obligation; it does not originate from an express term of the contract. Strictly, if an obligation is found by construing the words of a written contract that obligation is an express obligation. 717 One reason may be that occasionally assignment and vicarious performance are confused and the intention is to prohibit vicarious performance. 718 Eg ANC Ltd v Clark, The Times, 31 May 2000.
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provision or implied by construction the results that flow from an attempted assignment should be the same. If there is to be a difference in the way such personal rights and obligations are to be treated, it must ultimately lie in adopting the position that it is easier to imply an obligation not to attempt to assign where the personal nature of the right is the subject of an express term than where the personal nature of a right is implied by construction. In any case, since the assignment is ineffective, the damages of the obligor are going to be only nominal and in fact it would be difficult in most cases to identify any loss.719 Finally, something must be said about effects 2 to 4. At the outset, since the legal effect of such provisions depends on construction, it is possible to have any number of possible effects. Nevertheless, as regards legal effect 2, it would be rare for a simple prohibition to be intended to have this effect, that is, because it would need both to prohibit assignment and at the same time envisage it. Unless a statute dictates this result, legal effect 2 generally requires the courts to place much more emphasis on the distinction between prohibitions and promises not to assign than is currently the case. Perhaps one instance where this might occur is where the clause merely prohibits assignment without consent and where the purposes of the obligor are best served by recognising the initial transferability of the chose subject to a right in the obligor later to elect to deny the assignee the relevant benefit.720 However, if that is the correct construction, that is, if the reference to “consent” in the prohibition is really just a right to elect not to recognise the right vested in the assignee, then the initial attempted assignment could not amount to a breach of contract. To achieve legal effect 2 the contract would need to allow for assignment but at the same time state that certain assignments, though valid, would nevertheless amount to a breach of contract.721 Another way legal effect 2 could come about is if a clause merely gives the obligor a right to terminate the contract upon assignment, and it does not do so. Here the assignment may be valid but there will still be a breach of contract by the assignor. A similar result may flow from a peculiar fact scenario. For example, if the owner of land upon which there exists an ice works enters into a contract with a neighbour to supply ice for a period of years, there is no doubt that the owner of the land still has a right to sell his or her land. The contract for the supply of ice does not act as a prohibition on such a sale 719 However, the obligor can be put to some expense in defending a demand or action brought by the assignee who thinks the assignment is valid. In practice this is usually dealt with by an indemnity provision. 720 See Re Buring and Chapman (1941) 13 Australian Bankruptcy Cases 72. See also Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 at 708–9, 710, 735 (affirmed (2001) FCR 157) (a condition of a ticket was that is was inter alia not to be resold at a premium or used for advertising without prior consent; a denial of the use of the ticket attached to only an unauthorised sale leaving the normal remedies for breach of contract to flow from an unauthorised use). The High Court of Australia in Broadcast Australia Pty Ltd v Minister Assisting the Minister for Natural Resources (Lands) (2004) 204 ALR 46 at 51 appeared to recognise the possibility of legal effect 2. 721 See Australian Rugby Union Ltd v Hospitality Group Pty Ltd (2000) 173 ALR 702 at 735 (affirmed (2001) FCR 157 esp at 182–4).
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(assignment). However, the effect of the sale may be to repudiate the supply contract, making the owner liable in damages for breach of contract.722 Not much needs to be said about legal effect 3 as most of the issues raised by it have been dealt with above. The only outstanding issue is the efficacy of the contract between the assignor and assignee, and all that needs to be said about that is that in any given case the assignor may be protected from an action in breach of contract if the contract between the assignor and assignee is unenforceable or if the assignor promised to assign only to the extent that he or she was capable of doing so.723 As regards legal effect 4, whether or not an attempted assignment may give rise to a breach of contract even though the assignment itself is ineffective has already been covered. However, it may be noted that both Lord Browne-Wilkinson in Linden Gardens and Millett LJ in Hendry v Chartsearch Ltd suggested that an assignment or attempted assignment in the face of a prohibition (whether promisory or prohibitory) will not amount to a repudiatory breach of contract.724 There is some strength in the suggestion that if the assignment is not valid there cannot be a repudiatory breach. Moreover, the fact that damages will always be nominal would point to the conclusion that any breach is not a breach of condition, a sufficiently serious breach of an intermediate term or a repudiation. In addition, it would be difficult to identify a repudiation when the assignor is merely dealing with its rights. Nevertheless, since the issue of repudiation is dependent upon the facts of each case, and given that the terms of a clause may state that an attempted assignment will amount to a repudiation, then this possible effect cannot be simply written off. Finally, the possibility of a court finding a repudiation must be increased if the right in question is one of those rare instances where the burden is also transferred, because here there would be evidence that the assignor was, by its conduct, evincing an intention to be no longer bound by the contract.725 A refinement of this issue has been suggested by the authors of Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies. The authors suggest that in determining the effect of a prohibition it may be important to determine whether the prohibition amounts to a condition, warranty or intermediate term.726 The argument put forward is that if a prohibition merely amounts to a warranty, then although the assignor would be liable in damages for breach of 722 Proctor v Union Coal Co (1923) 137 NE 659. See also Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462. 723 See Bruce v Tyley (1916) 21 CLR 277. See also Barker v Stickney [1919] 1 KB 121. 724 This point was left open in Westgold Resources NL v St George Bank Ltd (1998) 29 ACSR 396 at 431 per Anderson J (affirmed [2000] WASCA 85). 725 [6.101]. 726 See RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies, (4th edn, Sydney, Butterworths, 2002) para 6.465. See also JG Starke, Assignments of Choses in Action in Australia (Sydney, Butterworths, 1972) at 66–7.
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contract to the obligor, this construction would evidence that the obligor did not place sufficient importance on the clause to prevent the assignment itself being upheld.727 In addition, even where the clause is construed as a condition, the efficacy of the assignment will be impaired only if the obligor elects to terminate its contract with the assignor for the breach. The difficulty with this approach is that the tripartite classification of terms is relevant only in determining whether or not there exists a right to terminate. It has nothing to do with the efficacy of the assignment except to the extent, as noted above, that an election by the obligor to terminate its contract with the assignor for breach or repudiation may extinguish the assignee’s rights if those rights have not unconditionally accrued by the time of discharge. It follows that the tripartite classification would be important to an obligor if a mere promise to assign did not of itself prevent the assignment, and perhaps this is the context in which the authors intended their remarks to operate. Alternatively these remarks may be based on the view that the parties cannot use contract to vary the inherent characteristics of a contractual right as a chose in action. In particular they cannot inhibit its transferability. Thus, to defeat any transfer it is necessary to terminate the contract as the assignee’s interest, other than in respect of unconditionally accrued rights, is dependent upon the continued existence of the contract. [6.89] Who can enforce a prohibition? The general position appears to be that a prohibition exists for the benefit of the obligor728 and neither the assignor (or anyone claiming through the assignor)729 nor arguably an assignee can raise it to defeat an assignment. The former is uncontroversial. Clearly the assignor and anyone claiming through the assignor cannot raise the prohibition to defeat the assignment because of the valid agreement between the assignor and assignee. The latter, that is, that one assignee cannot raise the presence of the prohibition against another assignee is more problematic. Before moving on, it should be noted that the issue here does not concern the efficacy of the assignment as between the assignee and obligor. Clearly, the weight of current authority dictates that an assignment in the face of a prohibition is of no effect as between the assignee and obligor. Unless there are clear words to the contrary, this result is not dependent on the obligor electing to avoid the assign-
727 See RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies, (4th edn, Sydney, Butterworths, 2002) para 6.465. 728 Portuguese-American Bank of San Francisco v Welles (1916) 242 US 7. However, a prohibition may not necessarily be for the benefit of the obligor: see Restatement of Contracts 2d §322 official comment (d). 729 Quaere whether Re Griffin [1899] 1 Ch 408, Anning v Anning (1907) 4 CLR 1049 and Re Westerton [1919] 2 Ch 104 are explicable on this ground: see B Allcock, “Restrictions on the Assignment of Contractual Rights” [1983] CLJ 329 at 332–3, also citing Hodder & Tolley Ltd v Cornes [1923] NZLR 876. See further Attwood & Reid Ltd v Stephens Excavators Ltd [1932] NZLR 1332.
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ment; the result flows automatically from the prohibition.730 This is its intended effect. It should then follow that generally there can be no true priority dispute between an assignee who takes an assignment with the consent of the obligor and one who takes an assignment in breach of a prohibition, as the latter gets no proprietary interest against the obligor and therefore cannot give a valid notice to the obligor.731 Even if an analysis allows for an assignee, who takes in breach of a prohibition, to obtain an interest under the contract which would therefore allow it to give notice, this will not be worth much if the obligor is not under any obligation to that assignee. The issue that is the concern of this section is one of accounting as between assignees, and the real practical issue arises where an assignee taking with the consent of the obligor is paid by the obligor and an assignee who has taken in breach of a prohibition wants to claim part of that payment from the first assignee.732 There are perhaps three ways to approach giving an answer to this issue. The first is to view a prohibition as purely contractual, so that only the party to the contract, for whose benefit the provision is provided, can enforce the provision. This explanation can be accepted only if a prohibition, no matter how it is drafted, operates only as a matter of contract. This was rejected above. However, if this explanation were correct then the answer must be that no assignee can raise the prohibition to defeat another assignee. Second, and related to the first explanation, is that being merely contractual it characterises the obligation to perform and does not impact on the character of the assignor’s contractual right as a piece of property having the characteristic of being transferable. Therefore, the right remains transferable as a chose in action but gives the obligor a right to elect not to perform for the benefit of the assignee. This explanation of prohibitions was also rejected above. However, if correct, the result as between assignees must again be that each assignment is effective and the prohibition cannot be raised by one assignee against another.733
730 Of course in any case the obligor may consent to the assignment. For a discussion of American authorities which have suggested that an obligor may have waived the protection of the prohibition if it knew of the attempted assignment and did not object: see G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, para 7.9. Logically such arguments are more likely to carry weight if the prohibition is not an outright prohibition but a prohibition that inhibits assignment without consent. Cf RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.465. 731 It is important to keep this issue distinct from the validity of the bilateral assignments that may exist between the assignor and any assignees that seek to deal with the fruits of the contract. 732 Some of the leading American cases on the efficacy of prohibitions on assignment have in fact been concerned with this problem. This weakens that authority as regards the efficacy of such prohibitions: see G Gilmore, Security Interests in Personal Property (Boston, Mass, Little Brown, 1965) i, para 7.8. 733 This explanation, like some instances of the third explanation to be discussed, would allow an interest to be vested in the assignee, but quaere whether it has any value for the purposes of giving notice to preserve priority.
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The third explanation, and it is suggested the best explanation, is that the intention of the parties as expressed in the contract can define contractual rights in their character as choses in action, and in most cases the obligor is concerned to deal with assignability only as between itself and the assignor so as to prevent any relationship being formed between the obligor and an assignee without the consent of the obligor. In such a case, if the right inherently carried the characteristic of being transferable, it continues to do so for other purposes and therefore cannot be raised by competing assignees. However, in any given case the obligor may intend to rob the right of transferability for all purposes, in which case it can be raised by competing assignees. These two results cannot be accommodated within a contractual analysis of prohibitions. There is no reason to see assignability as an all or nothing issue. Such a result is a far too simplistic analysis of property rights. It is suggested that the nonassignability of a chose in action (that would normally be transferable) goes only so far as is intended. This is why prohibitions can limit assignment for a few purposes; or while the assignor has not earned the relevant counter-performance. Prohibitions can also limit equitable assignments but not legal assignments or vice versa, or may limit assignment without consent.734 One important authority which, it is suggested, clearly reflects the third explanation and shows the weakness in the other explanations is the decision in Burck v Taylor.735 A much simplified version of the facts in this case is that a construction contract (for a new capital building in Texas) contained a promise not to assign without consent. The assignor, with consent, assigned an interest in the contract to an assignee, and later, without consent, assigned an interest to a second assignee. The first assignee took over the burden of the contract and completed the work, and was paid the contract price. The second assignee then claimed against the first assignee for a part of the contract price. The court held that the assignor could not assign any right without the consent of the obligor and all the second assignee obtained was a right against the assignor. Thus, only the first assignment was valid, and on completion of the work by the assignee, it alone was entitled to the contract price even though the obligor made no complaint about the second assignment. It is suggested that the contract-based explanations cannot explain this result. If the prohibition was only for the benefit of the obligor and the obligor made no protest the subject right must have been assigned for the purposes of relations between the assignees. Later in Fortunato v Patten,736 another case involving a promise not to assign without consent, it was held that such a provision is solely for the benefit of the 734 Cf International Polymers Pty Ltd v Custom Credit Corp Ltd (1995) 8 ANZ Insurance Cases 61–234 at 75,631. 735 (1894) 152 US 634. 736 (1895) 41 NE 572. See also Portuguese-American Bank of San Francisco v Welles (1916) 242 US 7.
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obligor and cannot be raised by competing assignees. The decision in Burck was distinguished on the basis that:737 [It] dealt with a contract made by an individual with the state of Texas, which contained an absolute, unqualified covenant that it should not be assigned . . . [whereas in the present case] . . . the covenant is that, if the contract, or any of the moneys due under it, are assigned without consent, no claim can be asserted by virtue thereof. . . . [Here] no absolute assignment has been made of the contract, but all transfers were of moneys due thereunder as collateral to secure the payment of a debt. There is a wide difference between assigning moneys due under a contract, and an absolute assignment of the contract itself, as the latter act disturbs that relation of personal confidence which exists between one desiring work done that requires a high order of skill and intelligence and the contractor he may have selected as possessing these necessary qualifications.
On one view this passage draws a distinction between the assignment of a right to performance and an assignment of the fruits of a contract, and in the case of the latter, the prohibition cannot be raised by competing assignees. However, in both cases the right assigned was a right to a payment under the contract and it was assigned prior to being earned. Thus, both cases concerned the assignment of rights to performance, the only difference being that the above passage from the decision in Fortunato addresses assignments by way of security. Neither case concerned the issue of a prohibition seeking to deal with the fruits of the contract once those fruits were in the hands of the assignor nor an assignment of only unconditionally accrued rights to payment. On another view the decision in Fortunato appears to suggest that in Burck, the first “assignee” was taking over the contract, in the sense of taking over the assignor’s obligations to the state and not the assignor’s obligations to any other “assignees”. Thus, what was probably intended was a novation.738 It would follow that if the contract were novated to the first assignee then clearly the second assignee could have no interest in that contract as the assignor had no interest to give the second assignee, and therefore it did not matter that the obligor did not protest the second assignment. The facts in Burck were that the original “assignment” to the first assignee was only a three-quarter interest in the contract; the second assignee was intended to take the one quarter interest left vested with the assignor. The court made the point that the second assignee may have had a claim against the assignor for any monies it had earned under the contract, but as it was the first assignee who in fact did all the work and earned the entire contract price, the assignor earned nothing against which the second assignee could make a claim.739 The decision of the court 737
(1905) 41 NE 572 at 573. The Court in Burck at one point does seem to make this determination: see (1894) 152 US 634 at 650, (but cf at 651), and this was the understanding of the decision in Portuguese-American Bank of San Francisco v Welles (1916) 242 US 7. 739 (1894) 152 US 634 at 652–3. 738
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on this point seems akin to the position of a trustee in bankruptcy taking over the contract and appears to be based on principles of assignment rather than novation.740 The court stated that “when the contract, being wholly executory, is transferred to a third party who is accepted by the promisor in lieu of the original contractor, such third party enters upon the performance of the contract free from any disposition of the profits made by the original contract or before the substitution”.741 It is difficult to see how the court could have had novation in mind if the effect of the transaction was that only three-quarters of the rights in the contract were “transferred” to the first “assignee” but 100 per cent of the burden, and yet at the same time take the view that if the assignor performed then the second assignee may have a right to payment in respect of that performance. If 100 per cent of the burden was novated to the first assignee then any act of the assignor could not be an act in performance of the contract. In the result, if full effect is to be given to all the statements made in the judgment then assignment and not novation appears to be a better explanation. More importantly, the court in Burck expressly dealt with the submission that the prohibition was only for the benefit of the obligor and found, on the facts, that that was not the case because the clause in question did not merely involve a promise not to assign but rather dealt with the effects of such an assignment and stated that such a transfer would “annul the contract”. Thus, what really occurred in Burck was, putting aside the assignment of burdens point, that the prohibition which was incorporated into the contract sought completely to characterise the relevant right both as a matter of contract and as a chose in action, so that unless consent was obtained it did not have its inherent characteristic of transferability, so that an “assignee” could not (as against another assignee) claim it was transferable even where the obligor made no formal objection to the transfer.742 Here the obligor did not intend to characterise its obligation (and the correlative right) only as between the obligor and assignor. It intended to maintain that character even as between competing assignees, whereas this was not the intention in Fortunato. This is not, however, a case of the obligor crossing the line and seeking to regulate relations between an assignor and any assignees. Nor is the obligor seeking to dictate relations between assignees. If a series of assignments are valid the assignees can agree priorities as between themselves. The obligor is merely seeking to regulate the position between it and any assignees. It is difficult to see how these variations can be achieved by adopting the view that prohibitions merely operate through contract. Contract has a limited ability to benefit or burden third parties, and where this is required or where this is the result, then property is a legal concept better suited to explain such results. 740
[6.15]. (1894) 152 US 634 at 653. 742 See also ibid, at 651, where the Court says the result would be the same without the provision, as the right assigned was a personal right which could not be assigned without consent. 741
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[6.90] Prohibitions on assignment and declarations of trust. It has been held that a prohibition against assignment may not prevent the assignor from declaring itself a trustee of the benefit of the contract. Even where the contract involves personal skill or confidence, it has been said that a party may declare itself a trustee of the fruits for the benefit of a third party and arguably the benefit of the contract.743 The authority usually relied upon for this view is Re Turcan.744 That case, however, is not strong authority for this proposition. The case involved a marriage settlement where the husband covenanted to assign certain property coming into his possession to trustees. Subsequently he took out a life insurance policy which stated that it “shall not be assignable”. After the husband’s death the insurer paid his executor a sum of money and the question before the court was whether this policy was property that the husband had agreed to assign to the trustees, and if so whether it had been so assigned. It was held that the policy did constitute “property” caught by the agreement to assign. Moreover, it was held that it had been assigned to the trustees. The prohibition was not absolute because the policy also stated that the insurer would not be bound by any “notice of any trust, equitable charge or lien”, which suggested it was possible to transact with the policy. Cotton LJ said that despite such a prohibition a court of equity would “have enforced the covenant to settle this policy”.745 He then went on to make the curious remark: “[b]ut though he could not assign the policy, I think it would have been sufficient compliance with the covenant if he had executed a declaration of trust for the trustees of the settlement”.746 It must be kept in mind that the question before the court was whether or not the policy had been assigned; there was no evidence of a declaration of trust. These statements were made in the context of discussing the Policies of Assurance Act 1867 which allowed for the legal assignment of certain insurance policies. The ratio of Cotton LJ’s decision is that the prohibition on assignment was only intended to prevent legal assignments and did not prevent an equitable dealing in the policy. Cotton LJ did not have to determine whether a declaration of trust was possible where the prohibition was also intended to prevent equitable assignments. Moreover, Cotton LJ’s statements on the efficacy of a declaration of trust go no further than recognising that it is not possible to prevent a person declaring a trust over the proceeds of a contract that are in that 743 See Don King Productions Inc v Warren [2000] Ch 291 (affirmed [2000] Ch 291). As noted earlier, whether or not a right is personal is determined by asking whether the obligor intended to account only to the other party to the contract: see [6.69]. It is not approached from the perspective of whether or not the parties intended the right to be not assignable. A declaration of trust would not disturb the intention of the obligor to account only to the trustee. The result would be different if, on construction, there was an intention to render all the “assignor’s” right inalienable. 744 (1888) 40 Ch D 5. See further Spellman v Spellman [1961] 1 WLR 921 at 925 per Danckwerts LJ; cf at 928 per Willmer LJ; Pincott v Moorstons Ltd [1937] 1 All ER 513 at 516; Hagan v Waterhouse (1991) 34 NSWLR 308; Swift v Dairywise Farms Ltd [2000] 1 WLR 1177 at 1184. 745 (1888) 40 Ch D 5 at 10. 746 Ibid.
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person’s hands.747 Ultimately, whether or not a prohibition on assignment prevents a declaration of trust over a right to performance must be, in the first instance, an issue of construction. The word “assignment” is a word of wide import and can, in any particular context, be used to refer to any form of alienation.748 In addition, because a declaration of trust does not give the beneficiary direct rights against the obligor, the public policy restrictions on such prohibitions are likely to be wider than those affecting prohibitions on assignment.749 A further problem with the view that a prohibition on assignment does not prevent a declaration of trust is that the beneficiary may be able to call for a winding up of the trust and an assignment of trust property.750 In such a case the prohibition on assignment is defeated.
(v) The Principle of Transfer as it Relates to the Personal Rights Rule and Contractual Provisions Dealing with Assignment [6.91] Introduction. In the discussion above it was seen that the intention of the parties is the guiding principle determining the personal or impersonal nature of a right. The relevance of party intention also flows through to express provisions dealing with assignment. It still remains necessary to state not only why the personal rights rule exists but why it is an intention driven rule. [6.92] Relevance of the principle of transfer. If the institution of assignment of choses in action were in part driven by the needs of commercial people, why have a rule preventing the assignment of personal contractual rights and why base the characterisation of a right as personal on the intention of the parties? Clearly, greater assignability would have been promoted by a rule that determined assignability by reference to whether or not a reasonable person in the position of the obligor would object to the assignment, and this in turn could be tested by reference to any material change in the circumstances of the obligor by reason of the assignment. It may be that originally the commercial needs driving assignment were limited to debts which were not considered personal, thus leaving contractual rights to performance in the “too personal” basket. At that time though the notion that a contractual right was “personal” was different from the notion we have today. Originally, attaching the label “personal” to contractual rights was seen as part of the inherent nature of such rights rather than a matter that falls to be determined
747
(1888) 40 Ch D 5 at 10–11. See Norman v FCT (1963) 109 CLR 9 at 26 per Windeyer J. 749 See further PG Turner, “Charges of Unassignable Rights” (2004) 20 JCL 97. 750 See further ibid; G McMeel, “The Modern Law of Assignment: Public Policy and Contractual Restrictions on Transferability” [1994] LMCLQ 483. 748
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by the construction of the contract. It is therefore suggested that the explanation for the personal rights rule does not flow from some vague notion of upholding party autonomy or freedom of contract. The result flows from the institution of assignment itself. An assignment involves a transfer of property. Legal transfers are governed by the nemo dat rule. The reason a contractual right designated as personal under a contract cannot be assigned is that the result would be that the assignor would be assigning a right different from the one he or she has which is at odds with the nemo dat rule.751 That is, the intention of the parties as expressed in the contract is shaping contractual rights not merely in their character as personal rights but also in their character as choses in action. The legal notion of transfer which is the essence of an assignment of a chose in action dictates the existence of the personal rights rule, with the result that the parties can rob a right of its transferable character. This same reasoning explains the efficacy of express provisions dealing with assignment. In Nokes v Doncaster Amalgamated Collieries Ltd,752 Viscount Simon LC hints at this explanation of the personal rights rule in suggesting that if a right is personal it cannot be rendered, after contract, impersonal and assignable merely by obtaining the consent of the obligor. This must be correct. If the intention of the parties as expressed in the contract characterises a contractual right as a chose in action and if that right is intended to be personal, then to change that character would require a formal renegotiation of the contract and not mere consent. Mere consent would only allow for a novation.753 The result would be different if the personal rights were subject to an express or implied term of consent. Here that possibility of consent characterises the contractual rights as it is part of those rights from the moment of contract. Nevertheless, despite this doctrinal point, it is unlikely that a court would have much difficulty implying such a term.
(vi) Assignment and the Variation of the Obligations of the Obligor [6.93] General rule. It is a rule of assignment that it is not possible to vary the obligations of the obligor. For example, if X owes A a debt of £100 payable at a certain place on a certain date, although A may be able to assign its right to the debt to a third party, that assignment alone cannot force X to pay the debt at another
751 See Minister for Land and Water Conservation v NTL Australia Pty Ltd [2002] NSWCA 149 para 8 per Mason P. 752 [1940] AC 1014 at 1018. 753 However, as already noted, in any given case it may be that the right was intended to be personal for only a certain period or until the occurrence of a certain event. In such a case, the intention of the parties, at the time of contract, is that the right is assignable upon that time arriving or the event occurring. Here there is no need for a renegotiation. See further Orlando Orange Groves Co v Hale (1935) 161 So 284; Schweiger v Hoch (1969) 223 So 2d 557.
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place or on another date.754 This rule is also expressed in terms that it is not possible by assignment to increase the burden of the obligor. There is a relationship between this rule and the rule prohibiting the assignment of personal rights. If a right is personal then so too (in an assignment sense and not a vicarious performance sense) is its correlative obligation, and to recognise the assignment of the right would result in a variation of the obligation.755 It is only when it is, on construction, irrelevant to the obligor whom it performs for that performance for a person other than the express beneficiary of the contract does not amount to a variation of the obligation. [6.94] The variation of obligations rule and the principle of transfer. The variation of obligations rule is not limited to accompanying the personal rights rule and is an independent rule of assignment. It is suggested that its genesis lies in the principle of transfer. That principle dictates that it is not possible to assign a right different from or better than the one vested in the assignor. If the assignor were able, by assignment, to vary the obligation of the obligor, it would then have managed to assign a right different from the one it had, which is at odds with the principle of transfer. Moreover, if it were possible by assignment to vary the obligation of an obligor, then assignment would be an institution that was incompatible with contract because the extent of the voluntarily assumed obligation of the obligor would have changed. The principle of transfer respects the intention of the parties to a contract and therefore as long as that principle governs assignment then the assignment of contractual rights will not be at odds with principles of contract law. [6.95] It is important to emphasise that this rule is a rule governing assignability. It comes into operation where an assignment, if given effect to, would vary the obligation promised by the obligor. For example, if the obligor’s performance is dependent upon a contingency and the effect of an assignment would increase the likelihood of that contingency occurring then the assignment could not be upheld because of this rule. That is, because the assignment itself would have the effect of varying the allocation of risk agreed to under the contract. An obvious example of this is an insurance contract. A contract of general insurance may be considered personal on the basis that the insurer’s decision to insure is based on the level of risk posed by the insured.756 Here the insurer’s obligation is subject to a contin754 AL Corbin, Corbin on Contracts (St Paul, Minn, West Publishing, 1951) iv, para 868. This is not inconsistent with the rule that a debtor must seek out his or her creditor. See also RA Brierley Investments Ltd v Landermark Corp Ltd (1966) 120 CLR 224 at 231–2 per Barwick CJ, Kitto and Windeyer JJ, at 236 per Menzies J. See further O Lando, E Clive, A Prum and R Zimmermann, Principles of European Contract Law (Dordrecht, Kluwer 2003) Arts 11:306(1) and (2); Unidroit Principles of International Commercial Contracts (2004), Arts 9.1.8 and 9.1.3. 755 For example, if A agrees for a certain remuneration to look after B for a certain period of time, B cannot assign that right to C. Clearly, this is a personal right and to allow the assignment would require A to look after C, which is a different obligation from that promised under the contract. 756 See further [6.73].
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gency, that is, an event which is not in the control of either party. If by assignment the agreed probability of that contingency occurring increases, then, if the assignment is upheld, that effectively varies the obligation of the obligor. The same reasoning applies to the provision of credit. A right to credit is personal as it is based on an assessment of the debtor’s ability to repay. At the same time an assignment of the right to credit may increase the risk that the assignor, with whom the duty to repay still lies, may not repay, thus varying the burden of the obligor.757 [6.96] Sometimes this rule is relied upon to reject an assignment when the better analysis is that the obligor in the circumstances merely had a right to reject the request for performance.758 For example, in the case of a supply contract the assignee may be a much larger enterprise than the assignor and may be inclined to make larger demands on the obligor. However, this alone is not a reason for rejecting the assignment, although it would be a good reason for an obligor to refuse a demand made by the assignee. The assignee takes an assignment of a right to a promise made to the assignor and cannot make larger demands on the obligor than those which the obligor agreed to at the time of contract with the assignor. Often, the obligor agreed only to supply the personal and variable needs of the assignor so that the right is personal and not capable of assignment even if the assignee claims to ask for no more and no less than was the average request of the assignor.759 The subject right is more obviously assignable where the obligor promised to supply a fixed amount, and this may be the case even though that fixed amount represents the assignor’s personal needs. The non-variation rule has its proper place where to uphold the assignment would clearly involve the obligor performing different promises from those he or she made to the assignor. For example, if the obligor was to provide some personal service such as secretarial services then clearly an assignment of those rights must vary the obligation. The effect of such an assignment must be that the obligor is now to act on the instructions of the assignee and satisfy his or her personal requirements.
757 Cooper v Micklefield Coal and Lime Co Ltd (1912) 107 LT 457. See also Cole v Wellington Dairy Farmers Co-op Association Ltd [1917] NZLR 372 and Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1019 per Viscount Simon LC. See further [6.73]. 758 Eg Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 423 per Lord Robertson. 759 This fact makes it difficult to uphold the assignment of many supply contracts, and arguably this is one type of contract that should be readily assignable. There is a line of cases in the United States holding that a buyer’s contractual right to goods is unassignable by reason of the assignee’s requirements being different from those of the assignor’s. It was thought necessary that these cases should be overcome, and this was done not by the introduction of a “material change of duty” test (see [6.69]), but rather by removing the personal discretion in output requirements and exclusive dealing contracts and substituting the objective standard of “good faith operation of the plant or business to be supplied”: see Uniform Commercial Code §2.210, comment 4, and §2.306. See further EA Farnsworth, Farnsworth on Contracts (Boston, Mass, Little Brown, 1990) iii, para 11.4.
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[6.97] Obligations and liability. The rule that an assignment cannot vary the obligations of the obligor also raises the issue of the liability of the obligor. Here, this rule overlaps with the rule that dictates that the obligor is to be no worse off by virtue of an assignment as well as the rule that the assignee can be in no better position than the assignor. Essentially, this issue concerns the remedies available to the assignee for breach of contract by the obligor and is therefore dealt with in detail in Chapter 8.760 [6.98] Variation in law or variation in fact? As noted above, there is a clear relationship between the non-variation rule and the rule that the obligor is to be no worse off by reason of the assignment. However, it is suggested that the law of assignment is generally not concerned with whether or not the obligor is worse off (or potentially worse off) in fact by reason of the assignment.761 Take for example the simple case of the assignment of part of a debt. Clearly that leads to a certain inconvenience for the debtor as it must now pay two people. However, the law takes the view that despite such an assignment, there still remains one debt and therefore the debtor is no worse off.762 This can only be referring to the debtor being no worse off in law. Moreover, an assignment forces an obligor into a relationship with a third party not of his or her choosing (who may not be as accommodating as the assignor) and by application of the subject to equities rule prevents the obligor raising certain defences against the assignee that could have been raised if the action were being brought by the assignor.763 Outside overriding public policy concerns, the law generally does not even investigate the motive for an assignment.764 Thus, it has been held that an assignment may take place for the sole purpose of attempting to get the obligor adjudicated bankrupt.765 In addition, the onus of determining the efficacy 760
[8.08]. See Mulkerrins v PricewaterhouseCoopers [2003] 1 WLR 1937 at 1941 per Lord Millett. It is no doubt possible to find exceptions. For example, it has been held that before an assignee can commence an action against an obligor, the assignee may be required to settle the costs of a previous unsuccessful action against the obligor brought by the assignor: see Sinclair v British Telecommunications plc [2001] 1 WLR 38. In addition, a statutory provision may extend only to the assignor: see Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367. See also Unidroit Principles of International Commercial Contracts (2004), Art 9.1.3. 762 Cf United Nations Convention on Assignment of Receivables in International Trade, Art. 18(6) which, in the case of a partial assignment, allows the debtor to obtain a complete discharge by paying as if it did not receive the notice of the assignment or a partial discharge by paying as directed by the notice. It was thought that if this were not the case, and the debtor was required to pay several assignees, then the cost of this would need to be addressed in the Convention: see UNCITRAL Report of the United Nations Commission on International Trade Law on its Thirty-Fourth Session, 25 June–13 July 2001, General Assembly Official Records Fifty-Sixth Session Supp No 17 (A/56/17) (2001) para 20. See further [8.06]. 763 To some extent this effect could be seen as allowing the obligor to be worse off in law by virtue of the assignment as he or she is deprived of certain defences. However, the defences here are all procedural defences rather than substantive defences (see [8.83]) and the obligor will still be able to raise the claims that would have constituted these defences against the assignor. 764 Cf [6.64]. 765 Fitzroy v Cave [1905] 2 KB 364. 761
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of a notice of assignment, whether it is a legal or equitable assignment and what should be done upon receipt of such a notice is thrust upon the obligor.766 Finally, although where the obligor’s obligation is dependent upon a contingency and where the assignment would increase the probability of that contingency occurring, the assignment will not be upheld; the same does not apply if the assignor’s performance is conditional upon prior performance by the obligor. Thus, the assignor can assign the right to performance prior to the assignor performing because, in law, this does not change the obligor’s duty. That is, the risk allocation under the contract is generally not changed unless, on the facts, the assignment impairs the chance of recovering the assignor’s performance. There is more chance of such an assignment not being upheld where the assignor also delegates its duty.767 It follows that there is little room to argue that an obligor is not to be worse off in fact by reason of an assignment, and if this course were to be adopted it would require an extension of the principle of transfer beyond the nemo dat rule, and no doubt some distinction would have to be drawn between factual detriments that do not inhibit assignability and those that do, that is, there must be a material factual detriment. However, in the result, the present law is that an obligor must accept a change in the manner of performance but not a change in the actual obligation. [6.99] Determination of obligation a matter of construction. The extent of an obligation is determined by construction. It is an error to characterise the extent of a promised contractual performance as being that which the obligor was doing (in fact) for the assignor at the time of the assignment. This may appear an obvious point if, at the time of the assignment, performance by the obligor has not commenced. However, even if performance by the obligor has commenced by the time of assignment, the assignor may have been demanding only part of the possible performance that could be called for. For example, in Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd,768 the facts of which have been dealt with earlier,769 the fact that the assignee was a larger enterprise than the assignor and could potentially make greater demands on the obligor did not, according to the majority, prevent the assignee from making demands on the 766 It has even been said that the risk of the assignment being invalid is appropriately placed on the obligor and represents the general position in existing national law: see UNCITRAL Report of the United Nations Commission on International Trade Law on its Thirty-Fourth Session, 25 June–13 July 2001, General Assembly Official Records Fifty-Sixth Session Supp No 17 (A/56/17) para 19. 767 See Uniform Commercial Code §2.210 and EA Farnsworth, Farnsworth on Contracts (Boston, Mass, Little Brown, 1990) iii, para 11.4. 768 [1903] AC 414. 769 [6.70]. As already noted ([6.70]), Lord Robertson (at 422) dissented on the ground that the effect of the assignment, if upheld, was that the obligor would be bound to follow the orders of the assignee and satisfy their demands as opposed to the assignor’s demand for chalk. He did not think it possible to split up the contract so that the obligor was excused from answering the assignee’s calls for chalk but was obligated to supply at least 750 tons. This would, he thought, amount to a variation of the obligation of the obligor which could not occur without the consent of the obligor.
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obligor in excess of those which were requested by the assignor. On construction, the obligor’s duty was linked to the capacity of his quarry and the subject land on which the cement works was built. It was not linked to the needs of the assignor and, in any case, as it was a long-term contract, the needs of the assignor may have changed over time. This suggested that the obligor had agreed to supply a larger amount of chalk than that which was being supplied at the time of the assignment. No doubt there would be some limits on this. For example, with better technology it may in time have been possible to build a cement works within the limits of the subject land that could process cement at such a rate that demands made on the obligor could not necessarily be met. Tolhurst’s case is exceptional. Generally, where a party enters into a contract to follow the instructions of one person, or to satisfy the needs of one person, the principle of transfer dictates that such an obligation cannot by assignment be turned into a contract to follow the instructions of another person or to satisfy the needs of another person. One suggested explanation of Tolhurst’s case is that the obligor, in the original contract, had agreed to an increase in his burden.770 However, it is suggested that the better explanation is that, on construction, the obligation already encapsulated an increased demand. If a party agrees at the time of contract for varying demands to be made upon it, then the upper and lower limits of those possible demands represent the burden of the contract. When an increased demand is then made within those limits, this should not be viewed as some consensual agreement to increase the burden of the contract. The burden remains the same. [6.100] Contracts of guarantee and the variation of obligations rule. Contracts of guarantee are generally assignable, and are often expressed to be assignable.771 It is generally irrelevant to the guarantor whom it pays, and therefore the beneficiary generally can assign its contractual right to the benefit of the guarantee.772 Of course, ultimately this is a question of construction, and in any given case the guarantee may be for the personal benefit of a named beneficiary. It addition, a guarantee may secure only obligations owed under the main contract while those obligations are owed to the named creditor.773 This would come to an end upon an assignment of the main contract.774 Moreover, generally it is not possible to 770 See National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41 at 46 per Clauson J. 771 Eg Ratcliffe v Oceanic Life Ltd [1998] NSWSC 31. See also Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450. 772 Often in security documents the issue of assignability is not dealt with by express provisions which state that the benefit of the security is assignable. Rather, assignment is dealt with by defining the “creditor” as including its assignees. Not only does this allow for the assignment of the security, but it may also allow for moneys that become owing to the assignee by the debtor after the assignment to be secured by the security: see [6.71]. 773 See Sheers v Thimbleby & Son (1897) 76 LT 709. 774 See International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 453 per Moffitt AJA.
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assign a guarantee after the discharge of the main contract except as regards unconditionally accrued rights, and only then if such assignment does not contravene any public policy limitation as being an assignment of a mere right of action.775 It is generally thought that to assign a guarantee it is also necessary to assign the right to the performance of the principal contract.776 Usually whether or not that has occurred will be a question of construction.777 It has been held that if a creditor assigns the right to performance under the main contract but fails to assign the guarantee, then the assignor/creditor cannot enforce the guarantee.778 In addition the fact that a guarantee is expressed to be given by the guarantor to the creditor and its “assigns” is not alone sufficient to allow an assignee of the principal contract to enforce it.779 There must be an assignment of the guarantee and the benefit of the principal contract. Whether or not this is a rule of law may depend on the view one takes of contracts of guarantee. On one view a guarantor promises the beneficiary that the principal will perform its obligations under the main contract. Those obligations may involve the payment of money or the performance of some other act. If the principal fails to perform, the guarantor will be liable to the beneficiary for the breach of its promise. That is, the guarantor’s liability upon breach of his or her primary obligation to see to it that the principal performs, is an obligation to pay damages for breach of contract. 775 Hughes v Fresh-Pack Fruit & Vegetable Market Pty Ltd [1965] WAR 199. However, if the main contract is novated and it is the creditor and not the debtor that is replaced, then, if the guarantee is also assigned to the new creditor, that creditor may be able to enforce it if the liability of the guarantor was ascertained at the time of the novation: see Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833 and see J O’Donovan and J Phillips The Modern Contract of Guarantee, English Edition (London, Sweet & Maxwell, 2003) paras 6.110–6.111. As to a novation of the principal contract and a replacement of the debtor and the efficacy of reservation of rights clauses: see J O’Donovan and J Phillips, The Modern Contract of Guarantee, English Edition (London, Sweet & Maxwell, 2003) paras 6.98–6.101. As regards a “transfer” by the principal of the principal’s obligations under the contract and the continued liability of a guarantor: see ibid, paras 6.102–6.109. 776 Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 at 373. See also PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241. Presumably, an equitable assignment of the benefit of the principal contract will suffice: see Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 at 374. 777 See Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423. See also International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427; Mark Sensing (Aust) Pty Ltd v Flammea [2003] VSCA 41. See further J O’Donovan and J Phillips, The Modern Contract of Guarantee, English Edition (London, Sweet & Maxwell, 2003) paras 10.176–10.181. Alternatively, there is a view that guarantees can constitute a covenant that touches and concerns land and are assigned with any transfer of the creditor’s interest in the land: see further ibid, paras 10.176, 10.182–10.195. See also Lee v Simmons (1999) ANZ Conveyancing Reports 372. 778 See International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 439 per Jacobs JA (approved in Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 at 373 but questioning the position where the assignee of the principal contract has a right of recourse against the assignor upon default by the obligor); Clark v Dedvukaj [1993] 2 Qd R 10. Quaere whether the assignor should be able to enforce the guarantee but hold sums recovered on trust for the assignee of the debt: see as regards mortgages Morley v Morley (1858) 25 Beav 253, 53 ER 633. 779 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5.
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On another view, following the default of the principal, the guarantor is liable for the performance of the principal’s primary contractual obligation.780 On this view, where the guarantee is in respect of a debt, the debt owed by the debtor/ principal and the guarantor is the same debt.781 At present, rather than classify this transaction as a form of conditional contract, the weight of authority suggests that these two views represent two classes of guarantee, and whether the guarantor is obliged to pay a debt or damages depends on the construction of the promise made.782 If the second view is sound, then the need to assign both the benefit of the guarantee and the benefit of the principal contract flows as a matter of law. If one is assigned without the other the result would be to create two debts, thus increasing the legal obligation of the debtor which is at odds with the non-variation of obligation rule.783 However, the same result would probably follow even if the analysis adopted of a guarantee were that of liability for breach of promise. That is, it is likely to be the intention of the parties to the guarantee that it be assigned only to a person who also takes the benefit of the obligation which the guarantee secures.784
780 On either view the liability of the guarantor is accessory, that is, the guarantor’s liability is not merely dependant on the default of the principal, the principal remains primarily liable. This distinguishes a guarantee from an indemnity. An indemnity encompasses an independant obligation rather than an accessory obligation. However, traditionally an action to enforce both a guarantee and an indemnity was an action for damages for breach of contract that is, they were actionable in assumpsit and not debt. The guarantor promises that the debtor will perform and when the debtor does not perform the guarantor is in breach of contract. An indemnity involves a promise to hold a person harmless in relation to the occurrence of an event. If the event occurs, the indemnifier has breached its promise and must pay damages: see JW Carter and E Peden, “Liability Provisions in Contracts: Indemnities, Guarantees and Exclusions” (2004) 18 Commercial Law Quarterly 12. 781 Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367. Cf Bradford Old Bank Ltd v Sutcliffe [1918] 2 KB 833 at 840 (the debt owed by the guarantor is a collateral debt). See also Re Brown’s Estate [1893] 2 Ch 300. See further MS Fashions Ltd v Bank of Credit and Commerce International SA (No 2) [1993] Ch 425. Perhaps the same debt analysis is more convincing where the guarantee is not a separate contract but part of the contract for services. However, even here, the better analysis is probably that it is a collateral contract. 782 See, generally, Moschi v Lep Air Services Ltd [1973] AC 331; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245. See also Wharf St Pty Ltd v Amstar Learning Pty Ltd [2004] Queensland Court of Appeal (QCA) 256; Precious Metals Australia Ltd v Xstrata (Schweiz) AG [2005] NSWSC 141. See further J O’Donovan and J Phillips, The Modern Contract of Guarantee, English Edition (London, Sweet & Maxwell, 2003) paras 1.18, 6.123; 6.144; R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 8.09; E Peden, “A Classification of Contracts of Guarantee” (1991) 13 Syd L Rev 221; JW Carter and E Peden, “Liability Provisions in Contracts: Indemnities, Guarantees and Exclusions” (2004) 18 Commercial Law Quarterly 12. 783 Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 at 373. 784 See Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 436 per Dixon and Evatt JJ. As regards the assignment of mortgages and mortgage debts see [6.50].
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(f) Assignment of Contractual Burdens [6.101] The general rule.785 It is a rule of assignment that, unless there exists a statutory instrument to the contrary786 or unless a burden devolves by operation of law,787 it is possible to assign only contractual rights and not contractual duties or burdens.788 This section explains whether there are or should be exceptions to that rule. The discussion is limited to assignments by way of sale. There is little scope for arguing that a security assignee should be bound to perform such contractual obligations. There is an important distinction between this rule and the situation that arises where the right assigned is subject to some condition or contingency such as some obligation of performance by the assignor. In such cases the assignee takes subject to the contingency or condition but is neither required to perform the condition nor responsible for its non-performance.789 However, where the right vested in the assignee is dependent upon prior performance by the assignor, if it becomes clear the assignor cannot perform and if the obligation is capable of vicarious performance then, as a matter of practicality, the assignee will need to perform if it wants to enforce the assigned right. 785 In land law, and subject to any relevant statutory regimes, persons who are not party to a contract may be benefited and burdened by covenants under the doctrine of privity of estate. Moreover, certain negative covenants can be enforced against third parties if they “touch and concern” the land. These doctrines, however, have never been accepted outside of transactions involving the transfer of interests in land. 786 Eg Financial Services and Markets Act 2000 (Eng) s 111 (discussed in WASA International (UK) Insurance Co Ltd v WASA International Insurance Co Ltd [2003] 1 All ER (Comm) 696), and see N Beirne and C Jackson, “Banking and Insurance Business Transfers” [2003] Butterworths Journal of International Banking and Finance Law (Feb) 52; Financial Sector (Transfers of Business) Act 1999 (Cth) s22 (expressed as a transfer without transfer, conveyance or assignment); Insurance Act 1973 (Cth); Companies Act 1985 (Eng) s427(3)(a); Corporations Act 2001 (Cth) s413; Transfer of Undertakings (Protection of Employment) Regulations 1981 (SI 1981, No 1794) reg 5(2). See also Life Insurance Act 1995 (Cth) s 200(3); Copyright Act 1968 (Cth) s 196(4). Some statutory transfers may not extinguish the liability of the transferor, eg Carriage of Goods By Sea Act 1992 (Eng) s3(3). Moreover, some statutory transfers may in fact take effect by way of novation: see [3.06]. See also Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1; PP Consultants Pty Ltd v Finance Sector Union (2000) 201 CLR 648; Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 214 ALR 24; Amcor Ltd v Construction, Forestry, Mining and Energy Union (2005) 214 ALR 56; Re Insurance Australia Ltd (2004) 139 FCR 450. Arguably, a transferee may also be bound by a burden that arises as a legal incident of a contract: see Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd [1988] 1 Lloyd’s Rep 514 at 547 per Hobhouse J (approved [1990] 1 QB 818 at 890). 787 See Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 76 per Gibbs J. 788 Davies v Collins [1945] 1 All ER 247 at 249; Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014 at 1019; Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103 per Lord Browne-Wilkinson; Century 21 (South Pacific) Pty Ltd v Century 21 Real Estate Corp (1996) 136 ALR 687 at 698 per Burchett J; Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 at 513; British Fuels Ltd v Baxendale [1999] 2 AC 52 at 76. Cf Calaby Pty Ltd v Ampol Pty Ltd (1990) 71 NTR 1 at 16 (overruled (1991) 110 ALR 343). 789 [8.07].
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It is also necessary to distinguish the situation where the terms of an assignment make the assignment conditional upon the assignee carrying out certain contractual duties that are capable of being vicariously performed.790 Such assignments do not negate the primary responsibility of the assignor to the obligor for performance of the duty. However, there can be difficult issues of construction that must be addressed in such assignments. For example, the agreement between the assignor and assignee may be that there is to be no assignment until the assignee performs the relevant obligation. In such a case, there exists at most an agreement to assign which may in some circumstances take immediate effect in equity, but will not be sufficiently “absolute” for the purposes of a statutory assignment. Alternatively, the condition may be only a condition subsequent so that the assignment is intended to take immediate effect and the assignee will be in breach of contract to the assignor if it fails to perform the relevant obligation. The rule being discussed in this section is concerned with the extent to which a duty can be “assigned”, which makes the assignee responsible for the performance of that duty. [6.102] Non-assignment of duties and the principle of transfer. There is a difficulty in explaining the existence of a rule that allows for the assignment of a duty by reference to the principle of transfer. The principle of transfer dictates not only that a person can assign no greater right than that which is vested in him or her, but also that it is possible to transfer only something one owns. A party does not own an obligation; it can own only a right to an obligation.791 Moreover, in the context of intangible personal property and contractual rights, it is possible to assign only a chose in action and it is only contractual rights that are considered choses in action and not contractual obligations or burdens. Therefore, there is little difficulty in proving that the principle of transfer underlies the rule that it is not possible to assign contractual duties or burdens. However, in practice, most of the concern is with possible exceptions to this rule, and this section concentrates on these possible exceptions. [6.103] Tito v Waddell. In terms of judicial statements, the possibility of assigning contractual burdens in Anglo-Australian law has only ever received serious consideration and approval by Sir Robert Megarry V-C in Tito v Waddell (No 2).792 In that case, Megarry V-C investigated the extent to which a principle of benefit and burden permeates the law.793 That is, he was concerned with the extent to which the law dictates that a person cannot accept a benefit without also accept790
The British Waggon Company and the Parkgate Waggon Company v Lea and Co (1880) 5 QBD
149. 791 792 793
Cf [6.14]. [1977] Ch 106. See further CJ Davis, “The Principle of Benefit and Burden” [1998] CLJ 522.
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ing any burden that forms part of, or conditions that benefit. Many of his examples were drawn from the law of real property, which is in turn informed by its own history and policies. It is not necessary here to delve into that history as it would mainly be concerned with areas well outside the assignment of contractual rights, and, in any case, it is probably fair to say that, at most, the idea that a person cannot take a benefit without accepting the burden represents a maxim of the law or an organising idea rather than a rule of law.794 Nevertheless, Megarry V-C formulated two principles under which a contractual burden may be assigned which he did not appear to limit to transactions involving land, even though his examples were drawn from land transactions. The first principle is the “conditional benefit” principle and the second is the “pure principle of benefit and burden”. The concern here is to determine whether these principles have any doctrinal force. [6.104] The “conditional benefit principle”. The “conditional benefit” principle was explained by Megarry V-C in the following terms:795 An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain burdens assumed, such as an obligation to make certain payments. Such restrictions or qualifications are an intrinsic part of the right: you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee who is bound by the burden: his successors in title are unable to take the right without also assuming the burden. The benefit and the burden have been annexed to each other ab initio, and so the benefit is only a conditional benefit.
It follows from this statement that the “conditional benefit” principle will not apply where the benefit and burden are clearly independent.796 [6.105] Outline of the explanation. The discussion that follows seeks to make the following points as regards the “conditional benefit principle”: 1. The first requirement of a conditional benefit is that the duty define the right. 2. One doctrinal explanation of the principle rests on there being a prohibition on assignment which is waived if the assignee agrees to perform the burden of the contract. In such cases the assignee will always be liable for the nonperformance of the burden.
794 See Government Insurance Office (NSW) v KA Reed Services Pty Ltd [1988] VR 829 at 831 per Brooking J. Cf EP Aughterson, “In Defence of the Benefit and Burden Principle” (1991) 65 ALJ 319; CJ Davis, “The Principle of Benefit and Burden” [1998] CLJ 522. 795 [1977] 1 Ch 106 at 290. 796 Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161; Radstock Cooperative and Industrial Society v Norton-Radstock UDC [1967] Ch 1094, [1968] Ch 605.
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3. A second doctrinal explanation is based on the ability of the assignor and obligor to bring into existence contractual rights that have burdens attached to those rights and which pass with any assignment of the right. Depending on the construction of those rights and, in particular, the legitimate expectations of the obligor, the assignee may in some cases be liable for the nonperformance of the subject burden. 4. On either explanation, the burden must be “relevant” to the right in the sense of being, by reason of the nature of the contract, intrinsic to the right. Before setting out this explanation in detail it is necessary to make a couple of distinctions. [6.106] Dealings in contractual rights and other forms of intangibles. It is important to emphasise that the concern here is the assignment of contractual rights and the operation of the conditional benefit principle rather than assignments of intangibles that resemble transactions in tangibles such as patents and copyright. In the latter, the usual situation that arises is that the original owner transfers the subject property to the assignor (rather than merely licensing it) for the purposes of the assignor exploiting the property and paying a percentage of the profits to the original owner. The assignor then assigns the property to the assignee, and the question arises whether the assignee is bound to account to the original owner for a percentage of the profits. The resolution of that issue (putting aside any relevant statutory provisions) would appear to depend on the view one takes of the decision of Knight Bruce LJ in DeMattos v Gibson,797 and whether mere notice of the terms is sufficient to give rise to liability or whether the assignee must expressly recognise the terms798 or whether the assignee can be liable only if the original owner retains some interest in the property.799 The above distinction is not intended to suggest that the conditional benefit principle or even the pure principle of benefit and burden have no relevance to such cases however, to apply those principles it may be necessary to adopt a broader view of them than is put forward here. Certainly Megarry V-C thought so.800 It may be thought that it is easy to distinguish such cases on the basis that 797 (1858) 4 De G & J 276 at 282, 45 ER 108 at 110. See also Tito v Waddell [1977] 1 Ch 106 at 300–2. See further Kauter v Kauter [2003] NSWSC 741; Mac-Jordan Construction Ltd v Broomount Erostin Ltd [1992] BCLC 350. 798 Lord Strathcona SS Co v Dominion Coal Co [1926] AC 108. See also Swiss Bank Corp v Lloyds Bank Ltd [1979] 1 Ch 548 at 571 per Browne-Wilkinson J ([1982] AC 584). 799 See Werderman v Société Général d’Elecricité (1881) 19 Ch D 246; Barker v Stickney [1919] 1 KB 121; Dansk Rekylriffel Syndikat Aktieselskab v Snell [1908] 2 Ch 127, and see generally R Merkin, “The Burden of Contracts and the Doctrine of Privity” in R Merkin (ed), Privity of Contract (London, LLP, 2000) ch 4, para 4.6; S Worthington, Proprietary Interests in Commercial Transactions (Oxford, OUP, 1996) ch 5; S Gardner, “The Proprietary Effect of Contractual Obligations Under Tulk v Moxhay and De Mattos v Gibson” (1982) 98 LQR 279. 800 Tito v Waddell [1977] 1 Ch 106 at 300–2.
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they are dealing with the extent to which burdens can attach to things as opposed to dealings with intangibles. The fallacy in that argument is immediately apparent, because “such cases” include patents and copyright and not merely tangible things. Moreover, it is wrong to think of an assignment of a contractual right as having nothing to do with the transfer of a thing. As noted earlier, when such a right is assigned there is a transfer of title to the chose as well as a transfer of the chose, that is, a thing, albeit an intangible thing. However, when dealing in mere rights like contractual rights rather than an object or a patent or copyright, it is easier to accept that an obligation may be attached to the right as part of its process of creation. It is different when dealing with a thing or object which is already in existence at the time of the transaction that seeks to encumber it with an obligation. Therefore, in these latter cases it is necessary to resolve the issue by reference to such matters as notice and reservation of title. The thesis of this section is limited to transactions that deal solely with contractual rights. There is, however, one exception which arises in the context of contractual rights and is exemplified by Halsall v Brizell. That is where the assignee agrees to undertake the burden, ie, where there is a transfer of property made subject to the terms of some contract. This will be discussed further below. [6.107] Conditional benefits and restrictive covenants. A further distinction can be made between the conditional benefit principle and the law of restrictive covenants in relation to land. Generally, the common law did not recognise that a burden bound the successors of the covenantor and equity did not contradict the law by enforcing such covenants. Rather, equity took the position that, by reason of the covenant, the covenantor did not receive a right he or she would have otherwise had and thus prevented successors of the covenantor from exercising a right they never acquired.801 The right vested in the covenantor in taking land burdened by such a covenant may be expressed as: Real Right = (prima facie right – burden). This formula is apt to explain conditional benefits where the assignee is merely negatively burdened, such as in the case of an exclusion clause. However, it does not include within it the case where the burden places a positive obligation on the assignee. Here, under the conditional benefit principle, there is no doubt that the full contractual right vests in the assignee so that it may be expressed as; Assignee’s vested right = (prima facie right + burden), ie, the burden is annexed to the right but does not diminish the right in any way. However, no matter how the conditional benefit principle is explained, it is clear that this does not mean that the burden is transferred. It simply means the assignee must in some cases (without any liability for non-performance attaching) be obliged to carry out the duty if it wants 801 Rhone v Stephens [1994] 2 AC 310 at 317 per Lord Templeman. By contrast, at common law the benefit of a covenant could be enforced by successors of the covenantee against the original covenantor if it touched and concerned the land and if the benefit was intended to run with the land.
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to enjoy the right, and in other cases (where liability for non-performance attaches) the assignee must agree or otherwise be obliged to perform the duty if it wants the benefit of the right. If there was a true assignment of a duty or burden then the assignor would cease to be liable for its non-performance. This is clearly not what Megarry V-C had in mind because he makes it clear that the assignor still remains liable under the contract for its performance. [6.108] Current status of the “conditional benefit principle”. In Rhone v Stephens,802 Lord Templeman appeared to accept the conditional benefit principle, by stating that “conditions can be attached to the exercise of a power in express terms or by implication”, but stated that the condition must be relevant to the exercise of the right.803 His remarks do not appear to have been merely addressing the extent to which an assignor can assign a right and make it conditional upon the assignee vicariously performing an obligation. His reference to the condition being relevant to the exercise of the right appears in a passage where he approves the decision in Halsall v Brizell.804 In that case, the defendant’s predecessor was by deed granted certain rights to use certain roads and sewers on condition that sums were paid to certain trustees for the purposes of maintaining these facilities. The deed was expressed to extend to the “assigns” of the defendant’s predecessor. The defendant purchased the relevant land subject to the covenants contained in the deed. It was held that the defendant was required to pay the relevant sums. On its face, this case could simply be an example of a transfer being made conditional (by the transferor) on the transferee carrying out certain obligations. However, that analysis alone would not make the defendant liable to the trustees. Upjohn J’s decision was based on a principle of deeds to the effect that one cannot take the benefit of a deed without subscribing to the obligations under the deed.805 Today, 802
[1994] 2 AC 310. Ibid, at 322. 804 [1957] Ch 169. See also Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557. 805 Originally, this rule was limited to the situation where a person was named as a party to a deed but did not execute it but nevertheless wished to take the benefit of the deed: see Gallagher v Rainbow (1994) 179 CLR 624 at 647 per McHugh J. Later, it is said to have been extended to bind persons not party to the deed but who nevertheless took the benefit of the deed: see Tito v Waddell (No 2) [1977] Ch 106 at 289 per Megarry VC and see RJA Morrison and HJ Goolden (eds), Norton on Deeds (2nd edn, London, Sweet & Maxwell, 1928) at 26–7. It would follow that where a court has ruled that a successor or assignee of a deed is bound by the burden of the deed, the court is applying this extended principle as such persons are not party to the deed even if the deed is expressed to be made with the covenantee and its assigns: see Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450; Halsall v Brizell [1957] Ch 169. In such cases, the assignee is not bound by all the burdens of the deed, only those that are relevant to the benefit taken: see Rhone v Stephens [1994] 2 AC 310 at 322; Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557. However, it should be noted that generally in order to be able to demand the benefit of a deed, the general law position was that a person could not take the benefit of a deed made inter partes unless named as a party. Legislation now removes the rule that prevented extrinsic evidence being resorted to in order to prove that a person was a party without being named. That is, if a person can by extrinsic evidence prove that he or she is an intended covenantee they can take the benefit. These provisions therefore do not help a person who is merely named as a third party beneficiary of the 803
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that principle may perhaps be viewed as an application of the conditional benefit principle or at least an example of the maxim of benefit and burden. However, the deed contained a provision requiring the owners not to transfer their title except upon obtaining, from a purchaser, an agreement to abide by the covenants in the deed. This is more of a prohibition on transfer. If this point is relied on, then, for reasons discussed more fully below, it is suggested that the better interpretation of the case is that it is an example of a conditional benefit, and that Lord Templeman in Rhone v Stephens interpreted it as such. The English Court of Appeal in Thamesmead Town Ltd v Allotey 806 took the view that Lord Templeman saw Halsall v Brizell as an example of a conditional benefit, and that his requirement that the condition be relevant to the exercise of the right was put forward as a requirement of such conditional benefits. Presumably, if the matter was simply one between the transferor and transferee, they could agree to any conditions they liked, and so it is logical to interpret Lord Templeman’s speech and his requirement that the duty be relevant to the exercise of the right as being directed to the conditional benefit principle.807 [6.109] The requirement that the condition define the right. The main requirement of the conditional benefit principle is that there must be a contractual duty or burden that does not merely define a contractual right but is inherent or intrinsic in the right itself. An example of a contractual duty which merely defined a right would be a duty to perform some obligation to earn a payment. An assignment of the right to receive the payment would be an assignment of a conditional deed: see K Gray and SF Gray, Elements of Land Law (4th edn, Oxford, OUP, 2005) paras 13.39–13.41; GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 669–71 and see John Nitschke Nominees Pty Ltd v Hahndorf Golf Club Inc (2004) 88 SASR 334. See generally Law of Property Act 1925 (Eng) s 56; Law of Property Act 2000 (NT) s 12; Conveyancing Act 1919 (NSW) s 36C; Property Law Act 1974 (Qld) s 13; Law of Property Act 1936 (SA) s 34(1); Conveyancing and Law of Property Act 1884 (Tas) s 61(c); Property Law Act 1958 (Vic) s 56(1); Property Law Act 1969 (WA) s 11(1). See further Law of Property Act 2000 (NT) s 56(3)(b); Property Law Act 1974 (Qld) s 55(3)(b); Property Law Act 1969 (WA) s11(3)(c). These sections provide that in the case of a contract made for the benefit of a third party, where the contract states that the third party must perform obligations to take the benefit, then the third party is required to perform the relevant obligations to take the benefit. 806 (1998) 79 P & CR 557 at 563. 807 Interestingly, prior to Lord Templeman’s speech, Halsall v Brizell (together with ER Ives Investment Ltd v High [1967] 2 QB 379) was considered to be an example of the pure principle of benefit and burden: see Tito v Waddell [1977] 1 Ch 106 at 292–6 and see EP Aughterson, “Enforcement of Positive Burdens—A New Viability” [1985] The Conveyancer 12 at 12. That is, the case was decided on the basis that the defendant wanted to take the benefit of the deed, by using the roads and sewers, and therefore had to accept the burden. This principle of the law of deeds has never been said to depend on the burden conditioning the benefit, but was originally limited to persons named as parties to the deed and was here expanded to apply to persons taking the benefit of the deed: see Tito v Waddell [1977] 1 Ch 106 at 294–5, 303 and see Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1993] 1 WLR 138 at 146 per Hoffmann J (overruled on another point [1995] Ch 152); CJ Davis, “The Principle of Benefit and Burden” [1998] CLJ 522 at 537. If Halsall v Brizell is still viewed as an example of the pure principle then the requirement of relevance must be seen as tempering that principle: see GH Treitel, The Law of Contract (11th edn, London, Sweet & Maxwell, 2003) at 702–3.
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right if, at the time of the assignment, the payment had not been earned, and this result flows from the outstanding obligation or duty defining the right. Nevertheless, it is a first requirement of any conditional benefit that the duty or burden define the right, that is, the ultimate enjoyment of the right must be subject to or dependent upon some performance obligation and not entirely independent of performance. Where the enjoyment of a right is independent of performance then, assuming some contractual obligation still remains to be performed, that obligation will be “transferred” upon assignment of the subject right only if the pure principle of benefit and burden applies. [6.110] Doctrinal explanation for the “conditional benefit principle”. There are perhaps two ways to explain the mechanics of the conditional benefit principle that would make doctrinal sense. The first relies on agreement by the assignee. Thus, the “conditional benefit” principle may simply mean that the obligor has agreed to bring into existence a contractual right by entering into a contract with the assignor, but that right is not assignable unless an assignee agrees to perform the burden of the contract. This is not merely a case of the assignor making the assignment to the assignee conditional. There is an effective prohibition on assignment.808 A number of points follow from this. First, this explanation is relevant only to circumstances where the assignor must perform obligations under the contract. It does not apply where the assignor need assume an obligation only if he or she elects to take the benefit of the contract. Secondly, this first explanation is limited to immediate assignments where the assignee’s promise to perform is part of that assignment or is part of a collateral agreement between the obligor and assignee.809 If the assignor and assignee merely enter into an agreement to assign, which is to take effect upon the assignee performing the obligation, then prior to this, equity should not give effect to the agreement to assign as an immediate equitable assignment, as this would be completely at odds with the prohibition agreed to by the obligor and assignor. In most instances this would not be an issue as the performance of the condition would be part of the consideration for the assignment and equity would give immediate effect to the transaction only if the consideration for 808 Cf Barker v Stickney [1919] 1 KB 121 where an author, in return for royalties, assigned copyright to a publisher who, together with a receiver, assigned that copyright to the assignee. It was a term of the contract between the publisher and author that the publisher would not assign the copyright except subject to the terms of the agreement. There was an assignment and, for reasons that are not relevant here, it was held that the assignee was not liable to pay the royalties. However, no argument appeared to be put before the court that the prohibition rendered the assignment ineffective but rather that it acted to place a charge on the assigned property. See [6.88]. 809 It would not be sufficient for the collateral agreement to be between the assignor and assignee for the benefit of the obligor because, if that were the case, then it would appear that the right had been assigned free of the condition which would be at odds with the nemo dat rule which governs the assignment. That is, the duty, in addition to being intrinsic to the right, continues to define the right in its nature as a chose in action, and so to assign it free of the duty would allow the assignor to assign a greater right than the one he or she has.
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the assignment were executed. Thirdly, because the efficacy of the assignment is based on an agreement by the assignee to undertake the burden then, so long as that agreement is enforceable by the obligor, the assignee will always be liable for the non-performance of the subject obligation. As to enforceability, it will generally be necessary for the assignment to be for value. Thus, the assignor promises to assign immediately and the assignee promises to perform the relevant obligation. From this position, today, it can simply be concluded that the obligor is a third party beneficiary of that contract and can enforce it as such. In the rare case where the assignment was, from the assignor’s perspective, voluntary, then for it to be effective there will still need to be a collateral contract entered into between the obligor and assignee which deals with the condition. In either case, whether the assignment is legal or equitable, the assignee’s duty to the obligor will always be legal as it is based on a contract either between the assignor and assignee or the assignee and obligor. The obligor therefore is not limited to equitable remedies. [6.111] The second route places more weight on Megarry V-C’s notion that the duty is annexed to the right, so that the assignee is obliged to perform merely by virtue of taking an assignment of the subject right rather than by virtue of an agreement to undertake the burden.810 Thus, if an obligation may be said to be part and parcel of a right, then the right cannot be taken without accepting to the duty. Here, instead of assignability being limited by reference to what is in effect a prohibition on assignment (that is, the chose in action lacks the characteristic of assignability unless the assignee agrees to accept the burden), assignability is limited because of the connection between the right and duty. The chose in action has the characteristic of assignability but the burden automatically attaches upon an assignment without the need for an agreement from the assignee. [6.112] The legitimacy of having a right vested in the assignee which has a duty or burden attached to it flows from the principle that the intention of the parties impacts on the character of a contractual right both as a personal contractual right and as a chose in action. This intention impacts on the characterisation of the right; it does not change the nature of the obligation owed to the obligor. It follows that the assignor remains responsible as a matter of contract for the duty or obligation or burden. This is distinct from the normal assignment of a contractual right whereby the title to the contractual right is transferred and the contractual right itself is actually transferred to the assignee.811 In that case (assuming the assignment is a legal assignment) the contractual obligation is no longer owed to the assignor as its correlative right is transferred. However, generally a contractual 810
Megarry VC also expresses this idea in terms of the burden being intrinsic to the right. See Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 915 per Lord Hoffmann. 811
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duty or obligation or burden cannot be transferred in this sense as a person cannot own an obligation that that person owes to another. What occurs here is that a chose in action is created that has a duty or obligation as one of its characteristics, and this binds any transferee of that chose in action. [6.113] The idea that a burden may be annexed to a right is perfectly logical from a doctrinal perspective.812 For example, it is generally accepted as doctrinally sound that one construction of an exclusion clause is to define contractual obligations and their correlative rights rather than merely excusing a breach or limiting liability upon breach.813 That is, the burden of an exclusion clause may impact on the existence and extent of primary contractual rights. If this is so it follows that an assignee of such a right must take subject to that burden, or else the nemo dat rule governing the assignment of contractual rights will have been breached. Another example may be seen in the decision of the High Court of Australia in Bruce v Tyley.814 Here the assignor had been granted, for valuable consideration, a right to take refuse away from a military base which he would then use in his farming operations. It was quite clear that this right contained a corresponding duty to go onto the land and take away the refuse.815 [6.114] It is also suggested that where the assignee is liable for the nonperformance of the subject obligation under this second explanation, then whether the assignment is legal or equitable, the assignee will be liable at common law for breach of contract. There are perhaps two ways to arrive at this result. First, despite the right vested in the assignee being equitable, the obligation attached to the right is legal. If the equitable assignee wants to call for the performance of the contract or is in any case required to accept performance then he or she will be receiving the performance of a legal obligation and must be responsible at law for the non-performance of the legal obligation which is attached to the equitable right. Secondly, if that is not acceptable, then, for reasons advanced later, it is suggested that the failure of the assignee to perform is a sufficient equitable wrong to give the obligor a right to equitable damages.816 [6.115] Finally, it is suggested that each explanation for the conditional benefit principle is sound. However, the latter is particularly important because if 812 Even from a theoretical perspective this makes sense, as theories of property no longer view ownership as merely vesting rights in the “owner”, ownership imposes obligations. This is particularly important in the case of land where ownership is seen more as a form of stewardship: see K Gray and SF Gray, Elements of Land Law (4th edn, Oxford, OUP, 2005) paras 2.87, 2.92. See also Jacobs v Larkin (1892) 13 NSWR (Eq) 62 at 66. 813 See B Coote, Exception Clauses (London, Sweet & Maxwell, 1964) at 7–11. 814 (1916) 21 CLR 277. 815 Ibid, at 290 per Isaacs J. 816 [8.16]–[8.23].
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commercial practice occasionally requires an obligation to be “transferred”, the latter analysis achieves this without the need, in some cases, for the assignee to enter into distinct contracts with the obligor, which can easily be overlooked and which, if not entered into, may jeopardize the assignment. Moreover, in the examples discussed below, it will be seen that the conditional benefit principle appears to be capable of operating without the agreement of the assignee, and it is this latter explanation which provides that result. [6.116] Examples and support for the “conditional benefit principle”. The first doctrinal explanation requires little further exploration. In practice it simply involves an investigation to see whether the contract incorporates, expressly or impliedly, a prohibition that requires an agreement by the assignee to assume the burden for the assignment to be upheld. [6.117] The real issue then is whether it is possible to formulate examples of the second explanation of the conditional benefit principle with respect to contractual rights, and whether any case law support can be found for it even if not referring to it by name. One obvious example is in fact an exclusion clause.817 Here, however, although the assignee may be bound by an exclusion clause to which the assignor was subject, without some agreement by the assignee to this effect, this does not place positive duties on the assignee. It merely subjects the assignee to a contractual burden. [6.118] However, it is not difficult to find examples where an assignee may be required to perform a positive duty without having to find a positive agreement by the assignee to assume that duty. That is, an assignee may be required to abide by a condition if the assignee wishes to enjoy the assigned contractual right. For example, if the right assigned is a right to entry into a stadium for some event, the exercise of that right may require the assignee, for example, to show the ticket upon entry. If the assignee did something in contravention of the conditions of the ticket, the obligor may refuse entry. Another example would be where there is an assignment of the right to the proceeds under a contract of insurance. If the assignee wishes to recover it will be required to carry out any conditions for recovery such as giving notice of the loss.818 A further example may be an arbitration provision. The benefit of an arbitration provision is a chose in action and is assignable.819 In 817
Eg Britain & Overseas Trading (Bristles) Ltd v Brooks Wharf & Bull Wharf [1967] 2 Lloyd’s Rep 51. This assumes that the assignment is not intended to give the assignee rights only once the proceeds have been received by the assignor and, despite the assignment being expressed as a right to the “proceeds” or fruits, it is intended to take effect prior to the right to payment being unconditional, that is, prior to the assignor fulfilling all conditions of the claim. See further [6.33]. 819 Shayler v Woolf [1946] 1 Ch 320 at 323; Montedipe SpA v JTP-RO Jugotanker (The Jordan Nicolov) [1990] 2 Lloyd’s Rep 11 at 16–17, cf Cottage Club Estates Ltd v Woodside Estates Co Ltd [1928] 2 KB 463. 818
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practice, however, the issue that usually arises is whether, upon the assignment of a right under a contract, that contains an arbitration provision, the assignee, if he or she chooses to enforce the assigned right, is bound to refer any disputes to arbitration. The answer under English law, despite many of the decisions being based in part on the meaning of certain statutory provisions, appears to be that the assignee is so bound. That is, upon the assignment of the relevant right, the assignee is also benefited and burdened by the arbitration provision.820 It could be argued that the obligation to arbitrate is inherent in any such right, and thus the result in the cases is explicable by reference to the conditional benefit principle.821 These examples show that there are cases where an assignee cannot take the benefit without the positive burden. However, in each of these examples, the assignee could not be required to carry out the condition if it did not want to enjoy the right.822 Each example involved a situation where the assignee had a discretion to take or reject the benefit. Moreover, in each example, the assignee could never be liable to the obligor for breach of contract. [6.119] It may be argued that, unless the assignee agrees otherwise, as per the first explanation, this is the limit of the conditional benefit principle.823 Certainly at one point in his judgment, Megarry V-C gave as an example of the principle of benefit and burden the rule that a person named in a deed but not executing the deed cannot take the benefit of a deed without subscribing to the burden, and that 820 See Montedipe SpA v JTP-RO Jugotanker (The Jordan Nicolov) [1990] 2 Lloyd’s Rep 11 at 15 per Hobhouse J (however, note Hobhouse J’s additional remark that the right to arbitrate is in fact the remedy in respect of the cause of action, and under s 136 Law of Property Act (UK) the remedy necessarily follows the right cf [6.54] where the assignment is of a debt rather than a cause of action.). See also Socony Mobil Oil Co Inc v The West of England Ship Owners Mutual Insurance Association (London) Ltd (The Padre Island) [1984] 2 Lloyd’s Rep 408; Rumput (Panama) SA v Islamic Republic of Iran Shipping Line (The Leage) [1984] 2 Lloyd’s Rep 259; Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 at 118; Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti); Socony Mobil Oil Inc v West of England Ship Owners Mutual Insurance Association (London) Ltd (The Padre Island No 2) [1990] 2 Lloyd’s Rep 191 at 200 per Lord Goff; West Tankers Inc v RAS Riunione Adriatica Di Sicurta (The Front Comor) [2005] 2 Lloyd’s Rep 257. 821 Alternatively, if the view is taken that a provision for arbitration is more procedural in nature, as it survives the discharge of the contract, so that it cannot be said to be intrinsic to substantive rights, then the result in the cases may in fact be an example of the “pure principle”. Similarly, the pure principle may explain this result if arbitration provisions are thought to survive termination on the basis that they form a collateral agreement: see Harbour Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1992] 1 Lloyd’s Rep 81 (reversed on other grounds [1993] QB 701). See further D Girsbanger and C Hausmaniger, “Assignment of Rights and Agreement to Arbitrate” (1992) 8 Arb Int 121. Similarly, it would appear that an assignee is bound by an exclusive jurisdiction clause: see Glencore International AG v Metro Trading International Inc [1999] 2 All ER (Comm) 899. 822 Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 at 189. 823 This limit is reflected in some of the legislation that allows for the transfer of burdens. For example, under the Carriage of Goods by Sea Act 1992 (Eng) s 3(1), liabilities are transferred if the consignee taking a transfer of a bill of lading elects to exercise those rights. This situation is distinguished from where a contract is made for the benefit of a third party but a condition of enjoying that benefit requires the performance of some obligation.
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the burden cannot be enforced if that person refrains from taking the benefit.824 However, at other points his judgment appears to go further to include within the conditional benefit principle the performance of positive obligations by the assignee and the incurring of liability by the assignee for its failure to perform.825 In addition, at one point, under the heading of “Obligatory or Optional”, he said of conditional benefits that if you take the benefit then the “burden immediately binds you”.826 Moreover, Halsall v Brizell was clearly a case of the defendant being “liable” for the relevant obligation.827 However, in Rhone v Stephens, Lord Templeman said of Halsall v Brizell that “the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money”.828 Indeed, Upjohn J himself in Halsall said, “If the defendants did not desire to take the benefit of this deed . . . they could not be under any liability to pay the obligations thereunder”.829 Nevertheless, it may be that Lord Templeman did not intend to suggest that in all cases of conditional benefits the assignee could not be liable, or that the assignee could (without rejecting the assignment) elect to take or reject the benefit, because this statement was made in a part of his speech where he was seeking to explain the requirement of “relevance” (which he introduced) and its characteristic that the burden and benefit be reciprocal. However, the Court of Appeal in Thamesmead held that Lord Templeman had set two requirements for a conditional benefit, namely, the requirement of relevancey and a right to reject the benefit.830 It should be noted that the issue here is not whether the assignee can reject the assignment; it is assumed that the assignment has taken place and the subject chose in action is vested in the assignee. The issue is whether, after a valid assignment, the assignee can nevertheless reject the fruits of that assignment when tendered.831 If it is correct that the conditional benefit principle does not create any liability in the assignee then, putting aside the first doctrinal explanation, it would be limited to those examples, such as the example of a theatre ticket, where the assignee has a clear discretion to elect to take the fruits of the assigned right. [6.120] However, it is suggested that it cannot be right that the assignee can never be liable (under the second explanation) to the obligor for failing to perform the 824 [1977] Ch 106 at 289, 291. See further CJ Davis, “The Principle of Benefit and Burden” [1998] CLJ 522 at 524. 825 Tito v Waddell (No 2) [1977] Ch 106 at 296–9 per Megarry VC. 826 [1977] 1 Ch 106 at 291. However, perhaps here he was addressing the taking of the fruits of the transfer and was not necessarily suggesting that one cannot reject the fruits after acceptance of the transfer of the subject right to the fruits, cf at 307–8 discussing the pure principle. 827 See Halsall v Brizell [1957] 1 Ch 169 at 182, 183. 828 [1994] 2 AC 310 at 322–3. 829 [1957] Ch 169 at 182. 830 (1998) 79 P & CR 557 at 564. 831 Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557 at 565.
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obligation. If that is so then in the case of an assignment of a right to the performance of a service or the right to receipt of title to goods, the assignee could in all cases refuse to accept those services or goods when they are tendered by the obligor without that refusal being wrongful. That is, those rights carry the burden that the purchaser (or assignee) must accept a tender of conforming goods or services.832 In such cases, if the assignee takes an assignment of the right to performance, it has no discretion to accept or reject the tendered performance, and therefore must be subject to the inherent burden attached to the right and liable for the nonperformance of that burden. If this were not the case it would leave the obligor in a serious predicament because, by virtue of the assignment, he or she might not be able to obtain a discharge from the assignor. Even if the obligor’s ultimate failure to perform is excused because of the refusal to accept the tendered performance, such a result effectively allows the assignor and assignee to defeat the contract. The obligor loses a valuable contract because it is placed permanently in suspense by the assignee. The obligor is left to litigate the difficult question whether the assignor remains liable for breach of contract by reason of the assignee failing to accept, which, even if successful, will not help the obligor if, as is often the case, the assignment occurred because the assignee was taking over the business of the assignor and the assignor either was insolvent or had otherwise ceased to exist. Of course, it will depend on the nature of the transaction and the intention of the obligor and assignor whether, assuming the assignment is operative, the taking of the burden is obligatory or optional.833 [6.121] It may be that Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd,834 perhaps the most famous decision on the assignment of contractual rights, is, in fact, an example of an assignee having to exercise the right and accept liability for the burden under this second doctrinal explanation. It will be recalled that in that case Tolhurst had not contracted to supply the personal needs of the assignor; rather, on construction, he had contracted to supply the needs of any person taking over the cement works who took an assignment of the right.835 There are some difficulties with Tolhurst’s case. In particular, the assignee in Tolhurst’s case was obliged to purchase its supplies from the obligor, but if it were not possible to “assign” contractual duties, the assignee would not be so obliged. In Kemp v Baerselman 836 the non-assignability of the assignor’s duty was important in evidencing an intention that the right in question was personal and not assignable. However, this was found not to be so in Tolhurst’s case, even though
832 833 834 835 836
See Bay of Plenty Electricity Ltd v Natural Gas Corporation Energy Ltd [2002] 1 NZLR 173 at 181. See further Tito v Waddell (No 2) [1977] 1 Ch 106 at 291. [1903] AC 414. [6.70]. [1906] 2 KB 604.
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like Kemp’s case the contract concerned an exclusive dealing arrangement requiring the assignor to buy a minimum of at least 750 tons per week and so much more as required by the assignor for the whole of its manufacture of cement on the land.837 However, if the assignee in Tolhurst’s case were to place an order, and if contractual duties could not be assigned, then why should it rather than the assignor (who was treated as having ceased to exist), be subject to the duty to pay?838 At one point, Lord Macnaghten suggested that the assigned right was not personal so long as the assignee was “in a position to carry out the terms of the original contract”.839 Later on he said:840 [I]t is plain that it could not have been within the contemplation of the parties that the company would lose the benefit of the contract if anything happened to Tolhurst, or that Tolhurst would lose the benefit of the market which the contract provided for him at his very door in the event of the company parting with its undertaking, as it was authorized to do by its memorandum.
Lord Lindley said that in upholding the assignment, the assignor could not get rid of its obligations to Tolhurst.841 Perhaps, Lord Lindley simply meant that the duties of the assignor were capable of vicarious performance, and on construction must be made a condition of any assignment, and, moreover, the obligor had impliedly promised to follow the orders of any assignee. There is no doubt an argument that this was also the thinking behind Lord Macnaghten’s statement that the assignee had to be “in a position to carry out the terms of the original contract”. However, it is difficult to see how, by vicarious performance, the subcontractor (assignee) would be performing the obligation of the assignor by substituting its own order requirements. If the personal nature of a contractual right is based on intention (as Lord Macnaghten held), then that intention cannot be the intention of the assignee. That is, it is difficult to see how the intention of the assignee can impact on the construction of a contract entered into by the obligor and assignor unless there is a prohibition on assignment in that contract that makes the right assignable only if the assignee agrees to adopt the burden. 837 Perhaps the argument could have been made that the failure of the assignor to purchase this minimum amount which resulted from the assignor ceasing to exist resulted in a repudiation of the contract. However, it may be that despite this minimum order requirement the contract as a whole was to supply the personal needs of the assignor and assignee, and when the assignor ceased to exist it had no further personal needs and therefore the failure to order would not amount to a repudiation: see William C Attwater & Co Inc v Terminal Coal Corporation (1940) 115 F 2d 887. 838 See also the facts in Atlantic & NCR Co v Atlantic & NC Co (1908) 61 SE 185 (here, in a prior action, the obligor successfully sued the assignor who then, in this action, successfully sued the assignee; the court found that the assignee was liable to the assignor because it had promised the assignor it would pay for the wood supplied to the assignee; moreover, the court found the assignee primarily liable to pay the obligor under the principle of benefit and burden, that is, it could not take the benefit of the contract to be supplied without accepting the burden to pay for that supply). 839 [1903] AC 414 at 416. 840 Ibid. 841 Ibid, at 424. See also Proctor v Union Coal Co (1923) 137 NE 659.
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However, it is difficult to maintain that explanation of the case as there was no evidence or mention of such an agreement by the assignee, express or implied. Ultimately, it is the second statement of Lord Macnaghten’s that holds the key to this case. The effect of that statement is that the assignee was obliged to order and pay for chalk from the obligor and the obligor was required to supply the personal needs of the assignee. This was not a case where the assignee was not bound to buy chalk, but if it did it was required to order all its requirements and pay for them.842 If that were the case, then until the assignee placed an order the obligor could lose the benefit of the contract, which does not achieve what Lord Macnaghten understood to be the intention of the assignor and obligor when they brought these contractual rights into existence. It is suggested that this second statement of Lord Macnaghten’s explains the result in the case as based on the second doctrinal explanation of the conditional benefit principle, in that the duty to buy was annexed to the assigned right to order and be supplied.843 The result of this was that the assignee was obliged to perform the duty and was liable for its non-performance. [6.122] Another example is provided by the facts in Bruce v Tyley.844 In that case the right to remove refuse from military land during time of war was held to be personal because the identity of persons coming on to the land at that time was important to the military. However, if the circumstances were not as they were and the right was not held to be personal and was assignable, then it would be nonsense if the assignee could take that right without any obligation to go on to the land and clean the base. The end result of such a conclusion may be that the assignee has the right (but not the obligation) to go onto the land and remove the refuse; the assignor still has the duty but perhaps no longer a right to enter the land (that is, if the licence to enter cannot be separated from the assigned “right to the refuse” now vested in the assignee) so that in the result the military loses the benefit of its cleaning contract.845 Not only does this point to the right being personal, it also shows that the duty were annexed to the right. It would be different if the right in 842 Arguably, if that were the case, Megarry VC would have seen this as an example of the pure principle: see [1977] 1 Ch 106 at 302–3. 843 See also New Redhead Estate & Coal Co Ltd v Scottish Australian Mining Co Ltd (1919) 20 SR(NSW) 12. Another example would be where an assignee takes a transfer of title to goods from a seller (who has agreed to sell the goods to a buyer under a conditional sale agreement) together with an assignment of the benefit of the contract for the sale of the goods to the purchaser. Clearly, once the buyer pays the price, the assignee is subject to the obligation to transfer title in the goods to the buyer. 844 (1916) 21 CLR 277. 845 Other scenarios include that the assignee has the right but not the duty to go onto the land and collect refuse for reward and the assignor has the duty and still the right to go onto the land to collect the refuse. That is, the licence to enter is enjoyed by both parties. Alternatively if the licence cannot be split in this way, the assignee has the right to enjoy the fruits of the contract but no right or obligation to enter the land and remove the refuse, and the assignor has the duty and right to enter the land and remove the refuse.
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question was a mere licence to enter land upon the payment of a licence fee. Clearly, an assignee of such a right would not be required to assume the burden of paying if he or she did not intend to exercise the right. But neither would the assignor. However, it is different if the right and duty are intertwined in the manner in which they were in Bruce v Tyley so that there is no discretion in the assignee. He or she must exercise the right or else the obligor will lose the benefit of the contract, and that benefit has the burden or duty attached to the right vested in the assignee. [6.123] Usually, in practice, the result in Tolhurst’s case is achieved by a novation which requires the obligor’s consent. It may be argued that the case should be viewed as a novation where the obligor gave its consent in advance.846 There is certainly a view that when a supplier is replaced and the buyer continues to accept goods or services from the supplier a novation may be inferred.847 However, that was not the position in Tolhurst’s case. Moreover, the court clearly dealt with the facts on the basis of assignment and, given that it represents one of the leading decisions on the assignment of contractual rights, it is difficult to write it off as a mere example of novation.848 It must be explained on the basis of assignment, and the second explanation of the “conditional benefit” principle provides a doctrinal explanation.849 [6.124] The requirement that the obligation be relevant to the exercise of the right. There is nothing in Tolhurst’s case that would deny Lord Templeman’s requirement in Rhone v Stephens that the obligation be relevant to the exercise of the right. In fact, if the conditional benefit principle can operate without the agreement of the assignee (as per the second doctrinal explanation), as Tolhurst’s case appears to suggest, then this requirement of relevance becomes crucial as it pre-
846 However, it is not entirely clear to what extent such advance consent will be recognised: see further J Kirby, “Assignments and Transfers of Contractual Duties: Integrating Theory and Practice” (2000) 31 Victoria University of Wellington Law Review (VUWLR) 317 at 345–8. 847 See Telewest Communications plc v Telewest Communications (Publications) Ltd [2003] EWHC 3176 (Ch). 848 Cf Calaby Pty Ltd v Ampol Pty Ltd (1990) 71 NTR 1 at 17–8 (overruled (1991) 110 ALR 343), where Angel J suggested that the only explanation of the case is that by virtue of the contract being impliedly made with “assigns” the assignee inherited the whole contract, similarly to the operation of a nomination provision. He accepted that the contract remained on foot with the assignee simply stepping into the shoes of the assignor rather than there being a novation. However, as already noted, when a nominee is to become party to a contract that occurs by way of novation. Presumably, it could not be argued that privity of contract was created on the basis that the assignor, at the time of contract, was acting as principal in its own right and as agent for the assignee. The better view, it is suggested, is that where there is a reference in a contract to “assigns” this merely points to the assignability of the contract. It does not create privity of contract between the obligor and assignee and does not in itself constitute the contract a contract for the benefit of a third party: see [6.71]. 849 Nor can Tolhurst’s case be written off as a decision based on a quantum velabat.
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vents the assignee, who may have no notice of the attached burden, being caught by surprise and suddenly finding itself obligated or liable for some performance obligation. [6.125] It is necessary then to determine what this notion of “relevance” entails. Mention has already been made of the requirement that the condition define the subject right. This requirement may be seen as a distinct requirement or as part of the requirement of relevance. However, in either case, it is a requirement that is solely informed by the construction of the contract, that is, the intention of the parties (the obligor and assignor). Although Lord Templeman himself did not set out to explain this requirement fully, one aspect he did amplify was that the benefit and burden must be reciprocal. He gave as an example Halsall v Brizell where reciprocal benefits and burdens were “enjoyed by the users of the roads and sewers”.850 The case before him was different. It concerned a house that had been divided into two dwellings: the house and the cottage. The owner sold the cottage and covenanted “for himself and his successors in title . . . to maintain to the reasonable satisfaction of the purchasers and their successors in title such part of the roof of [the house] as lies above the property conveyed [that is, the cottage] in wind and watertight condition”. There was also a clause that gave the owners of both the house and cottage rights of support. A later purchaser of the cottage sought to enforce the covenant relating to the condition of the roof against the successor in title to the owner of the house. Lord Templeman concluded that the right of support involved reciprocal benefits and burdens, but the covenant for repair imposed an independent obligation. The owners of the house could not take the benefit of support without also taking the burden, as one was intrinsic to the other, but the owners of the house “could not in theory or in practice be deprived of the benefit of the mutual rights of support if they failed to repair the roof”.851 It may be that this idea of the reciprocal nature of the benefit and burden, although evidencing a conditional benefit, may not be absolutely necessary. The example given earlier of an assignee of a ticket having to show the ticket to gain access to a theatre shows this. The ticket by that stage has been paid for, and although the promoters of the show may obtain some benefit from the assignee turning up (to advertise the popularity of the show), the theatre itself does not obtain any further substantial benefit by the assignee turning up and showing the ticket (except the chance of perhaps selling some drinks and confectionery to the patron), nor will it be robbed of the benefit (the purchase price) if the ticket holder does not turn up as the ticket will be non-refundable. The reciprocity ends at the point of sale; the customer will not receive a ticket if he or she does not tender payment and the theatre will not be paid if it cannot produce a ticket. 850 [1994] 2 AC 310 at 322 (as noted earlier, it was in this discussion of relevance that he mentioned that the defendant in Halsall had a choice of paying the cost or giving up the right). 851 [1994] 2 AC 310 at 323.
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[6.126] More importantly, it may be that Lord Templeman’s requirement of relevance narrows Megarry V-C’s notion of a conditional benefit, in that it prevents the intention of parties being the sole determining factor as to whether or not there exists a conditional benefit.852 That is, in addition to the parties intending to create a contractual right that has annexed to it a contractual duty, it is also necessary that there be some inherent or intrinsic relationship between the benefit and burden that flows from the nature of the right itself or perhaps the nature of the contract. The issue is not simply one of the parties “attaching a right to a condition for payment”.853 If correct it would follow that even though the intention of the parties to a contract shapes contractual rights in their character as choses in action, there may be a legal limitation on this ability when it comes to attaching burdens to rights that would not otherwise be relevant to the exercise of those rights. It may be that if this inherent or intrinsic relationship is required then intention may be important only in determining whether the parties intended to separate the benefit and burden. That is, in the case of the second doctrinal explanation, the only relevant intention is the intention to bring into existence a right defined by reference to a duty, that is a conditional right. The annexation then occurs by reference to the requirement of relevance. [6.127] Nevertheless, it is suggested that contractual expectation does have a further role to play, and may explain the divergence of results that would otherwise appear to mirror one another. For example, it is suggested that the obligation to pay for the receipt of a service or for the transfer of title to goods is “relevant” to such rights.854 An assignee of a right to the primary performance of a contract for services or for the sale of goods, which has not been paid for by the assignor, is required not only to accept a proper tender of performance (or be in breach of contract) but also to pay for that service.855 852 Megarry VC drew a distinction between the conditional benefit principle, being a principle that allows the parties to attach burdens to rights, and cases where the burden is “in its nature” allocated to the benefit, Tito v Waddell [1977] 1 Ch 106 at 290, 297. 853 Thamesmead Town Ltd v Allotey (1998) 79 P & CR 557 at 565. 854 Doctrinally the assignor here is not excused from paying, and it may be that if the assignor still exists the obligor may have to exhaust its remedies against the assignor. One could argue that the obligor should not transfer possession to the assignee if the assignor does not tender payment. However commercially that approach is too simplistic. If the obligor in the end is not paid and the assignee wants to and does take delivery, or even more importantly if the sale is a credit sale so that the obligor is required to transfer possession to the assignee prior to the price being payable, then it is suggested that assignee should be required to pay. There is no good reason here why the obligor should be required to accept the risk of the assignor’s insolvency. It is different in the case of the assignment of debts where the institution of receivables financing would be at risk if the debtor was not required to accept the risk of the assignor’s insolvency. Hence the need there to limit the debtor’s recourse to the assignee. 855 See Whiteley Ltd v Hilt [1918] 2 KB 808; J Miller Ltd v Laurence & Bardsley [1966] 1 Lloyd’s Rep 90. This assumes that the right to performance is not personal and is assignable, and the assignment is not merely an assignment of the future secondary right to damages that arises upon a breach by the obligor. In Government Insurance Office (NSW) v KA Reed Services Pty Ltd [1988] VR 829 at 831–2, Brooking J gave a number of examples to evidence his concern over the limits of any principle of benefit and
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[6.128] However, the converse does not necessarily follow. If the right assigned is the right to receive payment, it does not follow that the assignee is required to perform the service or deliver the goods.856 This is clearly the case where the obligation to pay has unconditionally accrued. However, this same result should follow where the obligation to pay has only conditionally accrued. Whether that obligation to pay is to be made in advance or in arrears of the counterperformance, the assignee cannot be called upon to perform that counterperformance. In both cases it may be said that the right to performance and the right to payment for that performance are reciprocal, relevant to one another, and from a contract perspective conditional upon one another, but the obligor could not expect that assignee to perform and in many cases would not want the assignee to perform as the obligator has contracted for the personal performance of the assignor.857 In short, the right to receipt of the performance and the right to payment are two distinct choses in action, and the intention that makes the obligation to pay intrinsic to the right to receive performance is missing from the right to receive payment. Therefore, the conditional benefit principle does not introduce any uncertainty into the assignment of debts, receivables financing and securitisation. Moreover, generally, in practice, the assignee can protect itself by merely taking an assignment of the fruits of the contract as opposed to the right to performance.858 [6.129] Another aspect of relevance and the notion of reciprocal benefits and burdens is that the benefit and burden must flow from the same contract. For example, in Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd,859 A purchased shares in the defendant company for the purpose of attempting to obtain some compensation that might be payable to the company. A and the defendant promised the shareholders they would enter into a contract with the plaintiff burden, and particularly the pure principle of benefit and burden. For example, where a gift of a car is made by a purchaser who has purchased the car on credit must the beneficiary pay for the car if the purchaser does not? Another example was a man asking a taxi driver to fetch his wife promising to pay the fare and then the husband refusing to pay, is the wife now liable? With respect, the answer in each of these cases, under the pure principle or under the conditional benefit principle, is no, because the beneficiary is not taking the benefit of the transaction, that is, the right to performance, but merely the fruits of the transaction. Whether someone should be burdened by an obligation arising in respect of the subject matter of a contract is to be determined by a resolution of the issues raised by such cases as DeMattos v Gibson (1858) 4 De G & J 276 at 282, 45 ER 108 at 110. See [6.106]. 856 Cf the position of an assignee of a mortgagee, such a mortgagee in recovering the debt must carry out the obligation to reconvey the mortgage property to the mortgagor: see Ellis and Company’s Trustee v Dixon-Johnson [1924] 2 Ch 451 at 472–3 per Sargant LJ; Public Trustee v Mortlemon [1928] NZLR 337 at 343 per Sim J. 857 There are cases where the obligation to perform may be delegated by the assignor to the assignee but the assignee here is not liable for the non-performance. 858 Cf the example above of the assignment of the “proceeds” of an insurance policy. 859 Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1993] 1 WLR 138 per Hoffmann J (overruled on another point [1995] Ch 152).
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trustee promising that trustee that any compensation recovered would be paid to the plaintiff for the benefit of shareholders. In due course A and the defendant entered into such an agreement with the plaintiff and A further promised the plaintiff not to transfer the shares unless the transferee entered into a covenant in similar form. Nevertheless A did transfer the shares to an assignee/defendant without obtaining such a covenant and the assignee further assigned them to another assignee/defendant. It could not be claimed by the plaintiff that the latter two defendants took a conditional benefit because they did not take an interest in the contract between the plaintiff and A. Moreover, even if it were the shareholders who sued these two defendants, there was still no issue of them taking a conditional benefit in taking the shares because all A promised the shareholders was to enter into a contract with the plaintiff on certain terms, which A had done. [6.130] Finally, it may be questioned whether the requirement of relevance is necessary under the first doctrinal explanation of the conditional benefit principle, given that that explanation relies on an agreement by the assignee to assume the burden. If Halsall v Brizell is an example of the conditional benefit principle, then arguably the answer is yes it is, because that was a case of the assignee agreeing to undertake the burden and Lord Templeman in Rhone v Stephens, in recognising the conditional benefit principle and giving that case as an example introduced the requirement of relevance. It may be that this point can be explained away on the basis that, despite the agreement by the assignee to assume the burden, the construction of the contract nevertheless also evidenced the second doctrinal explanation, hence the requirement of relevance. However, it is suggested that the requirement of relevance still applies to the first doctrinal explanation. That explanation rests on a construction of the contract, by which there is a prohibition on assignment which is lifted only if the assignee agrees to assume the burden. A prohibition on assignment shapes rights in their nature as personal contractual rights and as choses in action. Thus, there is no problem with adhering to the requirement of the burden defining the right under this first doctrinal explanation, as a prohibition directly impacts on assignability and the character of any right assigned. Hence the efficacy of a prohibition lies in the fact that to uphold an assignment in the face of a complete prohibition or an assignment free of the terms of a qualified prohibition would contradict the nemo dat rule governing transfers of choses in action. However, if a prohibition exists solely for the purpose of ensuring that an assignee is bound by the burden of the contract then, in terms of the efficacy of the prohibition, there is much to be said for the view that the burden must continue to be relevant to the exercise of the right. Thus, if the burden is in its nature relevant to the exercise of the right an attempted assignment without an agreement by the assignee to undertake the burden should be ineffective, whereas, if the burden is not relevant to the right, an assignment in the face of the prohibition is still valid but gives rise to a breach of contract by the assignor.
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[6.131] Conclusion on the conditional benefit principle. It is suggested that the conditional benefit principal is doctrinally sound. The preferred analysis of the principle derives from the recognition that obligations can form part of a right. There are obvious examples where this inherently occurs, such as where the transferee of a theatre ticket is compelled to show it to gain entry into the theatre. Moreover, in the case of contractual rights, because those rights owe their existence to the intention of the parties, that intention shapes those rights in their nature as choses in action. It follows that the parties can expressly attach a duty to a right. However, the courts would appear to have attached one policy limitation to this practice, namely that the performance of the obligation must be relevant to the exercise of the right. This protects the assignee from being caught by surprise in those instances where the assignee is bound to perform, and not merely required to perform if it wants to enjoy the benefit of the right. It is suggested that there is no need to add to this a requirement of notice. In those cases where the assignee is obliged to perform or suffer the consequences of liability for breach of contract it will be obvious to the assignee that he or she must perform or else the benefit of the contract will be lost to the obligor. Moreover, under the first suggested explanation, although it was suggested that the requirement of relevance still applies, the assignee would have nevertheless agreed to assume the burden. [6.132] The “pure principle of benefit and burden”. This principle applies only where the benefit and burden are independent of one another.860 Under this principle, the assignee may be required to perform the relevant obligation if policy considerations require it. It exists not as “a technical doctrine, to be satisfied by what is technical and minimal [but rather as a] broad principle of justice, to be satisfied by what is real and substantial”.861 It is said to be the price the law compels one to pay for taking certain independent rights.862 Nevertheless, Megarry VC did appear to subject the general benefit and burden principle to an intention test.863 However, under this principle there is no initial requirement that the burden define the right. It would then follow that if it was never the intention (express or implied) for the assignee to take on the burden, it cannot be held liable for the burden. Moreover, in addition to such an intention it is necessary for the assignee to have taken a “sufficient” benefit.864 In the case of the pure principle, because the burden is an independent obligation arguably it will rarely be relevant to the exercise of the right, but rather enforceable as a matter of policy. However, it is suggested that the better view is
860 861 862 863 864
Tito v Waddell [1977] 1 Ch 106 at 290 and 302. Ibid, at 305. Ibid, at 309. Ibid, at 302. [1977] 1 Ch 106 at 305.
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that independence under the pure principle is a matter of construction and this does not necessarily negate the requirement of relevance. It is suggested that the requirements for the pure principle are, first, an independent contractual obligation, this is determined by reference to construction; secondly, an intention to impose that obligation on any assignee of the benefit of the contract; thirdly, the obligation must be relevant to the exercise of the right. However, here relevance may be informed by broader notions of policy than may be resorted to under the conditional benefit principle. In Tito v Waddell itself, a mining company acquired certain lands for the purposes of mining phosphates. The acquisition of these lands was subject to covenants requiring the company to return the land to its former owners and to replant the land. The rights under these contracts were assigned to commissioners subject to the covenants contained in the contracts. The company itself was wound up and it was held that the commissioners were liable by virtue of the pure principle of benefit and burden to the owners of the land for failing to replant it. Given those facts it may be questioned why the result was not grounded on the conditional benefit principle. It may be, at least at the time of the decision, that the obligation to replant the land was not seen as necessarily reciprocal or relevant to the benefit obtained. Although the pure principle has not been overruled, it may be argued that it did not survive the decision of the House of Lords in Rhone v Stephens.865 In that case, Lord Templeman, with whom the other Law Lords agreed, said that he did not recognise the “pure principle”.866 [6.133] It is suggested that the “pure principle” has been subjected to more “bad press” than it actually deserves.867 In Tito v Waddell, Megarry VC made it absolutely clear that in the case of the “pure principle”, the assignor remains liable for the performance of the obligation.868 Therefore, like the “conditional benefit” principle what is occurring here is both an assignment and something akin to a vicarious performance, but where the assignee is directly liable to the obligor for
865 [1994] 2 AC 310. See also Law Debenture Trust Corp v Ural Caspian Oil Corp Ltd [1993] 1 WLR 138 (overruled on another point [1995] Ch 152). See further Baytur SA v Finagro Holding SA [1992] 1 QB 610; Government Insurance Office (NSW) v KA Reed Services Pty Ltd [1988] VR 829 at 831–41; Calaby Pty Ltd v Ampol Pty Ltd (1990) 71 NTR 1 at 19 (overruled (1991) 110 ALR 343); Gallagher v Rainbow (1994) 179 CLR 624 at 648 per McHugh J; Konstas v Southern Cross Pumps and Irrigation Pty Ltd (1996) 217 ALR 310; Holli Managed Investments Pty Ltd v Australian Securities Commission (1998) 160 ALR 409 at 418 per Finkelstein J. Cf Rufa Pty Ltd v Cross [1981] Qd R 365 at 366 per Lucas SPJ, at 368 per Campbell J, at 371 per Kneipp J; Rural & Agricultural Management Ltd v West Merchant Bank Ltd (1995) 128 FLR 440. 866 [1994] 2 AC 310 at 322. 867 Cf Government Insurance Office (NSW) v KA Reed Services Pty Ltd [1988] VR 829 at 831–2, Brooking J, discussed above n 855. 868 [1977] 1 Ch 106 at 290.
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failure to perform. However, in this case, because of the independence of the right and obligation, there is a presumption of vicarious performance rather than an agreement or obligation flowing from the nature of the chose in action. [6.134] This is not at all a commercially insensitive doctrine. In fact, a version of it forms the basis of assignment under the United States Uniform Commercial Code. Thus §2-210(4) dealing with sales provides:869 An assignment of “the contract” or of “all my rights under the contract” or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by him to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract.
The only issue for Anglo-Australian law is whether or not there is a commercial need to develop a presumption of delegation in assignment where the assignor’s duties remain executory, and whether that presumption operates once the assignee accepts the assignment, or only when and if the assignee elects to exercise or enjoy the assigned rights. For example, if there was seen to be a need to promote assignability of what would otherwise be an exclusive dealing arrangement, such as in Kemp’s case,870 this could be done with such a presumption. It would also drastically reduce the complexity of contracts for the sale of a business where numerous techniques871 have to be used to overcome this hurdle and where, in many cases, legislation has had to step in.872 Another area where the presumption could do some justice is where there is an assignment in circumstances where the assignor ceases to exist despite having obligations still to perform. Where the assignee has promised the assignor that it will perform those obligations, the obligor should be able to enforce that promise on the basis of being a third party beneficiary of the promise. But where this is not the case, and where it is clear to the assignee at the date of the assignment that the assignor is going to repudiate its obligations or cease to exist, so that the assignee will get the benefit only of unconditionally accrued rights, there may be good reasons for holding the assignee bound to perform the contract. Arguably, this was what occurred in Tolhurst’s case which involved an exclusive dealing arrangement. Therefore, if the “conditional benefit” principle did not exist, Tolhurst’s case may still be seen as an example of the “pure principle” in operation. In addition, there is a certain appeal in the notion that, at least in the context of sales, if the assignee takes an assignment of the benefit of the contract, then not only as a
869 870 871 872
See also Restatement of Contracts 2d §328. [6.70]. Eg CSR Ltd v The New Zealand Insurance Co Ltd (1993) 7 ANZ Insurance Cases 61–193. [6.101].
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matter of practicality873 should it pay if the assignor does not, but arguably as a matter of law it should take on the payment obligations. If this does not fall within the conditional benefit principle,874 then arguably it should be dealt with by the pure principle. The pure principle cannot be explained by the principle of transfer. If adopted it would be a more overt policy driven device. However, it needs to be noted that it is also not at odds with the transfer principle, as the assignor still remains liable, that is, there is no transfer of the obligation. Finally, if the pure principle is not adopted, there may still be a commercial need to adopt a simple regime that allows for one party to a contract, with the consent of the other party, to transfer the contract and which allows the second party to the contract to elect whether the assignor is discharged upon the transfer of the contract.875 [6.135] Conclusion on the pure principle of benefit and burden. If it is necessary to develop such a principle then perhaps effect should be given to the principle by statute. Clearly, the liability between assignee and obligor is not based on contract; it is imposed. The authority which actually supports the maxim of benefit and burden and the pure principle that flows from that maxim adopts the view that it is an equitable principle giving rise only to equitable remedies.876 However, if that is the case, there may be problems in making the principle extend beyond the enforcement of negative covenants. Generally, to enforce a positive contractual covenant would require an order for specific performance which is unlikely to issue if there is no contract between the obligor and assignee.877 However, there may be much to be said for allowing a party to a contract (the obligor) to obtain an order of specific performance against some interested third parties.878 873 See Cooper v Micklefield Coal and Lime Co Ltd (1912) 107 LT 457 at 458 (“It is, of course, true that the assignee cannot insist on the continued performance of the contract unless either his assignor is able and willing to satisfy the obligation to pay, or the assignee himself is willing to do it for him. In that sense at least, apart from novation, the obligation to pay is doubly secured after the assignment, because there is not only the continuing personal liability of the assignor, but the necessity upon the assignee of performing the obligations that are the consideration”.). 874 [6.104]. 875 See Unidroit Principles of International Commercial Contracts (2004), Arts 9.3.1–9.3.7. Cf Principles of European Contract Law (2003), Art. 12:201. 876 See ER Ives Investment Ltd v High [1967] 2 QB 379 at 394–5 per Lord Denning MR, at 399 per Danckwerts LJ; Rural & Agricultural Management Ltd v West Merchant Bank Ltd (1995) 128 FLR 440 at 449 per Young J. Cf Tito v Waddell [1977] 1 Ch 106 at 292. 877 See further GIO v KA Reed Services Pty Ltd [1988] VR 829 at 832–4 per Brooking J. 878 See RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 20.240–20.255. Quaere, however, whether it should work the other way and allow an equitable assignee to obtain such an order against the obligor. If the matter is seen as lying entirely in equity, that is, the obligor is attempting to enforce an equitable personal obligation, akin to the type of obligation that may arise upon a beneficiary under a will taking a gift which requires the performance of some condition (for other possible constructions of such dispositions see Countess of Bective v FCT (1932) 47 CLR 417 at 418 per Dixon J), then it is quite clear that equity may in certain circumstances issue an order requiring compliance with the condition: eg Gill v Gill (1921) 21 SR (NSW) 400.
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7 Formalities (a) Introduction [7.01] Purpose of the chapter. If one assumes the existence of an assignable contractual right which is owned by the assignor, the next step in the process of assignment is to satisfy the formal requirements of an assignment. This chapter discusses those formalities.1 It is concerned with the general law formalities of an assignment. It does not consider the requirements of statutory provisions that deal with the transfer of specific contractual interests such as contracts of insurance which are covered in specialist works.2 Both equitable and legal assignments require an intention to assign and the subject matter of the assignment to be both capable of identification and adequately identified. Once these requirements are made out there then follow a number of formalities which differ depending on whether the subject right is assigned in equity or at law. In addition, the assignor and obligor may have agreed to certain conditions that must be met before any assignment is effective.3 [7.02] Structure of the chapter. Following this introduction there are a further five sections to the chapter. The second section deals with intention and the third section deals with the identification of the subject matter of an assignment. The fourth section deals with the formalities for equitable assignments. The fifth section deals with the formalities for legal assignments. The sixth section deals with the assignment of future property. 1 For a discussion of the formalities for a transfer or encumbrance (attachment) in the context of security assignments and charges see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) chs 2 and 3; in particular note para 2.08 dealing with the need for there to be a current obligation between the debtor and creditor. 2 Some legislation may require registration of the assignee’s interest not merely, in the case of a security, as a matter of perfection but as a matter of attachment: eg Bills of Sale Act (1878) Amendment Act 1882 (Eng) s 8; Bills of Sale Act 1898 (NSW) s 5c(1) and cf Security Interests in Goods Act (NSW) (not in force at time of writing). 3 See G & N Angelakis Shipping SA v Compagnie National Algerienne de Navigation (The Attika Hope) [1988] 1 Lloyd’s Rep 439. There is a long history of imposing conditions on the transfer of company shares. Such conditions may extend to requiring the assignor to give the obligor notice of the assignment before it is effective.
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(b) Intention [7.03] Introduction. It is a requirement of all consensual assignments that the assignor intend to assign. Moreover, except for the case of an assignment which is upheld by operation of law, such as in the case of death or bankruptcy or where an agreement legally to assign takes effect as an immediate equitable assignment, that intention will be an intention immediately to assign. This section outlines the nature of this intention and the process by which courts determine whether that intention exists. The distinction between an intention to assign by way of security and an intention to make an outright assignment was dealt with earlier.4 [7.04] Intention described. The intention required for an assignment is an intention to transfer the ownership of the subject chose in action. That is, the assignor must intend to part with dominion over the chose.5 An intention to assign must exist in each assignor having a joint interest in the subject matter of the assignment.6 It has already been noted that this intention is important in distinguishing assignments from transactions such as charges and declarations of trust.7 In addition, this intention helps to distinguish an assignment from a revocable mandate.8 The intention required for an assignment implies that the assignor must intend to make an irrevocable transfer.9 A revocable mandate is an order or authority which is intended to be revocable and which may be terminated prior to its becoming irrevocable. The point in time at which a revocable mandate becomes irrevocable depends on the subject matter. Generally, an instruction given to an agent may be 4
[3.15]–[3.16]. Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 159 per Griffith CJ citing Wilding v Richards (1845) 1 Coll 655 at 664, 63 ER 584 at 588 per Knight Bruce VC. See also Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 620 per Starke J. 6 Josselson v Borst [1938] 1 KB 723. 7 [3.17]–[3.18]. 8 See Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 621–3 per Dixon J. As regards revocable mandates see Malcolm v Scott (1843) 3 Hare 39, 67 ER 288; Bell v The London and North Western Railway Co (1852) 15 Beav 548, 51 ER 651; Ex parte Hall (1878) 10 Ch D 615; Re Lockhart (1894) 15 NSWR (B & P) 80; Smith v Perpetual Trustee Co Ltd (1910) 11 CLR 148; HG Harper & Co v J Bland & Co Ltd (1914) 84 LJKB 738; Re Williams [1917] 1 Ch 1; Rekstin v Severo Sibirsko Gosudarstvennoe Akcionernoe Obschestvo Komseverputj and the Bank for Russian Trade Ltd [1933] 1 KB 47; Curran v Newpark Cinemas Ltd [1951] 1 All ER 295; Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460; Re Danish Bacon Co Ltd, Staff Pension Fund Trusts [1971] 1 WLR 248; Noonan v Martin (1987) 10 NSWLR 402; Kijowski v New Capital Properties Ltd (1990) 15 Con LR 1. A cheque is a revocable mandate and not an assignment of all or part of the drawer’s chose in action against his or her bank: see Schroeder v The Central Bank of London Ltd (1876) 34 LT 735; Re Beaumont [1902] 1 Ch 889 at 894 per Buckley J; Tom Shaw & Co v Moss Empires (Ltd) (1908) 25 TLR 190. See further Morgan v Larivière [1875] LR 7 HL 423 (letter from a bank that a credit has been opened in favour of a person was not an assignment but merely a representation that the bank will act as paymaster). 9 Re Cozens [1913] 2 Ch 478. 5
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revoked up to the time that the agent acts upon the instruction.10 The bankruptcy or death of the person issuing the mandate will also revoke the authority.11 It may be noted that revocability alone does not distinguish an intention to assign from an intention to create a revocable mandate. An offer of an assignment (which by definition is based on an intention to make an irrevocable transfer) is revocable prior to that promise being purchased by the assignee. Similarly, an intention to make a voluntary assignment is revocable prior to the time when the equitable or legal requirements for the gift are satisfied.12 Moreover, the fact that a revocable mandate is acted upon so that it becomes irrevocable does not change the construction of any relevant memorandum to one of assignment.13 [7.05] Intention an issue of fact. It has been consistently said that the determination of intention is a question of fact.14 Clearly, the state of mind of the person in the position of the assignor is an issue of fact. Nevertheless, to determine that intention account must usually be taken of the transaction and this leads to intention being determined from the position of a reasonable assignee or obligor.15 This is in line with the approach taken to the construction of a contract which is a question of law. Intention is determined by construing the statements and documents that are alleged to evidence the intention to assign.16 It follows that if a document on its face evidences an assignment, the parties cannot agree that it is not an assignment.17 The subjective intention of the parties gives way to an objective 10 Morrell v Wooten (1852) 16 Beav 197 at 204, 51 ER 753 at 756; Fitzgerald v Stewart (1831) 2 Russ & M 457, 39 ER 467. See also Re Russell (1893) 37 Sol Jo 212. As regards banks and the revocation of payment instructions see R Cranston, Principles of Banking Law (2nd edn, Oxford, OUP, 2002) at 243; M Brindle and R Cox (eds), Law of Bank Payments (3rd edn, London, Sweet & Maxwell, 2004) paras 3.093–3.107. 11 Ex parte Hall (1878) 10 Ch Div 615; Re Russell (1893) 37 Sol Jo 212; Re Lockhart (1894) 15 NSWR 80. The issuing of a garnishee order will also revoke the mandate: Rekstin v Severo Sibirsko Gosudarstvennoe Akcionernoe Obschestvo Komseverputj and the Bank for Russian Trade Ltd [1933] 1 KB 47. 12 Harding v Harding (1886) 17 QBD 442 at 444 per Wills J. 13 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 620 per Starke J; Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148. 14 Eg Olsson v Dyson (1969) 120 CLR 365 at 388 per Windeyer J; Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 167 per Higgins J. 15 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten. 16 Gorringe v Irwell India Rubber & Gutta Percha Works (1885) 34 Ch D 128 at 134 per Cotton LJ. See the argument raised in Josselson v Borst [1938] 1 KB 723, that clauses which appeared in the contract after the formal assignment provision rendered that provision nugatory. See also Lambe v Orton (1860) 1 Dr & Sm 125 at 127, 62 ER 325 at 326; Bell v The London & North Western Railway Co (1852) 15 Beav 548 at 557, 558, 51 ER 651 at 654, 655; Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 160 per Griffith CJ; Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 623 per Dixon J; Perpetual Trustee Co Ltd v Smith (1938) 39 SR (NSW) 19 at 37 per Jordan CJ; Re McArdle [1951] Ch 669 at 674 per Evershed MR; Shepherd v FCT (1965) 113 CLR 385 at 390 per Barwick CJ, at 394–5 per Kitto J, at 399 per Owen J. 17 Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 160 per Griffith CJ citing Oldham v Oldham (1867) LR 3 Eq 404. See also Perpetual Trustee Co Ltd v Smith (1938) 39 SR (NSW) 19 at 39 per Jordan CJ.
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construction of the transaction.18 However, where the meaning of the document is not plain, the case law evidences a practice of investigating all relevant extrinsic evidence.19 Such evidence is important as it is necessary to determine the nature of the transaction.20 Ultimately, the fact/law distinction does not take the issue very far and the reference to intention being an issue of fact perhaps goes no further than to dictate that each case is dependent upon its own facts.21 [7.06] Intention must be communicated. It is a necessary condition of an assignment that the assignor’s intention to assign be communicated.22 To this end, it is sufficient if the assignor posts a document to either the assignee or obligor which encapsulates an intention to assign.23 It may be added that because this requirement is not akin to a formal notice requirement then it is not necessary for a communication to be made to either the assignee or the debtor.24 The purpose of this requirement is to evidence an intention to assign. Moreover, arguably, it is also a
18
Re Gillot’s Settlement [1934] Ch 97 at 111. Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 159 per Griffith CJ. Similarly it has been held that the investigation to determine whether there is an intention to create a trust is derived from a construction of the words used by the parties as well as the nature of the transaction and relevant surrounding circumstances: see Salvo v New Tel Ltd [2005] NSWCA 281 paras 33–4 and the authorities cited there. 20 Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 158 per Griffith CJ. 21 There may be cases where an intention to assign is implied in law: see Coulter v Chief Constable of Dorset Police [2004] 1 WLR 1425 (affirmed on other grounds Coulter v Chief Constable of Dorset Police [2005] 1 WLR 130). 22 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 622 per Dixon J. See also Ex parte South (1818) 3 Swanst 392, 36 ER 907. See further Kijowski v New Capital Properties Ltd (1987) 15 Con LR 1 at 8; Allied Carpets Group plc v MacFarlane [2002] EW HC 1155 QBD (TCC). 23 Eg Alexander v Steinhardt, Walker & Co [1903] 2 KB 208. Cf Timpson’s Executor’s v Yerbury [1936] 1 KB 645 at 657–8 per Lord Wright MR. 24 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 622 per Dixon J. Cf Timpson’s Executor’s v Yerbury [1936] 1 KB 645 at 658 per Lord Wright MR (“communication from assignor to assignee either directly or indirectly is a necessary condition of an assignment”). This case was concerned with whether certain correspondence amounted to an assignment or revocable mandate and, despite the use of the word “assignment” in the above quotation, it may be that Lord Wright was simply pointing to the requirement of communication to the donee as a necessary step in rendering a revocable mandate irrevocable (quaere whether similar comments made in Re Hamilton (1921) 124 LT 737 at 739 are explicable on this same ground); however, the comment was made in the context of rejecting an argument that the correspondence evidenced an intention to assign. See also Morrell v Wootten (1852) 16 Beav 197 at 202–3, 51 ER 753 at 755, suggesting that for a direction given to a debtor or depositee to amount to an assignment it is necessary for the debtor or depositee to consent to pay the third party assignee and for this to be communicated to the third party assignee. If this is not meant to be introducing a formal requirement of notice to an assignee, it may be suggesting that if an assignment takes this form then the communication requirement is made out only if there is communication to the assignee. However, this does not appear to be consistent with Lord Macnaghten’s remarks in William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462, discussed at [7.07]. Again, perhaps this case can be explained as being concerned with either acknowledgment or identifying the steps necessary to render a revocable mandate irrevocable: see further Rekstin v Severo Sibirsko Gosudarstvennoe Akcionernoe Obschestvo Komseverputj and the Bank for Russian Trade Ltd [1933] 1 KB 47. See [2.13]. 19
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step in the process of rendering the intention irrevocable.25 A non-communicated subjective intention can always be revoked.26 However, communication of an intention to assign is not alone sufficient to render that intention irrevocable if the other agreed or legal formalities of the assignment are not made out.27 [7.07] Difficulties in proving and intention to assign.28 Difficulties in determining the existence of an intention to assign can arise in a number of ways. For example, in a formal memorandum of assignment it is possible either to have no clear statement of intent or for there to be a clear statement that is inconsistent with other terms of the memorandum.29 A document may use words suggesting that a transfer is to take place but characterise the parties as something other than assignor and assignee.30 It may also be necessary to read a number of documents together to determine whether an intention exists.31 In some cases, although the documents in question may be construed as evidencing an intention to assign, there may be other arrangements in place between an assignor and assignee to the effect that assignments are to take a particular form or are subject to the performance of some condition, such as approval by the assignee. Such arrangements may be relevant in determining whether the documents are intended to operate as an assignment.32 However, it is important to keep in mind that the relevant intention is that of the assignor. The fact that some previous arrangement as to the form an assignment is to take is in place between the assignee and assignor cannot stop the assignor assigning in some other fashion if that is its (presumed) intention.33 25 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten. Similarly with a revocable mandate, communication may be important in rendering it irrevocable: see Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 620 per Starke J. See further Re Cozens [1913] 2 Ch 478. 26 See Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 170 per Higgins J. 27 See Kijowski v New Capital Properties Ltd (1987) 15 Con LR 1 at 8. Here prior to entry into a contract for the sale of land, the purchaser’s solicitor asked the vendor to provide details of inter alia agreements which the purchaser is to have the benefit of in purchasing the land. The vendor replied noting a particular agreement. However, that agreement was not mentioned in the later agreed contract of sale. It was held that this statement by the vendor, in answer to a pre-contractual enquiry, merely evidenced an intention to assign which did not take effect as there was no act showing that the assignor was transferring the benefit of the agreement. 28 As to when a power of attorney might evidence an intention to assign see Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148. As regards intention and the assignment of bills of lading see GH Treitel and FMB Reynolds, Carver on Bills of Lading (London, Sweet & Maxwell, 2001) para 5.109. 29 See Josselson v Borst [1938] 1 KB 723. 30 Lloyds TSB Bank plc v Clarke [2002] 2 All ER (Comm) 992. See also Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 159, 160 per Griffith CJ. 31 See Malcolm v Scott (1843) 3 Hare 39, 67 ER 288; Hopkins v Hannah Tatchell (1893) 15 ALT 148; Herman v The Mount Lyell Mining and Railway Co Ltd (1903) 29 VLR 550; Re Westerton [1919] 2 Ch 104. 32 See International Leasing Corp (Vic) Ltd v Aicken [1967] 2 NSWR 427 at 447 per Asprey JA. 33 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 675 per Glass JA, at 680 per Samuels JA.
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Difficulties evidencing intention can also arise because of the informality of many assignments. There are three key scenarios to consider.34 The first is where a creditor directs his or her debtor to pay the debt or part of the debt to a third party. The second is where a debtor gives his or her creditor an authority which directs a debtor of the first debtor to pay that creditor a sum of money. The third is where there is an agreement between a debtor and a creditor that the debt is to be paid out of a fund that is coming to the debtor.35 The possible efficacy of the first scenario was arguably recognised by Lord Macnaghten in William Brandt’s Sons & Co v Dunlop Rubber Co Ltd.36 Strictly, the facts of that case concerned the second scenario; however, in his speech Lord Macnaghten made perhaps the most famous statement about how informal an assignment may be and appears to give some recognition to the first scenario. In response to a suggestion made by Lord Alverston CJ in the Court of Appeal that the document in question did not purport to be an assignment on its face or use the language of assignment, Lord Macnaghten said:37 An equitable assignment does not always take that form. It 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. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person.38
Where the direction is not given to the debtor, it must be given to someone authorised to receive it.39 A direction to a debtor by a creditor to pay some third party, for example a bank, for the account of the creditor will not amount to an assignment to that third party.40 It may be different if the order is to pay the third party (assignee) 34 A complete list of the numerous cases that have dealt with these scenarios can be found in The Digest, Choses in Action (London, LexisNexis) viii, paras 280–430. 35 None of these methods results in the debtor being the agent of the assignee: see Flint v Walker (1847) 5 Moore 180, 13 ER (PC) 459. 36 [1905] AC 454. See also Letts v IRC [1957] 1 WLR 201; Re McArdle [1951] Ch 669 at 676 per Jenkins LJ. Cf Morrell v Wootten (1852) 16 Beav 197 at 202–3, 51 ER 753 at 755; Walker v Rostron (1842) Ex 173, 152 ER 174. 37 [1905] AC 454 at 462. 38 The last sentence in the above quotation should not be viewed as suggesting that Lord Macnaghten was dealing only with the sufficiency of notice. He was dealing with the investigation of intention to determine the existence of an assignment. Where the assignment takes the form of a direction to the debtor, it will also constitute notice of the assignment. See [4.11]. 39 See Hyne & Sons v Podosky [1905] QSR 147. 40 Bell v The London & North Western Railway Co (1852) 15 Beav 548, 51 ER 651; Re Kelly (1932) 4 Australian Bankruptcy Cases 258 at 264–5. As to a direction given by a creditor to the agent or representative of the debtor see Sandford v DV Building & Construction Co Pty Ltd [1963] VR 136. An assignment may be evidenced by a debtor consigning goods to an agent with instructions to forward the proceeds of sale to a creditor: see Alexander v Steinhardt, Walker & Co [1903] 2 KB 208. However, an instruction by a principal to his or her agent to apply property in payment of a certain creditor does not necessarily evidence an intention to assign even if the creditor is informed that the instruction has been given: see Malcolm v Scott (1843) 3 Hare 39 at 46, 67 ER 288 at 291. Cf Palmer v Culverwell Brooks & Co (1902) 85 LT 758; Hopkins v Hannah Tatchell (1893) 15 ALT 148. A statement by a true agent that
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absolutely.41 However, where the order is to pay the sum into the creditor’s account with the creditor’s bank, additional words may evidence an intention to assign the debt to the bank.42 In Re Kent & Sussex Sawmills Ltd 43 (a second scenario case), a direction given by a creditor (assignor) to its bank (assignee) for the purposes of the bank forwarding that direction to the debtor required the debtor to pay the subject sum to the account of the assignor at the assignee’s bank, and went on to say that the receipt by the bank would discharge the debt and that the instructions were “to be regarded as irrevocable unless the said bank should consent to their cancellation”. These words were held to constitute the direction an assignment. In this case there was a prior agreement by the bank to provide the creditor with an overdraft account and the assignment was given by way of security in respect of that provision of credit. The difficulty with this first scenario is that a direction to a debtor to pay a third party is ambiguous. It may be informed by an intention to assign or it may be no more than a direction to pay which can be revoked. In Smith v Perpetual Trustee Co Ltd,44 Griffith CJ warned that if “a mere request to a debtor to pay the debt to a creditor of the person making the request were necessarily an equitable assignment, extraordinary consequences would follow”.45 As Lord Macnaghten made clear, for there to be an assignment the meaning must be plain. It is to this end that statements can be found in cases that dictate that for such a direction to amount to an assignment it is necessary for there either to be a pre-existing agreement with the assignee that such a direction will be given or for notice of the direction to be given to the assignee.46 If the debtor is authorised he or she may give the notice.47 This is not to introduce a formal notice requirement into such assignments. These cases also do not call into question the efficacy of a direction as being sufficient on its own if, on construction, it is found to contain an intention to assign.48 Nor do it will hand over certain funds to its principal once they are received cannot evidence an intention by the agent to assign those funds if the principal in fact already owns them: see Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 12 per Latham CJ. 41 Lett v Morris (1831) 4 Sim 607, 58 ER 227; Burn v Carvalho (1839) 4 Myl & Cr 690, 41 ER 265. 42 This assumes that the money is not already owned by the person in the position of the assignee: see Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 12 per Latham CJ. 43 [1947] 1 Ch 177. See also Herman v The Mount Lyell Mining and Railway Co Ltd (1903) 29 VLR 550. 44 (1910) 11 CLR 148. 45 Ibid, at 158 per Griffith CJ. 46 Curran v Newpark Cinemas Ltd [1951] 1 All ER 301 at 299–300; Mackenzie v The City Bank (1876) 14 SCR (NSW) 1 at 6–7 per Sir J Martin CJ. See also Re H Dengate and Son (1921) 21 SR(NSW) 619; Liverpool & London and Globe Insurance Co Ltd v Hartley & Ford [1927] VLR 523. Arguably it is not necessary that prior agreement with the assignee be an agreement to give the direction; it may be sufficient for it to be an agreement to apply the debt owed to the assignor to discharge the obligation owed to the assignee: see Burn v Carvalho (1839) 4 My & Cr 690 at 701, 41 ER 265 at 270. 47 Re Duck Jarm (1924) 24 SR(NSW) 521. 48 Cf Reid v McIntyre (1905) 11 ALR 159 (here there is a suggestion that notice to the assignee is a necessary requirement but that this method of assignment will not work if the assignee is a mere volunteer (cf the earlier decision in Harding v Harding (1886) 17 QBD 442 and the later decision in Re Westerton [1919] 2 Ch 104); it is also suggested that a direction is revoked by the death of the assignor if it has not be acted upon by the time of death).
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they suggest that a statement that is not ambiguous and is no more than a direction can be re-construed from its inception as evidencing an intention to assign by some later communication; however, in the case of a revocable mandate such communication may be an event that renders it irrevocable.49 What these cases do is deal with the problem of proving an intention to assign when all that exists on the face of a document is a direction to pay a third party. Thus, while the existence of a prior agreement to give the direction is not an absolute requirement,50 what may be important (but not conclusive51) as regards the factual matrix in which a direction is given is the existence of some prior relationship between the assignor and assignee, such as that of debtor and creditor.52 That matrix, or in some cases extrinsic evidence, may be resorted to if the intention behind the direction is not plain.53 Similarly, where the meaning of a direction is ambiguous a later communication to the assignee may be taken into account as evidence of the intention that informed the direction.54 Alternatively the direction and later communication may be seen as part of a single transaction, so that the latter necessarily informs the meaning to be given to the direction. Finally, it may be that although a direction is found to be no more than a direction to pay, a later notice of the direction being given by the “assignor” to the “assignee” itself encapsulates an intention to assign rather than merely evidencing the intention that informed the initial direction. The second scenario raises no peculiar difficulties.55 Where a direction on a debtor is handed to the person who is in the position of the assignee with authority to hand that direction to the debtor, the authorities would appear to suggest that there is little problem in construing the intention of the person in the position of the assignor as an intention to assign.56 Nevertheless, ultimately there must be 49 It is possible, subject to the interests of third parties, for the parties to a contract later to enter into a further agreement which sets out the meaning to be given to the terms in the former contract, and that this will take effect from the time of formation of the first contract. However, generally mere communication of an instrument that does not itself evidence an intention to assign cannot turn it into an assignment: see Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 170 per Higgins J. 50 Except where the assignment involves an element of future property: see Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460. 51 Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 159 per Griffith CJ. 52 See Re Kent & Sussex Sawmills Ltd [1947] 1 Ch 177 at 180 per Wynn-Parry J. 53 See [7.08]. See further Re H Dengate and Son (1921) 21 SR(NSW) 619 at 625; WJ Adams & Co Ltd v Blencowe (1929) 46 WN(NSW) 150. 54 See Robertson v Grigg (1932) 47 CLR 257 at 265–6 per Gavan Duffy CJ, and Starke J. 55 For a variation of the scenario see Herman v The Mount Lyell Mining and Railway Co Ltd (1903) 29 VLR 550 (here the assignor had an overdraft with the assignee; the assignor instructed its debtor to write a letter to the assignee stating that the debtor would pay the assignor by depositing a sum into the assignor’s account with the assignee; the letter was forwarded to the assignee by the assignor together with a covering letter requesting the assignee to accept the letter of the debtor against the assignor’s account; the two letters together constituted an equitable assignment). 56 Eg William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454; Sandford v DV Building & Construction Co Pty Ltd [1963] VR 136; Tom Shaw & Co v Moss Empires (Ltd) (1908) 25 TLR 190; Re Westerton [1919] 2 Ch 104; Harding v Harding (1886) 17 QBD 442. See also Row v Dawson (1749) 1 Ves 331, 27 ER 1064; Ex parte South (1818) 3 Swanst 392, 36 ER 907; Lett v Morris (1831) 4 Sim 607, 58 ER 227; Crowfoot v Gurney (1832) 9 Bing 372, 131 ER 655; Burn v Carvalho (1839) 4 My & Cr 690, 41
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evidence of an intention to transfer ownership in some thing, and therefore this methodology must take into account the statement made by the Privy Council in Palmer v Carey in its comment on Rodick v Gandell. This is dealt with in detail under the third scenario. The efficacy of the third scenario (together with the second scenario) was given recognition by Lord Truro in Rodick v Gandell,57 where he said:58 [T]he extent of the principle to be deduced . . . is, that an agreement between a debtor and a creditor that the debt owing shall be paid out of a specific fund coming to the debtor, or an order given by a debtor to his creditor upon a person owing money or holding funds belonging to the giver of the order, directing such person to pay such funds to the creditor, will create a valid equitable charge upon such fund, in other words, will operate as an equitable assignment of the debts or fund to which the order refers.59
It has been held that an intention to assign may be evidenced by a notice to the assignee that the assignor holds a debt at the disposal of the assignee60 or undertakes to pay to the assignee sums the assignor expects to receive from a third party61 or where a debtor promises a creditor that a sum to become due to the ER 265; Rodick v Gandell (1852) 1 De GM & G 763, 42 ER 749; Bell v London and North Western Railway (1852) 15 Beav 548, 52 ER 651; Diplock v Hammond (1854) 2 Sm & Giff 141, 65 ER 339; Riccard v Prichard (1855) 1 K & J 277, 69 ER 462; AG v Swan & Fuller (1877) SALR 85; Brice v Bannister (1878) 3 QBD 569; Buck v Robson (1878) 3 QBD 686 (agreeing with the decision in Brice v Bannister and not following Ex parte Shellard (1873) 17 Eq 109); MacFarlane v Lister (1887) 37 Ch 88; Beecham v Pater (1890) 16 VLR 13; Palmer v Culverwell Brooks & Co (1902) 85 LT 758; Robinson v Podosky [1905] QSR 118; Shackell v Howe, Thornton & Palmer (1909) 8 CLR 170; Re Manchester [1925] VLR 670; Liverpool & London & Globe Insurance Co Ltd v Hartley & Ford [1927] VLR 523; Cotton v Heyl [1930] 1 Ch 510; Goldsbrough Mort & Co Ltd v Commonwealth Agricultural Service Engineers Ltd [1930] SASR 201; The Zigurds (1931) 47 TLR 525 (see also The Zigurds [1932] P 113, [1933] P 87, [1934] AC 209); Re Connolly [1931] GLR 551; Nolan v King and Cook [1931] QSR 342; Robertson v Grigg (1932) 47 CLR 257; Re Inglis (1932) 5 Australian Bankruptcy Cases 255; Perpetual Trustee Co Ltd v Smith (1938) 39 SR (NSW) 19; Bank of Australasia v Annie Hertz (1937) 54 WN(NSW) 179; Re Kent & Sussex Sawmills Ltd [1947] 1 Ch 177; Pettit & Johnston v Foster Wheeler Ltd [1950] 2 DLR 42, [1950] 3 DLR 320; Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584; Re Row Dal Constructions Pty Ltd [1966] VR 249; Re Trust of Patrick Smyth [1970] ALR 919. Cf Palmer v Carey [1926] AC 703. See further JG Starke, Assignments of Choses in Action in Australia (Sydney, Butterworths, 1972) at 20–2. 57 Rodick v Gandell (1852) 1 De GM & G 763, 42 ER 749. 58 Ibid, at 777–8, 42 ER 749 at 754–5. See also Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 613; Robertson v Grigg (1932) 47 CLR 257 at 265 per Gavan Duffy CJ, and Starke J, at 270 per Dixon J. See further Mackenzie v The City Bank (1876) 14 SCR (NSW) 1 at 26 per Faucett J; Re Pinches (No 2) (1932) 4 Australian Bankruptcy Cases 200. 59 In this case the subject direction did not evidence an intention to assign. The facts of the case fell within the first scenario discussed above. Here a direction was given to the solicitors of the debtor and not the debtor itself. In the circumstances of the case this suggested that the potential assignee was to have no interest in the subject debt until certain adjustments were made and the debt realised. It was not an order on the debtor or a person holding funds for the benefit of the creditor. It was merely an authority to receive which might or might not be acted upon. See further [7.09]. 60 Gorringe v Irwell India Rubber & Gutta Percha Works (1885) 34 Ch D 128. As to the efficacy of a creditor instructing a debtor to hold the debt on trust for a third party see JC Hall, “Gift of Part of Debt” [1959] CLJ 99 at 108–9.
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debtor from a third party will be paid to the creditor by the third party.62 In addition, an intention to assign may be evidenced by the assignor delivering to the assignee written evidence of a debt. However, this is probably limited to where there exists no other reason why that evidence would be shown,63 and if it is clear that the intention is to transfer an interest in the debt or fund and not a mere security interest in the document itself.64 Conversely it has been held that a promise to pay a creditor when a certain fund or debt is recovered (as opposed to a promise to pay out of the proceeds65) does not exhibit an intention to assign that debt or fund.66 Nor does a promise to pay a debt collector a commission upon the recovery of the debt evidence an assignment of part of a debt.67 Finally, despite the clarity of Lord Truro’s statement it can be misleading if taken as prescriptive of an assignment. In Palmer v Carey,68 the Privy Council, after approving Lord Truro’s statement, emphasised that a mere promise to pay out of a fund will not be sufficient if there is no evident intention to pass some interest in the fund. That is, there must be an obligation on the assignor to pay out of the fund rather than an obligation on the debtor/obligor.69 In that case a debtor promised a creditor to pay the creditor sums the debtor would receive from a third person upon the debtor selling goods to that third person. It was held that this agreement did not constitute an assignment or charge on the debt created by the sale of the goods or on the moneys received from the sale.70 It was
61 See Re Irving ex parte Brett (1877) 7 Ch D 419; Re Gillot’s Settlement [1934] Ch 97 at 109, 110 per Maugham J. See also Durham Bros v Robertson [1898] 1 QB 765 at 769 per Chitty J (“To operate as an equitable assignment no particular form of words is required in the document: an engagement or direction to pay, out of a debt or fund, a sum of money constitutes an equitable assignment, though it does not operate as an assignment of the whole fund or debt”.) This statement was approved by Isaacs J in Tooth v Brisbane City Council (1928) 41 CLR 212 at 221. See further Ranken v Alfaro (1877) 5 Ch Div 786; Tibbits v George (1836) 5 AD & E 107, 11 ER 1107. 62 See Elders Pastoral Ltd v Bank of New Zealand [1991] 1 NZLR 385. 63 Eg Mowry v Todd (1815) 12 Mass 281. See also Merrill v Merrill (1825) 3 Me 463. 64 See Green v Ingham [1867] LR 2 CP 525. See also Gibson v Overbury (1841) 7 M & W 555, 151 ER 887. There is a view that if a debtor delivers title deeds to its creditor then the court will presume the debtor intended to create a mortgage, see the authorities collected in Theodore v Mistford Pty Ltd (2005) 219 ALR 296 at 301–2. 65 See below n 72. 66 See Field v Megaw [1869] LR 4 CP 660. 67 See Plater v Meng (1887) 30 Fed Rep 308. See also Bell v The London & North Western Railway Co (1852) 15 Beav 548 at 553, 51 ER 651 at 653. 68 [1916] AC 703 at 706–7 per Lord Wrenbury. See also Re Gillott’s Settlement [1934] Ch 97; Freeway Mutual Pty Ltd v Taylor (1978) 22 ALR 281; Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 613 per Lord Wilberforce; Sheahan v Carrier Air Conditioning Pty Ltd (1997) 189 CLR 407 at 422–3 per Brennan CJ. See further R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 1.26, 1.31, discussing Re Cosslett (Contractors) Ltd [1998] Ch 495 (see also Smith v Bridgend County Borough Council [2002] AC 336, this appeal to the House of Lords came from a later decision of the Court of Appeal [2000] 1 BCLC 775 in the same litigation; the House of Lords reversed the decision of the Court of Appeal but affirmed the reasoning of the earlier case). 69 Re Buring and Chapman (1941) 13 Australian Bankruptcy Cases 72 at 78.
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reasoned that an agreement that a fund should be applied in a certain way does not constitute an assignment unless there is an obligation, imposed by contract, in favour of the creditor to pay the debt from the fund.71 Whether or not (at least where the fund exists and the intention is immediately to assign) the requirement of a contract is over-emphasised here (as well as in Lord Truro’s statement in Rodick v Gandell 72), the important point being addressed is that there must be an intention to assign and that intention must be evidenced in some way.73 That is, there must be evidence of an intention to transfer ownership of some thing. If an assignee is to be paid not from an assignment of some income stream but from having some ownership interest in a fund which is controlled by the assignor, there must be an obligation on the assignor to pay the assignee out of the fund.74 Similarly, if a debtor’s goods are given to a creditor with orders to sell the goods and pay the amount received to the credit of the debtor in the creditor’s account without any express intention to transfer to the creditor some interest in the goods, or the fund created on sale, then the direction cannot amount to an
70 The result in Palmer v Carey was doubted in Re Bruynius [1995] 1 Qd R 492. See also Re McPherson, Thom & Co [1929] VLR 295 at 299; Perpetual Trustee Co Ltd v Smith (1938) 39 SR (NSW) 19 at 25. Cf Re Gillott’s Settlement [1934] Ch 97 at 109–10. 71 See also Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 35 per McTiernan J; Re McPherson, Thom & Co [1929] VLR 295. 72 Cf Perpetual Trustee Co Ltd v Smith (1938) 39 SR (NSW) 19 at 38 per Jordan CJ and adding (citing Burn v Carvalho (1839) 4 My & Cr 690, 41 ER 265; Wilkinson v Wilkinson (1819) 3 Swan 515, 36 ER 958; West v Newing (1900) 82 LT 260; Hamilton v Letherbridge (1912) 14 CLR 236 at 260): “An agreement for value to arrange that identifiable moneys in the hands or to come into the hands of an attorney for the promisor are to be paid to a third party, is just as effectual to bind the moneys as a direct agreement that the moneys shall be paid”. See further as regards promises to pay out of the proceeds of debts Re Irving (1877) 37 LT 507; Liverpool & London and Globe Insurance Co Ltd v Hartley & Ford [1927] VR 523; WJ Adams & Co Ltd v Blencowe (1929) 46 WN (NSW) 150; Robertson v Grigg (1932) 47 CLR 257; Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 613; Compaq Computer Ltd v Abercorn Ltd [1993] BCLC 602 at 619; Re Bruynius [1995] 1 Qd R 492. See also Re McArdle [1951] Ch 669, where in return for carrying out certain repairs to property the residuary beneficiaries later undertook to “repay” that person “from the said estate when so distributed”. It was held that this did not evidence an intention immediately to assign and could not be enforced as a contract (agreement to assign) because the consideration for the promise was past consideration. The document did not express an intention immediately to transfer partial ownership of an existing fund and, at most, evidenced a promise to assign such an interest (as per Jenkins LJ at 677) (or a promise to pay out of the proceeds of a fund) which failed because the consideration for the promise was past consideration. 73 Similar comments can be found in the earlier decision of the High Court of Australia in Muntz v Smail (1909) 8 CLR 262 at 276 per Griffith CJ, at 304–5 per Isaacs J. 74 See Re Irving ex parte Brett (1877) 7 Ch D 419 at 422 per Bacon CJ. See also Brown, Shipley & Co v Kough (1885) 29 Ch D 848 discussed at [7.09]. There has been a suggestion that there must be an undertaking to keep the fund separate from the other assets: see Jackson v Richards [2005] NSWSC 630 para 19; Domson Pty Ltd v Zhu [2005] NSWSC 1070 para 53, both citing Moseley v Cressey’s Co (1865) LR 1 Eq 405 ay 409. It is not clear why this should be added to the requirement that the property be identified. Providing a creditor with an irrevocable power of attorney in respect of one’s debts is powerful evidence of an intention to assign if the creditor is able to keep any monies recovered: see Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148.
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assignment.75 Finally, it may be noted that a mere agreement to pay a debt out of a fund coming to the debtor may be transformed into an assignment by a later act evidencing an intention to assign. In Re Australian Elizabethan Theatre Trust,76 Gummow J suggested that where a borrower is obliged under a contract with its lender to use borrowed funds to pay certain creditors, then if the creditors are notified of these arrangements this may amount to an assignment. That is, even if the agreement between the borrower and lender was not informed by an intention to assign, and does not evidence an intention to assign the act of giving notice of these arrangements may in itself encapsulate and evidence a distinct intention to assign. [7.08] Evidencing an intention to assign. Reference was made above to the famous statement of Lord Macnaghten in William Brandt’s Sons & Co v Dunlop Rubber Co Ltd,77 where he stressed how informal an assignment may be. The concluding words of that statement were: “[a]ll that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person”.78 It is doubtful whether by these remarks he meant to suggest that no matter what form an assignment takes the issue of whether or not an intention to assign exists is determined from the position of the debtor. In that case itself the assignment took the form of a direction given to the assignee which was delivered by the assignee to the debtor. Such an assignment is effective in equity without notice to the debtor, and therefore the issue of intention is logically determined from the position of the reasonable assignee. The point which Lord Macnaghten was addressing, and which was in issue before the court, was the efficacy of a notice of assignment given to a debtor. In Re Kent & Sussex Sawmills Ltd,79 Wynn-Parry J appears to suggest that where the instructions take the form of a direction given to the potential assignee for the purposes of that assignee communicating the direction to the debtor it is necessary to construe the document for the purposes of finding intention from the position of the assignee.80 As noted earlier,81 in this case the bank had provided overdraft facilities to the assignor. The assignor gave the bank a direction requiring a debtor of the assignor 75
Re Kelly (1932) 4 Australian Bankruptcy Cases 258, Cf Gurnell v Gardner (1863) 4 Giff 626, 66 ER
857. 76
(1991) 30 FCR 491 at 503. [1905] AC 454. Ibid, at 462. See also Gorringe v Irwell India Rubber & Gutta Percha Works (1885) 34 Ch D 128 at 134 per Cotton LJ (“When there is a contract for value between the owner of a chose in action and another person which shews that such a person is to have the benefit of the chose in action, the form of words is immaterial so long as they shew an intention that he is to have such benefit”). 79 [1947] 1 Ch 177. 80 See also Buck v Robson (1878) 3 QBD 686 at 691 where Cockburn CJ appears to suggest that in the case of an assignment in the form of an authority given to the assignee the issue is simply one of construction as between the assignor and assignee. 81 [7.07]. 77 78
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to pay the subject debt into the assignor’s account with the bank. The direction was expressed to be irrevocable unless cancelled by the bank. The bank forwarded this on to the debtor. In construing that document Wynn-Parry J said it was necessary not to “lose sight of the circumstance that the relationship of the two parties in question . . . [that is, the assignor and the bank] was that of borrower and lender and that this letter was brought into existence in connexion with a proposed transaction of borrowing by the company and lending by the bank”.82 In any case, evidence of the debtor’s subjective understanding of the transaction is not generally admissible. [7.09] It would also appear from Wynn-Parry J’s comments that the matrix of facts surrounding the “assignment” are relevant. This must be the case when the meaning of any alleged assignment is not plain. The weight attached to the surrounding circumstances will vary depending on “the formality of the instrument and the deliberateness with which it was cast”.83 The relevance of surrounding circumstances was also emphasised in Rodick v Gandell.84 That case concerned a direction given by the party in the position of the assignor to the solicitors of the debtor (rather than the debtor itself) authorising them to receive money due to the assignor from the debtor and to pay that money to a third party. In holding that the document did not evidence an intention to assign to that third party, Lord Truro looked at the situation of the debtor to show that it was, in the circumstances, impossible to assign any debt owing at that time and so it could not be the intention of the author of the direction to assign any debt. The giving of the direction to the solicitors instead of the debtor showed that the third party was to obtain an interest only once adjustments had been made and a definite sum realised. The “debtor” was a railway company. At the time of the direction there was a dispute about the amount of the debt owed. In addition, railway projects had been abandoned, the railway companies had not been established and there was no fund which could be looked to for payment. The only way to enforce payment was by an action against persons who had proposed to take shares in the railway companies or persons who had otherwise assumed personal responsibility for such monies. It was impracticable to assign these unliquidated demands against such persons. An important factor in determining intention will be the course of dealing between the parties. This was emphasised by Chitty J in Brown, Shipley & Co v Kough,85where, in dealing with an equitable charge, he said:86 82
[1947] 1 Ch 177 at 180. Commissioner of Taxation v Betro Harrison Constructions Pty Ltd (1978) 37 FLR 150 at 155 per Bowen CJ. 84 (1852) 1 De GM & G 763 at 779, 42 ER 749 at 755. See also Smith v The Perpetual Trustee Co Ltd (1910) 11 CLR 148 at 160 per Griffith CJ, 161–2 per Barton J, 163 per Isaacs J. 85 (1885) 29 Ch D 848 (affirmed (1885) 29 Ch D 848). 86 Ibid, at 854. 83
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The [assignment] may be shown by producing a written document which is clear, or the agreement may be fairly derived from the course of dealing, and, where there is a contest as to an oral agreement, the Court must decide whether there is such an oral agreement or not, and the Plaintiffs have to make out in this case one or other of the things I have mentioned before they can succeed in establishing an agreement amounting to an equitable charge or an equitable assignment. . . . An agreement may be shown by the terms which the parties came to with reference to the supposed course of dealing, and derived also from the course of dealing itself relating to transactions that have been entered into or transactions which it is proposed should be entered into, or it may be shown by the special terms agreed upon at the time when the transaction takes place.
In this case a consignor shipped cheese to a consignee and drew a bill of exchange on the consignee. The bill required the consignee to pay the consignor 60 days after sight the sum of £2,500 “value received, and charge the same to account of cheese . . . as advised”. The plaintiffs purchased the bill from the consignor. On the day the bill was drawn the consignor wrote to the consignee, “We inclose bill of lading for 1558 boxes [of cheese] . . . we value on you at sixty days for £2500, favour [the consignors].” The consignee did not accept the bills because the consignor had stopped making payments to its customers, one of whom was the consignee.87 Nevertheless, the consignee took possession of the goods and realised them. The consignee claimed that it was entitled to keep the balance of these proceeds on account of monies owed to it by the consignor on the general account operated between them. The plaintiff brought an action against the consignee, and the trustee in bankruptcy of the consignor claiming that it had a charge on the proceeds of sale of the cheese. There were two arms to the plaintiff’s case. The first focused on the words of the bill of exchange namely, “charge the same . . . as advised”. It was argued that this amounted to a lien or specific appropriation or charge in favour of the consignor. The second arm focused on the letter of advice which was sent on the same day as the bill. It was argued that the letter, which was sent prior to the consignee receiving the goods, appropriated to the drawer/consignor the proceeds from the sale of the goods so that they were specifically appropriated to meet the bill. This right was transferred to the plaintiff upon it purchasing the bill. At first instance Chitty J held that, as between the plaintiff and the consignor (that is, assignee and assignor in the case of an assignment), there was no evidence to suggest that the plaintiff was to have a charge on the proceeds or that this entered into the minds of these two parties at the time.88 In terms of mercantile practice he thought that when bills were drawn against goods there was an expectation that the bills would be met out of the proceeds of the sale of the goods. But this was as far as that expectation goes, it does not go to the creation of a charge 87 Cotton LJ (at 864) in the Court of Appeal thought that the consignee was bound to accept the bill as it had accepted the goods: cf Chitty J at 856 (at first instance). 88 See also Fry LJ at 873 in the Court of Appeal.
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and so a purchaser of the bills could expect no more.89 He did not think that, on the facts, the words “as advised” as they appeared on the bill added anything to the plaintiff’s argument.90 He thought the words had been put in without thought, and this was strengthened by the fact that they did not appear in a second bill relating to other cargo. Moreover, the bill had to stand on its own. It could not be read in conjunction with the letter of advice. The advice letter was merely an instruction by a principal to its agent which was revocable at will and was revoked by the consignor’s bankruptcy. As to whether there was any course of dealing between the consignor and consignee to create a charge on the proceeds he said, “the proceeds of the sales of the various cargoes of which they were in course of receipt were carried to a general account, and when they accepted the bills they had the security of the general account, that is to say, the proceeds of the various cargoes then either undisposed of or in course of being disposed of as a security, out of which they could have repaid themselves the amount of acceptance”.91 Thus, the course of dealing was against the plaintiff as there was no specific appropriation. In the Court of Appeal, Cotton LJ noted a lack of evidence of mercantile practice as to the meaning of the letter of advice. All evidence of mercantile practice was directed towards the language of the bill. Therefore, he had to construe the letter simply on its face, and in that respect he said that it merely equated to a letter stating, “We have drawn on you, we have sent you a remittance which will be sufficient to indemnify you against any liability which you will undertake by reason of your acceptance—that is to say—we are sending goods, the proceeds of which come into the general account between us, as against the bill of exchange when you have accepted it, and when you pay it.”92 In addition, there was no appropriation of proceeds to a specific account, but rather a general account with no records to suggest that the money was treated as the consignor’s. This also evidenced a lack of intention to create a charge.93 He also held that even if there was such an appropriation, the language of the bill could not be construed so as to amount to a transfer of the benefit of the appropriation from the drawer to the person to whose order it was drawn. He thought the words of the bill merely suggested that the consignee was to treat the payment of the bill as exhausting any credit the consignor had in the general account between them.94 Lindley LJ agreed that the bill on its own could not be construed as giving a charge on the proceeds by virtue of giving some equitable right in the goods themselves. He also did not think, as an inference of fact, the drawers/consignors had 89 90 91 92 93 94
(1885) 29 Ch D 848 at 855, 856. Ibid, at 858. Ibid, at 856. Ibid, 865. Ibid, 865–7. Ibid, 868.
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appropriated the cargo to meet the bill. The uncontradicted evidence was that the parties did not deal on the basis of such an appropriation. He concluded that without such an appropriation there could be no transfer of the right to that appropriation.95 One further example concerning the relevance of a course of dealing is Bank of New South Wales v The King.96 This case involved a priority dispute between assignees. The assignee taking the later assignment argued that it should have priority on the basis that there was no earlier assignment and, in any case, it had no notice of it. Only the former issue is relevant here. The relevant facts were that the assignor was engaged by the Crown in 1909 to construct a Post Office. The building was completed in May 1913. However, claims for extras and cross claims by the Crown were submitted to arbitration with the result that £3,642.16s was owed by the Crown. The sum necessary to take up the award was £1,065.15s and this was obtained from creditors of the assignor who took a deed of assignment from the assignor for all monies payable under the award. The contract had provided for progress payments to be made upon the issuing of certificates by the Chief Engineer. Prior to entering into this contract the assignor had opened a bank account with an overdraft facility with the first assignee. From July 1911 to March 1912, the course of dealing between the bank and assignor was for the assignor to give to the bank an order on the PaymasterGeneral for the estimated amount of the next progress payment. When the exact amount of the progress payment was ascertained the assignor would replace this authority with one for the exact amount. The bank would forward this to the Public Works Department and receive the payment from the Treasury. In March 1912, the overdraft was limited to £4,000 as a result of the bank obtaining from a third party a guarantee for the overdraft which was limited to £4,000. From this time, instead of taking the anticipatory order for the next progress payment, the bank would take an anticipatory order for £4,000 and then, on receipt of the certificate from the Chief Engineer for the exact amount, it would treat the new anticipation order for £4,000 as nullifying the previous order. Then in November 1912 a new order was taken in the following terms: “I hereby authorise the Bank of New South Wales . . . to obtain the counter-signature of a cheque of the Paymaster-General for the sum of four thousand pounds or any other sum payable to me, and to sign on my behalf a receipt for that payment.” The bank treated this as a standing order and no longer took fresh anticipatory orders. 95
(1885) 29 Ch D 848 at 870. [1918] NZLR 945. For further instructive examples of the process of determining whether an intention to assign exists see Re Dillon (1890) 44 Ch D 76; Re Westerton [1919] 2 Ch 104; Tooth v Brisbane City Council (1928) 41 CLR 212; Trubenizing Process Corp v John Forsyth Ltd [1943] 4 DLR 577; Re McArdle [1951] 1 Ch 669; McMahon v Gilberd and Co Ltd [1955] NZLR 1206. See further Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd [1998] 2 VR 70. For a difficult example of this process and how opinions can differ on the same facts see Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1. 96
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On this evidence, Hosking J thought there was a clear inference of fact simply from the course of dealing between bank and assignor that the bank, as security for the overdraft, was to have monies payable under the Post Office contract. That is, the bank was to have power to receive the monies to the exclusion of the assignor. The giving of the order gave effect to the right and evidenced the right. He thought that such an assignment had to be in place because there could be no other reason why the assignor would have agreed to this course as it slowed down the receipt of payments resulting in lost interest. There was no reason for such an elaborate scheme without there being such an assignment in place. Moreover, on one occasion where the assignor received payment directly, the bank immediately objected and issued a notice on the debtor.97 Hosking J thought that the construction of the last order of November 1912 clearly extended not only to monies payable at the date of the order but to all monies that become payable thereafter.98 On the facts this had to be the intention of the parties as the last progress payment had been made prior to the issuing of this order. The point was also raised that the assignment or charge was for a fixed sum, namely £4,000, and this was discharged by subsequent payments into the account. To this Hosking J replied: [W]hether that was to be the effect of the operations in the account, or whether, on the other hand, the charge was to be a continuing security and so not affected by such operations, is a question of the intention of the parties, and this may be gathered dehors by the terms of the agreement affecting the security. . . . In my opinion the language and conduct of the parties in the present case establish that the order was meant to be a continuing security.99
[7.10] Finally, there can be little doubt that the presence of executed consideration on the part of the assignee to purchase the assignor’s promise goes a long way in proving an intention to assign. That is, despite the intention to assign being the intention of the assignor that intention is determined from the position of a reasonable debtor, and arguably in cases where the assignment takes the form of a communication to the assignee, the reasonable assignee. From that perspective, evidence that the assignee has purchased the promise will suggest that the assignee would not have paid that price for a mere revocable mandate.100
97 98 99 100
265.
[1918] NZLR 945 at 951–2. Ibid, 952. Ibid, 952–3. Palmer v Carey [1926] AC 703 at 706–7. See also Burn v Carvalho (1839) 4 My & Cr 690, 41 ER
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(c) Subject Matter [7.11] Introduction. The efficacy of any assignment, whether it involves a legal interest or an equitable interest, is dependent upon the subject matter of the assignment being sufficiently identified. This has two aspects. First, the subject matter must be capable of being identified. For example, future contractual rights are not capable of being immediately identified, and therefore may not be assigned prior to those rights coming into existence.101 Secondly, the property itself must be adequately described. The requirement of identification is not unique to the assignment of choses in action. All legal transfers of property require the property to be identifiable and identified. The time at which the property must be identified is the time at which the assignment is to take effect either in law or equity. In the sale of goods context discussions about identification usually arises in the context of sales of future and unascertained goods. Generally, property in goods cannot pass until there is an unconditional appropriation of specific goods to the contract by the buyer or seller with the consent of the other party. Thus, at common law, the mere identification of an existing bulk from which the goods are to come or the coming into existence of what was, at the time of contract, future goods is not enough to transfer title.102 A separate act of appropriation such as delivery, setting aside or seizure is required.103 In the case of a sale of specific goods, assuming the goods are in a deliverable state, an appropriation of goods to the contract occurs by the very nature of the goods being specific and deliverable, so that property will pass at the time of contract unless a different intention is expressed or implied by the parties; that is, the sale must be unconditional. Equity generally followed the law as regards unascertained goods and did not recognise any equitable interest prior to the vesting of the legal interest. Moreover, and although exceptions can be found, equity does not recognise any equitable interest in identified goods under an agreement for sale.104 Various reasons have been given for this. On one view it is thought that equity does not recognise any 101 Tailby v Official Receiver (1888) 13 App Cas 523 at 543 per Lord Macnaghten. See also In re Clarke (1887) 36 Ch D 348 at 355 per Bowen LJ. 102 See now Sale of Goods Act 1979 (Eng) s20A. Note, however, at common law an agreement for the sale of a crop to be grown on a field which was owned by the seller at the time of contract did not require a distinct act of appropriation upon the crop coming into existence. Moreover, the sale of the future progeny of an animal alive at the time of contract was treated as a sale of present property: see MG Bridge, The Sale of Goods (Oxford, OUP, 1997) at 40; KCT Sutton, Sales and Consumer Law (4th edn, Sydney, LBC, 1995) para 2.49; R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 2.05. 103 See Lunn v Thornton (1845) 1 CB 379, 135 ER 587; Joseph v Lyons (1884) 15 QBD 280; Congreve v Evetts (1854) 10 Exch 298, 156 ER 457. Cf Bridge ibid at 91, appropriation usually made out by mere ascertainment. 104 Different considerations apply when the goods are being used by way of security.
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such interest because damages are generally an adequate remedy.105 On another view, it is thought that equity recognised the assignment of legal choses in action only because the common law did not and no similar problem existed as regards goods. The common law always recognised dealings in goods and there was therefore no reason for equity to adopt a position here. The recognition of equitable interests in sale of goods transactions remains a problematic area, but is one a full examination of which falls outside the scope of this book.106 [7.12] Identification and choses in action. As regards dealings in choses in action, equity, relying on the maxim that equity regards as done that which ought to be done, has not been as concerned with acts of appropriation and operates on the basis of there being an intention to transfer, a sufficient description of the property together with the identification of property answering that description, and the presence of some factor which binds the conscience of the assignor, such as executed consideration. Statutory or legal assignments of choses in action follow equity in this regard. If appropriation is needed, then, when combined with an intention to assign, the act of identifying a fund in the hands of a debtor which is to be used to pay a creditor of the assignor is a sufficient appropriation of that fund.107 The issue of identification occasionally arises when the assignment concerns a debt or a fund which the debtor holds for the assignor. It is necessary to identify the debt or fund out of which payment is to be made and, in the case of an order on a debtor given by the assignor to the assignee, it must identify the person to whom the order is directed.108 A direction to a debtor simply to pay a sum to a third party may, in addition to any problem that arises as regards proving an intention to assign, fail this identification requirement.109 Of course no problem 105 JF Keeler, “Some Reflections on Holroyd v Marshall” (1967) 3 Adelaide LR 360 at 372–5 and 468 at 480. Keeler argues that equity’s position can be explained by reference to the availability of specific performance. The suggestion is that although equitable assignment and specific performance are not interdependent, some of the factors relevant to specific performance are relevant to equitable assignments. Many of these factors are excluded by the presence of executed consideration. However, this does not exclude the adequacy of damages factor, cf Coombe v Carter (1888) 36 Ch D 348 at 352 per Cotton LJ. He suggests that the position equity takes in refusing to recognise equitable interests in agreements for the sale of goods even where consideration is executed is due to the adequacy of damages. 106 See further RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 6.335–6.415; MG Bridge, The Sale of Goods (Oxford, OUP, 1997) at 83. 107 See further Re Latham (1857) 1 De G & J 152, 44 ER 681; Thayer v Lister (1861) 30 LJ Ch 427. 108 Re McDonald [1918] NZLR 626. 109 Percival v Dunn (1885) 29 Ch D 128 (here the assignee received from the assignor an order on the assignor’s debtor which stated: “Please pay [the assignee] the amount of his account, 47l”; it was held that there was no equitable assignment as the debt was not identified). See also Re Irving ex parte Brett (1877) 7 Ch D 419 at 422 per Bacon CJ; Re McDonald [1918] NZLR 626; Re Gunsbourg (1919) 88 LJKB 479; WJ Adams & Co Ltd v Blencowe (1929) 46 WN(NSW) 150; Attwood & Reid Ltd v Stephens [1932] NZLR 1332; Palmer v Carey [1926] AC 703 at 707. See further Watson v The Duke of Wellington (1830) 1 Russ & M 602, 39 ER 231; Rodick v Gandell (1852) 1 De GM & G 763 at 777–8, 42 ER 749 at 754; Re Bond (1940) 35 Tas LR 96; Camp v King (1887) 14 VLR 22 and see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.440.
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with identification would arise here if the debtor owed the assignor only one debt at the time of the assignment (as opposed to the date of notice to the debtor if these do not coincide).110 Where the debt or fund is identified and the assignment is an assignment of the entire debt or fund, it is not necessary to state the amount.111 In the case of a partial assignment it is not necessary to state the amount or sum assigned as a percentage will suffice.112 That is, because the assignee becomes a co-owner of the debt or chose in action, or, on another view, a chargee of the debt or chose in action, it is necessary only to identify the debt and the extent of the assignee’s interest.113 However, difficulties may arise over whether or not the debt or right exists. For example, assume that under a lump sum building contract the contractor sub-contracts certain work and attempts to assign to the sub-contractor the part or fraction of the right to payment which relates to that work. Such an assignment cannot be upheld, not only because it is impossible to identify that fraction but because such a right does not exist. It should, however, be possible for these parties to come up with their own fraction and partially assign that.114 It would be different if sums were apportioned to work done. [7.13] Identification and future property. In addition to debts, problems with identification have arisen in the context of assignments of future property. The leading case is Tailby v Official Receiver.115 In that case there was an assignment of “all book debts due and owing or which may during the continuance of [the] security become due and owing”. It was argued that because this provision could capture any book debts that might become due to the assignor in any trade carried on by the assignor it was too vague. It was held that this description was as definite as one that was limited to a particular trade.116 Lord Herschell and Lord Macnaghten added that in the case of an assignment limited to book debts arising from a particular trade difficulties may in fact arise when the business expands.117 The court did not think an assignment could be considered vague and uncertain merely because the description was wide and covered a large area. However, it left open the validity of a clause that was not divisible and that simply assigned all future property and did not limit itself, for example, to all future book debts or all property under a will.118 Nor did it think the clause was vague in the sense that the 110 See WJ Adams & Co Ltd v Blencowe (1929) 46 WN(NSW) 150; Brice v Bannister (1878) 3 QBD 569; Camp v King (1887) 14 VLR 22. 111 Bank of Australasia v Annie Hertz (1937) 54 WN (NSW) 179. 112 Eg Shepherd v FCT (1965) 113 CLR 385; Lambe v Orton (1860) 1 Dr & Sm 125, 62 ER 325. 113 [4.27]. 114 See Delaware County Commissioners v Diebold Safe and Lock Co (1890) 133 US 473. 115 (1888) 13 App Cas 523. 116 Ibid, at 528 per Lord Herschell, at 534 per Lord Watson, at 544 per Lord Macnaghten. 117 Ibid, at 529 per Lord Herschell, at 545 per Lord Macnaghten. 118 See also Re Clarke (1887) 36 Ch D 348 and Syrett v Egerton [1957] 3 All ER 331.
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language was so obscure that it would be impossible to determine what property fell within it. Importantly, the test was not whether the subject matter was ascertainable at the time of the agreement to assign but rather, when the property came into existence.119 Thus, if upon property coming into existence it can be identified as one of the things assigned, that is, if it answers the description in the assignment, then the assignment will not be uncertain as the subject matter is identifiable. [7.14] Identification and contractual rights. Sometimes the issue of identification arises because the contractual right claimed by the assignee may not appear on the face of the memorandum of assignment. That is, if one assumes the existence of a general intention to assign and assumes that the property claimed by the assignee is capable of identification, there remains the issue whether the claimed right was included in the assignment. That is, was it identified? This is an issue that generally will be determined by construing the memorandum of assignment and characterising the property said to be caught by the assignment.120 A number of instances where such an issue has arisen are discussed elsewhere.121 For example, does an assignment of the benefit of a contract carry with it accrued debts;122 does the assignment of a lease carry with it an option to purchase;123 does an assignment of a debt carry with it the benefit of a guarantee;124 does the assignment of the benefit of a building contract by the builder carry with it the right to recover any security deposit?125 Arguably this same process of construing the words of the agreement would apply to a right that was unknown to the law at the time of the assignment.126 In some cases the relationship between the claimed right and the right expressly assigned may be such that the former follows as a matter of course. Thus, although an assignment of the fruits or subject matter generally will not carry with it the benefit of the contract,127 an assignment of the benefit of a contract will carry through to its fruits. Finally, it is also relevant to note that, by reason of the nemo dat rule, if the memorandum of assignment purports to assign a right the assignor does not own the assignee cannot obtain that right. Generally, it 119 (1888) 13 App Cas 523 at 530 per Lord Herschell, at 533 per Lord Watson, at 543 per Lord Macnaghten. See also Holroyd v Marshall (1862) 10 HLC 191 at 212, 11 ER 999 at 1007 per Lord Westbury; Re Clarke (1887) 36 Ch D 348; Re Androma Pty Ltd [1987] 2 QdR 134 at 149 per McPherson J. 120 See Perpetual Executors Trustees and Agency Co (WA) Ltd v Maslen [1952] AC 215; Goldsbrough Mort & Co Ltd v Tolson (1909) 10 CLR 470. 121 See further Moss v Barnett (1862) 1 SCR(NSW) 313; Nettleton v Molineaux (1889) 15 VLR 13. 122 [6.50]. 123 [6.50]. 124 [6.100]. 125 The Shire of Benalla v Turner (1881) 7 VLR (L) 200. 126 Quaere whether this argument would apply if it were clear that the right was not in the subjective contemplation of the parties at the time of the assignment: see further Goldsbrough Mort & Co Ltd v Tolson (1909) 10 CLR 470 at 475–6 per Griffith CJ. It is possible for a “right” unknown to the law at the time of the assignment to be within the subjective contemplation of the parties. 127 See Chung Kwok Hotel Co Ltd v Field [1960] 1 WLR 1112. See further [6.33].
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is the duty of the assignee to determine whether or not the assignor has the rights it claims to assign.128
(d) Formalities (i) Equitable Assignments of Choses in Action; the Assignment of Legal Interests [7.15] Introduction. In three situations, a dealing with a legal interest, which is assignable at law, may be upheld as an equitable assignment.129 The first is where there exists an immediate intention to assign a legal interest for value, but where there is a failure to comply with the statutory requirements for a valid legal assignment—the failure may be intended or unintended. In such a case, where the consideration is executed, equity will uphold the transaction as an equitable assignment.130 Similarly, where there exists a valid agreement for value to assign an existing legal interest, and where the consideration for that assignment is executed, equity will uphold the transaction as an equitable assignment.131 The assignments in these two circumstances are effective from the moment the
128 [8.60]. There are exceptions to this rule. In the case of bills of lading the accepted position is that the consignee’s rights are those expressed in the bill of lading, and parol evidence is not admissible to show that the consignor and carrier agreed in any way to vary these rights even if such evidence would be available in a dispute between the consignor and carrier: see GH Treitel and FMB Reynolds, Carver on Bills of Lading (London, Sweet & Maxwell, 2001) paras 5.021–5.025. As regards the ability of the purchaser of a lessor’s reversion to deal with terms of the lease on their face free of any claim for rectification see Smith v Jones [1954] 1 WLR 1089, and cf Downie v Lockwood [1965] VR 257. 129 An assignor may also be estopped from denying an assignment: see Olsson v Dyson (1969) 120 CLR 365 at 376, 378–9 per Kitto J. See also Ward v Duncombe [1893] AC 369 at 391–2 per Lord Macnaghten; Shropshire Union Railways & Canal Co v The Queen (1875) LR 7 E & I App 496 at 506 per Lord Cairns LC; Dempsey & The National Bank of New Zealand Ltd v The Traders’ Finance Corp Ltd [1933] NZLR 1258 at 1303 per Smith J; Re Matahina Rimu Co Ltd [1941] NZLR 490; Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd [1998] 2 VR 70. 130 Consideration here does not include past consideration but does include a forbearance to sue: see Glegg v Bromley [1912] 3 KB 474. Usually the identification of the price for an assignment is a straightforward issue. However, sometimes it can involve difficult issues of construction: see Landau v Barclays Bank plc [2004] 2 All ER (Comm) 16. 131 Norman v FCT (1963) 109 CLR 9 at 33 per Windeyer J. See also Liversidge v Broadbent (1859) 4 H & N 603, 157 ER 978; Holroyd v Marshall (1862) 10 HLC 191 at 209, 11 ER 999 at 1006 per Lord Westbury; Tailby v Official Receiver (1888) 13 App Cas 523 at 531 per Lord Herschell, at 546–9 per Lord Macnaghten; EM Bowden’s Patents Syndicate Ltd v Herbert Smith & Co [1904] 2 Ch 86; Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 26 per Dixon J; FCT v Betro Harrison Constructions Pty Ltd (1978) 20 ALR 647 at 650–1 per Bowen CJ; Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724; Marchant v Morton, Down & Co [1901] 2 KB 829. See further London & Yorkshire Bank Ltd v White (1895) 11 TLR 570.
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consideration is executed.132 Finally, the preferred view appears to be that where a voluntary assignment of a legal interest fails to satisfy the statutory requirements for a legal assignment, it too may be upheld as an equitable assignment if the assignor has done all the things it and only it can do to vest the legal title in the assignee.133 The relevant equitable maxim operating in each of the above instances is that equity treats as done that which ought to be done. That is, equity treats the transfer as having already occurred. This maxim applies even if the failure to comply with the requirements for a legal assignment was intentional. To attract the maxim it is necessary only that the parties have an intention to assign and for the requirements of an equitable assignment to be made out. However, the relevance of the maxim is not clear if it is proven that the intention was not merely an intention to assign but an intention to assign in equity, there appears to be little point in applying the maxim when what ought to have been done is done. Finally in each of the above mentioned cases, the interest vested in the assignee is not dependant upon the availability of specific performance. In the first two cases equity considers that the right ought to be transferred due to the presence of executed consideration.134 In the third case the conscience of the assignor “becomes bound not by value received, but because as between him and the assignee, his gift [is] complete”.135
132 See RP Meagher, JD Heydon MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.050. However, the assignment is said notionally to relate back to the date of the contract: see above [4.33], cf Raynor v Preston (1881) 18 Ch D 1 at 13 per James LJ. See also JD Heydon and PL Loughlan, Cases and Materials on Equity and Trusts (6th edn, Sydney, Butterworths, 2002) para 6.18; R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 2.13–2.14. This relation back is limited in its effect as regards floating charges: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 4.07, 5.38. 133 Corin v Patton (1990) 169 CLR 540; Pennington v Waine [2002] 1 WLR 2075. See also Re Rose [1952] Ch 499; Re Paradise Motor Co Ltd [1968] 1 WLR 1125; T Choithram International SA v Pagarani [2001] 1 WLR 1. See generally RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 6.074–6.155, for a discussion of the cases and history that have led to this result. See also Property Law Act 1974 (Qld) s 200 which provides “(1) A voluntary assignment of property shall in equity be effective and complete when, and as soon as, the assignor has done everything to be done by the assignor that is necessary in order to transfer the property to the assignee—(a) even though anything remains to be done in order to transfer to the assignee complete and perfect title to the property; and (b) provided that anything so remaining to be done in such as may afterwards be done without intervention of or assistance from the assignor. (2) This section is without prejudice to any other mode of disposing of property, but applies subject to the provisions of this and of any other Act.” These provisions are not without difficulty: see JD Heydon and PL Loughlan, Cases and Materials on Equity and Trusts (6th edn, Sydney, Butterworths, 2002) para 6.14. 134 Tailby v Official Receiver (1888) 13 App Cas 523 at 547 per Lord Macnaghten; Redman v Permanent Trustee Co of NSW Ltd (1916) 22 CLR 84 at 96 per Isaacs J. See also RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.050. 135 Norman v FCT (1963) 109 CLR 9 at 33 per Windeyer J.
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[7.16] Executed consideration and specific performance. The above statements may give the impression that this area of law is well settled and straightforward. However, the simplicity of these statements hides much technicality. For example, it has been said that where an intended immediate legal assignment fails to comply with the statutory requirements, equity may uphold it as an agreement to assign if it is made for valuable consideration and if that consideration is executed.136 Such statements are not meant to deny the efficacy of the equitable assignment which takes place immediately, nor do they result in a variation of the original promise of the assignor which was to make an immediate assignment.137 However, it is necessary to recognise an existing agreement legally to assign so that the remedies made available to the assignee by virtue of the equitable assignment can be used to force the assignor to take those steps necessary to bring about a legal assignment. This would not be possible if the view were adopted that the agreement for the immediate legal assignment ceased to exist simply because the immediate legal assignment failed. What was intended was not an equitable assignment but a legal assignment and this can be lost sight of if the transaction is simply upheld as an equitable assignment. Thus, the interpretation of the immediate assignment as an agreement to assign, like the case of an expressed intention immediately to assign future property is done to give effect to intention.138 However, in many instances, especially in receivables financing, the assignor may intend only equitably to assign the legal right; the assignor’s actual intention may not be to “assign in equity”, but simply to “assign without notice”, so that the assignment can take effect only in equity. Here, there is perhaps less reason to recognise the existence of an agreement to assign and, in many cases, the only step necessary to turn the equitable assignment into a legal assignment is the giving of notice, and this can be carried out by the assignee.139 Difficulties also arise with the statement that equity may give immediate effect to an agreement to assign.140 An agreement to assign involves a present intention to assign some time in the future. It has been suggested that in such circumstances 136
FCT v Betro Harrison Constructions Pty Ltd (1978) 20 ALR 647 at 651 per Bowen CJ. Such statements are also not meant to introduce a requirement that the “agreement to assign” be specifically enforceable. The “agreement to assign” is the creation of equity and is automatically considered a “specifically enforceable agreement to assign”. 138 Tailby v Official Receiver (1888) 13 App Cas 523 at 543 per Lord Macnaghten; Re Androma Pty Ltd [1987] 2 Qd R 134 at 149 per McPherson J. See further Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 26 per Dixon J. 139 Cf as to the possibility of there needing to be an intention to legally assign [7.35]. 140 Compare the treatments of agreements to assign in RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.050; D Skapinker, in Patrick Parkinson (ed), The Principles of Equity (2nd edn, Sydney, LBC, 2003) para 1310; S Worthington, Proprietary Interests in Commercial Transactions (Oxford, OUP, 1996) para 8.3; JD Heydon and PL Loughlan, Cases and Materials on Equity and Trusts (6th edn, Sydney, Butterworths, 2002) para 6.16; R Goode, Commercial Law (3rd edn, London, Penguin, 2004) at 626–7, RT Fenton, Garrow and Fenton’s, The Law of Personal Property (6th edn, Wellington, Butterworths, 1998) para 12.018, F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 5.11. 137
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equity can consider as done that which ought to be done only if the agreement to assign may be the subject of an order for specific performance.141 This, however, obscures the importance equity can place on the existence of executed consideration. When parties enter into such a contract, equity does not generally seek to operate in a manner that is at odds with the intention of the parties.142 However, where equity gives effect to the assignment of a legal chose in action, it is not simply attempting to give effect to the intention of the assignor; equitable doctrine is drawn to the transaction where it would be unconscionable for the assignor to deny the efficacy of the assignment. Therefore, equity can take into account acts occurring after entry into the agreement to assign and is not strictly tied to the position existing at the time of agreement. Despite requiring an intention to assign, such assignments, and equitable assignments of legal rights generally, may be said to arise by operation of law rather than by force of a particular instrument.143 That is, the assignment does not arise from the intention or agreement but from circumstances that attract equity’s conscience. Another way this may be expressed is that the concern of equity is with the real meaning of the agreement once consideration has passed.144 Thus equitable principles may be applied by reason of the acts of the parties, and if there is evidence that it would be unconscionable for the assignor to go back on its expressed intention to assign, the assignment will be upheld. Historically this has been where equity would provide a remedy to protect the assignee. However, it is important to note that although the focus may be on the prevention of unconscionable conduct, in the result, what may be protected is the expectation of the assignee, and that expectation will shift in line with the assignee’s performance of the contract. Clearly if the contract may be the subject of an order for specific performance it satisfies equity’s requirements. The importance of specific performance is that an interest commensurate with a right to specific performance amounts to the beneficial ownership of the subject property.145 It is 141 EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, LBC, 1993) at 152–3; WJ Gough, Company Charges (2nd edn, London, Butterworths, 1996) at 70; K Gray and SF Gray, Elements of Land Law (4th edn, Oxford, OUP, 2005) para 9.109; S Worthington, Proprietary Interests in Commercial Transactions (Oxford, OUP, 1996) para 8.3.1(i). 142 Eg Tailby v Official Receiver (1888) 13 App Cas 523 at 547–8 per Lord Macnaghten; De Beers Consolidated Mines Ltd v British South Africa Co [1912] AC 52 at 65–6 per Lord Atkinson; Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 at 484–5 per Latham cf, at 492–3 per Williams and Kitto JJ; Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 17 per Rich J, at 26 per Dixon J; Reeves v Barlow (1884) 12 QBD 436 at 442; Hart v Porthgain Harbour Co Ltd (1903) 1 Ch 690 at 695 per Farwell J; Goodman v Napier Harbour Board (1939) NZLR 97. 143 See Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 18 per Rich J, at 32 per Dixon J. 144 See Tailby v Official Receiver (1888) 13 App Cas 523 at 547–8 per Lord Macnaghten and Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 26 per Dixon J. 145 Stern v McArthur (1988) 165 CLR 489 at 523–4 per Deane and Dawson JJ; Neville v Wilson [1997] Ch 144 at 157; Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 595 per Buckley LJ (CA); UTC Ltd v NZI Securities Australia Ltd (1991) 4 WAR 349 at 354 per Ipp J; RP Meagher, “Sir Frederick Jordan’s Footnote” (1999) 15 JCL 1 at 4 explaining Lord Parker’s decision is Howard v Miller [1915] AC 318. Cf Jerome v Kelly [2004] 1 WLR 1409 at 1419 per Lord Walker.
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when specific performance may be ordered that the maxim that equity regards as done that which ought to be done has its logical place. That is, if the contract may be the subject of an order for specific performance then equity will treat the contract as performed and vest an equitable interest in the transferee even though the time for the legal transfer has not yet arrived. However, the same analysis must apply if the consideration is executed because, here too, the assignee’s expectation is such that it becomes unconscionable for the assignor to deny the efficacy of the assignment. The availability of specific performance becomes vital if the consideration for the transfer is not executed. If an equitable interest was vested in the assignee prior to the execution of consideration or when specific performance was not available then, absent the possibility of some other factor binding the conscience of the assignor, that interest cannot be equated to ownership of the subject right. Finally, because the law generally respects the ability of the obligor and assignor as well as the assignor and assignee to agree to any condition precedent for an assignment, it is necessary to draw the following distinctions as regards equity’s treatment of agreements to assign legal interests; each distinction assumes that the more general formal requirements of an assignment are made out. First, if the only reason the assignment is not immediately operable is that the subject property is future property, then an equitable assignment will arise as soon as the subject property comes into the possession of the assignor if, at that stage, the requirements for a legal assignment are still not made out. Secondly, if the agreement to assign is merely conditional upon the assignee executing its consideration, then an equitable assignment will arise when the consideration is executed if, at that time, the assignor has not taken all the steps necessary for a legal assignment.146 Thirdly, where the parties have made the assignment subject to the fulfillment of some further condition precedent, such as the execution of a memorandum of assignment147 or other act by the intended assignee,148 then no immediate equit146 An agreement to give a legal mortgage results in an equitable mortgage if the consideration for the mortgage is executed. A deposit of title deeds evidences an agreement to give a mortgage and is therefore capable of giving rise to an equitable mortgage: see UTC Ltd v NZI Securities Australia Ltd (1991) 4 WAR 349 at 355 per Ipp J. It should be added that a contract to give a mortgage is also generally specifically enforceable because damages are not an adequate remedy: see Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 595 per Buckley LJ (CA). However, it is generally not possible to obtain an order for specific performance of an underlying loan as damages are an adequate remedy: see Rogers v Challis (1859) 27 Beav 175, 54 ER 68; Western Waggon & Property Co v West [1892] 1 Ch 271 at 275 per Chitty J; Loan Investment Corp of Australasia v Bonner [1970] NZLR 724; Rothwells Ltd v Nommack (No 100) Pty Ltd (1988) 13 ACLR 421 at 425 per McPherson J. Cf Equus Financial Services Ltd v Glengallan Investments Pty Ltd (Qld CA, 19 May 1994) per Derrington J. 147 Eg Mountain Road (No 9) Ltd v Michael Edgley Corp Pty Ltd [1999] 1 NZLR 335. See also Shaw v Foster (1872) LR 5 HL 321; Gatoil Anstalt v Omennial Ltd (The Balder London) [1980] 2 Lloyd’s Rep 489. See further Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 18 per Rich J; Re Dent [1923] 1 Ch 113. Cf Equus Financial Services Ltd. v Glengallan Investments Pty Ltd (Qld CA May 19, 1994). 148 Se NT Power Generation Pty Ltd v Trevor (2000) 23 WAR 482.
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able assignment will arise unless the condition is simply of a type that does not prevent an equitable interest arising, such as the running of time, or if the fulfillment of the condition lies in the power of the assignor and may be then only if the assignor can be obliged, in equity, to fulfill that condition.149 Here specific performance would be relevant. Fourthly, where the assignment is subject to a contingency, that is an event not certain to occur, such as the approval by some third party,150 and if it is the clear intention of the parties that no transfer is to take place unless that contingency occurs, then equity will not recognise any interest in the assignee that equates to the equitable ownership of the legal right until that contingency occurs.151 Here, even if equity can issue orders to bring about the contingency, the better view may be that no equitable interest equating to ownership arises until the contingency occurs.152 Where prior to the occurrence of the contingency equity would order performance of some obligation, such as ordering the assignor to take steps to obtain the consent of the third party, the interest protected is not to be equated with equitable ownership.153 [7.17] Agreement to assign and the imposition of a trust. It has been said that in the case of an agreement to assign, equity gives effect to the assignment by making the assignor hold its interest on trust for the assignee.154 This analysis must also apply to intended immediate assignments and not merely agreements to assign if the proper approach of equity in such cases is to imply from such a transaction an agreement to assign.155 The better view appears to be that this trust is a constructive trust. No difficulties arise in the creation of such a trust once the consideration for the assignment is executed; although, as discussed further below, the purpose of such a trust is not clear. However, the position after contract but prior to the execution of consideration is problematic. The issue usually arises in the factual context of a contract for the sale of land. Some have suggested that 149 Cf Re Androma Pty Ltd [1987] 2 Qd R 134 at 150–2 per McPherson J. It is also important to distinguish between the assignment being conditional and, in the case of a debt, the actual payment to the assignee (but not the assignment) being conditional: see Re Trust of Patrick Smyth [1970] ALR 919 at 921–2. 150 McWilliam v McWilliams Wine Pty Ltd (1964) 114 CLR 656; Brown v Heffer (1967) 116 CLR 344. If the third party issues the consent but makes it subject to certain conditions precedent or subsequent, the equitable assignment can take immediate effect where it lies in the power of the assignee or assignor to fulfill those conditions, Re Androma Pty Ltd [1987] 2 QdR 134 at 151–2 per McPherson J, at 159–60 per Derrington J. 151 Brown v Heffer (1967) 116 CLR 344. See also S Worthington, Proprietary Interests in Commercial Transactions (Oxford, OUP, 1996) paras 8.3.2–8.3.2(vii); R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 1.76, 2.11, 2.15. 152 Re Androma Pty Ltd [1987] 2 Qd R 134 at 150 per McPherson J. See further Smith v Bridgend County Borough Council [2002] 1 AC 336 at 357 per Lord Scott. 153 Brown v Heffer (1967) 116 CLR 344. 154 Eg FCT v Betro Harrison Constructions Pty Ltd (1978) 20 ALR 647 at 651 per Bowen CJ. 155 [7.16].
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the assignor holds the relevant property on constructive trust for the benefit of the assignee from the time of contract.156 Others suggest that no such trust can arise until the purchaser has executed its consideration,157 while others have suggested that such a trust could arise only later when title is made out by the assignor and accepted by the assignee and that prior to the execution of consideration there exists a trust sub modo.158 It has also been suggested that upon entry into the agreement for sale the vendor is a trustee for some purposes but not for others, and is on his or her way to being a full bare trustee.159 The reason for the resort to constructive trusts and trusts sub modo is because such a trust would have a number of peculiarities. It would be defeasible as the contract may be rescinded, the assignor may act in self-interest and, moreover, it is conditional upon the assignee executing its consideration. Here, arguably the availability of specific performance would be crucial because the assignee’s interest would be commensurate with the extent to which equity would order specific performance of the contract of transfer.160 The different views noted above as to when the trust arises may be no more than differences of opinion as to when or the extent to which the subject contract is specifically enforceable.161 Putting aside the specific context of contracts for the sale of land and the peculiar interest of a purchaser after exchange of contracts, and focusing only on dealings in choses in action, although the cases do not speak with one voice on this issue, it is suggested that the better analysis of equity’s approach to agreements to assign is that it upholds such agreements as assignments, that is, transfers. It does not give effect to the transaction as an assignment by imposing a trust on the 156 See Chang v Registrar of Titles (1976) 137 CLR 177 at 184 per Mason J. See also Paine v Meller (1801) 6 Ves Jun 349, 31 ER 1088. 157 Shaw v Foster (1872) LR 5 HL 321 at 356 per Lord Hatherley. See also Chang v Registrar of Titles (1976) 137 CLR 177 at 189 per Jacobs J. 158 See Lysaght v Edwards (1876) 2 Ch D 499 at 506–9, 517 per Jessel MR. See also Rayner v Preston (1881) 18 Ch D 1; Chang v Registrar of Titles (1976) 137 CLR 177 at 184; KLDE Pty Ltd v Commissioner of Stamp Duties (1984) 155 CLR 288 at 300–1 per Brennan J. See further RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.050. 159 See Haque v Haque (No 2) (1965) 114 CLR 98 at 124 per Kitto J. See also Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd R 712; KLDE Pty Ltd v Commissioner of Stamp Duties (1984) 155 CLR 288 at 300–1 per Brennan J. 160 See Tailby v Official Receiver (1888) 13 App Cas 523 at 547 per Lord Macnaghten; Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 654–5 per Meagher JA. See the discussion in RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.050; R Goode, “Ownership and Obligation in Commercial Transactions” (1987) 103 LQR 433 at 437; AJ Oakley, Constructive Trusts (3rd edn, London, Sweet & Maxwell, 1997) at 278–85; S Worthington, Proprietary Interests in Commercial Transactions (Oxford, OUP, 1996) paras 8.3.2–8.3.2(vii). See also RP Meagher, “Sir Frederick Jordan’s Footnote” (1999) 15 JCL 1 for a discussion and critique of those cases which suggest that there would be a complete equitable assignment if any equitable remedy were available. Cf Bevin v Smith [1994] 3 NZLR 648. 161 See Chang v Registrar of Titles (1976) 137 CLR 177 at 185 per Mason J; Stern v McArthur (1988) 165 CLR 489 at 523 per Deane and Dawson JJ. See further Jerome v Kelly [2004] 1 WLR 1409.
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assignor. Thus, an agreement to give a legal mortgage has always been held to take effect as an equitable mortgage, and not something less. Equity can hardly be seen to be applying its maxim that equity regards as done that which ought to be done if it is not in fact upholding such transactions as assignments. The maxim is not that equity will use its institutions and remedies to give a similar effect to that which ought to be done. The assignment takes place when the consideration is executed and, prior to that time, only if specific performance would be ordered. The imposition of a trust upon the assignor can be explained only on the basis that it is required to protect the interest of the assignee.162 The instances of where a trust is required to give effect to an assignment must be rare.163 It may be that the trust analysis has its genesis at that time when equity upheld such transactions merely as a form of contract between the assignor and assignee, and took the view that the assignor should be bound by its promise to assign. Later, when equity began to recognise such transactions as assignments, the perceived need to continue to act in personam may have resulted in the imposition of a trust on the assignor. In any case, that approach no longer represents the law.164 The constructive trust analysis may also be a natural consequence of the view that such an assignment operates only as between the assignor and assignee.165 Here it makes some sense to impose a trust to protect the assignee because, on this analysis, the obligor or debtor is not bound by the assignment. Once the transaction is properly recognised as a true assignment, binding the obligor and assignor, there is rarely a need to impose a trust for the purposes of giving effect to the transaction as an assignment. A further possibility it that references to the assignor or vendor being a trustee are no more than an inaccurate way of stating that the assignee or purchaser is the beneficial owner.166 Moreover, if it were true that such transactions are given effect to by imposing a trust on the assignor then the debate that has raged for years as to the legitimacy of equity blurring the line between contract and conveyance by relying on its maxim that equity regards as done that which ought to be done would appear to be misconceived. It is not imperative to adopt the position that the imposition of a trust operates by way of conveyance prior to the fruits of the subject chose in action vesting in the assignor. 162 For example, in the case of a partial assignment of a debt, a trust is required to protect the assignee’s interest when moneys are continued to be paid to the assignor: see McIntyre v Gye (1994) 122 ALR 289 at 295. In addition, where the agreement to assign is not intended to have immediate effect, there may be circumstances that require the asignee’s interest to be protected by a constructive trust prior to the assignment taking effect: see Francis v NPD Property Developments Pty Ltd [2005] 1 Qd R 240. 163 See FCT v Everett (1980) 143 CLR 440. Cf the comments of Evershed MR in Re Rose [1952] Ch 499 at 510–11. 164 [4.07]. 165 [4.05]. 166 Chang v Registrar of Titles (1976) 137 CLR 177 at 190 per Jacobs J. See also Kern Corp Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164 at 192 per Deane J; Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332–33 per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ.
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However, it is clear law that the effect of such transactions is to make the assignee the owner in equity at the time the consideration is executed or where specific performance is otherwise available.167 It is not accurate to consider the assignee the owner prior to this time; prior to this time the assignee must rely on the contract between it and the assignor for any remedies, and, if the assignor is deemed to hold any interest on trust for the assignee prior to this time, it is not to give effect to the assignment but must be based on some other equitable ground. [7.18] Formalities. The statutory writing requirements affecting equitable assignments of equitable interests, which are discussed below,168 do not apply where the assignment concerns an equitable assignment of a legal interest as there is no disposition of an existing equitable interest, but rather the creation of an equitable interest.169 This follows from the principle that where a person holds property both beneficially and legally, no distinction is drawn between the legal and equitable estate.170 As already noted, the main substantive formalities for such an assignment are that the assignor must have an intention to dispose of the whole or part of its interest immediately and the subject matter must be sufficiently identified. There is no general writing requirement at law for such assignments and the assignment need 167 See KLDE Pty Ltd v Commissioner of Stamp Duties (1984) 155 CLR 288 at 296–7 per Gibbs CJ, Mason, Wilson and Dawson JJ: see also at 300–1 per Brennan J. See also R v Australian Broadcasting Tribunal (1980) 144 CLR 13 at 31; Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 362 per Callinan J. 168 [7.26]. 169 In addition, the statutory writing requirements refer to a disposition by a person, whereas equitable assignments of legal rights in a sense arise by operation of law: see [7.16]. Perhaps this too is a reason for not including these assignments within the provision. 170 [3.11]. If it is correct that a person entitled to a legal interest (there being no outstanding equitable interest) cannot assign an existing equitable interest, it must also follow that such a person cannot deal with a bare legal estate and retain an existing equitable interest. However, it has been suggested that where A, being the legal owner of property, transfers that property to B on trust for A, in circumstances where equity does not consider the transaction futile, there is no change in beneficial title as it remains with A throughout: see Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639; Arjon Pty Ltd v Commissioner of State Revenue (2003) 8 VR 502, and cf Francis v NPD Property Developments Pty Ltd [2005] 1 Qd R 240 at 246, 249 per McPherson JA; CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 79 ALJR 1724 at 1729. Since A cannot “retain” a subsisting equitable interest, A must obtain an equitable interest that is created when the legal estate is transferred to B. That is, there must be a “reservation” as opposed to an exemption: see Commissioner of State Revenue (Victoria) v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 at 665; DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 522 per Hope JA; Wade v New South Wales Ruttle Mining Company Pty Ltd (1969) 121 CLR 177 at 194 per Windeyer J; The Commissioner of Stamp Duties (New South Wales) v The Perpetual Trustee Company Ltd (Quigley’s Case) (1926) 38 CLR 272. Thus, beneficial ownership does not change even though A’s original interest is extinguished and replaced. At a doctrinal level the entire legal interest vests in B and by virtue of that transfer being dependent on B having already declared a trust over that interest there is created, at the moment of transfer, an equitable interest that is immediately vested in A. B does not for a moment take the entire beneficial interest free of A’s interest and therefore it can be said that the beneficial interest remains with A throughout the transaction.
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not take any particular form.171 It is suggested that it is also not necessary to give notice of the assignment to the assignee.172 In most cases this is not an issue because where the assignment is for value the assignee will have notice as it agrees to pay a price for the assignment. As discussed earlier, it is not necessary to give notice of the assignment to the debtor although it is advisable to give such notice for the reasons discussed earlier.173 Because there is no formal requirement for notice to be given, notice could be given by a third party or even through the debtor reading a newspaper containing the relevant information.174 However, because of the important effects that attach to receipt of such a notice, a communication given in a very casual manner will not suffice.175 The mere fact that the obligor has knowledge of an assignment is not generally sufficient to prevent the obligor obtaining a discharge by performing to the assignor.176 However, to constitute valid notice, the communication of the existence of the assignment need not be given for the purpose of providing such notice.177 In practice it is usually prudent for the assignee to assume responsibility for ensuring a notice is given.178 Where an assignee provides proper notice to a debtor, generally, it is not the concern of the assignee that the internal systems of the debtor may be such that it does not reach the relevant person in the organisation that can authorise an accounting to the assignee.179 As to the efficacy of a notice, in William Brandt’s Sons & Co v Dunlop Rubber Co Ltd,180 Lord Macnaghten said: “All that is necessary is that the debtor should be 171
William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten. Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669; Gorringe v Irwell India Rubber Works (1886) 34 Ch D 128; Edmunds v Edmunds [1904] P 362; Re City Life Assurance Co Ltd [1926] Ch 191; Weddell v J A Pearce & Major [1988] Ch 26. Cf International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 472 at 448; Curran v Newpark Cinemas Ltd [1951] 1 All ER 295 at 299; Timpson’s Executor’s v Yerbury [1936] 1 KB 645; Morrell v Wootten (1852) 16 Beav 197, 51 ER 753, and see above [7.06]. 173 [4.20]. Notice to the agent of the debtor may equate with notice to the debtor, Magee v UDC Finance Ltd [1983] NZLR 438. However, generally for a notice to be effective it must be notice to the person who is bound to perform the obligation: see [7.38]. 174 Lloyds v Banks (1868) LR 3 Ch App 488. See also Ex parte Agra Bank (1868) LR 3 Ch App 555 at 559; Ipswich Permanent Money Club Ltd v Arthy [1920] 2 Ch 257 at 272–3; James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592. 175 Re Tichener (1865) 35 Beav 317, 55 ER 918; Ex parte Agra Bank (1868) LR 3 Ch App 555 at 559 per Sir W Page Woode LJ, at 563 per Sir CJ Selwyn LJ. 176 For example, many customers of a bank may be aware that their bank securitises a certain loan portfolio, but this does not prevent a customer from continuing to make repayments to the bank. Cf Principles of European Contract Law (2003), Art 11:303(3). As regards accidental knowledge and priorities see Ward v Duncombe [1893] AC 369; Arden v Arden (1885) 29 Ch D 702. Constructive notice of an assignment is not sufficient: see Lloyds v Banks (1868) LR 3 Ch App 488 at 490 per Lord Carins LC. 177 Smith v Smith (1833) 2 CR & M 231, 149 ER 745. See also Cavendish v Geaves (1857) 24 Beav 163, 53 ER 319 (issue of a bank pass-book with new firm name was sufficient notice of assignment). 178 See Mangles v Dixon (1852) 3 HLC 702 at 732–3, 10 ER 278 at 291; Willes v Greenhill (1861) 4 De G F & J 147 at 150, 45 ER 1139 at 1140; Ward v Duncombe [1893] AC 369 at 395. 179 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454. 180 [1905] AC 454. 172
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given to understand that the debt has been made over by the creditor to some third person”.181 More specifically, for a communication to constitute notice it must be such that the “mind of the [obligor] has in some way been brought to an intelligent apprehension of the nature of the [transaction] . . ., so that a reasonable man, or ordinary man of business, would act upon the information and would regulate his conduct by it”.182 Where notice is given to the obligor, be it oral or in writing, to be effective it must be notice of an assignment and not merely notice of an agreement to assign.183 Presumably this is the case even if the agreement to assign is given immediate effect to in equity, as the obligor cannot be required to speculate whether the requirements to give effect to such a transaction have been made out. Moreover, for a notice to be satisfactory and prevent the obligor obtaining a discharge by performing to the assignor, it must clearly indicate the subject right and that that right has been assigned.184 This is determined from the position of a reasonable obligor.185 It need not use the word “assignment” but must convey that there has been an assignment.186 Once given, the obligor cannot ignore the notice.187 However, the view has been expressed that the assignee need not be identified in the notice.188 If that is correct then in such a case the obligor must still be able to obtain a discharge by accounting to the assignor. However, if the assignee need not be identified it must follow that it is not necessary for the efficacy of the notice for it to require that payment or performance be made to the assignee.189 Where that is the case, that is, where the assignee is identified but no statement is made requiring the obligor to account to the assignee, the obligor cannot ignore the notice and account to the assignor. Finally, where the wrong date of the assignment is contained in the notice, this would not in equity invalidate the notice.190 [7.19] Assignments of legal property (assignable at law) in equity. Where there is an intention to make an absolute immediate legal assignment for value which for some reason fails to comply with the legal requirements, there will be an effective assignment in equity when the consideration is paid or executed (assuming the 181
[1905] AC 454, at 462. Lloyds v Banks (1868) LR 3 Ch App 488 at 490 per Lord Carins LC. 183 Shaw v Foster (1872) LR 5 HL 321. See [8.06], [8.83]. 184 William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454; James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592; Squires v SA Steel & Sheet Pty Ltd (1987) SASR 142. See also Bence v Shearman [1898] 2 Ch 582 at 587; Lloyd v Banks (1868) LR 3 Ch App 488 at 490–1 per Lord Cairns LC. 185 Lloyd v Banks (1868) LR 3 Ch App 488 at 490–1 per Lord Cairns LC. 186 Smith v SS Zigurds [1934] AC 209. 187 [8.06]. 188 See Smith v Parkes (1852) 16 Beav 115 at 117–18, 51 ER 720 at 721. Cf James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592. 189 See also [7.38]. 190 See Whittingstall v King (1882) 46 LT 520. 182
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more general requirements for an equitable assignment set out above191 are complied with192). The consideration which equity requires to uphold such an assignment is, today, the same as that required to support a contract.193 Where the consideration is executed, then whether the agreement is of a kind of which equity would order specific performance is not relevant. The effect of such an assignment is that the assignor maintains its legal interest until steps are taken to complete the legal assignment and an equitable interest is created and vested in the assignee. If the assignor refuses to complete the legal assignment, proceedings may be taken in equity to enforce it. Often, in receivables financing, there is no intention legally to assign but merely an intention equitably to assign the subject debts, or at least an intention to assign without notice.194 The formalities for such an assignment are the same although they are not failed legal assignments. As already noted, it is sometimes said that once the assignee has paid or executed its consideration, the assignor holds any relevant property on trust for the assignee.195 However, the transaction is upheld as an assignment and not as a declaration of trust. The same principles apply to an agreement to assign a legal interest where the consideration is executed.196 [7.20] It is also now settled that legal interests may be assigned in equity by way of gift.197 Generally, although equity will not assist a volunteer nor perfect an 191
[7.03]–[7.11]. Holroyd v Marshall (1862) 10 HLC 191 at 212, 11 ER 999 at 1007 per Lord Westbury; Tailby v Official Receiver (1888) 13 App Cas 523. See also William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten; CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 585; Re Androma Pty Ltd [1987] 2 QdR 134 at 148–50 per McPherson J. 193 Glegg v Bromley [1912] 3 KB 474. See also Re McArdle [1951] 1 Ch 669; Rodger v Comptoir d’Escompte De Paris (1869) LR 2 PC 393. However, an assignment by a debtor to its creditor in consideration of the assignor’s debts has always been considered an assignment for value: see Peter v Shipway (1908) 7 CLR 232 at 244 per Griffith CJ. Indeed, at one time, past consideration was necessary to avoid the assignment being struck down as savouring of maintenance: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.070. Today, if the assignee has knowledge of the assignment, it will not be difficult to imply a forbearance to sue to overcome any perceived problem with the presence of consideration: see Glegg v Bromley [1912] 3 KB 474 at 481 per Vaughan Williams LJ, at 487 per Fletcher Moulton LJ, at 491 per Parker J; Peter v Shipway (1908) 7 CLR 232 at 251 per Isaacs J, at 261 per Higgins J; Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 3. See further Re Matahina Rimu Co Ltd [1941] NZLR 490; Sandford v DV Building & Constructions Co Ltd [1963] VR 137 at 140, 141; Re Trust of Patrick Smyth [1970] ALR 919. 194 In fact the assignor and assignee may go to great lengths to ensure the debtor does not become aware of the assignment: eg GE Crane Sales Pty Ltd v FCT (1971) 26 CLR 177 at 181. 195 See [7.17]. See also GE Crane Sales Pty Ltd v FCT (1971) 126 CLR 177 at 183 per Menzies J. As noted above (see [7.17]), opinions differ as to what the position of the assignee is after contract but prior to execution of his or her consideration. 196 [7.17]. 197 As regards the need for consideration for equitable assignments of legal interests see Norman v FCT (1962) 109 CLR 9 at 30–4 per Windeyer J; E Jenks, “Consideration and the Assignment of Choses in Action” (1900) 16 LQR 241; WR Anson, “Assignment of Choses in Action” (1901) 17 LQR 90; GP Costigan, “Gifts Inter Vivos of Choses in Action” (1911) 27 LQR 326; PW Bruton, “The Requirement of Delivery as Applied to Gifts of Choses in Action” (1930) 39 Yale 192
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imperfect gift, if there exists an intention to make an immediate assignment as opposed to a mere promise to assign,198 and if the donor has “done everything which, according to the nature of the property comprised in the settlement was necessary to be done in order to transfer the property and render the settlement binding upon him”, then equity will recognise the gift without requiring consideration.199 The meaning of this phrase has been the subject of much debate over the years.200 However, the better view appears to be that in the case of a chose in action assignable at law, the donor must do everything necessary for it to comply with the legal requirements for an assignment; ie, those things the donor and only the donor can do must be done.201 It is not necessary for the donor to have done things that it may do but which other third parties could also do. The donee acquires an equitable interest once the transaction is complete so far as the donor is concerned.202 This is now considered the better interpretation of the rule set out by Turner LJ in Milroy v Lord,203 viz: I take the law of this Court to be well settled, that, in order to render a voluntary settlement valid and effectual, the settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him. He may of course do this by actually transferring the property to the persons for whom he intends to provide, and the provision will then be effectual, and it will be equally effectual if he transfers the property to a trustee for the purposes of the settlement, or he declares that he himself holds it in trust for those purposes . . . but, in order to render the settlement binding, one or other of these modes must, as I understand the law of this Court, be resorted to, for there is no equity in this Court to perfect an imperfect gift. The cases I think go further to this extent, that if the settlement is intended to be effectuated by one of the modes to which I have referred, the Court will not give effect to it by applying another of those LJ 837; S Williston, “Gifts of Rights under Contracts in Writing by Delivery of the Writing” (1930) 40 Yale LJ 1; SJ Bailey, “Assignment of Debts in England from the Twelfth to the Twentieth Century” (1932) 48 LQR 547; GW Keeton, An Introduction to Equity (6th edn, London, Pitman & Sons Ltd, 1965) at 147; EI Sykes, “Consideration in Equitable Assignments of Choses in Action” (1936) 1 Res Judicatae 125; RE Megarry, “Consideration and Equitable Assignments of Legal Choses in Action” (1943) 59 LQR 58; RE Megarry, (1943) 59 LQR 208; HA Holland, “Further Thoughts on Equitable Assignments of Legal Choses in Action” (1943) 59 LQR 129; RE Megarry, (1951) 67 LQR 295; JC Hall, “Gift of Part of a Debt” [1959] CLJ 99; L Zines, “Equitable Assignments: When will Equity Assist a Volunteer?” (1965) 38 ALJ 337; MRT Macnair, “Equity and Volunteers” (1988) 8 Legal Studies 172. 198 Gardiner v Chief Commissioner of State Revenue (2004) 59 NSWLR 549. 199 Milroy v Lord (1862) 4 De GF & J 264 at 274, 45 ER 1185 at 1189; Norman v FCT (1963) 109 CLR 9 at 28 per Windeyer J. 200 See especially Anning v Anning (1907) 4 CLR 1049; Brunker v Perpetual Trustee Co Ltd (1937) 57 CLR 555; Norman v FCT (1963) 109 CLR 9; Cope v Keene (1968) 118 CLR 1; Taylor v DCT (1969) 123 CLR 206; Olsson v Dyson (1969) 120 CLR 365; Corin v Patton (1990) 169 CLR 540. See [7.15]. 201 Rose; Rose v IRC [1952] Ch 499; Re Paradise Motor Co Ltd [1968] 1 WLR 1125; Corin v Patton (1990) 169 CLR 540. See also Queensland the Property Law Act 1974 s 200. 202 Rose; Rose v IRC [1952] Ch 499; Corin v Patton (1990) 169 CLR 540 at 559 per Mason CJ and McHugh J, at 581–2 per Deane J, cf at 564, 565, 567, 569–70 per Brennan J, at 591–2 per Toohey J. 203 (1862) 4 De GF & J 264, 45 ER 1185.
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modes. If it is intended to take effect by transfer, the Court will not hold the intended transfer to operate as a declaration of trust, for then every imperfect instrument would be made effectual by being converted into a perfect trust.204
The facts of Milroy v Lord concerned the assignment of a legal interest that was at that time assignable at law. Therefore, despite simply referring to the “nature” of the subject property, the formula was concerned with the satisfaction of any legal requirements for a transfer. It would seem to follow from this that, in terms of its ratio, the formula set out in Milroy v Lord is limited to the assignment of legal interests that are assignable at law.205 However, it seems to be clear that it is not limited to choses in action that were assignable at law at that time. Thus, where the legal assignment would be under the current statutory regime, the assignor must carry out all the requirements of the section that it and only it can perform. In practice this would probably only be met where the assignor executes a written assignment complying with the section and delivers it to the assignee.206 The assignee can give notice.207 For equity to uphold an oral assignment of a right capable of being assigned under the legislation, it would be necessary to provide consideration. [7.21] It follows from what is said above that the statutory regimes for legal assignment have, to some extent, affected the efficacy of equitable assignments. Prior to the enactment of those regimes equity recognised voluntary assignments of legal choses in action. In that environment, requiring the assignor to do everything necessary to transfer the property at law would be nonsensical because, apart from a few statutory exceptions, it was impossible to assign legal choses in action at law.208 This reasoning must still apply to legal choses in action not assignable at law. However, the formula developed by equity required the assignor to do everything necessary to “complete title”.209 Today, in the case of choses in action which are assignable at law under the statutory regimes, those Acts set the benchmark for determining whether a voluntary assignment is effective in equity.210 Finally, if a donor intends to use a particular method to make a gift then a court will not give effect to the gift by applying another method if the chosen method 204
Ibid, at 274–5, 1189–90. (ER). Cf [7.27], n 227 possibly extending the formula to voluntary assignments of equitable interests. 206 [7.37]. 207 Norman v FCT (1962) 109 CLR 9 at 28–9 per Windeyer J. 208 Ibid, at 34 per Windeyer J. 209 Fortescue v Barnett (1834) 3 MY & K 36 at 43, 40 ER 14 at 17; Re Patrick [1891] 1 Ch 82. See also Re Rose [1952] Ch 499. See further RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 6.165–6.170. 210 That this is the position in Australia appears clear see Anning v Anning (1907) 4 CLR 1049; Norman v FCT (1963) 109 CLR 9 at 28 per Windeyer J; Olsson v Dyson (1969) 120 CLR 365; cf Adcock v Jolly (1893) 19 VLR 609 at 615 per Holroyd J. Cf the position in England, William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 461 per Lord Macnaghten. 205
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fails. Therefore, if the donor chooses to assign the gift and equity cannot uphold that assignment it will not perfect the gift by, for example, concluding that there was a valid declaration of trust.211 [7.22] Declarations of trust over legal interests. Another equitable method of dealing with legal interests is by way of a declaration of trust. A contractual right may be the subject of a declaration of trust.212 Where the legal holder of property declares that it holds that property on trust for the beneficiary, an equitable interest vests in the beneficiary, with the legal interest being held by the trustee for the benefit of the beneficiary. There is no writing requirement for a declaration of trust over a legal interest in personalty. The general requirements for a declaration of trust are that the donor must have an intention immediately to hold the legal interest on trust for the benefit of the donee and for the subject matter to be certain. [7.23] Assignment of legal property (not assignable at law) in equity. Certain legal interests such as a part of a legal debt or legal chose in action are not assignable at law.213 Equity has always upheld the assignment of such interests but, as noted earlier, generally requires the assignor, debtor and all assignees to be made parties so that all relevant interests may be determined.214 Such assignments may be for value, and the better view is that they may be made by way of gift. If correct, then all that is required is a “manifestation by the assignor of an intention to transfer the chose in action to the assignee in a manner binding upon himself, as distinguished from an intention to give a mandate while retaining ownership of the chose in action”.215 The assignor’s conscience is then bound, “not by value received, but because, as between him and the assignee, his gift is complete”.216 As 211 Milroy v Lord (1862) 4 De GF & J 264, 45 ER 1185. It is not at odds with this principle for a court to uphold an assignment in equity which has failed at law, with the result that the assignor holds the legal interest on trust for the assignee. On its face this may seem strange because the parties never intended a trust. However, such a trust is legitimate if it is needed to protect the interest of the assignee or if there is no other way to give effect to the assignment: see [7.17]. Cf Re Rose [1952] Ch 499 at 510–11, where Evershed MR said, “I agree that if a man purporting to transfer property executes documents which are not apt to effect that purpose, the court cannot then extract from those documents some quite different transaction and say that they were intended merely to operate as a declaration of trust which ex facie they were not; but if a document is apt and proper to transfer property . . . then it does not seem to me to follow . . . that . . . either during some limited period or otherwise, a trust may not arise, for the purpose of giving effect to the transfer”. See further McIntyre v Gye (1994) 122 ALR 289 at 295; Richards v Delbridge (1874) LR 18 Eq 11 at 15; Williams v Lloyd (1934) 50 CLR 341 at 368–9 per Dixon J. 212 Re Turcan (1888) 40 Ch D 5; Don King Productions Inc v Warren [2000] Ch 291 (affirmed [2000] Ch 291); GE Crane Sales Pty Ltd v Commissioner of Taxation (1971) 126 CLR 177. 213 [4.26]. Cf Property Law Act 1969 (WA) s 20(3) which allows for the legal assignment of part of a debt or chose in action. See [7.39]. 214 [4.27]. 215 Shepherd v FCT (1965) 113 CLR 385 at 397 per Kitto J. See also Norman v FCT (1963) 109 CLR 9 at 30 per Windeyer J. See further Re Ward (1984) 55 ALR 395. 216 Norman v FCT (1963) 109 CLR 9 at 33 per Windeyer J.
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noted above, it is unfortunate that many discussions of voluntary assignments of legal property not assignable at law require the assignor to carry out every act required by him or her to transfer title.217 If that were right there could be no such assignments because the subject chose could not be transferred at law.
(ii) Equitable Assignments of Choses in Action; the Assignment of Equitable Interests [7.24] Form of alienation. Equitable interests may be alienated by an immediate assignment, an agreement to assign, a declaration of trust or a direction to a trustee.218 The particular form the alienation takes depends on the intention of the party alienating the interest. If a particular form is chosen but the formal requirements for that type of alienation are not met, then it is not possible to uphold the transaction by finding that, despite the different intention, the formal requirements of another method have been met.219 The major formality as regards equitable interests, in addition to intention and subject matter, concerns the possible application of statutory writing requirements. These are outlined below. [7.25] Relevance of the statutory method of assignment. As discussed earlier, the more accepted view appears to be that equitable interests may be assigned under the statutory regime.220 However, the assignment of such interests are not limited by that regime. [7.26] Writing requirements. Section 53 of the Law of Property Act 1925 (Eng) relevantly provides: (1) Subject to the provisions hereinafter contained with respect to the creation of interests in land by parol— (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law; (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;
217 218 219 220
[7.20]. Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 621–2 per Dixon J. [7.21]. [5.07].
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Formalities (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.
(2) This section does not affect the creation or operation of resulting, implied or constructive trusts The equivalent provision in New South Wales is section 23C of the Conveyancing Act 1919 (NSW) which relevantly provides:221 (1) Subject to the provisions of this Act with respect to the creation of interests in land by parol— (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person’s agent thereunto lawfully authorised in writing, or by will, or by operation of law, (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by the person’s will, (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person’s will, or by the person’s agent thereunto lawfully authorised in writing. (2) This section does not affect the creation or operation of resulting, implied or constructive trusts. Section 205 of the English Act provides: “ ‘Conveyance’ includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will; ‘convey’ has a corresponding meaning; and ‘disposition’ includes a conveyance and also a devise, bequest, or an appointment of property contained in a will; and ‘dispose of has a corresponding meaning’.” By contrast, under section 7 of the New South Wales Act, “conveyance” includes “any assignment, appointment, lease, settlement, or other assurance by deed of any property; and convey has a meaning corresponding with that of conveyance”; “disposition” includes “a conveyance, and also an acknowledgement 221 See also Law Reform (Miscellaneous Provisions) Act 1955 (ACT) s51(1); Law of Property Act (NT) s10 (note, as regards para (c), this provision requires the disposition to be manifested and proved by writing); Property Law Act 1974 (Qld) s11 (note, as regards para (c), this provision requires the disposition to be manifested and proved by writing); Law of Property Act 1936 (SA) s 29; Conveyancing and Law of Property Act 1884 (Tas) s 60(2); Property Law Act 1958 (Vic) s 53; Property Law Act 1969 (WA) s 34.
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under section 83 of the Wills, Probate and Administration Act 1898, vesting instrument, declaration of trust, disclaimer, release and every other assurance of property by any instrument except a will, and also a release, devise, bequest, or an appointment of property contained in a will; and dispose has corresponding meaning”; “assurance” includes “a conveyance and a disposition made otherwise than by will; and assure has a corresponding meaning”.222 It is arguable that the definitions of “conveyance” and “disposition” under these provisions are not relevant to sections 53 and 23C as they assume an assurance of property by instrument, whereas the concern of sections 53 and 23C is to state when writing is required.223 There has been much debate about whether sections 53(1)(c) and 23C(1)(c) (and their equivalents) apply to dispositions of personalty. Nevertheless, it is now accepted that they do apply to such dispositions.224 The application of these 222 The Law Reform (Miscellaneous Provisions) Act 1955 (ACT) does not contain a definitions provision although the Conveyancing Act 1919 (ACT) s 2 (dictionary) is similar to the New South Wales provisions. The Law of Property Act (NT) s4 has no definition of “assurance”; its definition of “disposition” is similar to that in the New South Wales provision; its definition of “conveyance” states that it “includes a transfer of an interest in land and an assignment, appointment, lease, settlement and any other assurance of property by instrument except a will”. The Property Law Act 1974 (Qld) s 3 follows the New South Wales definitions for assurance and disposition; however, the definition of “conveyance” is similar to that in the Northern Territory and simply states that it “includes a transfer of an interest in land, and any assignment, appointment, lease, settlement, or other assurance in writing of any property”. The definitions contained in the Law of Property Act 1936 (SA) s7 are similar to the English provisions except that the definition of “conveyance” includes “surrender and extinguishment”. In Tasmania, the Conveyancing and Law of Property Act 1884 (Tas) s 2 provides “[c]onveyance includes assignment, appointment, lease, settlement, and other assurance, made by deed, on a sale, mortgage, demise, or settlement of any property, or on any other dealing with or for any property”. There is no definition of “assurance” or “disposition”. The Property Law Act 1958 (Vic) s 18 and the Property Law Act 1969 (WA) s 7 are similar to the English provisions except that the definition of “conveyance” in each includes “surrender and extinguishment”. 223 JD Heydon and PL Loughlan, Cases and Materials on Equity and Trusts (6th edn, Sydney, Butterworths, 2002) para 7.4. 224 Grey v IRC [1960] AC 1; Oughtred v IRC [1960] AC 206; Vandervill v IRC [1967] 2 AC 291; Adamson v Hayes (1973) 130 CLR 276 at 297 per Walsh J, at 304 per Gibbs J, at 318, 319 per Stephen J, cf at 293 per Menzies J. See also PT Ltd v Maradona Pty Ltd (No 2) (1992) 27 NSWLR 241 at 250–1 per Giles J, and see Abjornson v Urban Newspapers Pty Ltd [1989] WAR 191 at 198–200 per Kennedy J. See further RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 7.045–7.050 noting the particular difficulties with construing the New South Wales provision as applying to personalty. For a discussion on the application of these provisions in relation to land and the relation between these provisions dealing with dispositions and conveyances and other statutory provisions which deal with agreements to transfer interests in land (eg Law of Property (Miscellaneous Provisions) Act 1989 (Eng) s 2; Conveyancing Act 1919 (NSW) s 54A(1); Law Reform (Miscellaneous Provisions) Act 1955 (ACT) s 54(1); Law of Property Act 2000 (NT) s 62; Property Law Act 1974 (Qld) s 59; Law of Property Act 1938 (SA) s 26(1); Conveyancing and Law of Property Act 1884 (Tas) s 36(1); Instruments Act 1958 (Vic) s 126; Statute of Frauds 1677 (Imp) (WA) s 4) see D Everett, “Reconciliation of the Statutory Requirements for Writing in Land Transactions” (1987) 17 WALR 301; RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 7.025–7.040; B Edgeworth, CJ Rossiter and MA Stone, Sackville and Neave, Property Law Cases and Materials (7th edn, Sydney, Butterworths, 2004) paras 4.12–4.13, 4.73–4.83C.
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provisions to the various methods of alienating equitable interests is discussed below. However, when interpreting the provisions, it needs to be kept in mind that although they now all appear in the one section, they derive from a number of different provisions of the Statute of Frauds.225 [7.27] Assignment. An equitable assignment of an equitable interest may be made for value, or it may be voluntary.226 The better view is that the formal requirements for such an assignment are simply that there be an intention to assign which may take the form of a mere direction or authority to the trustee or assignee, and for the subject matter to be identifiable and identified.227 These requirements have been dealt with earlier.228 It is suggested that no notice to the trustee is required.229 It is also suggested that no notice to the assignee is required.230 Being an assignment of an equitable interest in personalty such an assignment is a disposition of a subsisting interest and must comply with the statutory writing requirements.231 [7.28] Agreements to assign. An agreement to assign an equitable interest requires consideration.232 Where the consideration is executed by the assignee or 225 Abjornson v Urban Newspapers Pty Ltd [1989] WAR 191 at 198 per Kennedy J; Crichton v Crichton (1930) 43 CLR 536 at 562 per Dixon J (noting that subs 1(c) derived from s 9 of the Statute of Frauds which stated; “That all Grants and Assignments of any Trust or Confidence shall likewise be in Writing signed by the partie granting or assigning the same or by such law Will or Devise or else shall likewise be utterly void and of none effect”.) 226 Kekewich v Manning (1851) 1 De GM & G 176, 42 ER 519; Norman v FCT (1963) 109 CLR 9 at 30 per Windeyer J; Re McArdle [1951] Ch 669; Harding v Harding (1886) 17 QBD 442. Where the transaction is not an assignment but a charge and where that charge rests in contract then consideration is required: Re Earl of Lucan (1890) 45 Ch D 470. 227 Norman v FCT (1963) 109 CLR 9 at 33–4. Cf Re McArdle [1951] 1 Ch 669 at 677 per Jenkins LJ apparently incorporating the requirements of Milroy v Lord into such assignments stating, “a voluntary equitable assignment, to be valid, must be in all respects complete and perfect so that the assignee is entitled to demand payment from the trustee or holder of the fund, and the trustee is bound to make payment to the assignee, with no further act on the part of the assignor remaining to be done to perfect the assignee’s title”. It is true that Milroy v Lord did not refer to the satisfaction of any “legal” requirements, but simply referred to the “nature” of the property and therefore may not be limited to legal interests; however, it was a case dealing with a legal interest, and moreover, a legal interest assignable at law: see [7.20]. It is doubtful whether Jenkins LJ’s formula adds any further requirement to the ones mentioned above. See further RE Megarry, (1951) 67 LQR 295. 228 [7.03], [7.11]. See also Norman v FCT (1963) 109 CLR 9 at 30 per Windeyer J. 229 [4.20]. See also UTC Ltd v NZI Securities Australia Ltd (1991) 4 WAR 349. Where notice is given then for it to be effective it must be notice to the person who is bound to perform the obligation: see [7.38]. 230 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 622 per Dixon J. Cf Timpson’s Executors v Yerbury (1936) 1 KB 645 at 658 per Lord Wright MR (“communication from assignor to assignee either directly or indirectly is a necessary condition of an assignment”) and see Re Hamilton (1921) 124 LT 737 at 739. See also Paterson v Murphy (1853) 11 Hare 88 at 91, 68 ER 1198 at 1200. See [7.06]. 231 [7.26]. 232 Norman v FCT (1963) 109 CLR 9 at 31 per Windeyer J, citing Stuart VC in Voyle v Hughes (1854) 2 Sm & G 18, 65 ER 283. See also Re McArdle [1951] Ch 669.
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where the agreement is otherwise specifically enforceable, it is said that the assignor holds the interest on constructive trust for the assignee.233 In respect of personalty, if the correct analysis is that the assignor becomes a constructive trustee, then it must be that a new equitable interest is created and vested in the assignee, with the assignor retaining the subsisting equitable interest. In that case, the agreement need not be in writing because there is no disposition of a subsisting equitable interest.234 This view has academic support.235 It also has growing judicial support.236 However, that judicial support (which strictly is limited to recognising the existence of the constructive trust rather than the consequent analysis as to writing237) until recently lay in the minority speeches of Lords Radcliffe and Cohen in Oughtred v Inland Revenue Commissioners.238 The case involved a transaction between a mother and son. The mother held an equitable life interest in certain shares which her son held the remainder interest in, the legal interest being held by certain trustees. He orally agreed to make her the sole beneficial owner and she in return agreed to transfer to him a certain parcel of other shares she held. Later, documents were executed to put this transaction into effect. A deed was executed by the son, the mother and the trustees which recited the oral agreement that the shares were now held in trust for the mother absolutely, and that it was intended to transfer them to her; the deed released the trustees from their duties. The trustees then executed a transfer, transferring the legal title to these shares to the mother; this was the disputed document as it was assessed to ad valorem stamp duty on the basis that it transferred the son’s equitable interest. Against this it was argued that it transferred a bare legal title as the equitable interest was transferred under the oral agreement. In return the mother gave her son a transfer of the other parcel of shares. What has remained unanswered in the judgments of the minority is how the assignor transfers the subsisting equitable interest to the assignee. Presumably, if such a transfer takes place it needs to comply with the statutory writing requirements. Lord Radcliffe held that a trust arose because the subject matter of the agreement (shares) was property of which specific performance would be ordered. That is, he was prepared to hold that the trust arose prior to the execution of consideration. However, he added that once the consideration for the assignment 233
As regards the position prior to execution of consideration see [7.17]. Cf Neville v Wilson [1997] Ch 144 at 155. 235 RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 7.195. 236 See Re Holt’s Settlement [1969] 1 Ch 100 at 116 per Megarry J; DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 3 All ER 462; Neville v Wilson [1997] Ch 144; Baloglow v Konstantinidis (2001) 11 BPR 20,721 at 20,751 per Priestley JA. See further B Green, “Grey, Oughtred and Vandervell—A Contextual Reappraisal” (1984) 47 MLR 385. 237 In Oughtred’s case this point is weakened by the fact that counsel for the Inland Revenue agreed that the agreement to assign rendered the assignor a constructive trustee. 238 [1960] AC 206. 234
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was executed on behalf of the assignee the assignor became in the full sense the trustee of his interest for the assignee. The assignee was then the effective owner as there was no equity that could be asserted against her, and she could let the matter rest without calling for a written transfer from the assignor.239 Lord Cohen said that the assignee might have been content to rely on getting the legal interest from the trustees and on the fact that the assignor, being a constructive trustee, could not put forward a claim to an equitable interest once the assignee’s consideration was executed.240 He did not think the equitable interest was later transferred by the transfer of the legal interest from the trustees as they did not have the equitable interest to give. The assignor therefore retained some interest. The majority judgments were delivered by Lord Denning and Lord Jenkins. Lord Keith concurred with Lord Jenkins. Lord Denning’s judgment does not provide much in the way of principled reasoning. He took the view that the documented transfer implemented the oral agreement and that was all that was necessary for liability to accrue under the relevant provision of the stamp duty legislation.241 He thought that the mother acquired the son’s reversionary interest by virtue of the transfer which was made by the trustees with the son’s authority; that was as effective a transfer of the son’s interest as it would have been if he had conveyed it to her directly himself. That was sufficient to attract stamp duty. It did not matter that that transfer was between different parties to the oral agreement or that it dealt with different property; all that was necessary to attract stamp duty was that it implement the oral agreement. Lord Jenkins said:242 [A]ssuming in the appellant’s favour that the oral contract did have the effect in equity of raising a constructive trust of the settled shares . . . [which is not caught by the statutory writing requirements], I am unable to accept the conclusion that the disputed transfer was prevented from being a transfer of the shares to the appellant on sale because the entire beneficial interest in the settled shares was already vested in the appellant under the constructive trust, and there was accordingly nothing left for the disputed transfer to pass to the appellant except the bare legal title. The constructive trust in favour of the purchaser which arises on the conclusion of a contract for sale is founded upon the purchaser’s right to enforce the contract in proceedings for specific performance. In other words, he is treated in equity as entitled by virtue of the contract to the property which the vendor is bound under the contract to convey to him. This interest under the contract is no doubt a proprietary interest of a sort, which arises, so to speak, in anticipation of the execution of the transfer for which the purchaser is entitled to call. But its existence has never (so far as I know) been held to prevent a subsequent transfer, in performance of the contract, of the property contracted to be sold from constituting for stamp duty purposes a transfer on sale of the property in question. . . . In truth, the title secured by a purchaser by means of an actual transfer is different in kind from, and may well be far 239 240 241 242
[1960] AC 206, at 227. Ibid, at 230, 231–2. Ibid, at 233. Ibid, at 239–40. See further at 241, 243.
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superior to, the special form of proprietary interest which equity confers on the purchaser in anticipation of such transfer.
The difficulty with the constructive trust analysis it that it does not appear to reflect the approach taken by equity as regards agreements to assign legal interests. As noted earlier,243 in such cases, the better view is that the transaction takes effect as an immediate assignment once the consideration is executed; that is, assuming the intention to assign in the future is not subject to any condition or contingency that would prevent equity recognising the transaction as an immediate assignment. This is an application of the maxim that equity regards as done that which ought to be done. The imposition of a constructive trust can only be to protect the interest of the assignee. It is not the method by which the transaction is given effect to as an assignment. There is no logical reason why that same analysis should not operate here. If that is the case then when the agreement to assign is recognised as an immediate equitable assignment the equitable interest vested in the assignee cannot be anything other than the interest that is the subject matter of the agreement to assign. Thus, there is a transfer and it needs to comply with the statutory requirements. Moreover, even accepting the constructive trust analysis, in most cases, unless the assignment is subject to some further contingency, once the consideration is executed the assignor will at most be a bare trustee and, in that case, the view may be taken that it is adopting far too technical an approach to suggest that there has been no disposition of an existing equitable interest.244 However, if the constructive trust analysis is adopted so that the transaction is given effect to by way of that trust, that is, the trust is not there merely as a protective measure, then section 53(2) and its equivalents should settle the question.245 [7.29] Declaration of trust. A declaration of trust does not require consideration, nor need it be communicated to the beneficiary.246 All that is generally required is for the donor to have the intention immediately to hold the legal or equitable interest on trust for the benefit for the donee247 and for the subject matter to be 243
[7.16]. In Neville v Wilson [1997] Ch 144 at 155, the Court of Appeal adopted the constructive trust analysis but clearly thought there was a disposition of an existing equitable interest. However, ultimately the requirement of writing was governed by Law of Property Act 1925 (Eng) s 53(2). 245 Oughtred v Inland Revenue Commissioners [1958] Ch 383 at 390 per Upjohn J and [1960] AC 206 at 227 per Lord Radcliffe; cf the decision of the Court of Appeal [1958] Ch 678 at 687 and in the House of Lords at 230 per Lord Cohen, at 233 per Lord Denning and at 239–40 per Lord Jenkins. See also Neville v Wilson [1997] Ch 144 at 155–8; Baloglow v Konstantinidis (2001) 11 BPR 20,721 at 20,751 per Priestley JA. See further G Battersby, “Formalities for the Disposition of Equitable Interests Under a Trust” [1979] The Conveyancer 17. 246 Paterson v Murphy (1853) 11 Hare 88 at 91, 68 ER 1198 at 1200; Middleton v Pollock (1876) 2 Ch D 104; Standing v Bowring (1885) 31 Ch D 282. 247 Richards v Delbridge (1874) LR 18 Eq 11; Paul v Constance [1977] 1 All ER 195; Commissioner of Stamp Duties (Qld) v Fulliffe (1920) 28 CLR 178. See also Secretary, Department of Social Security v James (1990) 95 ALR 615 at 619 per Lee J. 244
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certain.248 With respect to writing requirements, it is clear that subsections 1(a) and 1(b) of section 53 and its equivalents require declarations of trust to be in writing if they concern land, although there is a conflict between the provisions as to whether such a declaration has to be in writing (or else be void) or only be manifested and proved by some writing (or else be unenforceable).249 With respect to interests in personalty, on one view a declaration of trust by either the legal owner or the holder of an equitable interest has the effect of creating an equitable interest which is vested in the beneficiary,250 that is, a sub-trust. On this view there would be no disposition of an existing equitable interest, and therefore no writing requirement. On another view it is thought that a declaration of trust over an equitable interest has the effect of passing that equitable interest to the donee.251 If correct then this would be a disposition of an existing equitable interest and would have to be in writing and signed by the person declaring the trust. The first explanation appears more doctrinally sound and must apply where the trustee has outstanding obligations to perform, because in that case it must retain some interest.252 In addition to the doctrinal arguments, statutory construction may also be on the side of the view that no writing is required. That is, although one must recognise the different origins of these provisions, subsection 1(a) of section 53 and its equivalents clearly acknowledge the difference between the creation of an interest and the disposition of an interest and captures both expressly. Subsection 1(c) is limited to dispositions and does not apply to the creation of an equitable interest. It is therefore clear that a declaration of trust by a full legal owner will not be caught by this section because, when a person holds the full legal estate there is no separate equitable estate. Such an estate will then be created by the trust. The same 248
Hunter v Moss [1994] 1 WLR 452. See also Re Harvard Securities Ltd [1998] BCC 567. On one view it is difficult to see what ground (b) covers that (a) does not. But such an interpretation would render (b) nugatory, and therefore the only functional interpretation is that (a) does not apply to declarations of trust over land: Secretary, Department of Social Security v James (1990) 95 ALR 615 at 621–2 per Lee J; Hagan v Waterhouse (1991) 34 NSWLR 308 at 385–6 per Kearney J. Cf Law Reform (Miscellaneous Provisions) Act 1955 (ACT) s51(1)(a) and (b). See further G Elias, Explaining Constructive Trusts (Oxford, OUP,1990) at 103–4. 250 Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 621–2 per Dixon J. 251 See the discussion in Grey v IRC [1958] Ch 375 at 381–2 per Upjohn J, [1958] Ch 690 at 715 per Evershed MR ([1960] AC 1, HL). See further RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 7.200–7.210; B Green, “Grey, Oughtred and Vandervell—A Contextual Reappraisal” (1984) 47 MLR 385; G Battersby, “Formalities for the Disposition of Equitable Interests Under a Trust” [1979] The Conveyancer 17. Alternatively it may be argued that a declaration of trust over an equitable interest, vests in the beneficiary an interest carved out of the subsisting equitable interest and therefore is a transfer of a subsisting interest. However, that view would appear to be at odds with the more accepted view that equitable interests are created and either vested in some person or engrafted upon some other interest: [3.11]. 252 If correct there appears no reason to distinguish cases in which the trustee has no active duties: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 7.205. 249
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analysis should apply to a declaration of trust over an equitable interest. Any other interpretation would lead to the result that the formal requirements for a declaration of trust made by the legal owner are less than the formal requirements that must be satisfied by the holder of an equitable interest. However, although it is not clear to what extent the definitions provisions apply to these writing requirements,253 it should be noted that in England and in some Australian jurisdictions, a “conveyance” includes a “vesting declaration”.254 [7.30] Direction to trustee. Where a beneficiary directs a trustee to hold the relevant property on trust for a third party there is a disposition of an existing equitable interest and therefore the direction must be in writing; this assumes that a person in the position of the trustee would interpret the direction as intending to transfer ownership.255 Where the beneficiary is in a position to give the trustee directions in respect of both the legal and equitable estate and gives a direction to the trustee to transfer the entire trust property to a third party, then it has been held that there is no writing requirement in respect of the beneficial interest.256 In such a case it is clear that the third party will not obtain the legal estate until the formalities for a legal transfer are carried out by the trustee. What is not clear is the basis upon which the third party obtains the beneficial interest without that amounting to a disposition of an existing interest.257 In Vandervell’s case, the House of Lords held that when the trustee in such a case transfers the legal estate it carries with it the equitable estate. That is, the mere giving of the direction alone is not sufficient to pass the subsisting equitable interest. The majority reasoning appears to rely on the principle that where a person owns the entire estate then there is no distinction drawn between the legal and equitable interests.258 It was thought that that same principle applied where there was a separate legal and equitable estate, but where a person could give directions as to both. Thus, where a person intends to transfer both the legal and equitable estate and the legal estate
253
[7.26]. Ibid. 255 Grey v IRC [1960] AC 1. Despite Australian legislation having a different history from that of its English counterpart, there is little doubt that Grey v IRC would be followed in Australia: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 7.085 referring to Abjornson v Urban Newspapers Pty Ltd [1989] WAR 191. 256 Vandervell v IRC [1967] 2 AC 291. See further B Green, “Grey, Oughtred and Vandervell— A Contextual Reappraisal” (1984) 47 MLR 385. 257 For an explanation of the case on the basis of overreaching see RC Nolan, “Vandervell v IRC: A Case of Overreaching” [2002] CLJ 169. 258 [3.11]. Lord Upjohn (at 311) was also influenced by the view that the provision for writing was to prevent hidden oral dealings in equitable interests which would result in the trustee not knowing who the true beneficiary was. Since there was no danger of that here, there was no need to invoke the section. 254
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in transferred there is no need for a separate transfer of the equitable estate as the greater includes the less.259 If the effect of such a direction were immediately to vest the holder’s equitable interest in the trustee then clearly that would amount to a disposition of an existing equitable interest and require writing. However, if that were the case, the trustee would hold an unencumbered legal title and could deal with the property as it liked. The accepted view is that the effect and intention behind such a direction are not to pass the equitable interest to the trustee, but rather that that interest is alienated when the trustee alienates the legal interest.260 However, on its face this suggests there must be at some point a transfer of a subsisting equitable interest, which the explanation given by the House of Lords does not satisfactorily explain. [7.31] Disclaimer.261 An assignee of either a legal or equitable interest may disclaim it. As already noted, it is not a prerequisite for an assignment that the assignee be given notice of the assignment.262 It follows that the assignment is effective without consent.263 However, this does not mean that the effect of a disclaimer by the assignee results in a disposition of the subject interest to the assignor. The position appears to be that a disclaimer operates by way of avoidance rather than by disposition, and therefore there is no writing requirement in respect of an equitable interest or a legal interest.264 It is not necessary to explain the effect of such a disclaimer as one of revesting title.265 The effect is as if the transaction never took place. Moreover, to achieve the result that no writing is required upon a disclaimer it is not necessary to adopt the position that the assignment does not take effect until the assignee has had an opportunity to accept or reject the assignment.266 [7.32] Release. A person may release a trustee from its obligations as a trustee if that person is the absolute holder of the beneficial interest. The effect of such a release is that the trustee can deal with the property as its own. On one view, a 259 Vandervell v IRC [1967] 2 AC 291 at 311–12 per Lord Upjohn, at 317 per Lord Donovan; see also at 307 per Lord Reid, cf at 329–30 per Lord Wilberforce. 260 Vandervell v IRC [1967] 2 AC 291. 261 See further J Hill, “The Role of the Donee’s Consent in the Law of Gift” (2001) 117 LQR 127 at 137–9; N Crago, “Principles of Disclaimer of Gifts” (1999) 28 WALR 65; LC Wolff, “Assignment Agreements Under English Law: Lost Between Contract and Property Law?” [2005] JBL 473. 262 [7.27]. 263 Standing v Bowring (1885) 31 Ch D 282. 264 Re Paradise Motor Co Ltd [1968] 1 WLR 1125. However, subject to the extent to which the definition provisions apply, in some jurisdictions, “disclaimer” appears in the definition of “conveyance” and “disposition”. See [7.26]. 265 Cf Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 673–4 per Glass JA, at 676 per Samuels JA. 266 Cf International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 448 per Asprey JA.
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release operates by way of extinction.267 On another view the effect of a release is to transfer the equitable interest to the trustee and therefore it operates by way of disposition and requires writing.268 An interesting example of the difficulties in distinguishing a release and an assignment arose in the decision of the House of Lords in Burton v Camden London Borough Council.269 The case concerned a secure tenancy granted by a local authority to two people as joint tenants. A legislative provision prohibited the assignment of the lease. Nevertheless, in an attempt to make one of the tenants the sole tenant, the other executed a deed of release, releasing her interest in the joint tenancy to the other tenant. The argument was that a joint tenant has nothing to transfer to the other tenant as each has an interest in the whole. Therefore, the release could not operate as a transfer or assignment, but only as an extinction of rights. Thus, the statutory provision prohibiting assignment without consent of the council did not impugn the transaction. The majority held that the transaction was ineffective. Lord Nicholls, with whom Lord Browne-Wilkinson and Lord Steyn agreed, held that the strict doctrinal point that a joint tenant has nothing to transfer as each has an interest in the whole did not reflect reality. The transaction, he thought, whether dressed up as a release or assignment, would ordinarily be thought to operate as a transfer and was therefore caught by the statutory prohibition.270 Lord Hobhouse agreed with the majority that whatever form the transaction took it appeared at odds with the intention of the legislation.271 He affirmed the doctrinal distinction between a release and an assignment. However, he held that the release was ineffective because an agreement between the joint tenants would have no impact on the contract that existed between the joint tenants and the council, and no power existed in that latter contract for either joint tenant to terminate it without the consent of the council.272 Lord Millett dissented, holding that a release operates by way of extinction, not transfer, and the statutory prohibition was directed only to transfers. He saw no reason for giving the provision a wider operation.273 [7.33] Nomination. Nominee provisions occur in various contexts. Often contracts of sale and options are made with a promisee and/or its nominee. The effect 267
Burton v Camden London Borough Council [2000] 2 AC 399 at 408 per Lord Millett. RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 7.255. See also Crichton v Crichton (1930) 43 CLR 536 at 563 per Dixon J. Moreover, and subject to the relevance of the definition provisions, in some jurisdictions a “release” is included in the definitions of “conveyance” and “disposition”: see [7.20]. See further G Battersby, “Formalities for the Disposition of Equitable Interests Under a Trust” [1979] The Conveyancer 17 at 20–1. 269 [2000] 2 AC 399. 270 Ibid, at 404–6. 271 Ibid, at 407–8. 272 Ibid, at 408. 273 Ibid, at 411. 268
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of a nomination under such a provision is not the concern of this section.274 The concern here is with those nomination provisions that allow a person to nominate another person to take some benefit on the death of the nominator. This often occurs in respect of insurance policies and superannuation funds, with the effect that the benefit does not pass to the estate of the deceased. There is authority for the view that, subject to any relevant statutory regime, the nominator does not retain any proprietary interest in monies invested in the relevant fund, so that when a nomination is made the nominator at that time has only certain contractual rights such as the right to nominate a person to have an interest in the fund upon the occurrence of a certain contingency.275 On this view, until that contingency occurs the nominee has no interest, and if that is correct then when the nomination is given there is no disposition of a subsisting equitable interest and therefore it need not be in writing.
(iii) Legal Assignments of Choses in Action [7.34] Legal assignment of legal choses in action. As already noted, it was not until the passing of the Judicature Act 1873 (UK) section 25(6) that the legal assignment of choses in action was generally recognised.276 The relevant provisions were set out earlier.277 In addition to these general provisions, numerous statutory provisions allow for the assignment of particular rights.278 The genesis of some of these predates the Judicature Act regime. Whether or not a specific regime for assignment prevents assignment taking place under the general statutory regime depends upon the construction of the statute and, in particular, whether the requirements of the specific piece of legislation are inconsistent with the requirements of the general regime.279 274
See [3.06]. Baird v Baird [1990] 2 AC 548; Re Danish Bacon Co Ltd Staff Pension Fund Trusts [1971] 1 WLR 248. Cf McFadden v Public Trustee for Victoria [1981] 1 NSWLR 15. See further R Atherton, “Nominations and Testamentary Dispositions” (1991) 65 ALJ 49. 276 [2.17]. 277 [5.03]. 278 Eg Policies of Assurance Act 1867 (Eng) s1; Marine Insurance Act 1906 (Eng) s50; Companies Act 1985 (Eng) s 182; Patents Act 1977 (Eng) s 30; Copyright Design and Patents Act 1988 (Eng) s 90; Carriage of Goods by Sea Act 1992 (Eng) s 2; Life Insurance Act 1995 (Cth) ss 200, 201, 202, 203; Marine Insurance Act 1909 (Cth) s 56; Corporations Act 2001 (Cth) Pt 7.11; Copyright Act 1968 (Cth) s 196, 197; Patents Act 1990 (Cth) ss 13, 103(1); Designs Act 2003 (Cth) s 11; Trade Marks Act 1995 (Cth) s 106(1); Sea-Carriage Documents Act 1997 (NSW) s 8; Bills of Lading Act 1859 SA (NT) ss 1, 3; Sea-Carriage Documents Act 1996 (Qld) s 6; Sea-Carriage Documents Act 1998 (SA) s 7; Sea-Carriage Documents Act 1997 (Tas) s 7; Sea-Carriage Documents Act 1998 (Vic) s 8; Sea-Carriage Documents Act 1997 (WA) s 8. See also DCT v Lanstel Pty Ltd (1996) 22 ACSR 314 (deemed assignment by legislation). 279 Re Williams [1917] 1 Ch 1; Geo Thompson (Australia) Pty Ltd v Vittadello [1978] VR 199. See also King v Brown (1912) 14 CLR 17 at 28 per Griffith CJ; Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81; Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423; Re Matahina Rimu Co Ltd [1941] NZLR 490. See further C Sweet, “Choses in Action” (1894) 10 LQR 303 at 315; R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 3.14. 275
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As already noted, some specific statutes may require registration of the assignment as a condition of the transfer or attachment.280 Usually, though, registration is a requirement of perfection and the failure to register will render the transaction void as against certain persons.281 This most often applies to assignments by way of security.282 In this section, unless stated otherwise, a reference to a legal or statutory assignment is a reference to an assignment under the provisions that are derived from section 25(6) of the Judicature Act 1873. The requirements for legal assignment under other particular statutes are discussed in specialised works. [7.35] Importance of intention. The importance of intention to assignment has already been emphasised.283 The statutory regime also requires an intention to assign. However, there is a view that in the case of a legal assignment there must be an intention to assign at law rather than to assign in equity.284 If this is correct then, although a failed legal assignment which is upheld as an equitable assignment could later be raised to a legal assignment, an intended equitable assignment of a legal interest could not. If this dictum is correct it must surely be limited to where the assignor has an intention to assign in equity. It must be sufficient for the statutory regime if the assignor simply has an intention to assign. In most commercial instances of equitable assignments this would be the case. That is, except perhaps in the case of some assignments by way of security there is no positive intention to assign at law or in equity, but merely an intention to assign without notice. [7.36] Consideration. Consideration is not required for an assignment under the statutory regime.285 [7.37] Writing requirement. The assignment must be in writing and under the hand of the assignor. There are no requirements as to the form the writing must take.286 The reference to the writing having to be “under the hand” of the 280
[7.01]. Eg Insolvency Act 1986 (Eng) s 344. 282 Eg Companies Act 1985 (Eng) s 395(1); Corporations Act 2001 (Cth) s 266. 283 [7.03]. 284 Eg Amalgamated General Finance Co Ltd v CE Golding & Co Ltd [1964] 2 Lloyd’s Rep 163 at 168 per Diplock LJ. 285 Harding v Harding (1886) 17 QBD 447; Re Westerton [1919] 2 Ch 104; Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 5 per Atkinson J. 286 The Kelo [1985] 2 Lloyd’s Rep 85 at 89 per Staughton J. See also Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 436 per Dixon and Evatt JJ. It is not necessary for the memorandum to state the consideration for the assignment: see Victorian Producers’ Co-Operative Co Ltd v Leng [1918] ALR 35. As to whether indorsement of a bill of lading would satisfy the requirement see GH Treitel and FMB Reynolds, Carver on Bills of Lading (London, Sweet & Maxwell, 2001) para 5.109. 281
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assignor makes it uncertain whether signature by an agent of the assignor would suffice.287 The expression “under hand” is generally used to denote a type of document that is executed by signing and not by sealing.288 Thus, a document can be an “under hand” document even though not signed. However, usually where a document must be “under hand” then, for it to be operative, it must be signed.289 From this starting point it is usually assumed that for a document to be “under the hand of the grantor” or “under my hand”, it is necessary for it to be signed by the grantor.290 That is, it must bear the signature of the grantor.291 Ultimately, where the expression is used in a contract its meaning must be determined by the construction of the contract.292 Similarly where the expression is used in a statute it is necessary to determine its meaning by reference to the purpose of the statute.293 Clearly a statute may call for personal performance. For example, it may require a personal signature.294 In Motel Marine Pty Ltd v IAC (Finance) Pty Ltd,295 it was held that a requirement of a signature by a person would not exclude signature by an agent as signature by an agent is signature by the principal.296 That is, the document is treated as having been signed by the 287 See Wilson v Wallani (1880) 5 Ex D 155. Cf Re Diptford Parish Lands [1934] Ch 151. See also Cossill v Strangman (1963) 80 WN (NSW) 628 at 630 (here an assignment was held to comply with the statutory regime despite signature by an agent, but the defendants chose not to raise the execution of the memorandum as an issue in the case). Nevertheless, if the assignor executes the memorandum of assignment, an agent can fill in other information such as the names of the parties: see Bank of Australasia v Annie Hertz (1937) 54 WN (NSW) 179. 288 See Chadwick v Clarke (1845) 1 CB 700 at 707–8, 135 ER 717 at 720 per Coltman J. See also Marchant v Morton, Down and Co [1901] 2 KB 829 at 832. 289 See RJA Morrison and HJ Goolden (eds), Norton on Deeds (2nd edn, London, Sweet & Maxwell, 1928) at 7. 290 See Waterson’s Trustees v St Giles Boys Club (1943) SC 369 at 374–5 per Lord Justice-Clerk (Cooper); Electronic Rentals Pty Ltd v Anderson (1971) 124 CLR 27 at 42 per Windeyer J. 291 See ibid, at 42 per Windeyer J. See also McRae v Coulton (1986) 7 NSWLR 644 at 665. See further Wilson v Wallani (1880) 5 Ex D 155 at 163–4 considering similar wording under the Bankruptcy Act 1869 (Eng) and holding that where a document had to be under the hand of the trustee it had to be signed by the trustee and not his solicitor. 292 See Bone v Commissioner of Stamp Duties [1972] 2 NSWLR 651 (reversed by the High Court of Australia (1974) 132 CLR 38 but affirmed by the Privy Council (1976) 135 CLR 223) (“under the lender’s own hand”, held to include personal representatives but not agents). See also Robbins v Federal Commissioner of Taxation (1973) 1 ALR 13. Cf Bray v Commissioner of Taxation (1968) 117 CLR 349. 293 Salemi v Mackellar (1977) 137 CLR 396 at 413 per Gibbs J. It is conceivable that under some legislation an unsigned handwritten memorandum may be sufficient. In certain circumstances such a document is acceptable under statute of frauds provisions such as the Conveyancing Act 1919 (NSW) s54A which expressly requires the document to be signed. However, perhaps generally the expression “under the hand” means something narrower than the word “signature” so that it does require a signature. 294 See Reg v Justices of Kent [1873] LR 8 QB 305 at 307. See also Hyde v Johnson [1836] 2 Bing NC 776, 132 ER 299; Toms v Cuming (1845) 7 M & G 88, 135 ER 38. 295 (1964) 110 CLR 9 at 13 per Kitto Taylor and Owen JJ. 296 See McRae v Coulton (1986) 7 NSWLR 644 at 663. See also R v Licensing Justices for the Licensing District of Charleville [1902] State Reports Queensland (St R Qd) 111.
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principal. But a legislative provision that uses the word “personally” in relation to a signature excludes signature by an agent and may also evidence an intention that the provision does not apply to a company. Arguably there is little difference between a provision that requires an individual to execute a document personally and one which requires execution “under the hand” of the person who is party to the document.297 That is, a reference to “under the hand of the assignor” is perhaps equivalent to a requirement that the document be signed “personally”.298 Such references set aside the general rule of construction that where a statutory provision requires a document to be signed by a particular person it does not prima facie exclude execution by an agent.299 It also follows that despite the general rule that where a document is properly executed by an agent it is treated as signed by the principal, such execution is not considered to be a personal signing by the principal or a signing under the hand of the principal. Nevertheless, it has been held that the expression “under the hand” in certain statutory contexts does not require the actual signature of the person from whom the document purports to emanate when that would not in any way further the purposes of the legislation.300 In the case of the statutory regime for legal assignments, the reason for the section requiring the assignment to be in writing and under the hand of the assignor is not clear. It may be included as the price for relaxing any consideration or sealing requirement. It may be included for the purpose of evidencing the assignor’s intention as well as being a step in rendering that intention irrevocable. However, it is not included to protect the debtor as the debtor need only be given notice of the assignment. It is not a requirement of the section that the debtor see the memorandum of assignment. It is quite clear that a person empowered under a power of attorney or other agency agreement can authorise transfers of tangible goods and, if certain formalities are made out, transfers of land. There does not appear to be anything particularly special about a chose in action that would require it to be only ever under the hand of the assignor. The requirements of the provision are surely made out if the memorandum is executed under a power of attorney and it is difficult to see what problems are created by extending that to the signature of an agent. In the case of the latter, it may be prudent for the agent to sign the memorandum in the name of the assignor and then add the words “by his agent X”. However, as is pointed out by Reynolds, if the legislative provision allows an agent to execute a particular document, then, unless there are words to the contrary, there appears 297
See Electronic Rentals Pty Ltd v Anderson (1971) 124 CLR 27 at 42 per Windeyer J. See Motel Marine Pty Ltd v IAC (Finance) Pty Ltd (1964) 110 CLR 9. See also Thompson v McInnes (1911) 12 CLR 562. 299 See McRae v Coulton (1986) 7 NSWLR 644 at 663. 300 See Re Diptford Parish Lands [1934] Ch 151 at 161; Bateman Television Ltd v Coleridge Finance Co Ltd [1969] NZLR 794 at 803 per North P, at 812 per Turner J, at 819 per McCarthy J. 298
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little reason to put much emphasis on the form that execution takes, especially when the distinction between an agent signing in the principal’s name and in his or her own name is not one that is likely to be known to the parties.301 In addition, if the words used in the statutory regime are equivalent to a requirement that the assignor sign “personally” then, on the authority of Motel Marine Pty Ltd v IAC (Finance) Pty Ltd, presumably a company could never legally assign a chose in action. That cannot be correct and that case, at least on this point, must be limited to its facts. The affixing of the company seal is a signing by the company and therefore under the hand of the company.302 Moreover, where legislative provisions dictate methods by which a company can execute documents without using its common seal, such execution should also be treated as being under the hand of the company.303 In coming to the above conclusion it should not be doubted that if a court were asked this question at the time of the enactment of the provision it would come to the opposite conclusion. At the time this provision was drafted there were other similar pieces of legislation around which used the same phrase, and, if the drafter wished to allow for the signature of an agent, would go on to state “under the hand of the relevant person or his agent thereunto lawfully authorised”.304 [7.38] Notice. The efficacy of a legal assignment is dependent on receipt of notice.305 Until express notice of the assignment in writing is given there is no legal assignment.306 However, it is not necessary that the notice convey that the assignment is in writing.307 It is also possible for the one document to be both the 301 FMB Reynolds, Bowstead and Reynolds on Agency (17th edn, London, Sweet & Maxwell, 2001) at 2.024. See also McRae v Coulton (1986) 7 NSWLR 644 at 666. 302 Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 160 per Mason CJ. 303 See Companies Act 1985 (Eng) s 36A(4); Corporations Act 2001(Cth) s 127. In this regard the English provision is clearer than the Australian provision as it refers to the document taking effect as if executed by the company. The Australian provision states that a “company may execute a document without using a common seal” if the stated methods are followed. 304 See [7.26]. 305 Therefore in any action brought by the assignee against the obligor, it is necessary for the assignee to prove that the notice was received by the obligor: see Smith v Corry & Co (1909) 28 NZLR 672. The mere posting of a notice or leaving it in a place where the obligor is likely to find it is not sufficient until received: see Watson v Shepherd (1904) QWN 57; Smith v Corry & Co (1909) 28 NZLR 672; McIntosh v Shashoua (1931) 46 CLR 494 at 514–5 per Evatt J. Where the notice is sent by post it is not “given” until received by the obligor, Holt v Heatherfield Trust Ltd [1942] 2 KB 1; Watson v Shepherd [1904] QWN 57. In the case of mail received after business hours, it will be “given” on the next business day: see Re Dallas [1904] 2 Ch 385 at 395. 306 Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 4 per Atkinson J. See also Anning v Anning (1907) 4 CLR 1049 at 1068–9 per Isaacs J; McIntosh v Shashoua (1931) 46 CLR 494 at 514–5 per Evatt J; McDonald v Lloyd (1931) 31 SR (NSW) 415 at 422 per Long Innes J; Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 715 per Jordan CJ. Cf Josselson v Borst [1938] 1 KB 723 at 740 per Slesser LJ; Harding Carpets Ltd v Royal Bank of Canada [1980] 4 WWR 149. 307 Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439 per Dixon and Evatt JJ, cf Denney, Gasquet & Metcalfe v Conklin [1913] 3 KB 177 at 180 per Atkin J.
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assignment and notice, as the section requires only “notice” to be given and not “a notice”.308 Notice must be given to the debtor (or debtors if there is more than one),309 although no notice need be given to the assignee.310 In addition, notice of an assignment, whether the assignment is legal or equitable, is not effective unless given to the person who is bound (at the time the notice is received) to perform the obligation.311 Constructive notice is not sufficient;312 the section requires “express” notice in writing.313 It is generally not possible to give the notice to someone other than the debtor,314 even if the debtor is illiterate.315 The section does not prescribe who must give the notice to the debtor. However, given that the debtor need not be shown the memorandum of assignment, and given that the debtor may not know the assignee and can expect to be discharged upon paying an assignee upon receipt of such a notice, presumably more weight should be given to a notice emanating from the assignor.316 No time limit is prescribed for notice 308 Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607 at 615 per Widgery LJ. Because of the requirement that the obligor receive notice it is not sufficient that he or she merely be shown the assignment: see Brown v The Bank of Australasia [1915] VLR 453. The result would be different if the obligor were given the assignment documentation: see Camp v King (1887) 14 VLR 22; International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 438 per Jacobs JA, cf at 449 per Asprey JA. 309 Amalgamated General Finance Co Ltd v C E Golding & Co Ltd [1964] 2 Lloyd’s Rep 163. Where one debtor is insolvent, notice need be given only to the solvent debtor: see Insolvency Act 1986 s345(4) (Eng); Bankruptcy Act 1966 (Cth) s62, and see Josselson v Borst [1938] 1 KB 723. See also Montedipe SpA v JTP-RO Jugotanker (The Jordan Nicolov) [1990] 2 Lloyd’s Rep 11 at 16 per Hobhouse J (if assignment occurs when an arbitration is already on foot, notice must also be given to the arbitrator on the basis that at this stage the parties form a tripartite relationship; this is a procedural requirement). 310 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 678 per Samuels JA. 311 Re Dallas [1904] 2 Ch 385 at 398. Where notice is given to a trustee, generally it is not necessary to give a fresh notice to any new trustee upon the retirement of the original trustee: see Ward v Duncombe [1893] AC 369 at 395 per Lord Macnaghten; Slattery v Slattery [1946] 1 DLR 304. For an exhaustive list of the cases that have dealt with notice to trustees and related points: see The Digest, Choses in Action (London, LexisNexis, 1990) viii, paras 629–58 and see JG Starke, Assignments of Choses in Action in Australia (Sydney, Butterworths, 1972) paras 31, 33, 34. 312 Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439 per Dixon and Evatt JJ. 313 Leaving the notice under the debtor’s door would not suffice: McIntosh v Shashoua (1931) 46 CLR 494 at 514–5. The use of registered post would be sufficient unless it is proven that delivery did not occur: Watson v Shepherd [1904] QWN 57. 314 A notice sent to an agent of the obligor would suffice only if the agent were authorised to accept such notices: see Saffron Walden Second Benefit Building Society v Rayner (1880) 14 Ch D 406; Dixon v Winch [1900] 1 Ch 736; Magee v UDC Finance Ltd [1983] NZLR 438. See also Ramsey v Hartley [1977] 1 WLR 686. 315 Hockley and Papworth v Goldstein (1920) 90 LJKB 111. 316 Anning v Anning (1907) 4 CLR 1049 at 1059 per Griffith CJ; Bateman v Hunt [1904] 2 KB 530 at 538 per Stirling LJ; Holt v Heatherfield Trust Ltd [1942] 2 KB 1 at 4 per Atkinson J. Cf James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592 at 595 per Mackinnon LJ, suggesting more weight could be placed on a notice emanating from the assignee than the assignor; cf at 597 per Goddard LJ suggesting the opposite. See further Unidroit Principles of International Commercial Contracts (2004), Art 9.1.12, which adopts a regime that allows the debtor time to call for proof of the assignment if the notice emanates from the assignee. See also Principles of European Contract Law (2003), Arts 11:303(2), 11:304. See further [8.06].
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although it is possible for the notice to be given after the death of either the assignor or assignee.317 It is an open question whether notice can be given prior to the actual assignment.318 Arguably such notice would not be sufficient. The provision applies to transactions that involve an immediate intention to assign. It does not apply to agreements to assign or mere gratuitous promises to assign. Notice must be given of a memorandum incorporating such an intention for there to be an assignment. Any notice given prior to the moment when the assignment is intended to take effect can at most be notice of a promise or agreement to assign in the future which falls outside the regime. There is no requirement as to the form notice must take. However, it must be kept in mind that one of the objects of the provision is to allow the debtor to pay the assignee and obtain a discharge. That is, the provision is designed not merely to allow the assignee to bring an action in its own name but to protect the debtor. The debtor must know where it stands. The requirements of the section (express or implied) must result in the obligor knowing the “person to whom the legal right is transferred”.319 In Denney, Gasquet and Metcalfe v Conklin,320 Atkin J said that the section might not be complied with “unless the notice further proceeds to bring to the notice of the debtor with reasonable certainty the fact that the deed does assign the debt due from the debtor so as to bind the debt in his hands and prevent him from paying the debt to the original creditor”.321 It is also important to keep in mind that notice here is necessary for the transfer of title.322 These are important issues when considering the sufficiency of notice for the purposes of the provision and they promote the idea of strict compliance. It follows that the principal requirements of the notice are that it inform the obligor that there has been an assignment and identifies both the property which is the subject matter of the assignment and the person the obligor should now perform the relevant duty for, that is, the assignee.323 The absence of any such details or an incorrect statement 317 Walker v The Bradford Old Bank Ltd (1884) 12 QBD 511; Bateman v Hunt [1904] 2 KB 530; Re Kenneth Wright Distributors Pty Ltd [1973] VR 161. 318 See New Zealand Factors Ltd v Farmers Trading Co Ltd [1992] 3 NZLR 703 at 709. See also Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101 (notice must be given prior to the assignee issuing a writ), (cf Weddell v JA Pearce & Major [1988] Ch 26 at 42); Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 (notice of assignment by way of receipt of agreement during discovery not sufficient). See further Bateman v Hunt [1904] 2 KB 530 at 538 per Stirling LJ; Jenkins v Visualeyes Pty Ltd [2005] VSC 218, Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81 at 106 per Slesser LJ and see United Nations Convention on the Assignment of Receivables in International Trade, Art 16(2). 319 Durham Bros v Robertson [1898] 1 QB 765 at 773 per Chitty LJ; McIntosh v Shashoua (1931) 46 CLR 494 at 515 per Evatt J. 320 [1913] 3 KB 177. 321 Ibid, at 180. 322 WF Harrison & Co Ltd v Burke [1956] 1 WLR 419 at 421 per Denning LJ. 323 Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607 at 615 per Widgery LJ. See also Anning v Anning (1907) 4 CLR 1049 at 1060 per Griffith CJ, at 1078 per Higgins J; Denney, Gasquet and Metcalfe v Conklin [1913] 3 KB 177; Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439 per Dixon and Evatt JJ; Lonsdale Sand and Metal Pty Ltd v FCT (1998) 162 ALR 220 at 235 per
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of such details will render the notice invalid.324 However, if the position of the obligor is an important consideration should it be necessary for the notice to contain the operative words of the assignment so that the obligor can determine whether the assignment is an absolute assignment?325 Arguably this goes a step too far. The debtor or obligor is unlikely to be aware of or have a working knowledge of the requirements of the statutory regime, and by including the operative words of the “assignment” it can create doubt in the mind of the obligor.326 In practice the obligor is simply given notice of an “assignment”. It is not sufficient to supply the debtor or obligor with materials that would merely infer an assignment.327 Moreover, a written demand for payment from the assignee without reference to the assignment will not suffice. [7.39] Absolute assignments: introduction. The statutory regime applies only to absolute assignments not purporting to be by way of charge. As regards charges, as noted earlier,328 a charge does not transfer property but rather encumbers property and is, subject to any express provisions, enforced by taking action against the chargor. The meaning to be given to the word “purporting” is not clear. Does it mean to capture a transaction entitled “charge” even if, on construction, it is an assignment, or does it not capture a document entitled “assignment” when, on construction, it is a charge? It is more likely that the concern of the provision is with true charges. The requirement of an “absolute” assignment is not entirely clear and is thought to have a number of aspects. It will not be satisfied if the obligor is required to Mansfield J. See further James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592. It may be noted though that the need for the notice to incorporate a direction to pay in order for it to be an effective notice is not entirely clear: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 3.14. See also [7.18]. 324 It is not necessary to state the date of the assignment: see Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607 at 613, cf Denny, Gasquet and Metcalfe v Conklin [1913] 3 KB 177. If a date is stated it must be correct: Stanley v English Fibres Industries Ltd (1899) 68 LJQB 839; WF Harrison & Co Ltd v Burke [1956] 1 WLR 419; International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 449–50. See also Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607 at 613 (notice valid although incorrectly stating that earlier notice had been given); Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 (date referred to but not inserted, held valid). See further W F Harrison & Co Ltd v Burke [1956] 1 WLR 419 (incorrect statement of amount due from debtor renders notice invalid). 325 See Consolidated Trust Co Ltd v Naylor (1936) 55 CLR 423 at 439 per Dixon and Evatt JJ (suggesting that the purpose of the provision, namely that the debtor know in whom the legal right is vested, “does not extend to giving the debtor particulars of the assignment”). 326 See Durham Brothers v Robertson [1898] 1 QB 765 at 773; International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 449. 327 Showa Shoji Australia Pty Ltd v Oceanic Life Ltd (1994) 34 NSWLR 548 at 565–6 per Giles J; International Leasing Corp (Vic) Ltd v Aiken [1967] 2 NSWR 427 at 449 per Asprey JA. See further Clearance Nominees Pty Ltd v Discount Acceptance Corp Pty Ltd (1997) 25 ACSR 531 (statutory demand held sufficient notice). 328 [3.17].
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know the state of accounts between the assignor and assignee before making payment to the assignee.329 If it were otherwise the debtor would not be receiving the protection afforded by the provision. It also will not be satisfied where the assignor has some continuing interest in the subject matter of the assignment. An example sometimes given to exemplify this point is, despite some earlier authority to the contrary,330 that the provision does not apply to the assignment of part of a debt or chose in action.331 However, it is doubtful whether this result necessarily flows from the word “absolute” as it is perfectly logical to speak of the absolute assignment of part of a debt.332 The statutory provision in Western Australia applies to absolute assignments of debts and legal choses in action, and is expressed to include in any “debt or other legal chose in action” a “part of any debt or other legal chose in action”.333 In Norman v FCT,334 Windeyer J explained the exclusion of partial assignments as follows: The conclusion [that the statutory regime does not apply to partial assignments] does not depend simply on a literal interpretation of the statutory language and of the phrase “absolute assignment”. Before the statute an assignee was permitted to bring his action at law in the name of the assignor when he was seeking to recover a whole debt assigned to him. If a debt had been broken into parts this procedure was not appropriate. A creditor cannot recover a debt piecemeal in a court of law.
It may be questioned whether this procedural impediment should carry as much weight today. It is true that if the position were otherwise then an assignee under this provision could bring an action in its own name, while the assignor could continue to break up the remainder of the debt, leaving the debtor open to numerous suits in respect of what was once a single debt.335 It is arguable that this would not be furthering the purposes of the provision. However, one could take 329 Durham Bros v Robertson [1898] 1 QB 765; Jones v Humphreys [1902] 1 KB 10; Interstate Investment Co Ltd v Mobbs (1928) 28 SR(NSW) 572 at 574. 330 Skipper & Tucker v Holloway & Howard [1910] 2 KB 630 (overruled by Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81). See also Dunnicliff & Bagley v Mallet (1859) 7 CB(NS) 209, 141 ER 795; Walton v Lavater (1860) 8 CB(NS) 162, 141 ER 1127; Jones v Humphreys [1902] 1 KB 10 at 13–14 per Lord Alverston CJ and cf at 14 per Darling J. 331 Durham Bros v Robertson [1898] 1 QB 765 at 774 per Chitty LJ; Jones v Humphreys [1902] 1 KB 10; James Nelson & Sons Ltd v Nelson Line (Liverpool) Ltd [1906] 2 KB 217 at 225 per Cozens-Hardy LJ; Forster v Baker [1910] 2 KB 636; Re Steel Wing Co Ltd [1921] 1 Ch 349; Bank of Liverpool & Martins Ltd v Holland (1926) 43 TLR 29; Walter & Sullivan Ltd v Murphy & Sons Ltd [1955] 2 QB 584; Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137; Norman v FCT (1963) 109 CLR 9 at 29 per Windeyer J; Shepherd v FCT (1965) 113 CLR 385 at 390 per Barwick CJ, at 396 per Kitto J; FCT v Everett (1979) 143 CLR 440 at 447 per Barwick CJ, Stephen, Mason and Wilson JJ; McIntyre v Gye (1994) 122 ALR 289. See further Conlan v Carlow County Council [1912] 2 Ir R 535; G & T Earle Ltd v Hemsworth R D C (1928) 44 TLR 605. The requirement of an absolute assignment is not met by assigning a whole debt in parts to the one assignee: Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81. 332 [4.27]. See also Ashby, Warner & Co Ltd v Simmons [1936] 2 All ER 697 at 705 per Greene LJ; Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137. 333 Property Law Act 1969 (WA) s 20(3). 334 (1963) 109 CLR 9 at 29. 335 Durham Bros v Robertson [1898] 1 QB 765 at 774 per Chitty LJ.
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the view that if a partial assignment satisfied the requirements of the provision and the debtor paid part to the assignee it would receive a partial discharge of the debt.336 The regime in Western Australia expressly allows for partial assignments. However, the provision gives no hint of how such partial assignments operate at a doctrinal level. On one view it may merely result in the assignor and assignee being co-owners, and therefore the assignee, although being able to bring an action in its own name would still be required to join the assignor. This, however, would not advance the law much from what has been the position in equity, and on this analysis the assignor has a continuing interest in the chose.337 Alternatively, it may be that the statute has allowed a debt to be divided, something that is not possible at law. If that is the case then there is no reason why the assignee need join the assignor in any action. However, the effect of such an interpretation of the legislation arguably increases the legal burden of the obligor, as it appears to allow for the one debt to be turned into many debts, which is at odds with the nemo dat rule governing such transfers at law and equity. If that is how the provision in Western Australia operates then it cannot be said to be furthering the purpose of the provision, which is to protect the debtor.338 Alternatively, it could be argued that it does not allow for the creation of numerous smaller debts out of the one debt. Its only effect is that it allows for numerous suits to be brought for parts of the one debt, and if that factual burden appears to a court as being too onerous it can require the joinder of all interested parties. Again, however, on this analysis the assignor has a continuing interest in the chose which under the present authorities would prevent the assignment being absolute. [7.40] Absolute assignments: conditional assignments.339 An assignment will not be absolute if it is conditional. However, the fact that the assignee agrees to pay part of the proceeds of the assigned right to the assignor or is required to account to the assignor for amounts received in excess of the debt owed by the assignor to the assignee will not make the assignment conditional,340 as long as the entire debt is assigned to the assignee; if this results from the assignment being partial the assignment will not be absolute for the purposes of the provision.341 It has been 336
See further [8.06]. See [4.27]. 338 Forster v Baker [1910] 2 KB 636 at 639 per Bray J. 339 Whether not a conditional assignment can take immediate effect in equity has already been discussed: [7.16]. 340 Ramsey v Hartley [1977] 1 WLR 686 at 695–6 per Megaw LJ, 698 per Lawton LJ, at 700 per Lane LJ; G & T Earle Ltd v Hemsworth RDC (1928) 44 TLR 758. Thus, an assignment of a debt with words to the effect that the amounts recoverable shall not exceed a certain sum will not be a conditional assignment or constitute the assignment of part of a debt; the assignee will merely hold any excess on trust for the assignor: see Bank of Liverpool & Martins Ltd v Holland (1926) 43 TLR 29. See also Comfort v Betts [1891] 1 QB 737; Burlinson v Hall (1884) 12 QBD 347; Fitzroy v Cave [1905] 2 KB 364. 341 Williams v Atlantic Assurance Co Ltd [1933] 1 KB 81. 337
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suggested that an assignment will be conditional if its commencement or term is dependent upon the performance of some condition or the happening of some uncertain event,342 or reserves to the assignor a power to deal with the subject matter of the assignment.343 Many of these points simply emphasise that the provision does not apply to agreements to assign, and this flows as much from the use of the word “assignment” in the provision as it does from the word “absolute”. Moreover, as regards the purpose of the provision, an agreement to assign may not ultimately result in an assignment, and an obligor receiving notice of such an agreement does not know where it stands, and despite paying the assignee may have to account again to the assignor if the agreement is avoided.344 It follows that the provision does not apply to the assignment of future property.345 It has also been said that an assignment will be conditional if it is expressed to cease upon the happening of some event.346 The type of assignment being dealt with here is an outright assignment rather than an assignment by way of sale or mortgage. An outright assignment may be given for the purposes of repaying a debt and expressed to cease once the debt is repaid. Where a real security is given which is intended to be extinguished upon the repayment of the secured debt, the security is a charge. However, there is nothing wrong in calling an outright assignment a security assignment where it is used as a method of paying a debt and ceases upon the discharge of the debt, as opposed to where it is accepted in discharge of 342 Durham Brothers v Robertson [1898] 1 QB 765 at 773 per Chitty LJ (assignment until advances were repaid was conditional; the assignee’s right to payment by the debtor was dependent on the state of accounts between the assignor and assignee: Percival v Dunn [1917] 1 Ch 1 (assignment conditional upon death of assignor); Re Fry [1946] 1 Ch 312 (consent from third party required); Interstate Investment Co Ltd v Mobbs (1928) 28 SR (NSW) 572 (assignment of contract rights subject to completion of underlying agreement for sale of land); Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd [1998] 2 VR 70 (assignment made conditional upon consent of obligor). See also Interstate Investment Co Ltd v Mobbs (1928) 28 SR(NSW) 572; Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669; Gatoil Anstalt v Omennial Ltd (The Balder London) [1980] 2 Lloyd’s Rep 489; Court Line Ltd v Aktiebologet Gotaverken (The Halcyon the Great) [1984] 1 Lloyd’s Rep 283; Noonan v Martin (1987) 10 NSWLR 402 at 409 per Bryson J; Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 at 117; Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410; Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724. See further Amalgamated General Finance Co Ltd v CE Golding & Co Ltd [1964] 2 Lloyd’s Rep 163 at 167, where Diplock LJ suggested that an assignment under which the assignee was to devote sums received to the outstanding liability of the assignor to the assignee may not be absolute. 343 Court Line Ltd v Aktiebologet Gotaverken (The Halcyon the Great) [1984] 1 Lloyd’s Rep 283 at 289 per Staughton J; Gatoil Anstalt v Omennial Ltd (The Balder London) [1980] 2 Lloyd’s Rep 489. 344 See Interstate Investment Co Ltd v Mobbs (1928) 28 SR (NSW) 572. Cf [8.06]. 345 Sandford v DV Building & Constructions Co Pty Ltd [1963] VR 137. See also G & T Earle Ltd v Hemsworth RDC (1928) 44 TLR 758. Cf EI Sykes and S Walker, The Law of Securities (5th edn, Sydney, LBC, 1993) at 770. 346 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 673 per Glass JA (giving the example of an assignment until a loan is repaid; distinguish a mortgage which, although unenforceable once the underlying loan is repaid, does not cease to exist until redemption which requires a further assurance and does not occur by force to the mortgage itself). See also Amalgamated General Finance Co Ltd v CE Golding & Co Ltd [1964] 2 Ll L R 163 at 167 per Diplock LJ.
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the debt. Nevertheless, it can be difficult to distinguish outright assignments and charges in documents and in the case law because the language often used is that of an “assignment by way of charge”.347 It is not entirely clear what that expression means. If the transaction is intended as a real security then it is a charge but if it is intended as a method of payment then upholding the transaction as a charge, would defeat that purpose because the chargee would have no right to the income until default, and even then without express contractual or statutory provisions access to the income stream or property charged would need a court order.348 If the transaction is a true real security and the “assignee” is to have immediate access to the income stream then doctrinally what is required is a mortgage. However, a mortgage would not cease upon repayment of the debt; it requires a revesting. One of the reasons for the expression “assignment by way of charge” and one of the reasons for the confusion it gives rise to lies in the view that a partial assignment of a chose in action takes effect by way of charge. The reasons for that view have been dealt with earlier.349 It was also noted earlier that in some cases it is necessary to use both an assignment and a charge to achieve a purpose.350 When one is taking an outright assignment of an income stream for the purpose of receiving payment of a debt and particularly if one takes that assignment in discharge of the debt, then it would be important also to charge the source of that income, so that it cannot be alienated so as to destroy the assignment. It may be that the expression “assignment by way of charge” is sometimes used as a shorthand expression to describe such a transaction, particularly where the court effectively implies the charge by virtue of the nature of the transaction; perhaps here it is also a slight expansion to outright assignments of the principle that a mortgage includes a charge.351 There is no need to limit “charge” to security transactions; a charge can “secure” an outright assignment.352 However, perhaps when the expression “assignment by way of charge” has been used the intention has been to do no more than express the idea that the assignment is an outright assignment. The language of an “outright” assignment as distinct from an assignment by way of sale or mortgage is of recent origin. In this context the reference to a “charge” in the expression “assignment by way of charge” merely expresses the idea that the assignment is for a distinct purpose and is limited to the extent of the “charge”.353 There still remains the issue whether such an outright assignment should be considered absolute or conditional for the purposes of the statutory regime for legal assignments. There is certainly a strong view that if the assignment is used as 347
See Derham Brothers v Robertson [1898] 1 QB 765. Siebe Gorman & Co Ltd v Barclays Bank Ltd [1979] 2 Lloyd’s Rep 142 at 162 per Slade J. Cf Wreckair Pty Ltd v Emerson [1992] 1 Qd R 700 at 580 per McPherson ACJ. 349 [3.17]. 350 [4.27]. See Bank of New South Wales v The King [1918] NZLR 945 at 947 per Hosking J. 351 [4.27]. 352 Re Lawson Constructions Pty Ltd [1942] SASR 201 at 205. 353 See Thomas v Harris [1947] 1 All ER 444. See also Durham Brothers v Robertson [1898] 1 QB 765. 348
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a method of paying a debt and is to extend only until the debt owing to the assignee is paid, then the assignment will not be absolute but “by way of charge”.354 But this will not always be the case. For example, in McLeay v Commissioner of Inland Revenue,355 the appellant gave trustees possession of a memorandum of mortgage for five years for the purpose of collecting interest payments and using them for certain charitable purposes. The appellant declared that he absolutely divested himself of all his interest in the income from the mortgage for that five years. This was held to be an absolute assignment despite the time limit and despite the memorandum having to be returned at the end of that period. Moreover, it did not matter that the appellant mortgagee could, during those five years, exercise it rights as mortgagee upon default by the mortgagor. Unlike the position where there is an assignment until a debt is repaid, the debtor here did not have to concern itself with the state of account between the assignor and assignee for the period of the assignment as there was no account between the assignor and assignee. It may then follow that, if the date for the termination of the assignment is fixed, then the debtor is taken to know where it stands even if this involves the debtor keeping track of that date over many years. In addition to the above there also appears to be a line drawn between assignments used as a method of paying a debt which are to extend only until the debt owing to the assignee is paid and assignments of debts with words to the effect that amounts recoverable shall not exceed a certain sum.356 The former is not absolute but by way of charge and the latter is absolute. The reason for the distinction is said to be that in the latter the assignment does not come to an end; the assignee can keep receiving amounts but must pay them over to the assignor. However, it is suggested that where an outright assignment of an income stream is used to pay a debt and where the assignment is intended to be extinguished once the debt is paid, it is possible to satisfy the statutory regime and be absolute as long as the entire debt is assigned and the assignment either expressly states the time at which the assignment is to end or expressly states the sum to be paid to the assignee. This is necessary in order for the debtor to know where it stands. Note, though, that in fixing a sum it is necessary to use some care in drafting, because if the assignment is construed as a partial assignment it will fall outside the statutory regime other than in Western Australia. Thus, an assignment of “so much and such part of my income from [specified source] as is necessary to pay [X] £1000” is likely to be construed as a partial assignment.357 354 See Thomas v Harris [1947] 1 All ER 444. See also Durham Brothers v Robertson [1898] 1 QB 765; National Mutual Life Nominees Ltd v National Capital Development Commission (1975) 6 ACTR 1. The identification of the amount of the debt for the purposes of determining when the assignment is discharged is a question of construction: see Thomas & Co v Thureau (1905) 1 Tas LR 58; Jones v Humphreys [1902] 1 KB 10. 355 [1963] NZLR 711. 356 Above n 340. 357 Jones v Humphreys [1902] 1 KB 10.
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The above suggestion is not only dependent on careful drafting; its efficacy will also depend on the view one takes to the operation of such automatic termination provisions. That is, how do such provisions operate if they do not constitute mortgages and require a revesting? As McLeay’s case shows, there is little doubt that one can enter into an assignment which automatically terminates.358 Such an assignment may be given as a gift of income or as a method of payment of a debt. One explanation may be that in taking such an assignment the assignee has agreed in advance to abandon its property at a certain time. The assignee’s interest will simply be extinguished upon the occurrence of the condition or contingency much like a charge or life estate.359 This will not place the assignee in breach of contract with the obligor unless it has taken an assignment of a conditional benefit. Unlike with the abandonment of tangible property an intangible cannot be picked up by anyone, so it will cease to exist once given up, with the result that the only thing that remains is the contract between the assignor and debtor. If follows that the assignor by virtue of the contract will then have the right to the income stream without the need for a re-vesting of title. Finally, the idea of an assignment being “conditional”, and therefore outside the statutory regime, should not be taken too far. Clearly, it is important in determining whether there exists an intention to make an immediate and irrevocable transfer. However, simply because the transaction is subject to a condition does not mean it is incapable of being absolute. In many cases, the condition merely prevents there being an assignment at all until it is fulfilled, and once it is fulfilled it will be absolute as to both intention and form.360 Nevertheless, there is a view in practice that if a memorandum of assignment is drafted as a conditional assignment it will never fall within the provision and can only ever amount to an equitable assignment. It is not clear how this view was derived. It cannot be a principle designed to protect the assignee as the assignee need not be given notice of the assignment under the section, much less a copy of the memorandum of assignment. It may be linked to the law of negotiable instruments. It is clear law that a negotiable instrument such as a cheque or bill of exchange must be unconditional on its face. If there is a condition on the face of the instrument then it will always be conditional and never fall within the statutory definitions of a bill of exchange or cheque.361 However, the reasons for this result lie in the fact that these are negotiable instruments and people purchasing them must know where they stand and must therefore be able to deal with the instrument on its face. The same factors do 358
Cf [6.56]. The abandonment of the right does not amount to a revesting by way of assignment. Cf Allgemeine Versicherungs-Gesellschaft Helvetia v Administrator of German Property [1931] 1 KB 672. 360 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 679 per Samuels JA. See also the pre-Judicature Act case of Pooley v Goodwin (1835) 4 Ad & E 94, 111 ER 722. 361 See Bills of Exchange Act 1882 (Eng) s11; Cheques Act 1986 (Cth) s 12(1). Cf Bills of Exchange Act 1909 (Cth) s16. 359
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not necessarily inform assignments of choses in action. For example, if A offers to assign a chose in action to B subject to B first executing a memorandum of assignment; that is a conditional assignment. However, if B does execute the memorandum then surely it must be absolute for the purposes of the statute. The view that an assignment once conditional is always conditional also seems to adopt a common law approach to intention, with intention being determined once and for all at the time of the agreement to assign. However, the provision is more likely to be informed by equitable principles, particularly if the correct view is that it is a procedural provision,362 and equity can revisit intention with the changing expectations under a contract. Moreover, the regime applies to voluntary assignments. [7.41] Absolute assignments: assignments by way of security. The fact that an assignment is given by way of security does not mean it is not absolute.363 Whether or not an assignment is absolute for the purposes of the statutory regime is ultimately an issue of construction.364 The fact that proceedings to enforce a security assignment cannot be taken until default does not alone render an assignment conditional.365 Moreover, simply because an assignment has an express or implied provision for redemption or re-assignment will not of itself make an assignment conditional, as long as there is an intention to assign all the assignor’s rights to the assignee with the re-assignment arising upon a further assurance as opposed to being by force of the original transaction.366 Thus, in Tancred v Delgoa Bay and East Africa Railway Co,367 it was held that an assignment to a mortgagee of a debt due to a mortgagor with provision for redemption and reconveyance upon repayment of the mortgage was absolute and not given by way of charge only. In Hughes v Pump House Hotel Co Ltd,368 an assignment of all monies due or to become due to the debtor under a building contract for the purpose of a “continuing security” was held absolute and not by way of charge.369 In these two cases, the extent of the assignment was such that the debtor was not required to concern itself with the position of the assignor until it received notice of a re-assignment, such notice being necessary for a re-assignment.370 This safeguarding of the debtor is a princi362
See ch 5. Care Shipping Corp v Latin American Shipping Corp [1983] QB 1005 at 1016 (equitable assignment); Re Universal Management Ltd [1983] NZLR 462 at 470 per Cooke J, 476 cf at 476 per McMullin J. 364 Eg Mercantile Bank of London Ltd v Evans [1899] 2 QB 613. 365 It would be different if the mortgage itself were conditional upon default. 366 Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 673 per Glass JA; Derham Brothers v Robertson [1898] 1 QB 765 at 772 per Chitty LJ. 367 (1889) 23 QBD 239. See also Bovis International Inc v The Circle Limited Partnership (1995) 49 Con LR 12. 368 [1902] 2 KB 190. See also Russell and Co (Ltd) v Fryers (1909) 25 TLR 414. 369 The dispute here arose when the work was complete and monies were owed. There was no issue as to whether the statutory regime applied to future property caught by the terms of the memorandum of assignment. 370 Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190 at 197 per Cozens-Hardy LJ. 363
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pal concern of the provision. By contrast in Durham Brothers v Robertson,371 it was held that the “charging” and “assigning” of a sum to become due to an assignor from a debtor as security for advances made to the assignor by the assignee until the advances were repaid made it conditional and not absolute. A debtor receiving notice of the terms of such an assignment would not know whether to pay the assignor or assignee as the assignment was dependent upon the state of accounts between the assignor and assignee. One final difficult example is The Mercantile Bank of London Ltd v Evans.372 In that case, in consideration of an advance made by the assignee, the assignor assigned all its rights under a certain agreement as security for the debt. The memorandum of assignment also appointed the assignee as nominee of the assignor to exercise all rights under the agreement in the name of the assignor. It also gave the assignee a power of attorney. AL Smith LJ thought the nominee provision and power of attorney evidenced that the right to sue was intended to remain with the assignor, and it was therefore not absolute. He also thought that for an assignment to be absolute the assignee’s interest must remain even though the debt has been repaid, and that was not the intention of the assignor in this case.373 If that is correct it would mean that any attempt automatically to end an assignment without a separate re-assurance of the assigned property could never be an absolute assignment.374 However, his conclusion on the facts must be correct because if there is an outright assignment or what was expressed by Smith LJ here as a “security” assignment, which is given for an unknown term simply with the instruction that it is to last until the assignor’s debt is repaid to the assignee, then the debtor does not know where it stands, and so to uphold the assignment as absolute would be at odds with the purposes of the statutory regime. Finally, he did not think this was a case where he could hold that monies paid to the assignee in excess of the debt were to be held on trust by the assignee for the assignor. Vaughan Williams LJ was not sure that every assignment given for the purposes of repaying a debt would necessarily fall outside the legislation as not being absolute or being by way of charge. He held that the assignment was not absolute because, although it purported to assign all the assignor’s rights and interest under the contract, it did not purport to assign the whole contract.375 In particular, he noted that the assignor and debtor could as between themselves take an account notwithstanding the assignment, and this could result in there being no debt.376 Putting aside the question whether certain rights under this contract could be severed from others, AL Smith LJ also appears to adopt this line of reasoning by 371 372 373 374 375 376
[1898] 1 QB 765. [1899] 2 QB 613. Ibid, at 616. Cf McLeay v Commissioner of Inland Revenue [1963] NZLR 711 and see [7.40]. [1899] 2 QB 613 at 617. Ibid.
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suggesting that the assignment was not absolute, as some rights were kept back and exercisable under a power of attorney.377 This reasoning is problematic. It is incorrect to talk of the assignment of a contract. What are assigned are rights under a contract. Moreover, the legislation cannot require that all rights under a contract be assigned before there can be an assignment of a contractual right under the legislation. If this were the case then the legislation was not allowing for the assignment of a legal right at law which was assignable in equity prior to its enactment. The legislation merely requires an absolute assignment of “a” (that is, single), chose in action. Whether or not various choses in action arising under a contract can be separated is a distinct question.378 [7.42] “Any debt or other legal chose in action”. The phrase “any debt or other legal chose thing in action” clearly captures common law choses in action such as contractual rights. Whether it applies to equitable choses in action has already been discussed.379 [7.43] Effect of a statutory assignment. As noted above, a statutory assignment is effective from the date of the notice, that is, the time the obligor receives notice. Whether the effect of the regime is procedural or substantive has already been dealt with.380 In the result the assignee is the legal owner of the chose in action. In the case of a contractual right to performance this allows the assignee to take any legal action necessary to enforce that right.381
(iv) Assignment of Future Contractual Rights [7.44] Formalities.382 “Future property” is the expression used to describe property that may come into existence in the future. As already noted it is a mere expectancy and not a chose in action, and therefore incapable of immediate assignment.383 However, equity recognises an agreement to assign future property
377
Cf Re Universal Management Ltd [1983] NZLR 462. [6.48]. 379 [5.07]. 380 See ch 5. 381 As to the rights of such an assignee where the assignment concerns a judgment debt see Gould v Skinner [1983] Qd R 377. Generally, the assignment will not allow the assignee to recover the costs the assignor may have incurred in earlier proceedings: see Re An Application by Marly Laboratory Ltd [1952] 1 All ER 1057. 382 As to the possibility of alienating a mere expectancy by way of a declaration of trust see, RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.235 and cf, MC Cullity and HAJ Ford, “Gifts of Future Income from Choses in Action” (1966) 30 The Conveyancer 286. 383 Norman v FCT (1963) 109 CLR 9 at 24–5 per Windeyer J. See [4.31]. 378
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and will interpret an immediate assignment as an agreement to assign.384 This principle also applies to what is in truth a mere agreement to assign future property if, upon the coming into existence of the property, the assignment is not subject to any contingency that would prevent equity giving effect to the assignment.385 Where the consideration for the assignment is executed by the assignee then the assignor will hold the relevant property on trust for the assignee when he or she acquires it.386 This of course assumes that at that point the property answers the description in the assignment.387 The consideration requirement cannot be circumvented by the use of a deed.388 Moreover, an agreement satisfying these requirements is binding from the date on which it is made.389 One problematic point is the relevance of specific performance to the efficacy of the assignment. The general relevance of specific performance to equitable assignments was dealt with in detail earlier.390 In the case of assignments of future property, the genesis of this issue lies in the leading statement of the formalities for such assignments given by Lord Westbury LC in Holroyd v Marshall.391 In that case he said:392 A contract for valuable consideration, by which it is agreed to make a present transfer of property passes at once the beneficial interest, provided that the contract is one of which a Court of Equity will decree specific performance. . . . 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 384 Ibid, at 24 per Windeyer J; Tailby v Official Receiver (1888) 13 App Cas 523 at 543 per Lord Macnaghten. 385 See [7.16]. See also FCT v Everett (1980) 143 CLR 440 at 450; Re Androma [1987] 2 QdR 134 at 149 per McPherson J; Reeve v Whitmore (1863) 33 LJ Ch 63; cf Re Lind [1915] 2 Ch 345 at 361–2 per Swinfen Eady LJ. 386 Holroyd v Marshall (1862) 10 HLC 191 at 211, 11 ER 999 at 1007 per Lord Westbury; Tailby v Official Receiver (1888) 13 App Cas 523 at 531 per Lord Herschell; Cotton v Heyl [1930] 1 Ch 510 at 520 per Luxmoore J; Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1; Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 at 493 per Williams and Kitto JJ; FCT v Everett (1978) 21 ALR 625 at 643–4 per Deane J (Deane J dissented in this case and the decision of the majority was upheld on appeal: see (1980) 143 CLR 440, but this point in Deane J’s judgment was not called into question). See also Re Row Dal Constructions Pty Ltd [1966] VR 249 at 254 per Herring CJ; Re Androma [1987] 2 QdR 134 at 146 per McPherson J. 387 Tailby v Official Receiver (1888) 13 App Cas 523 at 529–32 per Lord Herschell; Re Clarke (1887) 36 Ch D 348 at 352–4 per Cotton LJ, at 355 per Bowen LJ; FCT v Everett (1978) 21 ALR 625 at 643–4 per Deane J. 388 Re Ellenborough [1903] 1 Ch 697; Johnstone v Commissioner of Inland Revenue [1966] NZLR 833. 389 FCT v Everett (1978) 21 ALR 625 at 643–4 per Deane J. See [4.33]. 390 [7.16]. 391 (1862) 10 HLC 191, 11 ER 999. 392 Ibid, at 209–11, at 1006–7 (ER) (emphasis added).
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that class of which a Court of Equity would decree a specific performance. If it be so, then immediately on the acquisition of the property described the vendor or mortgagor would hold it in trust for the purchaser or mortgagee, according to the terms of the contract. For if a contract be in other respects good and fit to be performed, and the consideration has been received, incapacity to perform it at the time of its execution will be no answer when the means of doing so are afterwards obtained.393
Whether there is today a requirement of specific performance remains an open academic question, although the weight of authority appears against it.394 However, it is suggested that in any such resolution, it is important to distinguish between an intended immediate assignment and an agreement to assign. Equity will give effect to both as agreements to assign; however, in the case of a true agreement to assign future property, if upon the property coming into existence there still remains some condition or contingency to be fulfilled, then the relevance and availability of specific performance to the assignee is important in defining the assignee’s immediate interest.395 It is suggested that outside this point the availability of specific performance is not a requirement. It should also be noted that the principle expounded by Holroyd v Marshall is subject to the general principles governing equitable assignments. It will not be applied where it would not vest an equitable interest any earlier than the intended legal interest.396 It will also not operate where it is clear that the parties did not intend any equitable interest to pass, such as where the parties intend some further act after the property comes into existence before title is to pass.397 393 Interestingly, when referring to an agreement to assign a present interest Lord Westbury LC required the contract to be specifically enforceable, whereas in the case of an agreement to assign future property the contract need be of a class of which a court would order specific performance: see further JF Keeler, “Some Reflections on Holroyd v Marshall” (1969) 3 Adelaide L Rev 360. 394 Tailby v Official Receiver (1888) 13 App Cas 523 at 532 per Lord Herschell, at 533, 535 per Lord Watson and at 547–8 per Lord Macnaghten; Re Clarke (1887) 36 Ch D 348 at 352 per Cotton LJ; Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1 at 16 per Latham CJ; Re Androma Pty Ltd [1987] 2 Qd R 134 at 148 per McPherson J. See also RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.270 (the authors suggest that the principle of Holroyd v Marshall is a distinct doctrine and an application of the maxim that equity regards as done that which ought to be done; it operates without a court decree and therefore cannot be linked to the discretionary doctrine of specific performance). See further S Worthington, Proprietary Interests in Commercial Transactions (Oxford, OUP, 1996) 197–206; S Worthington, “Proprietary Remedies: The Nexus between Specific Performance and Constructive Trusts” (1996) 11 JCL 1; G Jones and W Goodhart, Specific Performance (2nd edn, London, Butterworths, 1996) at 166, 168. It has been suggested that the requirement is best seen as an identification requirement, that is, the future property must be sufficiently identifiable to be the subject matter of a decree of specific performance: see Tailby v Official Receiver (1888) 13 App Cas 523 at 531 per Lord Herschell, at 533 per Lord Watson; Re Clarke (1887) 36 Ch D 348 at 352 per Cotton LJ, at 355 per Bowen LJ: see also JF Keeler, “Some Reflections on Holroyd v Marshall” (1969) 3 Adel L Rev 360. 395 [7.16]. 396 Eg Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 at 493 per Williams and Kitto JJ. 397 See ibid, at 484 per Latham CJ; Re Lind [1915] 2 Ch 345 at 361 per Swinfen Eady LJ.
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8 The Position of the Parties (a) Introduction [8.01] Purpose of the chapter. This chapter is concerned with the remedies available to the obligor, assignor and assignee. The largest portion of the chapter concerns the rights and remedies of the assignee and obligor, as it is here that the principle of transfer has a role to play. Nevertheless, to provide a complete picture of the rights of the parties the relationships of the assignor/obligor and assignor/assignee are also considered. The rules governing the assignment of contractual rights which are most relevant here are: 5. After receiving notice of the assignment, the obligor may not do anything to diminish the rights of the assignee. 6. An assignee can be in no better position than the assignor was prior to the assignment. 7. An obligor should be no worse off by virtue of an assignment.1 8. An assignee takes subject to the equities. Each of these rules will be noted throughout the chapter and explained by reference to the principle of transfer. [8.02] Structure of the chapter. This chapter has three principal sections which deal with the relationship of the assignor/obligor, assignor/assignee and assignee/ obligor. The latter deals with the rights of the assignee, the rights of the obligor which it has against the assignee and the operation of the subject to equities rule. The chapter then investigates the subject to equities rule as it applies to intermediate assignees. Finally, the chapter briefly considers the insolvency of the assignor, assignee and debtor. There is no consideration of the position between 1 There is also a view that the obligor is to be no better off by virtue of an assignment, and this view is reflected in the United Nations Convention on Assignment of Receivables in International Trade: see Art 23; see further the Uncitral Commentary to the Draft Convention on Assignment in Receivables Financing (Part II), Note by the Secretariat A/CN.9/WGII/WP106, 16 Sept 1999, para 65. See also Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161 at 171–2 per Lord Woolf.
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competing assignees which is governed by priority rules, and the reader is referred to standard works on personal property securities for treatment of that subject.
(b) Assignor/ Obligor [8.03] The position of the Assignor and Obligor. The assignor remains primarily liable to the obligor for the non-performance of its outstanding contractual obligations.2 The remedies available to the obligor upon a failure of the assignor to perform such obligations will be the normal remedies available for breach of contract. Where the obligor fails to perform and where there is a legal assignment, the obligor will not be liable to the assignor unless the assignment was not of all the rights under a contract, but rather concerned the absolute assignment of some distinct (and separately assignable) right under the contract and where the breach relates to a right still vested in the assignor. Where that is the case, that is, where the obligor continues to be liable to the assignor, the normal remedies for breach of contract are available to the assignor. Where the assignment is effective only in equity the assignor retains a cause of action. The assignor is most likely to commence an action when he or she challenges the validity of the assignment. In addition, the view has been expressed that if the assignee refuses to make a claim the assignor should be able make a claim based on its legal right.3 However, generally the assignor will be required to join the assignee because the assignee is the ultimate owner of the chose or at least part of the chose. Where an assignment fails because of an express prohibition on assignment, it has been held in England that the assignor may be entitled to recover substantial damages in respect of a breach by the obligor even though the assignor did not own the underlying property at the time of breach and has not suffered any financial loss caused by the non-performance.4 It is not necessary here to debate the 2 Fratelli Sorrentino v Buerger [1915] 1 KB 301 at 313 per Atkin J (affirmed [1915] 3 KB 367); King v David Allen & Sons, Billposting Ltd [1916] 2 AC 55. This may include any period by the which the contract is extended by the assignee exercising an option: Baker v Merckel [1960] 1 QB 657. Statutory provisions do exist to the contrary: see P Butt, Land Law (4th edn, Sydney, LBC, 2001) para 15104; K Gray and SF Gray, Elements of Land Law (4th edn, Oxford, OUP, 2005) paras 14.264–14.309. 3 Three Rivers District Council v Bank of England [1996] QB 292 at 303 per Staughton LJ. 4 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85; Darlington Borough Council v Wiltshire Northern Ltd [1995] 1 WLR 68; Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, and see B Coote, “Contract Damages, Ruxley and the Performance Interest” [1997] CLJ 537. See also IMI Cornelius (UK) Ltd v Bloor (1991) 57 BLR 108. See further NE Palmer and GJ Tolhurst, “Compensatory and Extra-Compensatory Damages: The Role of the Albazero in Modern Damages Claims” Part 1 (1997) 12 JCL 1, Part 2 at 97; NE Palmer and GJ Tolhurst, “Compensatory and Extra-Compensatory Damages: Linden Gardens and Lord Griffiths’s Principle” (1998) 13 JCL 143.
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doctrinal mechanisms by which this result is achieved or the correctness of this position, nor whether it should or should not be limited to breaches committed before or after the alleged assignment. Ultimately, in such a case the only relationship that exists is between the original contracting parties, and therefore it must be correct that the assignor can seek damages for breach of contract. Whether or not the assignor in such a failed assignment should be able to recover damages which reflect its contractual expectation despite not suffering a financial loss equating to that expectation is an issue for contract law, and is dealt with in contract law texts. Nevertheless, in such a case, if the assignor is also liable in damages to the assignee for failing in its promise to assign rights, then, it has been suggested, the assignor cannot claim its liability to the assignee as a loss suffered by the assignor as a result of the obligor’s breach of contract, as that “loss” will be too remote.5 A party to a contract cannot be liable for damages which flow from the other party doing something which the contract forbids. Arguably, the proper concept here is causation rather than remoteness. Finally, until the obligor receives notice of the assignment, it can obtain a good discharge from the assignor.6
(c) Assignor/Assignee [8.04] The position of the Assignor and Assignee. The assignor is bound by the assignment and,7 subject to the terms of the assignment, will hold any of the fruits of the assignment for the benefit of the assignee.8 Where there is a contract of assignment, the relationship between the assignor and assignee is governed by the express and implied terms of the contract and non-performance brings into operation the normal remedial rules.9 For example, where the assignor, after 5 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 110 per Lord BrowneWilkinson. 6 See [8.06]. 7 Third parties claiming through the assignor, such as a garnishor or trustee in bankruptcy are also bound by the assignment: see Holt v Heatherfield Trust Ltd [1942] 2 KB 1; Keith v Butler & Foster (1866) 1 Queensland Supreme Court Reports (QSCR) 141; Edmunds v Edmunds [1904] P 362; Mulkerrins v PricewaterhouseCoopers [2003] 1 WLR 1937 at 1942 per Lord Millett. See further F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 6.8; IF Fletcher, The Law of Insolvency (3rd edn, London, Sweet & Maxwell, 2002) paras 8.029–8.033. 8 GE Crane Sales Pty Ltd v Commissioner of Taxation (1971) 126 CLR 177 at 183 per Menzies J. Where after notice of an assignment a debtor pays the assignor and the assignor pays that sum to the assignee, then the debtor is discharged: see Barclays Bank plc v Willowbrook International Ltd [1986] BCLC 45 (overruled on other grounds [1987] BCLC 717). 9 The personal representatives of the assignor are bound by any assignment that was binding on the assignor but are not personally liable: see Re Westerton [1919] 2 Ch 104; Re Rose [1952] Ch 499. See also Re Worthington [1914] 2 KB 299.
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assignment but prior to the obligor receiving notice of the assignment, discharges the obligor,10 the assignor usually will be answerable to the assignee for breach of contract and in some cases restitution, if the assignor is unjustly enriched (by taking receipt of benefits assigned to the assignee) at the expense of the assignee.11 The assignor may also have a claim for restitution against the assignee, for example, if a debtor pays an assignee and the assignee fails to discharge some obligation to the assignor which was to occur upon receipt of that payment, then, if for any reason the contract between the assignor and assignee is ineffective, there may be circumstances where it can be said that the assignee is unjustly enriched at the expense of the assignor.12 If the contract of assignment is vitiated by reason of some conduct on the part of the assignee or assignor, such as misrepresentation, the assignor or assignee, as the case may be, can rescind that contract and in the case of a rescission by the assignor it will generally not matter that the assignee may have in the meantime assigned the chose in action to a bona fide third party.13 Often the rights of the assignee will be dependent upon some prior performance by the assignor. In such a case the assignee cannot call for performance by the obligor until and unless the assignor performs. If the assignor fails to perform it will be in breach of contract vis-à-vis the obligor and may also be in breach of contract vis-à-vis the assignee if it promised (as part of the contract of assignment) that it would perform those obligations.14 In such cases, although the actions of the assignor may impact on the exercise of the assignee’s rights, the assignee will not be responsible to the obligor for the non-performance of the assignor.15 Given that an assignment is generally effective upon the execution of consideration, the assignee will rarely require an order of specific performance against the 10
Re Patrick [1891] 1 Ch 82 at 88 per Lindley LJ. Cotton v Heyl [1930] 1 Ch 510. 12 This same scenario may result in the assignee being unjustly enriched at the expense of the obligor: see Unidroit Convention on International Factoring 1988, Art 10(2)(a). 13 The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 103–4 per Latham CJ at 108, 110–12 per Dixon J. See also Cockell v Taylor (1852) 15 Beav 103, 51 ER 475. See further Abram Steamship Co Ltd v Westville Shipping Co Ltd [1923] AC 773 (here a misrepresentation made by the assignor was innocently passed on by the intermediate assignee to the ultimate assignee so that the rescission by the ultimate assignee was held to reinvest the intermediate assignee with a right to rescind against the assignor). See further [6.09]–[6.10]. 14 It has been said that a court will have little trouble in implying an obligation that the assignor will do nothing to defeat the assignment: see Anning v Anning (1907) 4 CLR 1049 at 1070 per Isaacs J; The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 107–8. However, arguably some actions of the assignor should be allowed if made for legitimate commercial reasons: see [8.38]–[8.48]. See also the warranties the assignor gives the assignee under the Restatement of Contracts 2d (1979) §333, and see Unidroit Principles of International Commercial Contracts (2004), Art 9.1.15; Principles of European Contract Law (2003), Art 11:204. 15 Liquidation Estates Purchase Co Ltd v Willoughby [1898] AC 321 at 331 per Lord Herschell; Young v Kitchin (1878) 3 Ex D 127. See also Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 917 per Lord Hoffmann. 11
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assignor unless he or she requires some further act by the assignor before the assignment is effective at law or equity, as the case may be.16 Distinguish the situation where a party to a contract has a contractual right to call for an assignment, here the normal principles of specific performance and relief against forfeiture apply.17 Finally, the extent to which the assignor and obligor can agree to vary a contract despite the assignee having an interest in the contract is dealt with below in the context of the relationship between obligor and assignee.18 [8.05] Remedies for failing to assign. Perhaps the most topical issue as regards this relationship concerns the remedies available in the case of a breach of a promise to assign. This generally will arise where the assignor promises, for value, immediately to assign a right in the face of a valid prohibition on assignment. In such a case, although the weight of authority is that the assignment will not be valid,19 the contract between assignor and assignee will be given effect to so that the assignor will be liable in damages to the assignee for failing to assign.20 As already noted, in some cases it may still be possible for this contract to be given effect to as a bilateral agreement to assign requiring the assignor to account to the assignee for the fruits of the contract.21 However, with contractual rights to performance, often the nature of the obligor’s performance will make it impossible for the assignor to account to the assignee for that performance, and the preferred course for the assignee is to sue for damages in respect of the breach of contract. In such a case the normal contract rules for the assessment of damages will apply. Where the assignee purchases some underlying property such as land, but the assignor fails in its promise to assign the benefit of a contract, such as a building or services contract in respect of the land, and where there has been some defect in the performance of the obligor, it has been suggested that the measure will equate to the cost to the “assignee” of remedying the defective performance of the obligor because, if the assignment had been valid, the assignee could recover that cost from the obligor.22
16
See G Jones and W Goodhart, Specific Performance (2nd edn, London, Butterworths 1996) at 167. See BICC plc v Burndy Corporation [1985] 1 Ch 232. See also Shaw v Harris (No 2) (1992) 3 Tas LR 167. 18 [8.06]. 19 [6.84], [6.88]. 20 [6.88]. 21 Ibid. 22 Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 110 per Lord BrowneWilkinson. 17
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(d) Assignee/Obligor (i) The Rights of the Assignee23 [8.06] The issue of discharge. Generally, until the obligor receives notice of the assignment, it can obtain a good discharge from the assignor.24 In the case of a legal assignment this must follow because until notice is given there is no assignment.25 The position is the same with an equitable assignment because, until the obligor receives notice of the assignment, its conscience is not bound by the assignment. It also follows, subject to what is said below about variations of the contract after notice,26 that upon receiving notice of an assignment the obligor is bound in conscience to perform the relevant obligation for the benefit of the assignee.27 As regards legal assignments this causes no doctrinal problems as there is no assignment until notice and upon notice the assignor drops out of the picture as the legal right is assigned. Thus, only the assignee can provide the obligor with a discharge. Equitable assignments are more problematic. There is a view that once the obligor receives notice, then, although the obligor can no longer ignore the interest of the assignee, it may not be clear whether the assignee or the assignor can provide it with a valid discharge.28 This results from the obligor owing its duty in part to both the assignee and assignor; although that position existed prior to notice (the assignment being complete without notice), the obligor did not have to consider the assignee until notice was given and, once given, the doctrinal result was that the obligation was owed in law and equity to different people. There is little doubt that 23 As to the ability of the assignee to present a bankruptcy or insolvency petition against the debtor: see the discussion in IF Fletcher, The Law of Insolvency (3rd edn, London, Sweet & Maxwell, 2002) paras 6.011–6.017; A Keay, McPherson, The Law of Company Liquidation (4th edn, Sydney, LBC, 1999) at 70. See also McIntosh v Sashoua (1931) 46 CLR 494. 24 Rose v Clark (1842) 1 Y & C 534, 62 ER 1005; Stephens v Venables (No 1) (1862) 30 Beav 625, 54 ER 1084; Liquidation Estates Purchase Co Ltd v Willoughby [1898] AC 321; Nioa v Bell (1901) 27 VLR 82 at 85 per Holroyd J; Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 at 668–9 per Collins MR; Squires v SA Steel & Sheet Pty Ltd (1987) 45 SASR 147 at 144 per Bollen J; Herkules Piling Ltd v Tilbury Construction Ltd (1992) 61 BLR 107 at 117. 25 If a debtor or obligor receives notice of an assignment under the statutory regime but is not informed of the assignee’s non-acceptance of the transfer, then it is suggested that the debtor can still obtain a discharge by performing for the benefit of the assignee. If this were not the case the protection afforded the debtor by the legislation would be lost. Such a situation would rarely occur. If the assignee, upon receiving notice of the assignment, rejects the assignment, then he or she will also refuse the tender of performance by the debtor or obligor. However, there will be situations where the debtor/obligor does not require the assignee’s co-operation to perform and where the assignee is not be aware of the performance at the time it is tendered. 26 [8.38]. 27 Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 60 at 668–9 per Collins MR; Tooth v Brisbane City Council (1928) 41 CLR 212 at 222. 28 Deposit Protection Board v Dalia [1994] 2 AC 367 at 385 per Simon Brown LJ (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367).
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the assignor retains a cause of action;29 however, in terms of discharge, it is suggested that this analysis would carry more force if such an assignment took effect by way of trust; here it would not be clear that the assignee could provide a discharge. However, today these transactions are given effect to as transfers. It is suggested that in the case of an absolute assignment of an entire interest, where the assignee is identified in the notice of assignment, then, if upon the receipt of a valid notice the obligor accounts to the assignee for its performance, the obligor will be effectively discharged, as the assignor will not be allowed to enforce the legal right in denial of the assignment.30 Any other result would create an unworkable distinction between legal and equitable assignments. Obligors are generally only given notice of an “assignment”. No mention is made of whether it is a legal or equitable assignment and, in any case, that distinction means nothing to most people. It may be added that an obligor can obtain a discharge from the assignee if the assignee is empowered by the assignor to give it31 or if the obligor is instructed by the assignor to perform for the benefit of the assignee and does so.32 Moreover, the facts of any case may alleviate some of the difficulties that arise when a notice is not clear on the issue of discharge. For example, if the assignment in Tolhurst’s case was equitable, once the assignor sold the land it could no longer claim any right to supply under the contract as that right was tied to the ownership of the land. Therefore, the obligor clearly could obtain a discharge by performing for the person owning the land, that is, the assignee. It should be noted that the above analysis necessarily assumes the existence of a valid assignment. The danger for the obligor in accounting to an assignee without express authority from the assignor is that the assignor may challenge the validity of the assignment, and if that is successful the obligor then needs to account to the assignor; hence the procedural requirement to join the assignor in any action. Finally, where claims are made against the obligor by both the assignor and assignee, the obligor should interplead.33 A further complication arises with notice of a partial assignment of a debt or chose in action. In the case of a partial assignment of a debt it has been held that the assignee cannot give the debtor a discharge even in respect of the part of the debt assigned to the assignee, and the assignor cannot give a good discharge in respect of the non-assigned part of the debt. This results from the fact that there is 29
Three Rivers District Council v Bank of England [1996] QB 292. See Ralston v South Greta Colliery Co (1912) SR(NSW) 6 at 17; Jeffs v Day (1866) LR 1 QB 372. See further [4.05]. 31 Durham Bros v Robertson [1898] 1 QB 765 at 770 per Chitty LJ; Lett v Morris (1831) 4 Sim 607, 58 ER 227. See also Unidroit Convention on International Factoring (1988), Art 8(1)(a). 32 See Jones v Farrell (1857) 1 De G & J 208 at 218, 44 ER 703 at 707 per Lord Cranworth LC; Durham Bros v Robertson [1898] 1 QB 765 at 770 per Chitty LJ; Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584. 33 As to the ability of the obligor to recover its costs in interpleader proceedings see Re McPherson [1929] VLR 295. As to the liability of the debtor to pay costs for improperly paying the debt into court see Re McCallum [1933] VLR 35 (discussing and distinguishing Re Haycock’s Policy [1876] 1 Ch D 611 and Re Sutton’s Trusts [1879] 12 Ch D 175). 30
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one indivisible debt.34 Again in practice this can create an unworkable situation as it requires the obligor to understand distinctions between legal and equitable assignments. If the obligor receives a valid notice of such an assignment which does not contain any express statements as to performance, then it should be able to account to the assignee and obtain a partial discharge. The precarious position of a debtor/obligor upon receipt of a notice of assignment is perhaps the least satisfactory aspect of assignment law.35 The suggestions made above to avoid some potential problems presume that the notice emanates from the assignor. But there remains the possibility of a notice being sent by the assignor which informs the debtor of the assignment but nevertheless directs that payment continue to be made to the assignor; that on its face does not suggest there is any dispute between the assignor and assignee or that both the assignor and assignee are making demands on the debtor so as to allow the debtor to interplead. But the debtor is now on notice of the existence of the assignee and performance may be due very shortly after the notice. There is also the problem of a notice being issued by the assignee who in most cases is a stranger to the debtor, and may also be a stranger to the assignor in the case of multiple assignments of debts. Such a notice may be given just prior to the time of performance and our law does not have a system that allows the debtor time to verify the legitimacy of such a notice.36 Moreover, although it is generally said that a notice of an agreement to assign will not suffice,37 unless such a notice clearly states that the efficacy of the assignment is dependent upon the occurrence of a particular event, the distinction between an assignment and an agreement to assign is not one that would be appreciated by most obligors. In practice such complications can quickly add up. A debtor may be given a copy of a memorandum of assignment. This may amount to sufficient notice. But what if the document evidences both a present assignment of certain debts and an agreement to assign future debts? If being given a copy of the memorandum is sufficient notice for the present debts, would fresh notices of the assignment of those future debts be required before it was safe for 34 See Deposit Protection Board v Dalia [1994] 2 AC 367 at 381 (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367); Walter & Sullivan Ltd v J Murphy & Sons Ltd [1955] 2 QB 584. Compare United Nations Convention on Assignment of Receivables in International Trade, Arts 17(2)–17(6). 35 See also Jones v Farrell (1857) 1 De G & J 208, 44 ER 703 (in this case assignors brought an action against the debtor; the debtor offered to pay the assignees if they provided an indemnity; this was refused and so the debtor paid the assignor; it was nevertheless held that the assignee could bring an action in equity against the debtor). Cf Aplin v Cates (1860) 30 LJ Ch 6 (here after notice of the assignment the assignor informed the debtor that he thought the assignment was invalid; it was held that the debtor was justified in continuing to pay the assignor despite a call for payment by assignee since the assignor had threatened to exercise its right to sue for the entire sum if an instalment was late; the onus was on the assignee to obtain an injunction and until that was done the debtor’s actions were justified in the circumstances). 36 Cf Unidroit Principles of International Commercial Contracts (2004), Art 9.1.12; Principles of European Contract Law (2003), Arts 11:303(2), 11:304. 37 [7.18], [8.83].
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the debtor to pay the assignee? Would not that place an enormous burden on a debtor to keep track of debts? Is it not impractical to require the debtor to obtain confirmation from the assignor as regards each an every debt that is otherwise clearly caught by the assignment?38 What if the assignor has given the debtor a copy of this memorandum of assignment not understanding that the assignment is on a non-notification basis? Is the debtor expected to read through the memorandum to find out, and if it does find out that the assignment is supposed to be on a non-notification basis does this negate what would otherwise be a valid notice, or at least mean that the debtor need not account to the assignee? At present when these issues arise they are usually dealt with by formal agreements between the assignor and debtor, with indemnities sought from the assignor for the benefit of the debtor. But this is not satisfactory. It is necessary to consider two further problematic aspects of discharge. First, it could be argued that because an equitable assignment is complete without notice, if the obligor obtains knowledge of the assignment but is not given formal notice, he or she should still be able to obtain a discharge by choosing to perform the relevant obligation to the assignee. This would be an unsatisfactory commercial result for assignments conducted on a non-notification basis. The argument also has only superficial doctrinal appeal. The assignment is effective only in equity and equity dictates that the conscience of the obligor is bound upon notice. The converse of the rule that the assignee can expect personal performance only upon giving notice of the assignment is that the obligor can expect a discharge from the assignee only if notice of the assignment has been given to the obligor. This does not deny the efficacy of the transfer, the obligation is owed in equity to the assignee and the obligor is ultimately liable to the person beneficially entitled to the performance. Rather it recognises that the transfer is effective only in equity and a legal obligation is still owed in law to the assignor.39 Secondly, as discussed above, generally in the case of an equitable assignment, once notice of the assignment is given the obligor cannot obtain a good discharge by payment or performance to the assignor unless that payment or performance is carried out with the authority of the assignee.40 One possible exception may be 38
As to what should be the operative date for the subject to equities rule see [8.51], [8.83]. The same result would follow if one adopted the view that prior to notice the assignment in equity affects only a transfer of title with the transfer of the chose being dependent upon notice: see [4.19]. 40 Legh v Legh (1799) 1 Bos & Pul 447, 126 ER 1002; Brice v Bannister (1878) 3 QBD 569; Liquidation Estates Purchase Co Ltd v Willoughby [1898] AC 321; William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 at 462 per Lord Macnaghten; Swan & Cleland’s Growing Dock & Slipway Co v Maritime Insurance Co [1907] 1 KB 116; James Talcott Ltd v John Lewis & Co Ltd [1940] 3 All ER 592; Pettit & Johnston v Foster Wheeler Ltd (1950) 2 DLR 42 (affirmed (1950) 3 DLR 320). However, an assignee would have to give credit to the obligor if the obligor had paid the assignor by cheque which was still outstanding at the time of notice: see Bence v Shearman [1898] 2 Ch 582; Felix Hadley & Co v Hadley [1898] 2 Ch 680. Finally, at least in the case of a legal assignment, and adopting the substantive view of the statutory regime, it is arguable that an improper accounting to the assignor may amount to a breach or repudiation of contract by the obligor. 39
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where payment to the assignor or some third party in fact benefits the assignee by discharging a duty the assignee had to the assignor or third party.41 In any case such strict statements of the position do not reflect the principle underlying this area. The reason the debtor must account to the assignee is that notice binds the conscience of the debtor. Once notice is given it is unconscionable for the debtor to disregard the position of the assignee. This is reflected in the rule that after notice the obligor cannot do anything to diminish the rights of the assignee. Nevertheless, if this rule is grounded on unconscionable conduct then one must accept that there may be circumstances where, despite notice, the debtor can still obtain a discharge by payment to the assignor. Such an issue is likely to arise where the debtor has reason to believe that, if it does not continue to pay the assignor, the assignor will not have funds to complete its performance. The efficacy of such a payment is governed by the same principles that allow a debtor or obligor to vary the contract after notice and are dealt with in the section on variations.42 [8.07] The right to demand performance. The extent to which an assignee can demand performance from the obligor ultimately depends upon a construction of both the right assigned and the extent of the performance obligation promised by the obligor to the assignor. Moreover, an assignee can demand performance from the obligor only when the obligation to perform accrues and where the time to perform arrives. If an assignee takes an assignment of a conditional right and performance by the assignor is a condition precedent to the obligor’s duty to perform, then clearly the assignee cannot call for the obligor’s performance unless the assignor has performed.43 The reason for this result is simply that the assignee’s right is contingent upon the prior performance by the assignor. For example, if in a contract of hire the hire is payable in arrears and the hired goods are not available in a particular period, clearly the owner of the goods cannot recover that hire if the contract is validly discharged by the other party for breach by the owner. The effect of discharge would be to prevent a right to payment (and the obligation to pay) from accruing. If the contract is not discharged, that is, if the innocent party elects to affirm the contract or the breach was not such as to give rise to a right to terminate, the owner can still not recover because the right to recover, being conditional on the availability of the goods during the hire period, will not have accrued. An assignee of the right to hire could not bring an action in debt against the obligor for that period. This result flows from the nature of the right assigned. It is a conditional contractual right, and the pre-condition for its enforceability has not been met. This is a result of the principle of transfer. If the result were differ41
See Gray v UDC Finance Ltd [2000] 3 NZLR 192. [8.38]–[8.48]. 43 Tooth v Hallett (1869) LR 4 Ch App 242. See also William Pickersgill & Sons Ltd v London and Provincial Marine & General Insurance Co Ltd [1912] 3 KB 614. See [6.22]. 42
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ent then there would have been an assignment of a right that was different from the one vested in the assignor.44 As regards the ability of the assignee to obtain an order for specific performance against the obligor,45 the general rule is that if the assignor could have obtained such an order so too can the assignee.46 This, of course, is subject to the assignor’s obligations being performed either by the assignor or, if the obligations are not personal, vicariously by the assignee or other third party. As already noted, in claims for specific performance the rule requiring the joinder of the assignor is often relaxed.47 [8.08] Legal assignment and the rights of the assignee. In the case of a legal assignment of a contractual right, the legislation dictates that all legal and other remedies in respect of that right vest in the assignee and the assignee can bring an action in its own name for such remedies.48 The effect of this provision is straightforward; the assignee can have recourse to all the normal remedies that flow from a failure on the part of the obligor to perform the obligation the correlative right to which is vested in the assignee. The most problematic issue concerns the measure of damages available to the assignee for a breach of contract by the obligor. [8.09] Legal assignment and the rights of the assignee: damages. The rule that an assignment cannot vary the obligations of the obligor has also been expressed as “the liability of the obligor cannot be varied by the assignment”.49 This must be 44 There is an important question whether the end result should be any different if the obligor’s performance is a condition precedent to the obligation of the assignor to perform. The principal example is where there is legal assignment of a present right to receive an advance payment which is conditional upon some future performance by the assignor. Where that advance payment is made to the assignee and the assignor fails to perform, the issue arises whether the obligor can then maintain a claim for restitution against the assignee: see [8.33]. 45 As to whether an assignee may become liable to a claim for specific performance by an obligor if the assignee sues for specific performance itself see G Jones and W Goodhart, Specific Performance (2nd edn, London, Butterworths, 1996) at 215. 46 Manchester Brewery Co v Coombs [1901] 2 Ch 608 at 616–17 per Farwell J. See also Buckland v Papillon (1866) LR 1 Eq 477 at 481; Curtis Moffat Ltd v Wheeler [1929] 2 Ch 224; Queensland Insurance Co Ltd v Australian Mutual Fire Insurance Society Ltd (1941) 41 SR (NSW) 195 at 201. See further G Jones and W Goodhart, Specific Performance (2nd edn, London, Butterworths, 1996) at 211; ICF Spry, Equitable Remedies (6th edn, Sydney, LBC, 2001) at 80–9. There may be circumstances that would allow an assignee to obtain such an order when the assignor could not: see ICF Spry, Equitable Remedies (6th edn, Sydney, LBC, 2001) at 88. As regards the ability of a sub-assignee to obtain an order for specific performance of the initial assignment to the intermediate assignee see the discussion in McDonald v Isaac Construction Co Ltd [1995] 3 NZLR 612. 47 [4.18], [4.22]. See generally Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 424–5 per Lord Lindley; Burr v Wimbledon Local Board (1887) 35 WR 404. Cf Manchester Brewery Co v Coombs [1901] 2 Ch 608 at 616 per Farwell J. See further G Jones and W Goodhart, Specific Performance (2nd edn, London, Butterworths, 1996) at 214–15. 48 It is important to identify the exact right vested in the assignee: see [6.54]. 49 See National Carbonising Co Ltd v British Coal Distillation Ltd (1936) 54 RPC 41 at 46 per Clauson J.
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correct because an obligor’s liability to pay damages for the non-performance of a contractual obligation flows from a secondary obligation which, although imposed and not agreed to,50 seeks to uphold the security of the contract. That is, the valuation of damages seeks, in money terms, to value the primary right. Therefore, inasmuch as the transfer principle prohibits a variation of the primary obligation, it must also prohibit a variation of liability. [8.10] It has been said that the assignee can recover no more than the assignor could have recovered. There is recent authority for the view that this “rule” applies in respect of breaches committed both before and after the assignment. The basis for this limited liability is said to be that the obligor is not to be put in any worse position by reason of the assignment.51 This rule clearly overlaps with the variation of obligation rule and is the mirror image of the rule that states that the assignee can be in no better position than the assignor was prior to the assignment. There is also recent authority to the contrary which suggests that, although an assignment cannot vary the heads of damage, it may make the obligor liable for a greater measure of loss.52 There is no doubt that a logical argument can be made to the effect that, because the assignability of a contractual right is based on the intention of the obligor (objectively construed from the position of the assignor), then where a contractual right is assignable the obligor should expect, subject to the rules of remoteness, to have to compensate the assignee for the loss suffered by that assignee. If the obligor wished it to be otherwise he or she should have made the right personal. The difficulty with this argument is that there is no investigation into whether the parties considered a contract assignable; the only investigation is into whether or not the contract was personal or, in the case of a prohibition, not assignable.53 [8.11] It is necessary to choose between these two views, and this should be done by reference to first principles. There are two issues to consider. First, although an assignment does not make the assignee party to the contract, if an assignment involves a transfer so that the assignee owns the subject matter of the assignment, then it would be a denial of that ownership and the principle of transfer if the assignee were not able to recover for its personal loss. In short, the principle of transfer dictates that if the assigned right is infringed then the assignee must be able to recover for its own loss. A more detailed explanation of this first point is as follows: putting aside any outstanding issue of notice, the reason an assignee can expect a personal perform50
Grein v Imperial Airways Ltd [1937] 1 KB 50 at 69 per Greer LJ. Bovis International Construction Inc v The Circle Partnership (1995) 49 Con LR 12 at 22 per Staughton LJ. See also Western Wagon and Property Co v West [1892] 1 Ch 271 at 277. 52 Bovis International Construction Inc v The Circle Partnership (1995) 49 Con LR 12 at 31 per Millett LJ. 53 [6.69]. 51
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ance by the obligor is that the assignee takes an actual transfer of the right to performance. However, that actual transfer occurs as a result of the transfer of title to the right to performance. Thus, when an assignee calls for the performance of a contractual obligation, it calls for the performance of an obligation owed to it by virtue of its title (ownership) of the contractual right. The assignee cannot enforce this right under the contract as it is not a party to the contract. Therefore, when the obligor fails to perform and the assignee commences an action claiming damages for breach of contract (the ownership of the right to damages having automatically vested in the assignee by virtue of its ownership of the right to performance), what that award will protect is the assignee’s title to the right to contractual performance. When a piece of tangible property is converted, the damages recoverable by the person with the immediate right to possession will equate to the value of the goods. Although the non-performance of a contractual obligation is not the same as exercising dominion over someone’s goods,54 it has an analogous effect to the extent that the assignee is deprived of a benefit it could legitimately expect to enjoy from its ownership of the contractual right to performance. Therefore, its compensation should equate to the value of that property. Here, because the “property” is the title to a right of contractual performance, that value is determined by reference to the assignee’s expectation interest which would bring into operation the normal contract law measures. [8.12] This then leads to the second issue. The suggestion that the assignee can recover for its own personal loss does not open the obligor up to a claim beyond anything reasonably contemplated by the obligor at the time of contract. The principle of transfer also protects the obligor because he or she cannot be asked by the assignee to perform an obligation greater than that which was promised in the contract with the assignor. Therefore, the damages for breach of that contractual obligation can never be greater than the value to the assignor of that primary obligation. Although the transfer principle dictates that the assignee’s expectation interest must be protected, since damages seek to uphold security of contract, that is, the value of performance of the obligation, if the obligor was made liable for a sum representing an amount greater than that which it would have been liable to pay the assignor, then the award of damages would have effectively varied the obligation of the obligor in breach of the principle of transfer. In short, the transfer principle dictates that the obligor can never be liable to the assignee for an amount greater than that which would have been payable to the assignor. This acts as a cap on liability. Another explanation of this second aspect is as follows: where there is an assignment of a contractual right what the assignee purchases is title to a contractual right which is a right to an obligation promised by the obligor to the assignor. For 54 Although it may have its uses, Anglo-Australian law has not recognised the notion of the possession of an intangible for the purposes of such actions as conversion: see OBG Ltd v Allan [2005] 2 WLR 1174.
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the reasons noted earlier, the effect of there being an actual transfer of the contractual right means that the characterisation of that contractual right does not change by reason of the assignment. It remains a right to an obligation promised to the assignor. What occurs upon assignment is that, by reason of that actual transfer (and assuming notice of the assignment has been given), the obligor must now perform the relevant obligation to and for the benefit of the assignee. However, in terms of putting a value on that right its character as a personal contractual right owed to the assignor is important. That is, although one does not value property by reference to the identity of a previous owner, unless perhaps where the previous owner added some celebrity to the property, in the case of an assigned contractual right, because the asset that the assignee purchases is a right to an obligation which, as a matter of contract, was promised to the assignor, this does affect its value. Subject to what is said below,55 this does not mean that the assignee recovers what the assignor could have recovered. It simply means that the value of the right to the assignor sets a cap on the amount the assignee can recover.56 If it were otherwise, then an assignee who suffers less loss than the assignor would have suffered could recover what the assignor could have received. That cannot be right because the assignee is enforcing a contractual right and the remedy must reflect its expectation interest to the extent that that is not greater than what would have represented the assignor’s expectation interest. [8.13] It is necessary to consider the application of the above principles in two situations. The first is where the assignment takes place prior to a breach of contract by the obligor and the second is where the assignment takes place after a breach of contract by the obligor. In the case of a breach occurring prior to assignment, the measure of damages recoverable by the assignee must be calculated by the loss suffered by the party holding the primary right to performance at the time of breach.57 Therefore, in such a case, the assignee recovers damages assessed by reference to the loss suffered by the assignor.58 This result does not flow from the idea that the secondary right to damages replaces the right to performance; until damages are paid or the con55
[8.13]. See Dawson v Great Northern and City Railway Co [1905] 1 KB 260 at 272–4 per Stirling LJ. 57 See ibid; GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd [1982] SLT 533; Darlington Borough Council v Wiltshire Northern Ltd [1995] 1 WLR 68. 58 One limitation here is that the interest of the assignor can set a limit on recovery only if the breach causes damage to the interest of the assignor. In the case of a mortgage, it is possible to assign a primary right to performance free of the effects of any previous breach, and this occurs where there is a re-assignment by the mortgagee (the breach occurring during the course of the mortgage). In such a case, it is suggested that the assignee can recover for its own loss because the mortgagee’s interest was never injured; the interest affected by the breach is the interest in the reversion: see generally Bovis International Construction Inc v The Circle Partnership (1995) 49 Con LR 12. This result may be explained on the basis that, although a mortgage of personal property transfers the ownership of that property to the mortgagee, that ownership is still a relative title in the sense that it exists only for the 56
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tract is discharged, both rights continue to exist.59 Rather, the result flows from the principle of transfer. If an assignor, who has suffered no substantial loss, could confer on an assignee a right to substantial damages, then the assignor would have managed to assign a right greater than it held, which is not permissible under the principle of transfer.60 The same result follows in the case of an assignment of a right to an indemnity.61 Often, the context in which such a right is assigned is where the indemnified party becomes liable to the creditor/assignee and cannot pay, and therefore assigns the benefit of the indemnity to the creditor/assignee who then enforces it against the indemnifier.62 Where an indemnity relates to loss suffered or liability incurred in respect of certain property, then unless the indemnity is expressed to cover the loss or liability of the owner of the subject property “for the time being”, the amount recoverable by an assignee is measured by reference to the loss or liability of the assignor.63 It would follow that unless the assignor has suffered loss or incurred liability, the assignee cannot recover.64 An indemnity which is limited to the loss suffered by the assignor will not extend to the loss the assignor would have suffered purpose of security and title is transferred only to the extent necessary to give effect to the security: see The Bradford Banking Co Ltd v Henry Briggs, Son & Co (1886) LR 12 App Cas 29 at 36 per Lord Blackburn. 59 [6.53]. 60 Darlington Borough Council v Wiltshire Northern Ltd [1995] 1 WLR 68 at 72 per Dillon LJ. 61 See further [6.76]. 62 British Union and National Insurance Co v Rawson [1916] 2 Ch 476. See also Re Perkins [1898] 2 Ch 182 (here A leased premises and assigned the lease to B taking an indemnity from B who then assigned the lease to C, taking an indemnity from C. C died and B, became bankrupt and the lessor called upon A to pay which A did; A proved in the bankruptcy of B and in a compromise took an assignment of B’s right of indemnity from C. A sued the executors of C and recovered the amount A had to pay the lessor. That is, B was liable to A for the sum that A had paid the lessor; C had agreed to indemnify B and it was the benefit of this indemnity that was assigned to A, so that C had to pay A the sum that B was liable to pay A which in turn was the sum that A had to pay the lessor. Thus, it was not a case of the assignee A recovering for its liability to the lessor but rather recovering to the extent of C’s liability to B. The case was complicated by the fact that when B assigned to A the benefit of C’s indemnity, A released B from liability to A. It was argued that because B was no longer liable to A by reason of the release, the indemnity given by C to B was rendered valueless. However, it was held that on construction, the release given to B was not wide enough to bring about this result). 63 Pendal Nominees Pty Ltd v Lednez Industries (Australia) Ltd (1996) 40 NSWLR 282 at 291–2 per Cohen J. However, except when the assignment is by way of mortgage or there is an agreement to the contrary, because the assignee “owns” the relevant right, he or she may keep the full sum recovered even if that amounts to a greater sum than that paid in settlement to the assignor: Compania Colombiana de Seguros v Pacific Steam Navigation Co [1965] 1 QB 101. 64 An indemnity is a contractual promise to hold someone harmless in respect of an event—generally the event is one that is not certain to occur. Upon the event occurring the indemnifier is in breach of contract and must pay the indemnified party an amount (in damages) representing the value of that promise to indemnify. Under the prevailing equitable rule, unless the contract states to the contrary, it is not a requirement that the indemnified party suffer a loss before it can call on the indemnity: see Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1 at 35 per Lord Goff, at 42 per Lord Jauncey. Thus, if a person has the benefit of an indemnity in respect of that person’s liability to a third party, it is not necessary that that person first pay the third party before it can call on the indemnity. An assignee of the benefit of such an indemnity is in no worse position: see British Union and National Insurance Company v Rawson [1916] 2 Ch 476 and see Taylor v Sanders [1937] VLR 62.
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by reason of a later breach if there had been no assignment.65 It would be nonsense for the assignee to be able to recover for loss the assignor would have suffered when the assignor no longer owns the property which is the subject of the indemnity. Thus, if at the same time the subject property is transferred to the assignee there is an attempted assignment of the right to the indemnity, and if later the subject property is damaged, then no loss will have been suffered by the assignor so the assignee can recover nothing.66 On general principles if the liability indemnified against is extinguished then the indemnity in respect of that liability cannot be enforced and an assignee of that indemnity can be in no better position.67 Often the right of indemnity, that is, the right of performance, is not assignable as it is personal, and what is assignable and assigned is the right to the fruits of the contract (if it took place prior to the loss being suffered) or the fruits or proceeds if the assignment takes place after the loss. In either case what the assignee can recover is an amount equivalent to the loss or liability of the assignor. [8.14] Where the breach occurs after the assignment of the benefit of the contract, then general principle dictates that the assignee recovers compensation for its expectation loss with the limit being the loss that could have been recovered by the assignor. However, in assessing this cap, what the obligor was doing in fact for the assignor at the time of the assignment is irrelevant. The reason for this is that the assignor may not have been making all the demands on the obligor it could have made under the contract at that time. Of course, the notion of arriving at a sum that the assignor might have recovered if it were around at the time of the action and making the demands on the obligor that the assignee was making can be somewhat speculative. What should generally occur is this; a finding needs to be made that the demands made by the assignee were within the bounds of what the obligor promised the assignor; if that is made out, then an assessment of the loss suffered by the assignee should be determined; finally, to ensure the obligor is not having to compensate an especially vulnerable assignee, the remoteness rules must be applied and these are applied as at the time of contract.68 [8.15] There are cases where the obligor does not simply promise to perform a non-personal obligation for the benefit of the assignor, but in fact promises to perform for an assignee and to satisfy the assignee’s personal needs. Here the assignee’s damages would not be capped by what the assignor could have recovered. Tolhurst’s case is an example of this. In that case the obligor was obliged to 65
See Housing Guarantee Fund Ltd v Yusef [1991] 2 VR 17 at 21 per Crockett J at 25 per Murphy J. Walker v Phoenix Assurance Co of Australia Ltd (1980) 1 ANZ Ins Cas 60–045. 67 Taylor v Sanders [1937] VLR 62. 68 Because the rules of remoteness are applied as rules of contract law, they ensure that the obligor is no worse off in law by reason of the assignment, rather than ensuring the obligor is no worse off in fact by reason of the assignment. 66
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supply the assignee with its personal requirements even though the assignee was a much larger enterprise than the assignor. The result flowed from a construction of the contract which evidenced that the obligor had agreed to supply not only the assignor but also any assignee with its needs. The only limits agreed to at the time of contract were the extent of the obligor’s quarry and the size of any cement works that could be built on the land sold by the assignor to the assignee. The demands made by the assignee were not in excess of this and therefore the transfer principle was not contravened. Therefore any contractual damages for failure to perform would be valued to secure that performance, and this would be in line with the principle of transfer. There would be no variation of obligation in assessing damages this way. The same result must follow where a contract is entered into solely for the benefit of an assignee and where this is clear to the obligor.69 Arguably, this must be the result under most supply contracts that are not personal. In the result, the assignee may obtain a higher measure of damages, but the rules of remoteness would prevent the heads of damages from changing. [8.16] Equitable assignments and the rights of the assignee. In the case of an equitable assignment of an equitable interest, the assignee can generally sue in its own name, as the assignee alone is regarded as having an interest in the property assigned.70 The assignee can also give a good discharge.71 The concern here is with the equitable assignment of legal interests. As noted earlier,72 where a transaction is upheld as an equitable assignment, the obligor will immediately owe its personal obligation in equity to the assignee whether or not the obligor has notice of this.73 If the obligor fails to carry out its obligation, it should be accountable to whoever was beneficially owed that obligation at the relevant time. Thus, as noted, in the case of an assigned contractual right where the obligor is required to perform an obligation, the requirement of notice, in terms of binding the conscience of the obligor, is to bring home to the mind of the obligor its responsibility to the assignee prior to the time for performance. Notice is relevant to the issue of discharge by performance but not to liability. It follows that as regards common law damages for breach of contract if the obligor breaches the contract after the assignment its liability should be the loss suffered by the assignee, with the loss that would have been suffered by the assignor generally operating as a cap on liability. It would not be appropriate for the assignee to claim the loss that would have been suffered by the assignor if that were a greater amount 69 This may provide an explanation for the result in Darlington Borough Council v Wiltshire Northern Ltd [1995] 1 WLR 68. 70 Redman v Permanent Trustee Co of NSW (1916) 22 CLR 84 at 95 per Isaacs J. Cf FCT v Everett (1979) 143 CLR 440, and see [4.03]. 71 FCT v Everett (1979) 143 CLR 440 at 447. 72 [4.19], [8.06]. 73 Ward v Duncombe [1893] AC 369 at 392 per Lord Macnaghten.
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than the assignee’s personal loss when it was within the power of the assignee to give notice. If the assignor commences an action for damages for breach of contract, those damages being held on trust for the assignee, it would not be right for the assignor to make no reference to the assignment in the action and collect damages for its own loss where that loss is greater than that suffered by the assignee. From this it can be seen that the obligor may be better off in fact by reason of an assignment even though strictly they are no better off in law. [8.17] It is necessary to investigate the equitable remedies available to the equitable assignee. In doing this it is necessary to reiterate the position adopted earlier that if the assignee wishes to enforce the legal right by way of an equitable remedy, or otherwise seeks to enforce or secure or protect its equitable interest, then the joinder of the assignor is a procedural requirement only.74 [8.18] In the case of an assignment of a primary contractual right to performance or payment, once the assignment is complete the obligor’s performance obligation is beneficially owed to the assignee.75 However, the assignee can legitimately expect that performance will be rendered to it personally only if notice is given to the obligor before the time set for performance.76 If the assignee wishes to obtain an order for specific performance, then the assignor should be joined as a matter of procedure unless this requirement is relaxed.77 No problems arise in enforcing a debt, as equity can enforce a debt when it classifies it as equitable debt and the creditor as an equitable creditor. Here the assignee enforces an equitable right by way of an equitable remedy with the assignor being joined as a matter of procedure, ensuring that all interested parties are before the court.78 [8.19] The next two situations are first where, after the assignment, the obligor fails to perform its primary contractual duty and is liable for breach of contract, and secondly where the breach of contract occurs prior to the assignment. Clearly, 74
[4.21]–[4.25]. [4.19], [8.06], [8.16]. 76 Deposit Protection Board v Dalia [1994] 2 AC 367 at 387 per Sir Michael Fox (overruled on another point sub nom Deposit Protection Board v Barclays Bank Plc [1994] 2 AC 367); William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454. Cf Hammond v Messenger (1838) 9 Sim 327, 59 ER 383. See further [4.20]. 77 [4.18], [4.22], [8.07]. 78 Caddy v Beattie (1908) VLR 17. See also Scribes West Ltd v Relsa Anstalt (No 3) [2005] 1 WLR 1847 at 1850–1 per Carnwath LJ. There are early equity cases of assignees of debts bringing actions in equity in their own name to enforce the debts; not all of these concern partial assignments: see WT Barbour, “The History of Contract in Early English Equity” in P Vinogradoff (ed), 4 Oxford Studies in Social and Legal History (Oxford, OUP, 1914) at 108, citing Perryer v Hallifax (1677) Rep Temp Finch 299, 23 ER 164; Fashion v Atwood (1688) 2 Chan Cas 37, 22 ER 835; Peters v Soame (1701) 2 Vern 428, 23 ER 874; Atkins v Dawbury (1714) Gilb Eq Rep 88, 25 ER 61; Lord Carteret v Paschal (1733) 3 P WMS 197, 24 ER 1028; Row v Dawson (1749) 1 Ves 331, 27 ER 1064. See further [4.18], [4.27]. 75
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on the analysis proffered, if the assignee wishes to sue for common law damages for breach of contract or for a common law debt, the assignor will have to be joined as a matter of substantive law. However, the assignee’s arsenal is not necessarily exhausted by this. As noted above, as regards the enforcement of a payment obligation, the assignee can simply rely on its equitable interest. Joinder here would be procedural. [8.20] Far more problematic is the situation where the obligor fails to perform the contract and the assignee wishes to rely on its equitable interest to sue for damages. It is suggested that if the assignee does bring such an action it is entitled to equitable compensation, which flows from the enforcement of (and protects) an equitable right.79 The assignee has an equitable interest and a legitimate expectation that equity will protect that interest. If the obligor fails to perform, then as against the assignor there is a breach of a common law duty, but as against the assignee (whether or not at the time of the breach the obligor has notice of the assignment) it is suggested that there is an equitable “contractual” wrong,80 which may be treated in equity as unconscionable conduct which, causing loss, may be compensated for by way of equitable compensation. Where the assigned right is a contractual one, the compensation should generally be subject to the same requirements of causation, remoteness and mitigation as a similar action brought at law. The assignor’s loss or potential loss will cap liability. [8.21] The above suggestion is not meant to be a radical development in equitable compensation. That equity’s conscience is drawn to a breach of contract is evidenced by its jurisdiction to grant specific performance and injunctions. That the granting of damages for breach of contract is not new to equity is evidenced by the fact that it is accepted that a court may grant statutory (equitable) damages in addition to or in substitution of an order for specific performance where it has jurisdiction to grant specific performance. Moreover, it may grant equitable compensation to cover any loss suffered by a claimant in seeking specific performance. In recent years, there has been a growth in equity’s compensatory jurisdiction, and although some commentators have sounded warnings there has been little sustained attack on this growth and much support for it.81 There appears little rea-
79 It is not suggested that this route has always been recognised as open: see Torkington v Magee [1902] 2 KB 427 at 432 per Channell J. 80 Another view may be that since the conscience of the obligor vis-à-vis the assignee is bound upon notice, the equitable wrong can occur only where there is a breach of contract with prior notice of the existence of the assignment. That is, a breach of contract alone is not an equitable wrong. The result here is that if the breach occurs without prior notice of the assignment, then equity’s conscience is not drawn to the event and the assignee is left to join the assignor (in a substantive sense) and claim common law damages.
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son to inhibit equity from having a jurisdiction to grant compensation for breaches of all equitable duties if that provides the most appropriate remedy. [8.22] One caveat on the above suggestion arises where the breach of contract occurs prior to the assignment. Here it is suggested that the assignee will have no right to equitable compensation. This is because the assignee had no interest in the contract at the time of breach, and therefore there was no equitable wrong committed against the assignee. The assignee’s remedy is for common law damages, which requires joinder of the assignor as a matter of substantive law. [8.23] Finally, the award of equitable compensation to an equitable assignee of a legal right will be rare. The assignee is still required to join the assignor as a matter of procedure, and if it is going to do that then it may as well claim damages at common law for breach of contract. The jurisdiction is more likely to be exercised where the assignor is not procedurally required to be joined and where the assignee must rely solely on its equitable interest. [8.24] Guarantees. Where there is an assignment of a guarantee, the assessment of liability of the guarantor/obligor to the assignee will be dependent upon the normal principles governing the liability of guarantors. Guarantees are given to secure in whole or in part the principal’s obligation under the main contract. This may be a loan contract or a mortgage securing the loan given by either the borrower or guarantor. The value of the guarantee does not change simply because the benefit of the guarantee is later vested in the assignee.82 [8.25] Assignments of the right to the proceeds of contracts of general insurance. As noted earlier, the benefit of contracts of indemnity is usually construed to be personal and not assignable.83 However, it is possible for an insured under a contract of indemnity insurance to assign the right to the proceeds or the proceeds of 81 Eg A Mason, “The Place of Equity and Equitable Remedies in the Contemporary Common Law World” (1994) 110 LQR 238; C Rickett, “Equitable Compensation: Towards a Blueprint?” (2003) 25 Syd LR 31; P Finn, “Equitable Doctrine and Discretion in Remedies”, in WR Cornish, R Nolan, J O’Sullivan and G Virgo (eds), Restitution: Past, Present and Future (Oxford, Hart, 1998) at 260–2; C Rickett, “Compensating for Loss in Equity—Choosing The Right Horse For Each Course”, in P Birks and F Rose (eds), Restitution and Equity Vol 1: Resulting Trusts and Equitable Compensation (London, LLP, Mansfield Press, 2000) ch 10; M Tilbury and G Davis, “Equitable Compensation”, in P Parkinson (ed), The Principles of Equity (2nd edn, Sydney, LBC, 2002) ch 22; C Rickett and T Gardner, “Compensating for Loss in Equity: The Evolution of a Remedy” (1994) 24 Victoria University Wellington Law Review (VUWLR) 19; L Aitken, “Developments in Equitable Compensation: Opportunity or Danger?” (1993) 67 ALJ 596; M Broderick, “Equitable Compensation—Its Place in the Remedial Sphere” (2005) 33 Austrailian Business Law Review 369. See further PM McDermott, “Jurisdiction of the Court of Chancery to Award Damages” (1992) 109 LQR 652. 82 See Housing Guarantee Fund Ltd v Yusef [1991] 2 VR 17 at 21 per Crockett J. 83 [6.73].
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such a contract. In either case, particularly the latter, such an assignment will be a dealing in future property if is entered into prior to any insured loss being suffered by the insured assignor. The situation is different if the assignment takes place after loss; at this point the interest in the claim is the only property covered by the policy.84 An assignment of “the proceeds” can be put to one side as it is dependent upon payment being made to the assignor.85 Where there is an assignment of the right to the proceeds, generally, and subject to the actual terms of the contract of indemnity, for the assignee to be able to recover, it is said that it is necessary that the assignor suffer a loss. If, for example, the assignor transfers the subject property to the assignee together with an assignment of the right to the proceeds of the indemnity, and it is only later that the property is damaged, then clearly the assignor will not have suffered a loss. Similarly, if the assignor sells the underlying property but does not assign the policy then, if that property is later damaged, the assignor cannot recover under the policy.86 In the case of an agreement for the sale of land, if after the contract but prior to conveyance the property is damaged, then although the insured seller retains an insurable interest and can claim an indemnity from the insurer, if the buyer is still obliged to perform the contract and pays the price, the vendor must account to the insurer for sums received from the insurer as it will have suffered no loss.87 The agreement to sell the property does not automatically carry with it an assignment of the policy of insurance taken out by the assignor. Thus, the purchaser cannot claim under that policy.88 In addition, any assignment of the right to the proceeds to the buyer would be worthless as the buyer/assignee can obtain no greater right than the assignor and is subject to the same equities.89 This would not be a problem if the right to indemnity were assignable. Where there is a valid assignment of the right to the proceeds, the assignee may still be subject to the assignor or obligor exercising rights under the contract which will impact on the value of the right vested in the assignee. For example, the insurer (or more rarely the insured) may have the right to exercise a reinstatement clause upon the property being damaged by fire.90 Where that clause allows for an
84 See Raiffeisen Zentralbank Österreich AG v Five Star Trading LLC [2001] QB 825 at 852 per Mance LJ. 85 [6.73]. 86 See [6.76]. 87 Castellain v Preston (1883) 11 QBD 380. Different considerations apply if, after a loss, the insured receives a gift which is meant to benefit only the assured and not the insurer: see Colonia Versicherung AG v Amoco Oil Co [1997] 1 Lloyd’s Rep 261 and see MA Clarke, The Law of Insurance Contracts (4th edn, London, LLP, 2002) para 31–4G. 88 See Raynor v Preston (1881) 18 Ch Div 1. See now Law of Property Act 1925 (UK) s 47; Insurance Contracts Act 1984 (Cth) s 50. 89 See Zeil Nominees Pty Ltd v VACC Insurance Co Ltd (1975) 180 CLR 173.
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election to reinstate the property and this right is exercised, this will rob the assignee of any proceeds.91 If the property is damaged and later the assignor sells the property together with an assignment of the right to the proceeds of the policy, then such an option may not be capable of being exercised by the insurer or the insured as the case may be.92 Where the right to call for reinstatement is a right of the assignor/insured, it is a personal right and is not transferred with an assignment of the policy. Therefore the assignee cannot exercise it. In such a case the assignee can recover only the amount that reflects the actual loss of the assignor.93 [8.26] Agreements not to raise equities. It is not uncommon for an obligor to promise the assignor that in the event of an assignment the obligor will not raise against the assignee any equities that it has against the assignor.94 In some cases a promise to this effect may be implied.95 Clearly, such a provision is enforceable between an assignor and obligor as a matter of contract. It has also been held that (except where the obligor is relying on a direct action against the assignee96) the benefit of such a provision may be enforced by an assignee against an obligor.97 However, there has been little analysis of how the assignee can take the benefit 90 See generally MA Clarke, The Law of Insurance Contracts (4th edn, London, LLP, 2002) ch 29; K Sutton, Insurance Law in Australia (3rd edn, Sydney, LBC, 1999) paras 15.148–15.174. 91 The result may be different if the reinstatement clause was either to pay the costs incurred by the insured in reinstating the property or to pay damages assessed on a cost of cure basis. 92 Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142. Cf Anderson v Commercial Union Assurance Company (1885) 55 LJQB 146. In such circumstances, and depending on the terms of the policy, theoretically it may be possible to exercise a right to pay or receive the costs of reinstatement as damages, but not if the policy first required the property to be repaired before any such payments were made: see K Sutton, Insurance Law in Australia (3rd edn, Sydney, LBC, 1999) para 15.163. 93 See Bryant v Primary Industries Insurance Co Ltd [1990] 2 NZLR 142. See further K Sutton, Insurance Law in Australia (3rd edn, Sydney, LBC, 1999) para 2.126. 94 Such a provision is likely to be strictly construed: see Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410 at 424–5 per Williams J. 95 See Re Agra and Masterman’s Bank (1867) LR 2 Ch App 391 at 395; Re General Estates Co (1868) LR 3 Ch App 758; Higgs v The Northern Assam Tea Co Ltd (1869) LR 4 Ex 387; Re Northern Assam Tea Co (1870) LR 10 Eq 458; Hilger Analytical Ltd v Rank Precision Industries Ltd [1984] BCLC 301. See also Re Blakely Ordnance Co (1867) LR 3 Ch App 154; Phoenix Assurance Co Ltd v Earl’s Court Ltd (1913) 30 TLR 50. Cf Re Natal Investment Co (1868) LR 3 Ch App 355 and Re Rhodesia Goldfields Ltd [1910] 1 Ch 239. 96 The Society of Lloyds v Wilkinson (No 2) [1997] 6 Re LR 214. 97 See Re General Estates Co (1868) LR 3 Ch App 758; Higgs v The Northern Assam Tea Co Ltd (1869) LR 4 Ex 387; Re Blakely Ordnance Co (1867) LR 3 Ch App 154; Re Agra and Masterman’s Bank (1867) LR 2 Ch App 391; Re Northern Assam Tea Co (1870) LR 10 Eq 458; Re Goy & Co Ltd [1900] 2 Ch 149; Phoenix Assurance Co Ltd v Earl’s Court Ltd (1913) 30 TLR 50; Hilger Analytical Ltd v Rank Precision Industries Ltd [1984] BCLC 301; The Hong Kong and Shanghai Banking Corp v Kloeckner & Co AG [1989] 2 Lloyd’s Rep 323; The Society of Lloyd’s v Leighs [1997] 6 Reinsurance Law Reports (Re LR) 289. See also The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 113 per Dixon J. Cf Lechmere v Hawkins (1798) 2 Esp 626, 170 ER 477; Taylor v Okey (1806) 13 Ves Jun 180, 33 ER 263; M’Gillivray v Simson (1826) 2 C & P 320, 172 ER 145. See also United Nations Convention on Assignment of Receivables in International Trade, Art 21, which prohibits the debtor excluding defences arising from fraud on the part of the assignee or defences based on the debtor’s incapacity.
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of such a provision except, in perhaps the leading case, it was suggested that such a provision amounts to an equity of the assignee.98 It is suggested that this result can be explained by recognising that such a right is assignable, and because such a provision usually exists for the benefit of an assignee, it follows that its assignment is intended to be included in the assignment of any contractual right. Even without an assignment of the benefit of such a provision there may be ways in which the assignee may take the benefit of it. For example, as already mentioned, it may be that such a provision exists solely for the benefit of an assignee, and the assignee may then take the benefit of it simply on the basis that it is a third party beneficiary to the contract. However, in Australia the ability of third party beneficiaries to enforce contracts is still not clear and, in any case, usually the assignee is not identifiable at the time of contract. In addition, such a provision may not be expressly for the benefit of an assignee.99 Another possibility is to rely on the principle that the intention of the parties characterises contractual rights in their nature as choses in action. Thus, where the provision is for the benefit of the assignee, although the relevant contractual right may be conditional or have some weakness when vested in the assignor, it loses any such infelicity in the hands of the assignee as it is intended by the obligor to be reshaped in its character as a chose in action when assigned. This would not be a case of an assignor being able to assign a greater right than it has; the right had this potential characteristic from the moment the assignor and obligor entered into the contract. [8.27] Limitations on the assignee’s rights against the obligor: the strength of the assignee’s right. In Chapter 4 mention was made of the strength of the assignee’s right.100 That chapter was principally concerned with properly characterising an equitable assignment of a legal right. It was suggested that, for a transaction to be properly termed an equitable assignment of a legal right, it was necessary to vest in the assignee the beneficial ownership of the subject legal right. This in turn meant that an assignee’s remedies could not be limited to actions against the assignor to 98 See Higgs v The Northern Assam Tea Co Ltd (1869) LR 4 Ex 387 at 394. It may be that because it is considered an “equity”, that is has been suggested that an assignee can take the benefit of such a term only if the assignee is a bona fide purchaser for value: see Re Brown & Gregory Ltd [1904] 1 Ch 627 at 632 (affirmed [1904] 2 Ch 448). However, perhaps the better interpretation of that case is simply that no agreement not to raise equities was expressed or implied in the contract: see further Hilger Analytical Ltd v Rank Precision Industries Ltd [1984] BCLC 301 at 304. 99 Rather than being drafted in terms of raising equities, many contracts contain provisions that state that one party will not assert a set-off against another. For example, under a loan agreement the borrower may promise to make repayments without resort to set-off or counterclaim: see Skipskredittforeningen v Emperor Navigation SA [1997] 2 BCLC 398. See also Coca-Cola Financial Corp v Finstat International Ltd [1998] QB 43; BOC Group plc v Centeon LLC [1999] 1 All ER (Comm) 53; Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corp [2000] 1 All ER (Comm) 474. 100 [4.04], [4.25].
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enforce the assignment. The assignee might also have recourse directly against the obligor by way of equitable remedies to protect its equitable interest or to enforce the legal right. The extent and versatility of those remedies was discussed above. One caveat placed on the assignee’s ability to have direct recourse against the obligor was the strength of the assignee’s right. This is discussed in more detail here. [8.28] A limitation arising by reason of the strength of a right may flow from the inherent nature of the right assigned. In addition, it may flow from the intention of the assignor and obligor as expressed in the contract. A contractual right is a chose in action which exists only because of the intention of the assignor and obligor to enter into a contract. Although these parties may not be able to make something property that the law would not otherwise recognise as such, they are able to mould its characteristics. One particular aspect that may be addressed in a contract is the manner in which a right may be enforced. Here this is referred to an the “strength” of a right. [8.29] It is possible to find examples of situations where the nature of the assigned right itself has resulted in limited remedial avenues for the assignee. For example, it was held in FCT v Everett,101 that, although the effect of an equitable assignment of an equitable interest is that the assignee can enforce the right in its own name, in the case of the assignment of a portion of a partner’s share in a partnership, it was necessary to maintain that a trust existed between the assignor and assignee as the assignment did not constitute the assignee a partner, so the assignee could not directly enforce rights against the obligor. The decision in Herkules Piling Ltd v Tilbury Construction Ltd provides a further example.102 In this case a subcontractor agreed to assign certain fruits of its contract with the contractor to a third party. The building contract prohibited the assignment of the benefit of the contract without consent from the contractor but allowed for the assignment of sums that are “or may become due and payable . . . under this sub-contract”. The assignment was subject to certain conditions and took effect as an agreement to assign a present right and was thought, at the relevant time, to operate as an equitable assignment. The building contract contained a clause requiring all disputes to go arbitration; that is, the enforcement mechanism. The trial judge held that the arbitration clause formed part of the benefit of the contract which could not be assigned without the consent of the contractor. Therefore, although the assignment of these fruits of the contract was valid, the nature of the right vested in the assignee did not carry the contractual mechanism 101
(1980) 143 CLR 440. (1992) 61 BLR 107. Cf Yeandle v Wynn Realisations Ltd (1995) 47 Con LR 1; Flood v Shand Construction Ltd (1996) 54 Con LR 125, discussed as [6.54]. 102
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for enforcement, namely the right to arbitrate.103 Thus, although the transaction was properly called an assignment, since the assignee was vested with the beneficial ownership of the subject legal right, the assignee’s rights were limited to actions against the assignor because of the strength of that right. The proper claimant was the assignor. It may be added that, even without this prohibition it appears to be the case that the benefit of an arbitration clause can be exercised only by the legal right holder. The position is akin to the exercise of an option.104 For example, it has been held that for an assignee to intervene in an arbitration that has already commenced, it is necessary to give notice to the obligor to complete a legal assignment, and in addition, notice must be given to the arbitrator, although the latter is probably a procedural requirement.105 [8.30] The second example is more problematic, but is perhaps explicable by reference to the strength of the right assigned. However, here the weakness in the assignee’s right flows from contractual provisions rather than an inherent characteristic of the right assigned. The decision is that of Romer J in Friary Holroyd and Healey’s Breweries Ltd v Singleton.106 In Warner Bros Records Inc v Rollgreen Ltd,107 Roskill LJ108 relied on the decision in Friary for his statement that an equitable assignee has rights only against the assignor. In Friary a lessee was granted an option to purchase. The option was expressed to be given to the lessee, “his executors, administrators, and assigns”. The question arose whether an equitable assignee of a legal lease who had not perfected title by a legal assignment could exercise the option to purchase given to the “assigns” of the lessee. Generally, subject to any overriding statutory provisions,109 an equitable assignee of a lease is not liable to the head lessor to pay the rent or observe other lease covenants even though taking possession, as there is no privity of contract with the head lessor and no privity of estate, as that requires a legal lease.110 A lessee’s option to purchase and a lessor’s option to require the lessee to purchase do not touch and concern the land so as to pass with the reversion. Romer J held that the equitable assignee could not exercise the option to purchase. Roskill LJ in Warner Bros thought this case was founded on basic principles. If he meant by this no more than that an equitable assignee of an option cannot exercise the option in its own name because 103
See further [6.54]. [4.12], [4.25]. 105 Baytur SA v Finagro Holding SA [1992] QB 610; Montedipe SpA v JTP-RO-Jugotanker (The Jordan Nicolov) [1990] 2 Lloyd’s Rep 11. 106 [1899] 1 Ch 86 (reversed on the facts [1899] 2 Ch 261, (1899) 81 LT 101). 107 [1976] 1 QB 430: see [4.12]. 108 Ibid, at 443–4. 109 Eg Landlord and Tenant (Covenants) Act 1995 (Eng). 110 See Government Insurance Office (NSW) v KA Reed Services Pty Ltd [1988] VR 829 at 835 per Brooking J, and the cases there cited. See also Denham Bros Ltd v W Freestone Leasing Pty Ltd [2004] 1 QdR 500 at 510 per McPherson JA. See further RJ Smith, “The Running of Covenants in Equitable Leases and Equitable Assignments of Legal Leases” [1978] CLJ 98. 104
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that requires exercise of the legal right, then it is suggested that this is a legitimate explanation of the result in the case, so long as the option is considered a legal chose in action.111 However, in Warner Bros Lord Denning MR112 correctly pointed out that Romer J’s reasoning was based on construction. Romer J construed the word “assigns” in the option as meaning “legal assigns”. He said: The word ‘Assigns’ in the option to purchase in the lease given to the lessee, his executors, administrators, or assigns, had in my opinion the same meaning as the word ‘assigns’ added to the lessee’s name in the covenants entered into by and with him in the lease. In other words, it meant the persons entitled to the term as between them and the lessor and bound by and entitled to the benefit of the covenants entered into by the lessee and lessor respectively which ran with the land demised. The plaintiffs, though in possession, could not have been sued at law by the lessor on the lessee’s covenants, nor could the plaintiff’s have sued the lessor’s assigns on his covenants by reason of the plaintiffs being equitable assigns of the lessee’s term and in possession.113
This explanation does call for further analysis. It is suggested that what Romer J was getting at here was simply that there was a prohibition on the assignment of the option. That is, there was a prohibition that did not prohibit legal assignment (as a legal assignee of the lease would be bound by its covenants) but prohibited equitable assignment. If that is right, then even assuming that the terms of the assignment were wide enough to capture the lease and option, the equitable assignee only became an assignee of the lease.114 Such a prohibition, if valid, is relatively unique. Most prohibitions prohibit either legal assignment or both legal and equitable assignment. Nevertheless, Romer J appeared to accept that if steps had been taken to perfect the assignee’s title under a legal assignment then the assignee could exercise the option. That is, although as an equitable assignee of the lease the assignee had no interest in the option, upon taking steps to render the assignment a legal assignment, so that the assignee was bound by the covenants in the lease, the assignee would automatically have an interest in the option without a separate assignment of it. There may appear to be a problem with this, because, if the interest of an equitable assignee amounts to the beneficial ownership of the legal right which is the subject of the assignment, and if upon an equitable assignment the assignee has no interest in the option, how can the assignee, by simply taking steps to render the assignment a legal assignment, suddenly have an inter111 The Court of Appeal in Friary in upholding Romer J’s reasoning as to legal principle, but disagreeing with him on the facts, emphasised that the assignee could force the assignor (through its liquidator) to exercise the option for its benefit: see Friary Holroyd and Healey’s Breweries Ltd v Singleton [1899] 2 Ch 261, (1899) 81 LT 101. See also McMahon v Swan [1924] VLR 397. Cf MacDonald v Robins (1954) 90 CLR 515. 112 [1976] 1 QB 430 at 442. 113 [1899] 1 Ch 86 at 90. 114 See Griffith v Pelton [1958] Ch 205; Batchelor v Murphy [1926] AC 63; Price v Murray [1970] VR 782; Davenport Central Service Station Ltd v O’Connell [1975] 1 NZLR 755; Re Adams and the Kensington Vestry (1883) 24 Ch 199. See further [6.50].
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est in the option? The answer, it is suggested, lies in the strength of the right held by the assignee. If one assumes that the terms of the assignment were wide enough to capture the option then the only impediment to the assignee being able to exercise the option was the prohibition which, by reason of intent, weakened the assigned right in its character as a chose in action, which, when lifted, allowed the assignment to take full effect automatically without a further assignment. That is, the prohibition was intended to impede transferability only until the occurrence of a contingency. The above two examples show the importance of the concept of the “strength” of the right vested in the assignee. Moreover, they show that even though the “assignee” may be limited to a remedy against the assignor to protect its beneficial ownership of the subject right, the transaction may still be classified as a true assignment.
(ii) The Rights of the Obligor [8.31] Introduction. An obligor may have direct rights against an assignee (which may be independent of the assignment or related to it) or rights against the assignor to which the assignee is subject. The extent to which a legal system allows an obligor to raise rights (other than independent direct rights115) against an assignee will impact on the viability of assignment, particularly as a method of finance. There are a number of arguments for and against allowing an obligor to raise such rights. In essence the issue is between, on the one hand, promoting assignment by giving prominence to the notion of security of receipt and thus limiting claims that can be raised against the assignee and, on the other hand, providing greater protection to the obligor or debtor both in law and in fact from the repercussions that follow from being involved in a transaction that was not of their choosing.116 The balance between these competing interests in Anglo-Australian law is (except for the case of dependent direct rights) reflected in the operation of the subject to equities rule.117 This section explores the extent to which the principle of transfer can provide some precision in understanding this rule. It will be suggested that this principle does show that there is a doctrinal thread running through the case law. Where the 115
[8.32]. See further F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 8.1. 117 There is some evidence, at least as regards direct restitutionary claims against an assignee, that England has chosen to place greater weight on security of receipt: see Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161. In the international arena there is a clear preference for security of receipt for the purposes of promoting receivables financing and keeping the cost of credit down: see [8.34]. See also OR Marshall, The Assignment of Choses in Action (London, Pitman and Sons Ltd, 1950) at 181. 116
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principle of transfer does not apply, it will be suggested that the case law is concerned with the prevention of unconscionable conduct. This, like the principle of transfer, is a clear application of legal principle, albeit less predictable than the operation of the principle of transfer. However, the important point is that legal principle informs decision-making here, and therefore the balance between the competing arguments referred to above has not been determined by an overt policy decision. Rather the balance has been struck by the application of first principles of doctrinal law. However, perhaps in evaluating the resulting legal position it is legitimate to suggest that the law should reflect a balance between these competing arguments. Most of the discussion below is concerned with explaining the subject to equities rule. However, the first issue dealt with concerns the ability of the obligor to enforce its direct rights and to vary the contract after notice of assignment. [8.32] The obligor’s direct rights. Given that no contractual relationship is created between the assignee and obligor by virtue of the assignment, it is rare for the obligor to have independent direct rights against the assignee.118 Such rights must flow from a separate contract, a statutory provision, tort or unjust enrichment. By far the most problematic and topical is the possibility of the obligor having a restitutionary claim against the assignee which arises by virtue of there being an assignment, that is, a dependent direct claim. This section concentrates on the possibility of such a claim. Following this there is an investigation into the extent to which the obligor can vary the contract after notice of the assignment. Although this does not necessarily give the obligor direct rights against the assignee it clearly can directly affect the assignee’s rights, and it is therefore convenient to deal with it here. [8.33] The obligor’s restitutionary rights: the issue defined. If an assignee takes an assignment of a conditional right whereby the performance of the assignor is a condition precedent to the obligor’s duty to perform, then clearly the assignee cannot call for the obligor’s performance unless the assignor has performed.119 Should the end result be any different if the obligor’s performance is a condition precedent to the obligation of the assignor to perform? Thus, if an advance payment is made to an assignee and the assignor fails to perform the obligation necessary to earn that payment, can the obligor maintain a claim for restitution against the assignee? The basis for restitution would be problematic. It would not be failure of consideration, as there is no agreed return between the assignee and obligor and the assignee is under no obligation to perform. It may be possible to 118 In New Zealand by virtue of the Contractual Remedies Act 1979 s 11(1), an obligor may bring an action against an assignee for a breach of contract committed by the assignor, but damages are limited to the value of the assigned right to the assignee at the time of assignment by virtue of s11(2): see Gray v UDC Finance Ltd [2000] 3 NZLR 192. 119 [8.07].
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base recovery from the assignee on unconscionability, it could be argued that it is unconscionable for the assignee to retain a payment when it would have been rcoverable from the assignor on the basis of failure of consideration if there had been no assignment. The usual case involves a contract of hire where payments are made monthly and in advance. Here the obligation to pay is a true conditional obligation as the goods must be available when the payment is tendered. Any assignment of such a right is an assignment of a conditional contractual right.120 It does not matter to that characterisation that the condition is a concurrent condition or a condition subsequent to the obligation to pay. If such an advance payment is made and the goods are not available for the entire rental period, should the debtor be able to claim restitution in respect of the payment made to an assignee? Clearly if there was no assignment and the payment was made to the party in the position of the assignor recovery would be possible on the basis of total failure of consideration.121 The resolution of this point troubled Dixon J in McDonald v Dennys Lascelles.122 He said:123 In the present case, not only is the principal debtor relieved from personal liability to pay the instalments but the vendors’ just title both to obtain and to retain the instalment altogether ceases. If there had been no assignment and if the instalment had been duly paid, it would have become the vendors’ duty to repay it. It is, perhaps, uncertain whether, if the payment of the instalment had been duly made to the plaintiff, as assignee, the liability to repay it would have fallen upon it or upon its assignors, the vendors, because it is not clear that the obligation to repay it does not arise out of contractual implications by which the assignee would not be bound, as distinguished from an independent duty springing simply from the receipt of the money and the subsequent discharge of the contract. But, when the money has not been reduced into possession, the assignee’s right to recover it is precisely that of the vendors and is affected by exactly the same considerations.
Much of the difficulty Dixon J had in giving a definitive answer lay in the fact that at the time it was not clear whether the right to a remedy of restitution in the case of a discharged contract resulted from contract or from an independent source. If it rested in contract then the assignee would not be obligated to repay as it could not be bound by the contractual burden. However, he appeared at least to consider the idea that if the obligation to make restitution was based on a principle other than consent (or an imposed contractual obligation) then the assignee may be liable. Apart from the comments made in Stocznia Gdanska SA v Latvian Shipping Co and The Mikhail Lermontov124 that restitution in this context is con120 121 122 123
Cf Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161. See CA Stewart & Co v PHS Van Ommeren (London) Ltd [1918] 2 KB 560. (1933) 48 CLR 457. Ibid, at 480–1.
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tractual, the better view today is that the right to restitution in contracts discharged for breach or repudiation generally flows from an imposed obligation when the defendant is unjustly enriched at the plaintiff’s expense.125 This is not to deny the legitimacy of an express or implied term governing restitution. Where that is the case the contractual regime will take precedence over any externally imposed obligation to make restitution. It follows that if there is a term in a contract that states that the obligor must look only to the assignor for repayment then effect will be given to this and the obligor will not be allowed to bring a claim against the assignee.126 However, this is not the normal case. The concern of the section below is where no such contractual regime exists. [8.34] The obligor’s restitutionary rights: the commercial result. Where the obligor’s performance is a condition precedent to that of the assignor, the obligor can have one of two possible claims. First, a claim against the assignor and, secondly, a claim against the assignee. There is no doubt that the commercial world requires a legal result which vests in the assignee a right to receive and retain the payment made by the debtor, that is, a right which is free of any claim by either the creditor/assignor or the debtor.127 All claims for recovery of payments made must be restricted to claims against the assignor. If an assignee, especially in the context of bulk receivables financing, had to check each contract to ensure the right being assigned was free from any possible restitutionary claim then the cost of credit might become too high and threaten the viability of receivables financing. For this reason international conventions on factoring and the assignment of receivables have sought to protect the assignee from claims by the debtor. The Unidroit Convention on International Factoring, Article 10, provides: 1. Without prejudice to the debtor’s rights under Article 9,128 non-performance or defective or late performance of the contract of sale of goods shall not by itself entitle the debtor to recover a sum paid by the debtor to the factor if the debtor has a right to 124
[6.24]–[6.30]. See K Mason and JW Carter, Restitution Law in Australia (Sydney, Butterworths, 1995) para 908. 126 See Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161. 127 One method of achieving this would be to recognise that debts are negotiable and not merely transferable: see PS Atiyah, The Rise and Fall of Freedom of Contract (Oxford, OUP, 1979), at 135–8. There is a certain logic in this to the extent that negotiable instruments encapsulate debts and the idea of negotiability was (on one view) invented because security of receipt (which transferability alone could not supply) was so important to commercial practice: see J Braithwaite and P Drahos, Global Business Regulation (Cambridge, Cambridge University Press, 2000) at 49 and cf JS Rogers, The Early History of the Law of Bills and Notes (Cambridge, Cambridge University Press, 1995) at 192. However, it is a fundamental principle of cheques and bills of exchange that they be unconditional. 128 Art 9 provides: “(1) In a claim by the factor against the debtor for payment of a receivable arising under a contract of sale of goods the debtor may set up against the factor all defences arising under that contract of which the debtor could have availed itself if such claim had been made by the supplier. (2) The debtor may also assert against the factor any right of set-off in respect of claims existing against the supplier in whose favour the receivable arose and available to the debtor at the time a notice in writing of assignment conforming to Article 8(1) was given to the debtor.” 125
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recover that sum from the supplier. 2. The debtor who has such a right to recover from the supplier a sum paid to the factor in respect of a receivable shall nevertheless be entitled to recover that sum from the factor to the extent that: (a) the factor has not discharged an obligation to make payment to the supplier in respect of that receivable; or (b) the factor made such payment at a time when it knew of the supplier’s nonperformance or defective or late performance as regards the goods to which the debtor’s payment relates.
The United Nations Convention on Assignment of Receivables in International Trade, Article 23, provides: Without prejudice to the law governing the protection of the debtor in transactions made primarily for personal, family or household purposes in the State in which the debtor is located and the debtor’s rights under article 20,129 failure of the assignor to perform the original contract does not entitle the debtor to recover from the assignee a sum paid by the debtor to the assignor or the assignee.
Both of these provisions are informed by commercial efficacy. The thinking behind the United Nations provision is that the debtor should be no better off and no worse off by reason of the assignment.130 It was thought that if the debtor were allowed to recover payments from the assignee, the debtor would be better off. The debtor therefore must bare the risk of the insolvency of the assignor. It may also 129 Art 20 provides: “(1) In a claim by the assignee against the debtor for payment of the assigned receivables, the debtor may raise against the assignee all defences or rights of set-off arising from the original contract of which the debtor could avail itself if such claim were made by the assignor. (2) The debtor may raise against the assignee any other right of set-off, provided that it was available to the debtor at the time notification of the assignment was received. (3) Notwithstanding paragraphs (1) and (2), defences and rights of set-off that the debtor could raise pursuant to article 10 against the assignor for breach of agreements limiting in any way the assignor’s right to assign its receivables are not available to the debtor against the assignee.” Art 23 is made subject to Art 20 to “ensure that the debtor’s defences and rights of set-off are preserved with regard to payment in installments, where some installments have been made while other installments are outstanding”: Uncitral Commentary to the Draft Convention on Assignment in Receivables Financing (Part II), Note by the Secretariat, A/CN.9/WG II/WP106, 16 Sept 1999, para 71. Such rights are relevant where a debtor needs to reduce or avoid payment of outstanding installments. Art 20 is primarily concerned with the debtor’s right to avoid payment rather than rights of action against the assignee. Note also Art 21(1) which validates written agreements between the debtor and assignor for the debtor to waive any defences and rights of set-off it may have against the assignee. The debtor may not exclude defences arising from fraud on the part of the assignee or defences based on the debtor’s incapacity: Art 21(2). In addition, under Art 14(1)(c), unless otherwise agreed, the assignor represents at the time of contract that the debtor does not and will not have any defences or rights of set-off. 130 This reasoning also formed part of Lord Woolf’s decision in Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty) [1994] 1 WLR 161 at 171–2 (“Why should [A] have two alternative parties to whom to look for a repayment merely because [B] as part of [its] own financial arrangements, [has] assigned [its] right to receive payment to a third party, [C].”) The effect of his reasoning he thought was that A was in exactly the same position as it would have been in if there was no assignment.
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be noted that the provision is not limited to advance payments.131 The Unidroit Convention was also informed by the idea that the debtor was not to be better off or worse off by virtue of the assignment. Specifically, the drafting of Article 10 seeks to protect the debtor in those jurisdictions where by virtue of the assignment, the debtor would lose its right against the assignor. Hence, the emphasis that the supplier’s failure to perform does not by itself entitle the debtor to recover payments made to the assignee if the debtor has a right to recover from the supplier.132 Before moving on, it should be noted that in England as a result of the decision in Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty),133 this commercial result also represents the position at law. The reasoning in the case is discussed below. [8.35] The obligor’s restitutionary rights: the result from first principles. In the absence of such provisions, it is necessary to resort to general principle. In the discussion that follows, unless stated otherwise, the concern is with the legal assignment of a contractual right to an advance payment. The first point to note is that it is not sufficient to defeat a claim for restitution for the assignee to claim it has taken the assignment of an unconditional right. The fact that a right to receive payment is unconditional does not of itself inhibit restitutionary claims. As noted earlier in the discussion of McDonald v Dennys Lascelles,134 payments under an instalment contract for the sale of land or goods are necessarily unconditional, but it is accepted that those payments may be recovered if there is a total failure of consideration upon the discharge of the contract. The reason for that result lies, as Dixon J said, in the notion that the obligation to make restitution burdens the “title to retain” rather than the right to receive. If a contract involves a performance obligation, and that obligation has not in any way been provided, then the recovery of any payments made on the basis of total failure of consideration will be possible even if, as a matter of party intention, the obligation to pay required the payee only to provide a promise to perform later.135 Nevertheless, the analysis posited by Dixon J in that case and discussed earlier does point to a doctrinal route that achieves the desired commercial result as long as recovery is seen as resting on a personal restitutionary claim for an unjust 131 Uncitral Report of the Working Group on International Contract Practices on the Work of its Twenty-Eighth Session, A/CN.9/447, 2 Apr 1998, para 137. 132 Unidroit, Diplomatic Conference for the Adoption of the Draft Unidroit Conventions on International Factoring and International Finance Leasing: Acts and Proceedings (Rome, Unidroit) i, at 101. 133 [1994] 1 WLR 161. See further Fleming v Loe [1901] 2 Ch 594 (reversed [1902] 2 Ch 359, the decision of the Court of Appeal was affirmed, sub nom Mackusick v Fleming [1904] WN 44, (1904) 90 LT 101). 134 [6.28]. 135 [6.27].
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enrichment. The effect of Dixon J’s judgment is that, even if the initial right to receive the payment is independent of performance, the title to retain that payment is not. The obligation to perform the contract burdens the title to retain as a matter of law rather an intention; this rule can be varied by agreement between the contracting parties. The proper characterisation of that burden is that of a restitutionary burden which is personal to the assignor and which is operative when there is a failure of consideration on the part of the assignor. It follows that if the right to receive payment is assigned separately from the “title to retain” then this will achieve the desired commercial result. That this would appear to be what in fact occurs flows from the idea that the right to recover any payment made is determined by reference to the law of unjust enrichment, which, being an obligation imposed on the assignor (on the basis of failure of consideration) after assignment has occurred, cannot impact upon the initial right to receive the payment or any payment to the assignee. In addition, Dixon J’s use of the phrase “title to retain” may well have been carefully chosen. He did not refer to a “right to retain”. The law generally creates rights and rules to determine when property or money may be recovered and not rules to determine when property may be retained.136 There is therefore no “right to retain”, and consequently no possibility of assigning such a right. Therefore, as a matter of law and as regards imposed obligations to make restitution, none of the contractual “conditions” touch or concern the right to receive the payment assigned to the assignee. In short, in this type of case, the obligation to make restitution is a personal obligation of the person who is party to the contract and under an obligation to perform and earn the payment. That obligation does not fall on the assignee. This analysis would apply to both the assignment of unconditional obligations to pay as well as conditional obligations to pay.137 [8.36] A lacuna in the analysis? The above analysis appears to bring about a strange result. If there were no assignment and the obligor simply paid the assignor in advance, then clearly the obligor would have a restitutionary claim against the assignor based on total failure of consideration upon the receipt of an incontro136 See DR Harris, “The Concept of Possession in English Law” in AG Guest (ed), Oxford Essays in Jurisprudence (Oxford, OUP, 1961) at 73 and AM Honoré, “Ownership” in AG Guest (ed), Oxford Essays in Jurisprudence (Oxford, OUP, 1961) at 114. 137 Quaere though in the case of a true conditional right to payment, such as where equipment must be available at the moment the advance payment is made, whether the condition acts as a qualification on the right to receive the payment rather than to retain it. Arguably any assignment not subject to the condition would breach the principle of transfer: [6.29]. It is different in a sale by instalments as there is no obligation to transfer title until the final instalment is made. Therefore, prior to that time the vendor is under no positive duty to be ready and willing to perform. There is merely a negative obligation not to do anything which would prevent conveyance. Nevertheless, it is suggested that the obligation to make restitution still only attaches to the assignor, that is, the party to the contract.
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vertible benefit. However, the result of the above analysis may be that not only does the obligor not have a restitutionary claim against the assignee but it also loses its claim against the assignor. This result would appear to flow from the fact that in the case of a legal assignment, and adopting the substantive effect of the statutory regime,138 the obligor no longer owes its obligation in law to the assignor.139 Therefore, upon paying the assignee it may not be possible to say that the assignor has received an enrichment. The party directly enriched is the assignee. Nevertheless, an assignment does not create privity of contract between the assignee and obligor, and for the assignee to enforce a contractual right (other than an unconditionally accrued right140) there must be a contract in existence, and that contract requires there to be at least two parties.141 Given that the assignee is not a party the assignor must still remain a party, and it is therefore still legitimate to say that as a matter of contract the obligor still owes its obligation to the assignor. Clearly, as already discussed,142 the assignee’s rights to personal performance overrides any claim by the assignor to that performance, but as also previously mentioned the fact that the assignee buys a contractual right owed by the obligor to the assignor remains important in terms of valuing what it is the assignee has purchased.143 From this is may then follow that, because there is still legitimacy in saying that there continues to exist a bare personal contractual obligation owed to the assignor, and because the assignment resulted from a voluntary act of the assignor, then it is also legitimate for the law to take the view that any payment to the assignee will still amount to an enrichment of the assignor. Alternatively, the enrichment of the assignor may be derived from the mere existence of the contract and the accounting by the debtor to the assignee. 138
See [5.05]. [5.06]. Cf Professor Goode’s statement in the Diplomatic Conference for the Adoption of the Draft Unidroit Conventions on International Factoring and International Finance Leasing: Acts and Proceedings, (Rome, Unidroit) ii, at 281, where he suggested that under the law of all legal systems with which he was acquainted an assignment could not, as a matter of contract law, deprive the debtor of any rights against the supplier. This is true as regards contract remedies. However, as regards claims for restitution, perhaps it suggests that Professor Goode subscribes to the procedural view of the statutory legal assignment regime. Under the procedural view, the characterisation of the rights of the parties would be analogous to that which applied prior to the legislative regime. At that time a legal right could be assigned only in equity so that the obligor would owe its obligation in part to the assignee and in part to the assignor. In that circumstance it is much easier to conclude that a payment to the assignee also benefits the assignor. It may also be noted that the early drafts of the United Nations Convention contained a provision ensuring the debtor had a right to recover advance payments made to the assignee from the assignor. This provision was later deleted as it was thought unnecessary on the basis that an assignment did not prejudice the rights of a debtor against the assignor: see Uncitral Report of the Working Group on International Contract Practices on the Work of its Twenty-Sixth Session, A/CN/9/434, 16 Dec 1996, para 214. 140 See Southwell v Scotter (1880) 49 LJQB 356. 141 See further Re Kenneth Wright Distributors Pty Ltd [1973] VR 161. However, in the case of an assignment of a conditional benefit it would appear that the assignor may cease to exist: see [6.104]. 142 [6.75]. 143 [8.12]. 139
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[8.37] The obligor’s restitutionary rights: the contractual approach. If the view is taken that the recovery of payments made under a discharged contract is based on the existence of a contractual right of recovery, different reasoning is required to reach the desired commercial result. The leading decision is Pan Ocean Shipping Co Ltd v Creditcorp (The Trident Beauty).144 This case concerned the assignment of rights to hire payments under a time charterparty. In one particular period, payment was made in advance to the assignee and the ship was off-hire for repairs for that entire period. An action for recovery of the payment was brought against the assignee. In the result the action failed as the debtor had contracted on the basis that it would look only to the assignor for all remedies. However, Lord Goff and Lord Woolf commented on some of the broader assignment aspects of the case. Lord Goff, in line with his view that recovery here is based on contract, saw the obligation to recover as part of the burden of the contract which obviously could not be the subject of the assignment.145 Thus, the assignee was not bound by the contractual obligation to repay. That may be correct, but if recovery against the assignor is contractual it may impact on the assignability of the right. A contractual duty may impact upon whether any corresponding contractual right is assignable or personal to the parties. An express or implied contractual right of recovery against the assignor may in any given case impact on whether or not the right to receive payment is assignable or personal. More importantly, in answer to a submission that the right to payment was conditional in the hands of the assignor and therefore also conditional in the hands of the assignee, Lord Goff remarked that this was to misunderstand the meaning of “conditional”. He took the view that “conditional” here simply meant the payment was not final because there was a contractual obligation to repay it if it was not subsequently earned.146 Counsel on the other hand appear to have been submitting that the right to payment was conditional in the performance sense (that is, the goods had to be available at the time of payment) and in the discharge sense (that is, the assignor had to carry out some performance to earn the payment).147 144
[1994] 1 WLR 161. Ibid, at 165. 146 Ibid, at 165. However, he did agree with a statement of Neill LJ in the Court of Appeal, where he suggested that effect must be given to the terms of the assignment which assured the assignee that it was not subject to any set-off or counterclaim, and, although the payment might have been provisional as between the obligor and assignor, it did not retain that character in the hands of the assignee. This appears to be at odds with the transfer principle. The terms of an assignment alone cannot give such a guarantee; there needs to be a provision in the contract between the assignor and obligor which it is based on. This may be an agreement not to raise equities. However, this case was not concerned about an equity the debtor had against the assignor; it was about a direct claim the debtor was making against the assignee. Presumably the legitimacy of the assurance in the assignment must have been based on the agreement given by the debtor to the assignor to look only to the assignor for repayment. 147 Later in Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 589, Lord Goff suggested that the word “conditional” described the right of the creditor to retain the payment. That is, that right was subject to a corresponding contractual duty to repay if the contract is discharged. 145
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As noted earlier,148 except for classifying the obligation to repay as contractual (which Lord Goff would have held to be the case whether or not there was an express contractual right to repayment149), Lord Goff’s response here is consistent with Dixon J’s approach in McDonald v Dennys Lascelles. That is, the description of the payment as conditional was only for the purpose of noting that it was repayable if not earned. However, if that were the end of the matter then that would still leave the anomaly of construing a contractual right as both contractually unconditional (for the purpose of assignment) and contractually conditional (for the purpose of repayment). Where recovery is contractual there is not the same clear distinction between the right to receive and the title to retain that exists when recovery is based on unjust enrichment. Why should the assignor’s obligation to perform the contract condition only the title to retain, and not the right to receive payment? The mere statement that the obligation to pay and the obligation to repay are independent of each other, although true irrespective of whether recovery is based on contract or unjust enrichment, does not explain where the obligation to perform sits. Finally, from a contract perspective it is hard to see how an obligation to repay can be derived from its opposite, namely a right to receive.150 What is needed is a distinct term covering repayment.
(iii) The Rights of the Obligor: Transfer and the Obligor’s Ability to Vary the Contract after Notice of Assignment [8.38] Introduction. It is generally stated as a rule of assignment that after notice of the assignment, the obligor cannot do anything to diminish the rights of the assignee.151 This “rule” is often used as the basis for explaining why, after notice of the assignment, a debtor cannot continue to pay the assignor. In addition, this “rule” is used to uphold the position that the obligor cannot, after notice, agree with the assignor to vary the contract to the detriment of the assignee.152 This position has a superficial appeal. It seems logical to hold that since the assignee owns the right, that right should not be capable of being varied without the consent of the assignee. However, the first issue that must be addressed is the identification of 148
[6.29]. [1994] 1 WLR 161 at 164. 150 Lord Woolf (at 169) said that the right to receive hire was independent of the obligation to give credit for hire paid but not earned. He did not think the right was conditional at all. He said there was “nothing qualified about the right”, there was only an independent right to be repaid: see at 171. It may be that Lord Woolf’s view is also in line with that of Dixon J, but he did not go on to explain how the independent right to be repaid arises when there is no express contractual regime for repayment. 151 Roxburghe v Cox (1881) 17 Ch D 520 at 526; Brice v Bannister (1878) 3 QBD 569 at 577; The First National Bank of Chicago v The West of England Shipowners Mutual Protection and Indemnity Association (Luxembourg) (The Evelpidis Era) [1981] 1 Lloyd’s Rep 54 at 64. 152 There appears to be no difficulty in varying the contract after notice for the benefit of the assignee: see Royal Exchange Assurance v Hope [1928] Ch 179. 149
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the nature of the right transferred. This supposed lack of ability to vary the contract is not dictated by the transfer principle. In fact, far from preventing the assignor and obligor from varying the contract, the transfer principle allows for it. The assignee, in taking the benefit of contractual rights, must accept that such rights are inherently capable of variation by agreement between the parties to the contract, so that in taking a transfer of such a right the assignee must accept that that right may be varied.153 It may be argued that the position taken in the last paragraph in fact abandons the transfer principle. For example, in the case of a legal assignment, and taking the substantive view of such assignments as adopted in this book, if the assignee owns the right to the performance of the relevant obligation and can enforce all remedies in respect of that right, then (if effect is to be given to the idea of transfer) nothing should remain in the assignor for it to have power to vary the contract. However, that argument overlooks the effect of an assignment of a contractual right. As noted earlier, an assignment does not create privity of contract between the assignee and obligor and requires the continued existence of the contract. It is the assignor who is party to that contract. Moreover, for the assignee to enforce a contractual right, there must be a contract in existence, and that contract requires there to be at least two parties. Given that the assignee is not a party, the assignor must still remain a party and it is therefore still legitimate to say that a contract exists between the obligor and assignor. From this it follows that while the contract remains on foot, the assignor’s position as party to the contract provides it with the power to agree to variations.154 This power flows simply from being a party to the contract; it is a contractual power. It does not flow from a term of the contract. Moreover, unlike rights which arise by operation of law but are still contractual rights, such as the right to terminate a contract for breach or repudiation and the right to damages for breach of contract, it is not a “contractual” right and therefore it is not transferred to the assignee upon the assignment of the benefit of the contract. It is suggested that this post-notice “rule” is simply a reflection of the law’s recognition of a relationship between the assignee and obligor which is policed to prevent unconscionable conduct.155 That is, because the assignee owns and is owed the right to performance, a relationship exists between these parties which binds their conscience at the point when either of them receives notice of the 153 The discussion here is concerned with the assignment of a right to performance. If the assignment is of the fruits of the contract, then generally, prior to the time these come into existence, that is, prior to the time the assignment takes effect, the assignor and assignee can agree to vary the contract. 154 It also follows that the assignee cannot agree with the obligor to vary the contract as the assignee is not a party to the contract. However, the assignee could, together with the obligor, agree to vary the chose in action; that is, if it is accepted that the parties to a chose in action that comes into existence by consent may vary it characteristics. See further Restatement of Contracts 2d (1979), Art 338(3). 155 See [8.81].
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assignment. This is why after notice the obligor must generally account to the assignee in order to obtain a discharge. More generally it is at the point of notice that each must consider the position of the other in making decisions and (although they need not necessarily act in the interests of the other) they must act in good faith. Neither of them can act in a manner that would exploit the other’s vulnerability to the assignment. Because the assignee is taking the assignment of a contractual right, it is vulnerable to rights and obligations under the contract being varied as between the parties to the contract. However, the obligor cannot, upon receiving notice of the assignment, seek to exploit this vulnerability, because to do so would amount to unconscionable conduct.156 In short, the principle of transfer dictates that the assignee takes subject to contractual modifications. However, the relationship that exists between the assignee and obligor by virtue of the assignment and which binds the conscience of the obligor upon receipt of notice tempers the ability of the obligor to agree to such variations. It may be added that, although the assignor maintains its power to agree to modifications, in any given case, this may put the assignor in breach of contract with the assignee. Given the above analysis, it is necessary to identify when it is unconscionable for the obligor to attempt to vary an assigned contractual right after the obligor has received notice of the assignment, and when is it not unconscionable to account to the assignor despite notice of an assignment?157 The principles governing the answers to both these questions are the same and most of the discussion below concentrates on contract variation. As a general statement it can be said that a variation or an accounting to the assignor after notice must be made for good commercial reasons. Often such variations or payments are made to secure contract performance. The analysis suggested below attempts to show that if an obligor is in the position where its counter-performance from the assignor is dependent upon it either funding the assignor or otherwise coming to some arrangement with the assignor, then the obligor will not be engaging in unconscionable conduct if it makes such payments 156 Some may prefer to express this duty of the obligor solely in terms of good faith. This is probably not objectionable, except that if this is related to the growing notion in Australia of good faith in contractual performance it would be less acceptable in England where that notion has not yet taken hold in the common law. The suggestion here is that the relationship is being policed by equity and, to that extent, there is nothing new in the notion that a lack of good faith may amount in equity to unconscionable conduct: see P Finn, “Unconscionable Conduct” (1994) 8 JCL 37 at 37–8. 157 Although it is tempting to suggest (for the purposes of uniformity) that the position here should be the same as the position as regards third party beneficiaries of a contract, this analogy is in fact false. An assignment occurs without consent and without the parties necessarily intending that contractual rights be assignable. This is at odds with contracts made for the benefit of third parties where those contracts are enforceable by those third parties. Here, because of the expressed intention to benefit third parties, it is possible to base limitations on the right to vary the contract by reference to notions of reliance and acceptance: see Law Commission for England and Wales, Privity of Contract: Contracts for the Benefit of Third Parties (London, HMSO, 1996) Law Com 242, paras 9.1–9.51.
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or consents to such variations. Similarly, where the concern of the assignor is that of the obligor’s performance, then on the same principle the assignor should be able to agree to a payment or variation with the obligor that will bind the assignee. [8.39] Rights which have not accrued. A strict rule that prohibited all post-notice variations would perhaps be most capable of giving rise to harsh consequences if it prevented modifications in entirely executory contracts. Both the Uniform Commercial Code (UCC) (§ 9–405) and the United Nations Convention on Assignment of Receivables in International Trade (Article 22) allow for modifications in executory contracts. Section 9–405 relevantly provides:158 (a) A modification of or substitution for an assigned contract is effective against an assignee if made in good faith. The assignee acquires corresponding rights under the modified or substituted contract. The assignment may provide that the modification or substitution is a breach of contract by the assignor. This subsection is subject to subsections (b) through (d). (b) Subsection (a) applies to the extent that: (1) the right to payment or a part thereof under an assigned contract has not been fully earned by performance.
Article 22 provides: 1. An agreement concluded before notification of the assignment between the assignor and the debtor that affects the assignee’s rights is effective as against the assignee and the assignee acquires corresponding rights. 2. After notification of the assignment, an agreement between the assignor and the debtor that affects the assignee’s rights is ineffective as against the assignee unless: (a) The assignee consents to it; or (b) The receivable is not fully earned by performance and either the modification is provided for in the original contract or, in the context of the original contract, a reasonable assignee would consent to the modification.159 3. Paragraphs 1 and 2 of this article do not affect any right of the assignor or the assignee for breach of an agreement between them.
Under the UCC the assignee’s position is expressly secured as it obtains an interest in any modified contract.160 This must, in any event, follow as a matter of 158 See also Restatement of Contracts 2d, Art 338(2). See also Principles of European Contract Law, Art 11.308. 159 For the purposes of the Convention, a receivable is considered fully earned when an invoice is issued, even if at that time the contract is only partially performed: see Uncitral Commentary to the Draft Convention on Assignment in Receivables Financing (Part II), Note by the Secretariat, A/CN.9/WG II/WP106, 16 Sept 1999, para 65. Once fully earned, actual consent from the assignee is required to modify the original contract. 160 Under the United Nations Convention this is only expressly provided for in the case of prenotice variations: see Art 22(1).
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principle. That is, since a right has been vested in the assignee, it must continue to own that right even if the contract (and the assignee’s right) is modified. It may be noted that the notion of upholding modifications made “in good faith and in accordance with reasonable commercial standards” was rejected by Uncitral in its deliberations leading to the United Nations Convention. It was thought that, although such a provision may help with the numerous minor modifications that are often made in project finance and other financial restructuring where obtaining the assignee’s consent would become burdensome, such a provision introduced too much uncertainty and was not required, as such contracts generally provide for such modification.161 It may be noted that under the United Nations provisions, actual consent from the assignee is required where the receivable is fully earned and where there is a partial performance of the contract. Under the convention an amount is fully earned when an invoice is issued.162 Where the receivable is not fully earned that the convention allows for constructive consent. Constructive consent exists where the modification is foreseen in the original contract or a reasonable assignee would have consented to such modification. It is suggested that where the contract remains entirely executory and the obligor has legitimate concerns about the ability of the assignor to perform, then any agreed variation which is made to ensure that performance or is otherwise made for good commercial reasons should bind the assignee. For example, after assignment but before the price for certain goods or services is earned the assignor may, for very good commercial reasons, agree to reduce the price. An assignee should be able to recover only the reduced amount. Similar reasoning would apply to a variation agreed to offer partial performance by the assignor. [8.40] A slightly more difficult problem is where the agreement between the assignor and obligor would have the effect of extinguishing the assignee’s right. This will clearly occur if the assignor and obligor agree to discharge the contract. It may also occur in the case of a modification if that modification is one that does not merely modify the assignee’s right but extinguishes it altogether. This is unlikely to occur in practice as assignees generally take an assignment of the benefit of the contract rather than one particular right under the contract. Thus, for example, where the right of the assignee is a right to payment accruing under a contract, the assignor is unlikely in practice to agree to a modification the effect of which is that the contract has no payment obligation. Moreover, any such modification is likely to amount to unconscionable conduct and would therefore be unenforceable against the assignee. The real practical issue then concerns an agreement to discharge the contract. 161 Uncitral Report of the Working Group on International Contract Practices on the Work of its Twenty-Eight Session, A/CN.9/447, 2 Apr 1998. 162 Uncitral Analytical Commentary on the Draft Convention on Assignment of Receivables in International Trade, A/CN.9/489/Add 1, 22 May 2001, para 27.
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[8.41] The starting point is the right of an obligor to elect to discharge the contract for breach or repudiation by the assignor. Clearly, the assignee is subject to the exercise of that right and any rights vested in the assignee that have not unconditionally accrued by this time will be extinguished.163 The reason the assignee is subject to such an election to discharge the contract follows from the principle of transfer. Thus, although the right to terminate may be said to be a contractual right given by law, it arises because of the non-performance of a contractual term and the assignee, in taking the assignment of a contractual right, is, by reason of the principle of transfer, subject to the exercise of contractual rights. The same analysis would apply to the exercise of an express right to terminate the contract.164 The principle of transfer would dictate that the assignee is subject to the exercise of this right, as it defines and delimits the right vested in the assignee. Except in the case of an estoppel, there is little room here for the assignee to claim that the exercise of such a right amounts to unconscionable conduct.165 The obligor is not exercising a contract power but a contract right, and contractual rights necessarily define and delimit the right taken by the assignee. [8.42] The situation is different where after notice of the assignment the assignor and obligor wish to agree to discharge the contract. An agreed discharge of a contract requires consideration. It is the exercise of a contract power relying on principles of contract law. It is therefore a power which the principle of transfer dictates is a risk the assignee must accept as long as the discharge does not result from unconscionable conduct.166 The difficulty is in determining when the exercise of this inherent power will amount to unconscionable conduct, and this is an issue upon which views may differ. Clearly, if the discharge is solely for the purpose of defeating the assignee’s interest that would amount to unconscionable conduct. Moreover, an agreement to discharge a contract is clearly not an action taken for the purposes of ensuring the future performance or further viability of the contract; that is, unless it is a “variation” by way of discharge resulting in a replacement contract by way of novation. Nevertheless, there no doubt will 163
[8.61]. Eg Babson v Village of Ulysses (1952) 52 NW 2d 320. 165 [8.55], [8.60]. 166 The abandonment of a contract may sit on a different footing. The ability of parties to abandon a contract is perhaps not properly characterised as a contractual right or a contractual power. An abandonment does not rely on contract law for its efficacy. Arguably the principle of transfer does not then dictate that the assignee is subject to it. An abandonment of a contract generally does not result from a collusion between the parties; where that is the case an agreement to discharge can usually be found. Rather an abandonment operates by virtue of an estoppel and if that estoppel arose after notice of the assignment then it is not an equity that the assignee will generally take subject to. Finally, it may be that the ability of parties to abandon their contract should not be characterised as a legal power because there are legal rights or powers which are not contractual rights or powers which an assignee takes subject to on the basis of the principle of transfer, for example, substantive equitable set-off: see [8.64]. Perhaps, it is a form of privilege. 164
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exist circumstances where a sound commercial decision would dictate that the contract be discharged. Changed economic or political circumstances that fall short of frustration may provide the factual background for such a decision to be legitimately made. [8.43] Where, the assignor and obligor agree to discharge the contract in circumstances that do not amount to unconscionable conduct, and where they enter into a new substituted contract, justice would appear to require the assignee to take an interest under that contract. As already noted the UCC expressly allows for this. It was also noted above that, where the contract is merely modified, then first principles would dictate that the assignee maintains its interest in the contract. However, in the case of a discharge of contract, it is difficult to see on what doctrinal basis the assignee should obtain an interest in the new contract, as its interest would have been extinguished with the discharge of the contract. The answer probably lies in the notion that, except in rare cases, an agreement for discharge and substitution without a fresh assignment would probably amount to unconscionable conduct and, therefore, the discharge would not bind the assignee and would be ineffective. The same would be true of a mere modification that would have the effect of extinguishing the assignee’s rights. [8.44] Accrued rights. On its face, perhaps the most obvious case where it would be unconscionable for the obligor to attempt to vary an assigned right or otherwise account to the assignor after notice is where the obligation to perform or pay has accrued; even more so if the time for performance has arrived or the obligation to perform is otherwise characterised as having unconditionally accrued. However, even here, an adoption of a strict rule may give rise to harsh results. [8.45] A useful starting point is the decision in Brice v Bannister.167 That case concerned a shipbuilding contract where payment obligations accrued upon certain parts of the work being completed. During the course of performance it became clear to the owner that the builder could not complete the vessel unless advances were made. At the time of the assignment, the owner had made advances well in excess of what was in fact due under the contract. The assignment itself concerned an assignment of £100 out of moneys due or to become due. Despite notice of this assignment being given to the owner, the owner continued to make payments to the builder in excess of £100 “on account of the building of the vessel, pursuant to 167 (1888) 3 QBD 569. Cf May v Lane (1894) 64 LJQB 236 (here a builder was contracted by the defendant to erect houses at its own expense in return for a lease of the houses upon completion; the builder assigned a sum “out of the moneys due or to become due” to the builder under the construction contract; the defendant made advances to the builder in order to complete the work; these were held to fall outside the assignment as no amounts became due to the builder under the contract; at most the advances were made under an agreement for loan which did not create a debt merely the expectation of performance; moreover, the promise of the loan was not supported by consideration).
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the contract”. The owner argued that it was necessary to do this otherwise the vessel would not be completed. It appears from the judgments of Brett and Bramwell LJJ that there was a finding that, after the assignment, the obligor continued to make advances prior to the time amounts fell due under the contract.168 Whether that was the case or whether the amounts had fallen due when they were paid to the assignor, it is quite clear that Cotton LJ (giving the leading judgment) was prepared to conclude that these amounts were still payments under the contract and therefore caught by the assignment.169 Therefore, the obligor had to account to the assignee despite having paid all the contract price to the assignor. The basis of his reasoning was that the assignor had become incompetent to deal with the moneys to the assignee’s prejudice and, after notice of the assignment, the assignor and obligor could not come to any agreement which dealt with the moneys to the prejudice of the assignee.170 [8.46] This result appears to stifle commerce where such advances are made for the purpose of ensuring that the contract is performed. The majority in Brice v Bannister suggested that in the circumstances of the case the owner should have terminated the contract and got another builder or re-employed the same builder under a different contract to complete the work.171 Arguably this places a premium on form over substance. The decision of the majority was subject to a powerful dissent by Brett LJ, who emphasised the cost involved in the suggestion of the majority and the commercial efficacy of the decision made by the obligor to make advances to get the work done.172 He did suggest that the assignee should have a right to recover if the debt had accrued. However, his reference to this occurring only when no further work remains to be done by the assignor may suggest that he meant no further work at all under the contract whereas a payment due under an instalment contract by reason of work done or a set time for payment arriving would not suffice. This was not a point he had to decide as he found that, because the payments were all made in advance, no amount ever fell due so as to be caught by the assignment. He thought that as long as the parties acted in good faith, that is, for good commercial reasons, and not solely to destroy the rights of the assignee, they should be allowed to modify their contract in the same way that the owner here could have exercised its right to terminate for breach or, alternatively, the obligor could make advances which would prevent amounts becoming due under the contract.173 168
(1888) 3 QBD 569 at 579, 581. Ibid, at 577. This reasoning may rest on the view that the assignment was of the “benefit” of the contract and this would generally capture any payment made pursuant to the contract: see Re Davis & Co (1888) 22 QBD 193. Cf Geroff v CAPD Enterprises Pty Ltd [2003] QCA 187 discussed at [6.34]. 170 (1888) 3 QBD 569 at 577 per Cotton LJ. 171 Ibid, at 577. They distinguished Tooth v Hallett (1869) LR 4 Ch App 242 on this basis. 172 (1888) 3 QBD 569 at 578–9. 173 Ibid, at 579–80. 169
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Before moving on, note that there is a view that the making of advance payments will not necessarily prevent contractual obligations to pay from accruing. For example, if there is an assignment of the right to monies due under a contract, such as the right to rent, and if the debtor/lessee without notice of such an assignment makes advance payments to the assignor, then on one view this is not a payment of rent, but merely an advance with an agreement that, when the obligation to pay rent accrues under the contract, this advance will be treated as fulfilling the obligation to pay rent. If that is the case, then even though the debtor had no knowledge of the assignment when the advance was made, it would be required to account to the assignee for the amount of the rent when the obligation to pay accrued.174 The advance is not seen as an agreed variation so as to discharge the obligation to pay certain rentals in advance and to prevent them from accruing. The obligation to pay rent continues to accrue but is treated as discharged. In any case, it is difficult to see why this pre-notice arrangement would not form an agreed set-off which the assignee would take subject to.175 [8.47] The other member of the majority, Bramwell LJ, reluctantly affirmed the decision of the court below, adding his suggestion that this result could have been prevented by the insertion of a prohibition against assignment which he hoped would be upheld.176 This suggestion puts a premium on the availability of legal advice over commercial practice. A more practical approach would be to suggest that if at the time of contract a reasonable person in the position of the promisee concluded that the other party’s continued performance was likely to be dependent upon it receiving payments from the promisee (either in advance or upon accrual), then the presumed intention of the promisee was likely to be that the right to payment was personal and not assignable. Bramwell LJ did note that no money ever became due under the contract, so that the plaintiff’s statement of claim should be amended. Presumably, he did not intend by this to vary the actual words of the assignment, but was laying stress on the above principle that it is not possible to vary the contract after notice of the assignment so as to defeat the assignment. Nevertheless, he concluded that if the obligor had made advances, not merely in good faith but in circumstances where it was compulsory to do so, such as where the assignor threatened to breach the contract or did breach the contract, and the advance was made to protect the posi174
See De Nicholls v Saunders (1870) LR 5 CP 589. Cf where a landlord is obligated to keep the premises in repair and fails to do so; here the lessee may pay to have the repairs carried out, and this will be considered to be payment of rent in advance. This right is a right of recoupment rather than a right of deduction and it is provided by law to prevent the mischief of the house falling down around the tenant, and it is irrelevant whether the landlord has mortgaged or sold the premises: see British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 at 147–8; Lee-Parker v Izzet [1971] 1 WLR 1688 at 1693 per Goff J, and see R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 353–4. 176 (1888) 3 QBD 569 at 581. 175
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tion of the obligor, then he would have hesitated long before holding the obligor liable to the assignee.177 The advances here he thought were voluntary. [8.48] It would therefore appear that the result in Brice v Bannister comes down to a slight difference between Brett and Bramwell LJJ in their view of the law and how that difference operated on the facts of the case. Brett LJ required the obligor only to be acting in good faith, that is, for good commercial reasons and not solely to destroy the rights of the assignee, whereas Bramwell LJ required good faith and compulsion. It is suggested that Bramwell LJ’s requirement of compulsion should not be followed. It was a clear finding of fact in the case that the builder could not complete unless advances were made.178 If the law allows such an owner to protect its position by agreeing to vary the contract or by simply making advances, then to make that protection dependent upon a further threat by the assignor to breach the contract unless an advance is made when clearly that will be the result if no advance is made serves no purpose. The only issue should be whether or not the obligor’s action amounts to unconscionable conduct vis-à-vis the assignee. The investigation therefore should consider whether the decision was made in good faith, that is, for sound commercial reasons. If that is the case, then it cannot be said that the obligor is attempting to exploit the assignee’s vulnerability to the situation. As long as the advances are needed to ensure the performance of the contract they should be upheld and the assignee should take subject to them.179 This may in some cases extend to varying (by way of re-classification) payment obligations that have fallen due under instalment contracts, but it is unlikely to extend to a re-classification where no work at all remains to be done under the contract. Of course, if the contract is discharged, the assignor will no longer have the power to vary unconditionally accrued rights. If the decision in this case is viewed as involving a variation of the contract rather than being a case where advances were made outside the terms of the contract, then the result is even less defensible because these payments were being made before the assignment and so the assignee took the benefit of the varied contract. Moreover, if the case is one of variation then it may be that, given the purpose of that variation, it resulted in the creation of a right to payment that was personal and not assignable.
177
Ibid, at 581. See also Aplin v Cates (1860) 30 LJ Ch 6. (1888) 3 QBD 569 at 570. 179 See Fricker v Uddo & Taormina Co (1957) 312 P 2d 1085; Peden Iron & Steel Co v McKnight (1910) 128 SW 156 at 159. See also Stansbery v Medo-Land Dairy (1940) 105 P 2d 86 at 91; St Mary’s Bank v Cianchette (1951) 99 F Supp 994 at 999–1000. 178
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(iv) The Rights of the Obligor: Transfer and the Obligor’s Defences against the Assignor to which the Assignee is Subject [8.49] Introduction. It is a principle of the assignment of choses in action that an assignee takes subject to the equities.180 The expression “subject to the equities” is generally used to describe those defences the obligor has against the assignor which may be raised against the assignee in any action brought by the assignee. It therefore does not include direct claims against the assignee. The rule has always applied to equitable assignments and is preserved by statute in the case of legal assignments of debts and choses in action.181 [8.50] Despite the subject to equities rule being a rule of some antiquity, it has never been entirely clear what it entails. Often, to simplify this area, treatments of the rule deal separately with the position before the obligor receives notice of the assignment and the position after notice is received.182 The type of defences arising against the assignor after notice of the assignment to which the assignee is subject is much narrower than the position prior to notice. [8.51] The narrowing of equities that occurs upon receipt of notice presumes an operative assignment. If the obligor receives notice of an assignment that is not at the time of notice effective it does not prevent the obligor raising equities against the assignee that arise after notice. For example, the fact that an obligor receives notice of an agreement to assign future property does not prevent the obligor raising equities against the assignee which arise after notice.183 Here the operative date for the narrowing of equities is the date notice is received of the actual assignment.184 180 The rule may be varied by statute, eg Bills of Exchange Act 1882 (UK) s 38(2); Bills of Exchange Act (Cth) s 43(1)(b), or by agreement between the assignor and obligor. Moreover, the obligor may also be estopped in certain cases from claiming that the assignee’s right is subject to a certain equity. The rule does not apply to transfers of anything other than choses in action: see Leask v Scott Brothers (1877) 2 QBD 376. 181 [5.03]. However, as the assignor in such an action need not be joined, the obligor cannot in the action brought by the assignee counterclaim for any amount due from the assignor which is in excess of that owed to the assignor: see Mitchell v Purnell Motors Pty Ltd [1961] NSWR 165 at 168. Moreover, generally where the claim of the obligor against the assignor exceeds that of the assignee, the obligor cannot obtain the difference from the assignee as the assignee is not responsible for the claim: see Young v Kitchen (1878) 3 Ex D 127. Whether or not the assignee should take subject to counterclaims is dealt with at [8.84]. 182 Eg RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 6.500. 183 Similarly in the case of a floating security, the fact that notice is given prior to crystallisation of the security does not stop fresh equities arising which the assignee/chargee will be subject to: see Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93. For a detailed treatment of the subject to equities rules as it applies to floating securities see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 17.73–17.87. 184 There may be circumstances where this should not be the case: see [8.83].
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[8.52] There is perhaps a historical reason for this demarcation between the positions that persist before and after notice. Prior to the statutory regime for legal assignment, all enforcement proceedings (as regards legal choses in action) were generally brought in the name of the assignor before the common law courts. A natural consequence of this procedure, particularly prior to the time the common law courts recognised the interest of the equitable assignee, was that the obligor could raise any defence it had against the assignor at the time the action was brought. Equity would then step in, granting an injunction to prevent certain defences being raised which arose against the assignor after the obligor had received notice of the assignment. Equity generally did not step in to prevent the raising of defences that accrued prior to notice, on the basis that at that stage the equities were equal.185 However, it was considered unconscionable after notice “by payment or otherwise [to] do anything to take away or diminish the rights of the assignee as they stood at the time of notice”.186 Hence the demarcation. [8.53] Professor Goode has suggested that the subject to equities rule was developed by equity to protect the obligor from injustices that might arise from assignment.187 There is no doubt that many statements of the rule express it as a rule which governs the position prior to notice, and that it is intended to make sure that the assignee is in no better position than the assignor was prior to the assignment; these would appear to back up Professor Goode’s view.188 However, the analysis suggested above shows that the ability of the obligor to raise defences it had against the assignor was a natural consequence of the procedure adopted and not because of any positive rule or intervention by equity.189 Equity intervened only to protect the assignee. This, however, does not lead to the conclusion that the rule should be abandoned due to procedural reforms or the recognition by the common law of the assignee’s interest, because the rule also has doctrinal force. An assignment of a chose in action results in the assignee taking title to what was a right of the assignor. It necessarily follows that where the assignee seeks to enforce those rights it should generally be subject to defences that could be raised against the assignor. Thus, the description of the rule as being concerned to ensure that the assignee is in no better position that the assignor prior to the assignment certainly captures the essence of the rule today.
185 186 187
Wilson v Gabriel (1863) 4 B & S 243 at 248, 122 ER 450 at 452 per Blackburn J. Roxburghe v Cox (1881) 17 Ch D 520 at 526 per James LJ. R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para
7.65. 188 See Re Harry Simpson & Co Ltd and Companies Act [1964–5] NSWR 603 at 605 per Jacobs J. See also The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 102 per Latham CJ; see also at 108 per Dixon J. 189 See further Re The Gwelo (Matabeleland) Exploration and Development Co Ltd [1901] 1 IR 38.
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[8.54] The aim of this section is to identify the content of this rule and provide an organisational structure for its operation.190 It is at first tempting to suggest that if an assignee takes subject to a defence by reference to the principle of transfer then that defence can be taken out of the subject to equities rule. The aim of that exercise would be to delimit the subject to equities rule and perhaps come to a result that it is (as history might suggest) a discrete rule governing the position prior to notice. Thus, defences arising after notice could be raised only if the assignee took subject to them by reason of the principle of transfer. If that simple demarcation in fact explained the law it would greatly increase the simplicity of the subject to equities rule. Moreover, there is some doctrinal appeal in this approach to the extent that if the relevant defence is identified by reference to the principle of transfer, then it is concerned with the relationship between the assignor and assignee and what is assigned rather than the relationship between the obligor and assignee, which, under this argument, would be the sole focus of the subject to equities rule. In addition, as already noted, many statements of the rule refer to it as a rule that governs the position prior to notice. [8.55] Nevertheless, there are a number of reasons for including all such defences within the subject to equities rule. First, the case law has developed to include within the subject to equities rule defences which are identified by reference to the principle of transfer.191 Moreover, the statutory regime for legal assignments makes such assignments “subject to the equities”, but under that regime there is no assignment until notice is given. It is therefore doubtful whether this provision was meant to be concerned only with issues that arise pre-notice. This forms part of the generally accepted approach of not interpreting “equities” here in a narrow way. In Re Harry Simpson & Co Ltd and Companies Act,192 Jacobs J, in one of the most authoritative statements of the rule, suggested that the word “equities” had to be given a wide meaning.193
190 In contracts made for the benefit of third parties, because the third party does not obtain a contractual right, the principles governing the defences and counterclaims available to the promisor against an action by the third party are different from those pertaining in the case of an assignment: see Law Commission for England and Wales, Privity of Contract: Contracts for the Benefit of Third Parties (London, HMSO, 1996) paras 10.1–10.32. 191 See The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 109 per Dixon J. In the case of Bills of Exchange, prior to the enactment of Bills of Exchange legislation, defects in title were referred to as “equities”: see AG Guest, Chalmers and Guest on Bills of Exchange, Cheques and Promisory Notes (16th edn, London, Sweet and Maxwell, 2005) para 5.041. Generally, transfers of documentary intangibles are (subject to certain exceptions such as negotiable instruments) governed by the rules relating to transfers of tangibles rather than the subject to equities rule: see Woodhams v The AngloAustralian & Universal Family Assurance Co (1861) 3 Giff 238, 66 ER 397; Taylor v Blakelock (1886) 32 Ch D 560. 192 [1964–5] NSWR 603. 193 See also Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 20–1 per Mason J.
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Secondly, an assignee takes subject to the obligor’s equitable right of set-off whether arising before or after notice of the assignment, and this has always been referred to as an “equity” the assignee takes subject to. Thirdly, and perhaps most importantly, although the principle of transfer may dictate that an assignee takes subject to a certain defence, at times, the obligor may be estopped from raising this against the assignee, that is, the relationship between the obligor and assignee may impact on matters arising from the relationship between the assignor and assignee. It makes sense then to continue to deal with all these issues under the rubric of the subject to equities rule. [8.56] The operation of the subject to equities rule as discussed in this section is dependent on the transfer being derivative in nature. If the transfer takes effect by a different method then other considerations apply. For example, if the transfer is to take effect as if the contract were made with the transferee or as if the transferee were a party to the contract, this will necessarily impact on the nature of the transferee’s interest.194 [8.57] Approach to this section. It is suggested in this section that the principle of transfer is the most important factor in identifying those types of claims an assignee will be subject to regardless of notice. This follows simply from the principle of transfer dictating that an assignor cannot assign a different right from that vested in it, and therefore the assignee must take subject to the inherent infelicities or weaknesses in the right assigned.195 It should also be noted that the principle of transfer focuses on the relationship between the assignor and assignee. The other part of the subject to equities rules concerns the relationship between the obligor and assignee. It is suggested that because the validity of an assignment results in the obligor owing an obligation to the assignee and the assignee owning the right to that obligation, the law recognises a formal legal relationship between the assignee and obligor which is policed to prevent unconscionable conduct. This explains the special position that pertains prior to receipt of notice of the assignment. Prior to receiving notice of the assignment, it would be unconscionable for the assignee to insist that it did not take subject to certain defences the obligor had against the assignor at that time. Interestingly, at least under the statutory regime for legal assignments, the rule is expressed in terms of the assignee taking subject to those equities having priority. The better view may be that the reference to priority here is not a reference to the rules determining priority between competing interests,196 but rather points to the fact that there must be a legal or equitable 194 See further GH Treitel and FMB Reynolds, Carver on Bills of Lading (London, Sweet & Maxwell, 2001) paras 5.021–5.034, 5.095–5.096. 195 Eg Redman v Permanent Trustee Co of NSW Ltd (1916) 22 CLR 84 at 91 per Griffith CJ and Barton J (“The assignee . . . takes subject to all the equities and infirmities of his assignor’s title.”) 196 [5.22].
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reason given for why the assignee must be subject to a defence. That reason, it is suggested, is either because of the operation of the principle of transfer or because it would be unconscionable for the assignee to deny the defence. More generally, it is suggested that it will be unconscionable conduct on the part of the assignee when a failure to recognise the defence would amount to an exploitation of the obligor’s inherent vulnerability to assignment without its consent. Clearly, this is most relevant in that period where the obligor has no notice of the assignment. It follows that it cannot be said that in the period prior to notice there is a strict rule that the assignee takes subject to all claims and defences, and there is an important debate, which will be discussed later, as to whether the assignee should take subject to counterclaims. With the above in mind, the approach to this section is not to deal with the positions both before and after notice but to identify those defences which the assignee takes subject to, regardless of whether they arise before or after notice of the assignment. As noted, it will be suggested that these can all be identified by reference to the principle of transfer. In the next section, the special position pertaining prior to notice will be investigated. [8.58] The bona fide purchaser rule. Before moving on, it is important to note that it has always been the law that an assignee of a chose in action cannot claim to have taken legal title free of any defects by reason of being a bona fide purchaser for value of the chose in action.197 In some cases, this result has been explained by reference to the “subject to equities” rule; that is, an assignee cannot have recourse to the bona fide purchaser rule because an assignee is bound by the subject to equities rule.198 That reasoning does not explain why the assignee takes subject to equities. It is important to keep in mind that originally all assignments of legal choses in action were upheld in equity but enforced either by or in the name of the assignor. Clearly, when a party to a contract is enforcing its rights under the contract, there is no room for the bona fide purchaser rule to operate as there is no purchaser. However, it is also important to note that the bona fide purchaser rule is a rule that prevents a person recovering property or, in the alternative, it allows a person to take something away from another person.199 An obligor, in relation to a chose in action, in challenging the assignee’s right to
197 The Official Manager of the Athenæum Life Assurance Society v Pooley (1858) 3 De G & J 294, 44 ER 1281; E Pfeiffer Weinkellerei-Weineinkauf GmbH & Co v Arbuthnot Factors Ltd [1988] 1 WLR 150 at 161–2. 198 Eg The Official Manager of the Athenæum Life Assurance Society v Pooley (1858) 3 De G & J 294, 44 ER 1281. 199 See The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 108, 110, 111 per Dixon J. See also The Wakefield and Barnsley Banking Co v The Nomanton Local Board (1881) 44 LT 697 at 698 per Stephen J (affirmed (1881) 44 LT 697).
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enforce the chose in action, is not trying to recover property, and therefore the rule has no place.200 [8.59] Defences to which the assignee will always be subject. An obligor cannot raise against an assignee any fresh equities arising against the assignor after notice of the assignment unless they are equities “flowing out of and inseparably connected with” the assigned right.201 This expression does have its problems and is discussed later.202 However, for the moment, it is important to note only that it recognises that some “equities” arise after notice. It is suggested that these equities can be identified by the principle of transfer. The principle of transfer dictates that the assignor cannot assign a right greater than or different from the one it has. It is readily accepted that this means that the assignor cannot unilaterally change the characteristics of a contractual right, and it is readily accepted that if a chose in action is subject to some interest, such as a charge, it is not possible unilaterally to transfer the right free of that interest.203 However, the principle of transfer also dictates that a transferee takes subject to the inherent infirmities that may exist in an assigned right. Importantly, such infirmities are not limited to legal infirmities, but may include equitable weaknesses inherent in the right. It is this aspect of transfer that helps us to understand the defences which an obligor has against an assignor and which may be raised against the assignee whether or not they arise before or after notice. The following paragraphs look in more detail at these defences. [8.60] The conduct of the obligor and the availability of defences. Prior to discussing those defences it necessary to note that there may be occasions where the relationship between the obligor and the assignee can intrude into the relationship between the assignor and the assignee and, in a sense, trump the principle of transfer. Generally, the assignee carries the onus of investigating any infelicities in the right it intends to take an assignment of.204 However, if the obligor knew that the assignor was deceiving the assignee and failed to notify the assignee, this might impact on the obligor’s ability to raise defences against the assignee.205 For 200 There is, however, an important distinction to be drawn between an assignee taking a transfer of the rights of the assignor (which is the subject of this book) and the “assignee” taking a transfer of the subject matter of a contract. In the latter, assuming the transfer is valid, there is more scope for the bona fide purchaser rule to operate: see further R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 14.54. 201 Tooth v Brisbane City Council (1928) 41 CLR 212 at 223–4 per Isaacs J. See also Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199 at 211, 213; Stoddart v Union Trust Ltd [1912] 1 KB 181 at 188, 189 per Vaughan Williams LJ. 202 [8.85]. 203 Cockell v Taylor (1852) 15 Beav 103 at 118–19, 51 ER 475 at 481–2. See also The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 110–12 per Dixon J; Hooper v Smart (1875) LR 1 Ch D 90. 204 See Mangles v Dixon (1852) 3 HLC 702, 10 ER 278. Cf [7.14]. 205 See Ibid. See further Rolt v White (1862) 3 De GJ & S 360, 46 ER 674; Bickerton v Walker (1885) 31 Ch D 151; Bateman v Hunt [1904] 2 KB 530.
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example, if an obligor by its own act placed the assignee is a worse position, such as by standing by and allowing the assignment to go ahead knowing there was a set-off, it would be inequitable to allow the obligor then to raise that equity against the assignee.206 In addition, if a contractual right of the obligor is extinguished, for example, if the obligor elects to affirm the contract despite having a right to terminate or to rescind it, then the assignee obtains the benefit of that election.207 [8.61] Transfer and discharge of contract for breach, repudiation or frustration. An assignee takes subject to the obligor’s contractual right to terminate the contract for breach or repudiation by the assignor. More generally, the principle of transfer dictates that in taking an assignment of a contractual right, the assignee’s vested right must be subject to the effects of discharge,208 in particular, the rule that only unconditionally accrued rights survive discharge.209 This is an inherent characteristic of a contractual right. If the effects of discharge did not affect the assignee, the assignor would, contrary to the principle of transfer, have assigned a right greater than the one it had. The point is perhaps clearer if one reasons from a property perspective: For an assignee to enforce a contractual right, it relies on its ownership of that contractual right. That is, it relies on a property right and a property right cannot survive the destruction of the res, which is the contract or, more particularly, the obligor’s obligation. Of course, if the assignee’s right is unconditional at the time of discharge it will survive the discharge as it is no longer dependent on the continued existence of the contract. [8.62] Transfer and rescission of contract. An assignee will take subject to the obligor’s right to rescind a contract (or its right to approach a court for an order of rescission) by reason of some vitiating factor.210 A right to rescind a contract will usually arise from an event occurring prior to the formation of the contract between the assignor and obligor and, therefore, prior to notice of the assignment.
206
See Wilson v Gabriel (1863) 4 B & S 243 at 247, 122 ER 450 at 452 per Cockburn CJ. See the discussion in The Wakefield and Barnsley Banking Co v The Normanton Local Board (1881) 44 LT 697. In addition, the obligor may lose the benefit of an equitable defence by reason of delay: see Hill v Caillovel (1748) 1 Ves Sen 122, 27 ER 931. 208 As to the discharge of the contract by agreement see [8.42]. 209 Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 at 849 per Lord Diplock; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476–7 per Dixon J. Cf Hyundai Heavy Industries Co Ltd v Papadopoulos [1980] 1 WLR 1129; Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 597 per Lord Lloyd. 210 See The Wakefield and Barnsley Banking Co v The Normanton Local Board (1881) 44 LT 697; The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 111 per Dixon J. See further Turton v Benson (1718) 1 P WMS 496, 24 ER 488; Lawrence v Hayes [1927] 2 KB 111. Cf as to bills of lading, GH Treitel and FMB Reynolds, Carver on Bills of Lading (London, Sweet & Maxwell, 2001) para 5.027. 207
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Thus, the fact that the assignee takes subject to such a right can simply be explained by reference to the special position that applies prior to notice. However, it can also be readily explained by reference to the principle of transfer because a vitiating factor constitutes a defect in the assignor’s title.211 Despite this clear legal position, it is interesting to speculate how this result can be explained analytically. It is generally accepted that, if a buyer purchases goods under a contract that may be set aside by the seller due to some vitiating factor, then, unless the contract is void, a third party purchaser from that buyer may obtain good title to the goods so long as that third party purchases the goods prior to the seller exercising its right to rescind, and is a bona fide purchaser who acts without notice of the seller’s right to rescind. This is said to be a sale under a voidable title. If this occurs, the seller can no longer rescind the contract. On one view this result flows from the law focusing on the bona fides of the purchaser, so that the result is seen as an exception to the nemo dat rule. If that is right, it is easy to see why an assignee of a contractual right cannot take a free title as it cannot have recourse to the bona fide purchaser rule.212 However, the weight of authority holds that the result in the sale of goods context flows from the fact that, until the buyer’s title is avoided by the seller, the buyer has a good title and may therefore pass good title to a third party purchaser prior to that title being avoided.213 This is the result of the right to rescind being a mere equity as opposed to an equitable interest. The seller retains no interest in the subject matter of the contract.214 If the seller retained an equitable interest it would encumber the actual subject matter. However, examples of such equitable interests outside contracts for the sale of land are rare.215 Moreover, if the resolution of this dispute were viewed as an issue of priority such an interest would not help. It seems that the requirement that the third party be a bona fide purchaser is thus not the main requirement and, more importantly, this is not an application of the true bona fide purchaser rule operating as an exception to the nemo dat rule or operating to defeat the prior equity of rescission. This makes some sense, in that a contract voidable for duress is voidable at common law, so that the right to rescind cannot in all cases be expressed as an equity in this sense. If this is correct, then the notion of a “voidable title” is really a defeasible title where the factor that renders it defeasible does not actually attach to the title until there is an election made to avoid it; the effect of the avoidance being to extinguish the contract from the
211 The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 108 per Dixon J. See also Re Palmer’s Decoration & Furniture Co [1904] 2 Ch 743 at 751 per Buckley J. 212 [8.58]. 213 Whithorn Brothers v Davison [1911] 1 KB 463 at 481. 214 See Bristol and West Building Society v Mothew [1998] Ch 1 at 22 per Millett LJ. 215 See [6.09]. See also Shalson v Russo [2005] 2 WLR 1213 at 1248–50. Cf Halley v The Law Society [2003] EWCA Civ 97.
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moment of the election.216 Hence the logic of title being good until avoided; the effect of avoiding the contract and obtaining the remedy of rescission is not to treat the contract as if it never existed. It follows that there is merely a contingent defect in title. It can be only on this basis that it is possible to recognise the buyer as having “good title”. If the above analysis is correct, why should an assignee of a contractual right not be able to claim good title? That is, why should the assignee not be able to claim that this “defect in title” is not a present defect, but rather a contingent defect which it is able to take free of? The answer, it is suggested, lies in the fact that in a contract for the sale of goods, the third party buyer is attempting to purchase title to the goods over which the first buyer has good (although potentially voidable) title. The ability of the first seller to avoid the first buyer’s title lies in the fact that the original contract of sale is avoidable. If the seller elects to rescind that contract this will avoid the first buyer’s title to the goods as its title is dependent on the existence of this contract; title is revested in the seller.217 However, if this rescission does not take place prior to the second sale, it cannot have an impact on the second buyer as its title is not dependent upon the existence of this first contract. In the case of an assignment of a contractual right, the assignee is not taking a transfer of the subject matter of the contract; the assignee is in fact buying an interest in the contract which is voidable. Thus, this defect in title immediately impacts on the assignee’s title to the right to performance.218 A final view is that the buyer’s title is defective but a bona fide purchaser obtains good title not by reason of an exception to the nemo dat rule but because, by being a bona fide purchaser, it obtains its title from the original seller.219 Again an assignee could not take advantage of this because it cannot take advantage of the bona fide purchaser rule. [8.63] Transfer and illegality, acts rendering the contract void or unenforceable. It was noted in Chapter 6 that public policy may impact on an assignment. That 216 Mackender v Feldia AG [1967] 2 QB 590 at 603–4 per Diplock LJ (“when what is said to be a ‘voidable’ contract is said to be ‘avoided’ that does not mean that the contract never existed but that it ceases to exist from the moment of avoidance, and that upon its ceasing there may then arise consequential rights in respect of things done in performance of it while it did exist which may have the effect of undoing those things as far as practicable”). See further H Bennett, “Exclusion Rights and Remedies With Respect to Misrepresentation and Non-disclosure” (2003) 19 JCL 205 at 212–13. 217 Shalson v Russo [2005] 2 WLR 1213 at 1254–6. 218 The notion of rescinding a contract where the contract has been discharged by performance is problematic. An election to rescind here seems to have the effect of reinstating the contract for it to be then rescinded. It may be that a better explanation is to put aside the notion of rescinding a contract and accept that rescission is a remedy that effects restitution (and can have the effect of revesting title) and is based on there being an unjust enrichment. If that were adopted, however, it might be difficult to argue that an assignee takes subject to this on the basis of the principle of transfer and it would need to be explained by reference to the special position that pertains prior to notice. 219 See The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 112 per Dixon J.
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discussion was concerned with public policy issues affecting the assignment itself. However, clearly, if the contract between the assignor and obligor is tainted with illegality, this will impact upon the title of the assignor and therefore also the assignee. An assignee can no more call for the performance of an illegal act than the assignor.220 In addition, if the main contract is unenforceable for any reason, for example, failure to comply with a writing requirement, the assignee cannot enforce it. Similarly if the contract is rendered void. For example, in the case of an assignment of the right to the proceeds of a policy of life insurance, the assignee could not enforce its assigned right if the assignor/insured did an act to void the policy.221 [8.64] Transfer and substantive equitable set-off.222 It is generally accepted that an assignee of a contractual right takes subject to the obligor’s rights of substantive equitable set-off which it has against the assignor.223 Moreover, given that the obligor can rely on a substantive equitable set-off, whether arising before or after notice of the assignment, the obligor should also be able to rely on such a set-off arising out of a contract entered into after notice of the assignment.224 It is not necessary here to enter into a long discussion about the requirements of equitable set-off.225 In practice, the question is simply whether the obligor has such a right against the assignor, and this is better left to works on set-off. Generally, however, an equitable set-off will arise when a claim and cross-claim are 220
Cf [6.66]. See The Amicable Assurance Co v Bolland (1830) 4 Bligh NS 194, 5 ER 70 (policy avoided upon assignor/assured being convicted of a felony and executed); Wigan v The English & Scottish Life Assurance Association [1909] 1 Ch 291 (policy rendered void by the assured taking his own life; although such avoidance was expressed in the policy to be without prejudice to the rights of third parties who had provided consideration, here the assignee relied on an antecedent debt which was not sufficient to support the assignment). See also Royal London Mutual Insurance Society Ltd v Barrett [1928] Ch 411. 222 The expression “substantive equitable set-off” is adopted by Derham (R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 3.09) and distinguishes this type of set-off from other procedural forms of set-off, that is, equitable set-off by analogy, legal set-off under the Statutes of Set-Off where they continue to apply and other set-offs created by legislation. It is also increasingly referred to as “transaction set-off”: see Aectra Refining & Manufacturing Inc v Exmar NV [1994] 1 WLR 1634 at 1648–9 per Hoffmann LJ and Metal Distributors (UK) Ltd v ZCCM Investment Holdings plc [2005] 2 Lloyd’s Rep 37 at 42 per Cresswell J. 223 Eg Young v Kitchin (1878) 3 Ex D 127; Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199; Parsons v The Sovereign Bank of Canada [1913] AC 160; Lawrence v Hayes [1927] 2 KB 111; Mitchell v Purnell Motors Pty Ltd [1961] NSWR 165; Coba Industries Ltd v Millie’s Holdings (Canada) Ltd [1985] 6 WWR 14; Telford v Holt (1987) 41 DLR (4th) 385. See also Bank of New Zealand v Harry M Miller & Co Ltd (1992) 26 NSWLR 48; Aboussafy v Abacus Cities Ltd [1981] 4 WWR 660. 224 Opinions on this point, however, differ: see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.23, and compare PR Wood, English and International Set-Off (London, Sweet & Maxwell, 1989) para 14.80 at 793, para 16.22 at 856. 225 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003); PR Wood, English and International SetOff (London, Sweet & Maxwell, 1989). 221
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so closely connected that it would be inequitable for the plaintiff’s claim to proceed without giving credit for the cross-claim.226 Traditionally, that close connection will exist only when the defendant’s claim impeaches the title of the plaintiff’s demand.227 For example, first principles dictate that if a defendant has a claim against a plaintiff for fraud, and it is that fraud which in fact leads the defendant to enter into the transaction which the plaintiff is seeking to enforce, there will be an equitable set-off as the resolution of the plaintiff’s claim can be said to be dependent on the resolution of the defendant’s claim.228 The test has not always been applied in a strict manner, and some cases taking a broad approach to impeachment have become leading authorities or examples of set-off.229 In addition, the impeachment test has been reformulated. For example, in Bank of Boston Connecticut v European Grain and Shipping Ltd,230 Lord Brandon231 approved the test expressed by the Privy Council in Government of Newfoundland v Newfoundland Railway Co,232 that the defendant’s cross-claim must flow out of and be inseparably connected with the dealings and transactions which also give rise to the claim.233 There has been much debate over whether or not this test merely reformulates the impeachment test or broadens it,234 and whether, given that set-off exists to prevent injustice, it should be and has been
226
R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 332. Rawson v Samuel (1841) Cr & Ph 161 at 179, 41 ER 451 at 458. See also Hill v Ziymack (1908) 7 CLR 352 at 360 per Griffith CJ; D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 17 per Woodward J; Aries Tanker Corp v Total Transport Ltd [1977] 1 WLR 185 at 191 per Lord Wilberforce, at 193 per Lord Simon. See further James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 458 per Gummow J (explaining how the requirement of impeachment has not been narrowly construed). In the case of substantive equitable set-off, there is no need for mutuality, although usually it would only be just to allow set-off if the same parties are involved: see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 4.48; R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 345–9; Cf R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 7.53. Nor must the demands arise out of the same contract: R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 4.45. 228 ICF Spry, “Equitable Set-offs” (1969) 43 ALJ 265 at 268. See also R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 4.01–4.10. See further The Wakefield and Barnsley Banking Co v The Normanton Local Board (1881) 44 LT 697. Cf Stoddart v Union Trust Ltd [1912] 1 KB 181, discussed at [8.70]. 229 R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 4.03. See also R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 332–7. 230 [1989] 1 AC 1056. 231 With whom Lords Keith, Oliver, Goff and Jauncey agreed. 232 (1888) 13 App Cas 199. 233 [1989] 1 AC 1056 at 1102–3, 1110–1. Prior to this decision there were attempts at other formulations: see Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] 1 QB 233 at 248 per Lord Denning; Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] 1 QB 927 at 975 per Lord Denning. See also Compania Sud-Americana de Vapares v Shipmair BV (The Teno) [1977] 2 Lloyd’s Rep 289 at 297 per Parker J. For discussion of Australian authorities taking a broader approach see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 4.24–4.28. 234 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 4.16; F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) at para 8.2, at 228. 227
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expanded beyond the impeachment test to adopt a broader notion of fairness.235 It would appear from a strict reading of Lord Brandon’s speech that he only intended a reformulation or “different version” suggesting that the “impeachment” concept was no longer a familiar one.236 This point is taken up further below.237 [8.65] The principle of transfer identifies substantive equitable set-off as a claim which the assignee takes subject to, whether the set-off arises before or after notice of the assignment, because it results in an “impeachment” of the “title” taken by the assignee. This is an inherent weakness in any contractual right. It does not matter that this inherent weakness has its origins in equity, and it does not matter that the right of set-off exists only so long as it remains unconscionable for a creditor to deny the debtor’s claim. [8.66] Even if the reformulations of substantive equitable set-off do not continue to emphasise the impeachment of title, the principle of transfer further dictates that an assignee must take subject to substantive equitable set-off because it is a substantive defence.238 It can be used independently of a court order.239 A substantive defence destroys all or part of a plaintiff’s claim. It does not merely impeach a right to obtain a judgment; it impeaches title. Derham explains the substantive effect of substantive equitable set-off as follows:240 [T]he view that the defence is substantive does not mean that it operates as an automatic extinction of cross-demands . . . [I]f there is an entitlement to an equitable set-off, the creditor as a matter of equity is not entitled to treat the debtor as being indebted to him to the extent of the debtor’s own claim against him. The cross-demands as a matter of law remain in existence between the parties until extinguished by judgment or agreement, though as far as equity is concerned, it is unconscionable for the creditor even before then to regard the debtor as being in default to the extent of the cross-demand if 235
S McCracken, The Banker’s Remedy of Set-Off (2nd edn, London, Butterworths, 1996) ch 3. [1989] 1 AC 1056 at 1102–3, 1106. Quaere whether the language chosen by Lord Brandon was sufficiently precise. As Derham has pointed out, Lord Brandon’s formulation would appear to always to be satisfied if the claim and cross-claim arise out of the same transaction, whereas, traditionally, this was just one factor taken into account: R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 333. See also James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 460 per Gummow J and McDonnell & East Ltd v McGregor (1936) 56 CLR 50. 237 [8.87]–[8.92]. 238 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 4.29–4.43; R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 337 n 58, and see Fuller v Happy Shopper Markets Ltd [2001] 1 WLR 1681 at 1690. 239 R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 4.29 n 170, citing Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] 1 QB 927 at 982 per Goff LJ. See also Roadshow Entertainment Pty Ltd v (ACN 053 006 269) Pty Ltd (1997) 42 NSWLR 462 at 481. Cf Muscat v Smith [2003] 1 WLR 2853. 240 R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 4.29. See also R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 337. 236
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circumstances exist which support an equitable set-off. A court of equity will protect the debtor’s position by way of injunction, and it may also be the subject of a declaration. This is an illustration of the maxim that equity acts in personam, and it provides an explanation of how equitable set-off operates substantively without working an automatic discharge.
Inasmuch as the assignee is generally dependent upon the continued existence of the contract,241 as it sustains the existence of any conditional right vested in the assignee, it is also subject to the continued existence of its claim either in law or in equity. Anything that destroys all or part of that claim affects the assignee by reason of the principle of transfer. Thus, if an assignee were not subject to such defences, the assignor could assign a right greater than the one it had, which is at odds with the principle of transfer. [8.67] Transfer, substantive equitable set-off and the need for the subject to equities rule. It may be argued that if the principle of transfer dictates that an assignee takes subject to substantive equitable set-off, whether arising before or after notice of the assignment, then it must follow that an assignee will take subject to such a claim even where the “subject to equities” rule is not preserved, such as where there is a transfer at law.242 In investigating this point it is important to keep in mind that the subject to equities rule applies only to choses in action.243 Given that the common law did not generally recognise the assignment of choses in action it is difficult to state precisely what position it would have taken had it recognised such assignments, assuming of course that the defence existed in equity at the time and the common law recognised the defence. Nevertheless, the decision in Reeves v Pope 244 can be raised to suggest that an assignee takes only subject to substantive equitable set-off where the subject to equities rule is preserved. From this it may be argued that the identification of such defences cannot therefore be predicted by the principle of transfer, and the subject to equities rule must operate in a discrete way even after notice. Reeves v Pope is essentially authority for the point that if a landlord mortgages property (the property being leased prior to the mortgage) and the mortgagee brings an action for rent, having gone into possession, then the tenant cannot raise against the mortgagee an equitable set-off it had against the mortgagor.245 The common law or old 241 242
[3.27]. As to instruments transferable at law see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para
17.56. 243
[8.49]. [1914] 2 KB 284. See also Smith v Jones [1954] 1 WLR 1089; Citibank Pty Ltd v Simon Fredericks Pty Ltd [1993] 2 VR 168. 245 As to whether Reeves v Pope applies to Torrens title land see P Butt, Land Law (4th edn, Sydney, LBC, 2001) para 1879; R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 351–2. 244
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system mortgage of land operated to transfer ownership to the mortgagee. The mortgagee was legally entitled to possession from the moment the mortgage took effect.246 Usually, however, some contractual promise or “attornment clause” was agreed to for the purposes of allowing the mortgagor to maintain possession.247 Moreover, because the mortgage was effective at law, the mortgagee was entitled to the rent and would usually claim that rent if it entered into possession.248 The mortgagor and mortgagee generally had an agreement that allowed the mortgagor to continue collecting the rent for its own benefit.249 However, this could be terminated by the mortgagee. Why then could the lessee not raise an equitable set-off it had against the mortgagor against a claim for rent by the mortgagee, whether that set-off arose before or after entry into the mortgage? The result has been criticised as giving an unwarranted special insulation to mortgagees.250 [8.68] It is suggested that the result of Reeves v Pope is entirely correct. As to claims for set-off arising after the mortgage, the answer must be that, generally, because the mortgage is immediately operative at law without notice, the mortgagee will not be affected by any claims against the mortgagor arising after the mortgage.251 As to claims arising prior to the mortgage, perhaps the most straightforward answer is simply that the subject to equities rule is a rule of equity governing equitable transfers. It is dictated by the principle of transfer but limited to equitable transfers. This would also explain the statutory regime insofar as it is merely procedural. However, it is suggested that the same result follows if the provision is considered substantive. That is, an assignee of a chose in action will still take subject to substantive equitable set-off even if the transfer is effective at law and even without an express preservation of the subject to equities rule. It should not be seen as surprising that a subject to equities rule is not referred to in connection with transfers at common law.252 It does not reflect the language of the common law, and to the extent that it encapsulates equitable defences where a transfer is effective at common law, there is often little reason for equity to intervene. In addition, as noted above, it is difficult to know what the rule would have been as regards transfers of choses in action at common law because the common law did 246
P Butt, Land Law (4th edn, Sydney, LBC, 2001) para 1869. Ibid, para 1870. 248 Burrows v Gradin (1843) 12 LJQB 333 at 335; Re Ind, Coope & Co Ltd [1911] 2 Ch 223 at 231 per Warrington J. See also Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410 at 418 per Williams J. Cf Matthews v Usher [1900] 2 QB 535 at 538–9 per Romer LJ; Schalit v Joseph Nadler, Ltd [1933] 2 KB 79; Scribes West Ltd v Relsa Anstalt (No 3) [2005] 1 WLR 1847. 249 Trent v Hunt (1853) 9 Ex 14, 156 ER 7; Re Ind, Coope & Co Ltd [1911] 2 Ch 223 at 231. 250 PR Wood, English and International Set-Off (London, Sweet & Maxwell, 1989) para 16.106. 251 Until receiving notice of the mortgage the lessee could obtain a good discharge by paying rent to the mortgagor, that is, even though the transfer was complete at law before notice. This protection for the lessee was enshrined in legislation but was probably the position at law in any case: see R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 350. 252 Eg Ashwin v Burton (1862) 7 LT 589; Taylor v Blakelock (1886) 32 Ch D 560 at 567. 247
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not recognise such assignments. The principle example suggesting that the subject to equities rule would not have applied concerns negotiable instruments. However, these have their own unique history. In any case whatever might have been the position, in a fused system, it makes sense to say that the purchaser of a contractual right takes subject to such a substantive defence by reason of the nemo dat rule.253 [8.69] As regards Reeves v Pope, it must be kept in mind that such a mortgagee in possession is still under an equitable obligation to account to the landlord/ mortgagor for rent received.254 Equitable set-off operates to prevent unconscionability and, given the existence of this obligation, the finding that it cannot be raised against such a mortgagee may simply reflect a view that it will not be operating to provide justice when such an accounting is to take place. It is also important to characterise the transaction. Putting aside any statutory provisions, a purchaser or mortgagee of real property takes subject to a lease as a matter of real property law. That is, at common law they are only subject to, or benefited by, those covenants that touch and concern the land by reason of the privity of estate that exists between them.255 There is no separate assignment of the lease, that is, there is no assignment of contractual rights. Generally, at common law, the landlord and tenant both remained liable on their contractual covenants by virtue of privity of contract throughout the entire term of the lease. The purchaser or mortgagee obtained an estate in the land. It is then obvious why such a party would not take subject to a personal equitable set-off existing against the vendor or mortgagor/lessor, that is, because there is no transfer of the lease contract and therefore no title to impeach.256 The privity of estate doctrine operates at law to create independent rights and obligations which parallel the contractual rights and 253 Generally, in the case of a transfer at law where the transferee can sue in its own name, then, where the debtor has a claim against the transferor, there is not sufficient mutuality between the obligor and transferee for the purposes of statutory set-off: see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.56. 254 P Butt, Land Law (4th edn, Sydney, LBC, 2001) para 1874. 255 The notion that an assignee of the lessor takes subject to covenants that touch and concern the land appears to have its historical basis in legislation rather than the common law, and that legislation resulted from an “accident” of history: see AWB Simpson, A History of the Land Law (2nd edn, Oxford, Clarendon Press, 1986) at 255–6. 256 See further Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410. The same reasoning would apply to a sale of goods where the goods are the subject of a hire agreement at the time of sale and where the goods are in the possession of the lessee at the time of sale. In such a case the purchaser should take subject to the lessee’s interest. However, the purchaser will not be subject to the lessee’s claims of set-off against the seller because there is no assignment of the contract of hire; the purchaser is simply getting ownership of the goods, and if it takes subject to the hire it is because that hiring affects the title of the seller. This is an application of the nemo dat rule. Quaere whether, in such a case, and, analogous to a sale of land subject to a lease, the purchaser should be subject to only those obligations that arise at law by reason of the law of bailment or whether the purchaser should be subject to all the obligations of the contract of hire.
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obligations.257 Thus, the buyer’s or mortgagee’s rights and obligations in respect of the lease are not derivative because there is no assignment.258 [8.70] Set-off and the case of Stoddart v Union Trust Ltd. There is little point in setting out the facts of numerous decisions exemplifying that an assignee takes subject to equitable set-off as this position is accepted. However, one case that has caused much controversy over the years needs to be discussed. That case in Stoddart v Union Trust Ltd.259 Here the defendant obligor was prevented from raising against the assignee a claim for damages for fraud which it had against the assignor. That fraud, it was claimed, induced the defendant to enter into the transaction with the assignor. The assignor (Price) had sold a newspaper to the defendant (Union Trust), fraudulently misrepresenting both the value and circulation of the paper. The purchase price was payable in instalments. While monies were still owing under the contract the defendant on-sold the newspaper to a third party and the assignor assigned the right to the balance of the purchase price to the assignee (Stoddart). The defendant, by on-selling the newspaper, lost its right to rescind the contract for fraud and was left with an action for damages against Price. It was held that that action was “dehors” the contract, being a mere personal claim against the assignor which could not be raised to set off the assignee’s claim for the remainder of the purchase price.260 Some emphasis was placed on the fact that the assignee had no notice of the fraud and was an assignee for value.261 It was suggested that the result would have been different if the representation had become a term of the contract.262 The decision has been defended on the basis that, in not rescinding the contract or not being able to rescind, the obligor was attempting to have his cake and eat it, in that the defendant was recognising its liability under the contract but also attempting to repudiate its obligations under the contract.263 It is difficult to think of a claim that impeaches the title of the assignor more than a claim based on fraud where that fraud was perpetrated by the assignor and induced the obligor to enter into the transaction with the assignor which was the subject matter of the assignment.264 Therefore, the result cannot rest on the claims 257
City of London Corp v Fell [1994] 1 AC 458 at 465 per Lord Templeman. Reeves v Pope [1914] 2 KB 284 at 287 per Lord Reading CJ, at 289–90 per Buckley LJ. Of course the result may be different if there is in fact an assignment agreed to: see Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410 at 422–3 per Williams J. See also Muscat v Smith [2003] 1 WLR 2853. 259 [1912] 1 KB 181. See also Cummings v Johnson (1913) 4 WWR 543; Provident Finance Corp Pty Ltd v Hammond [1978] VR 312. See further Birchal v Birch, Crisp & Co [1913] 2 Ch 375 at 379 per Cozens-Hardy MR; AMP v Specialist Funding Consultants Pty Ltd (1991) 24 NSWLR 326 at 332. 260 [1912] 1 KB 181 at 194 per Kennedy LJ. 261 Ibid, at 188 per Vaughan Williams LJ, at 192 per Buckley LJ. 262 Ibid, at 192 per Buckley LJ. See also Sun Candies Pty Ltd v Polites [1939] VLR 132. 263 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 182. 264 See The Southern National Trust Ltd v Pither (1937) 57 CLR 89 at 105 per Rich J. There appears to be no good reason for simply denying that a claim for damages for misrepresentation can give rise to a set-off: see Tomlinson v Cut Price Deli Pty Ltd (1992) 38 FCR 490 at 494. As regards claims arising 258
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not being sufficiently connected. Rather, it must rest on the court’s reasoning that the claim for damages was personal in the sense that the claim was (unlike a claim for damages for breach of contract) not associated with the contract. However, the defence of equitable set-off, is not dependent upon the cross-claim arising out of the same transaction as the assignee’s claim even though that will often be the case. Moreover, as against the assignor it was still a claim capable of raising an equitable set-off and it is difficult to see how much closer a cross-claim needs to be. If that is correct then the result should depend merely on an application of the rule that an assignee will always take subject to the defence of equitable set-off. No weight can be put in the notion that the assignee was a bona fide purchaser without notice.265 Ultimately, the decision can be upheld only by putting some weight on the view that this was an equity that did not take “priority”. That is, it fell into that category of case where it would be unconscionable for the obligor to raise against the assignee an equitable set-off it had against the assignor.266 However, it is suggested that the better view is that the case was wrongly decided. [8.71] Contractual set-off.267 It appears to be accepted that where a contract between an assignor and obligor contains a provision for set-off automatically to take place, so that only the balance of two cross-debts is owed, then an assignee takes subject to that set-off agreement, whether or not it has notice of the agreement.268 It is suggested that this result is perfectly correct on the basis that the setoff agreement defines the extent of the right held by the assignor and thus the characteristics of the right transferred to the assignee. The leading case is Mangles v Dixon.269 In this case A (the appellant) wanted to charter a vessel from B but the only vessel available was too large for A’s requirements. It was decided that B itself would charter half the vessel and A and B would share the profits or losses of the adventure accordingly. To achieve this purpose and get over the problem of the owner B chartering its own vessel three documents were executed.270 First A and B entered into a charterparty at a rate of 16s per ton. out of separate transactions see Provident Finance Corp Pty Ltd v Hammond [1978] VR 312. Cf Wilsons (NZ) Portland Cement Ltd v Gatx-Fuller Australasia Pty Ltd (No 2) [1985] 2 NZLR 33. See further R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 4.68–4.70; AM Tettenborn, “Fraud, CrossClaims the Assignment of Choses in Action” [1987] The Conveyancer 358. 265 [8.58]. 266 [8.60]. 267 In respect of assignees being subject to a combination of bank accounts see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 15.113. 268 Mangles v Dixon (1852) 3 HLC 702, 10 ER 278. See also Watson v Mid Wales Railway Co (1867) LR 2 CP 593 at 600 per Willes J, at 601 per Montague Smith J. See further Re The Moss Bay Hematite Iron and Steel Co Ltd (1892) 8 TLR 63 (affirmed 8 TLR 475); Toronto-Dominion Bank v Block Bros Contractors Ltd (1980) 118 DLR (3d) 311; Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724. 269 (1852) 3 HLC 702, 10 ER 278. 270 Quaere whether the transaction adopted was sufficient to overcome the problem of a person contracting with him- or herself.
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Secondly, on the same day, a further agreement was entered into which recited that A had entered into the charterparty and agreed that C would take a half share in the profit and risk of the venture. C was merely a nominee for B and effectively represented B. This second agreement thus included a contractual set-off. Thirdly, on the same day, B executed a guarantee (in favour of A) of C’s obligations under the second agreement. Later B assigned the benefit of the charterparty to D who waited a number of months before giving notice of the assignment to A. A then made payments to D. D had no knowledge of the last two documents. A made all the payments it was required to make under the contract, that is, it made payments of half the amount required under the charterparty. As it turned out, the venture was a loss and A contended that B was therefore liable for half the loss. D refused to accede to this and brought an action contending that A was liable to pay the balance of the whole freight. A then sought to restrain D’s action and was successful. It was held that the three documents constituted one contract and the assignee took subject to the assignor’s liability for its share of the risk.271 It did not matter that D had no notice of the terms of the second and third documents as the onus was on them to make inquiries.272 The only exception to this would be if A, the obligor, were involved in some deception or knew that D was being deceived.273 Here the transaction was not a fraud but structured the way it was because of what it was trying to achieve,274 and A was not aware and did not have to take steps to know whether or not B had told the assignee that the transaction in fact consisted of three documents unless it had come to the notice of A that D was being deceived. The result should be the same even if the obligor has only an option to set off cross-debts. Nor should it matter that such a provision may allow for the set-off of claims that would not at law give rise to a set-off, and thus claims that would not equate to a defence.275 The issue is simply one as to the meaning of the contract, which in turn shapes the chose in action vested in the assignee.276 For that reason, if the provision allowed for the obligor to set off unliquidated or contingent claims, the assignee should also take subject to this.277 It should also not matter if 271
(1852) 3 HLC 702 at 732, 10 ER 278 at 291. Ibid, at 733, at 291 (ER). Arguably upon seeing that A was only ever paying half the amount stated in the charterparty, D should have made some enquiries: see ibid: at 721, at 286. 273 Ibid, at 733, at 291 (ER). See also The Wakefield and Barnsley Banking Co v The Normanton Local Board (1881) 44 LT 697. 274 (1852) 3 HLC 702 at 722, 10 ER 278 at 287. 275 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para. 17.40. 276 Mangles v Dixon (1852) 3 HLC 702 at 729, 10 ER 278 at 289. 277 Because it is not possible to “set-off” the claims until each is quantified, Goode suggests that what is intended by such a provision is that one party has a right to withhold payment pending quantification of its claim. It therefore initially gives a right to suspend payment and then a right of set-off once quantification occurs. Alternatively, where the contingent claim has a known maximum amount, it may be intended that the obligor has an immediate right of set-off for that amount, “upon terms of recrediting the [assignee] with the appropriate amount if the actual liability proves to be the less”: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 7.22. Cf F Oditah, “Financing Trade Credit: Welsh Development Agency v Exfinco” [1992] JBL 541 at 559. 272
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the cross-demand arose from a transaction entered into by the obligor and assignor after notice of the assignment, so long as the agreement for set-off contained in the contract,278 on construction, catches that cross-demand.279 If it were otherwise the assignee would be vested with a different right from the right held by the assignor which is not possible under the principle of transfer.280 The onus is on the assignee to acquaint itself with the terms of the contract from which its assigned right derives. There is little room here for the assignee to raise its relationship with the obligor and to suggest that the obligor’s decision to exercise the set-off in a particular case is unconscionable.281 However, in any given case, it may be that on construction, the contractual set-off was intended to govern only the relationship between the assignor and obligor and therefore it would not define and delimit the right (as a chose in action) assigned to the assignee. [8.72] Abatement. An assignee takes subject to a right of abatement the obligor has against the assignor. For example, an assignee will be subject to the debtor’s right under a building contract to deduct from the debt owed amounts equivalent to the damages suffered by reason of the non-performance of the assignor.282 However, opinions are split over whether an assignee takes subject to rights of abatement where the obligor’s claim arises after notice of the assignment. Oditah suggests the assignee is not subject to such claims.283 Professor Goode suggests that the assignee is subject to such claims.284 Oddly, there appears to be no case
278 Where the agreement for set-off is contained in a separate agreement but one entered into prior to notice of the assignment, it will effectively vary the rights of the subject contract and the nature of the choses in action that are assigned under that contract, even if the assignee has no notice of this variation. Cf [7.14]. 279 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.40. Cf F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) at para 8.2 at 229 (suggesting that the law appears to be that post-notice cross-claims can be set up under a contractual set-off only against an assignee if they arose from a pre-notice obligation: see also R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 7.26. However, except for some overriding unconscionable conduct on the part of the obligor (see [8.60]), the result should simply depend on the construction of the provision: see generally The First National Bank of Chicago v The West of England Shipowners Mutual Protection and Indemnity Assoc (Luxembourg) (The Evelpidis Era) [1981] 1 Lloyd’s Rep 54.) If the set-off agreement itself was not entered into until after notice of the assignment, it could bind an assignee only if it satisfied the requirements for a legitimate post notice variation of the main contract, [8.38]. 280 Mangles v Dixon (1852) 3 HLC 702 at 731, 735, 10 ER 278 at 290, 292. See further R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para. 17.42. 281 See [8.60]. 282 Young v Kitchen (1878) 3 Ex D 127; Mitchell v Purnell Motors Pty Ltd [1961] NSWLR 165. See also Hanak v Green [1958] 2 QB 9 at 19 per Morris LJ. 283 F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 8.3 at 236. 284 R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) para 7.66.
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definitively deciding this point. Ultimately, the answer to this question depends on whether abatement constitutes a procedural or substantive defence.285 [8.73] Professor Goode has suggested that the common law doctrine of abatement was created to overcome some of the harsh results that followed from the now outdated presumption that contractual obligations were independent,286 in particular, where the defendant’s obligation to pay was independent of the plaintiff’s performance obligation. He suggests that abatement was not required where the plaintiff’s obligation of performance was a condition precedent to the defendant’s obligation to pay. [8.74] Generally, abatement applies where a seller or service provider claims the contract price and the buyer cross-claims for damages for breach of contract where that breach diminishes the value of the goods or services, for example, by reason of a breach of an implied term as to the quality of the goods or services.287 In such circumstances the buyer may deduct the amount of its cross-claim and set this up as a defence. The adoption of abatement did away with having to raise a breach of warranty by way of counterclaim, that is, a cause of action, and allowed the breach to be raised by way of defence. [8.75] Nevertheless, there still remains a dispute whether or not abatement is a procedural or substantive defence. Professor Goode has suggested that an assignee takes subject to rights of abatement for the same reason that an assignee takes subject to rights of set-off, namely, that the assignee cannot stand in any better position than its assignor. This he sees as simply an application of the nemo dat rule.288 However, he prefers the view that abatement is merely procedural.289 He suggests 285 Goode’s conclusion does not appear to flow solely from what he perceives the law in England to be, that is, that abatement is a substantive defence: see R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet and Maxwell, 2003) para 7.66, 7.73. 286 Ibid, para 7.71. Abatement is expressly provided for in Anglo-Australian sale of goods legislation: see Sale of Goods Act 1979 (UK) s53(1)(a); Sale of Goods Act 1954 (ACT) s56; Sale of Goods Act 1923 (NSW) s54; Sale of Goods Act 1972 (NT) s54; Sale of Goods Act 1896 (Qld) s54; Sale of Goods Act 1895 (SA) s52; Sale of Goods Act 1896 (Tas) s57; Goods Act 1958 (Vic) s59; Sale of Goods Act 1895 (WA) s52. These provisions may in fact extend the common law doctrine of abatement: see R Derham, SetOff (3rd edn, Oxford, OUP, 2003) para 2.90. 287 See Mellowes Archital Ltd v Bell Products Ltd (1997) 87 BLR 26. Quaere, however, whether the abatement provisions under sale of goods legislation have abrogated, to some extent, the need for a diminished value: see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 2.90. 288 R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) paras 7.63–7.67. 289 Ibid, para 7.73. In the second edition of this book, Professor Goode, in pointing out that abatement was developed to avoid the necessity of bringing a cross action (see Mondel v Steel (1841) 8 M & W 858 at 870, 151 ER 1288 at 1293 per Parke B; see also Davis v Hedges (1871) LR 6 QB 687 at 691 per Hannen J), states; “It is easy to see why abatement came to be seen by modern lawyers as a substantive defence, for at first sight it appears to have amounted to a plea that the plaintiff was not entitled to the full contract price since he had failed to give the performance which was a condition precedent to his
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that this is not merely historically true; it forms the basis of the decision of Parke B in Mondel v Steel,290 which is generally considered the most authoritative decision on abatement. In Australia, the High Court in Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd,291 also relying on Mondel v Steel, took the view that abatement was procedural. Kitto J, in particular, emphasised that abatement was dependent upon the buyer choosing to defend the action for the price by proving how much less the goods were worth by reason of the seller’s breach.292 The breach itself did not work the reduction and, therefore, it was a procedural concession. He noted that it would produce no reduction if the buyer chose to pay the price and bring a separate action for damages to recover the full amount of his or her loss.293 In addition, he stressed that the effect was not to reduce the price but to reduce the seller’s ultimate verdict, and only then was there a diminution of the price.294 [8.76] However, in Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd,295 Lord Diplock relied on Mondel v Steel to make the modern statement governing English law that abatement is substantive.296 He thought this was the very point decided in Mondel v Steel. right of recovery. But such an interpretation stands the rule in Mondel v Steel on its head. If the defendant can show that the plaintiff has not earned the contract sum because he has failed to perform a condition of his entitlement to payment, the plea of abatement is unnecessary; the defendant simply takes his stand on the terms of the contract. Moreover, he is entitled to do this no matter what kind of contract is involved. The reason why the doctrine of abatement came into being was precisely to deal with those cases involving the supply of goods or the provision of work and labour where the defendant was bound to pay the price because the plaintiff’s counter-performance was not a condition of his right to be paid or alternatively was a condition which had been waived. This is expressly stated in the judgment of Parke B and in the case of contracts of sale is made manifest . . . [under the sale of goods legislation], which applies where there is a breach of warranty by the seller, or where the buyer elects (or is compelled) to treat any breach of condition on the part of the seller as a breach of warranty, in which event the breach of warranty may be set up in diminution of the price. Now it is elementary law that on a breach of warranty, as opposed to a breach of condition, the innocent party remains bound to perform his part of the contract and is restricted to damages. The buyer is thus liable for the price but to avoid a cross action is permitted as a matter of procedure to set up the breach of warranty in diminution of the seller’s claim”: see R Goode, Legal Problems of Credit and Security (2nd edn, London, Sweet and Maxwell, 1988) at 150–1. 290 (1841) 8 M & W 858, 151 ER 1288. 291 (1968) 121 CLR 584 at 593 per Barwick CJ and Menzies J, at 601, 602, 603 per Kitto J, at 619 per Windeyer J. See also Cellulose Products Pty Ltd v Truda (1970) 92 WN (NSW) 561 at 570 per Isaacs J (also holding that the right to abatement under the sale of goods legislation is personal and not assignable). See further Newman v Cook [1963] VR 659. Cf Gough v Timbalok New Zealand Ltd [1997] 1 NZLR 303 at 308 (referring to abatement as extinguishing a claim). 292 (1968) 121 CLR 584 at 601. 293 Ibid, at 602. See also Davis v Hedges (1871) LR 6 QB 687. 294 Cf (1968) 121 CLR 584 at 616 per Windeyer J at 616 where he emphasises that the effect is to reduce the price. See also United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention), Art 50, which speaks of the ability of the buyer to reduce the price rather than setting up a “breach of warranty in diminution or extinction of the price” as per domestic sale of goods legislation. 295 [1974] AC 689. 296 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717. See also Aectra Refining and Marketing Inc v Exmar NV [1994] 1 WLR 1634 at 1649–50 per Hoffmann LJ.
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[8.77] If the correct view is that abatement is a procedural defence, it is difficult to see how an assignee can be subject to it on the basis of the nemo dat rule. That rule is concerned with the transfer of title, and a mere procedural defence does not impeach title. The extent of the substantive effect of a procedural defence is that the court hands down only one judgment, whereas, in the case of a counterclaim, it hands down two judgments and then sets them off. If abatement is truly procedural, and if an assignee is subject to all claims of abatement arising before or after notice of the assignment, then this will have to be explained by reference to the broader notion of the subject to equities rule, which focuses on the relationship between the assignee and obligor and seeks to prohibit unconscionable conduct. If this is the case then abatement will be the odd person out as all other claims to which the assignee is subject, whether arising before or after notice, are identified by the principle of transfer. There is no doubt that the law could on the facts of a particular case determine that an assignee should take subject to a certain defence arising after notice even though that defence was not identified by reference to the principle of transfer. However, given that generally all such defences are identified by the principle of transfer, what should be required is some special circumstances calling for that result. [8.78] Derham has suggested the following as a possible basis for any substantive view of abatement:297 The substantive view may be based on the notion that the availability of the defence is determined as at the date of delivery of the goods or completion of the work. In other words the value of the goods delivered or the work performed as at that date is reduced because of the breach of contract, and the nature of the defence is such that the purchaser, if he so chooses, can defend himself in a subsequent action for the price by showing the true value of what in fact was received at that date.298
He goes on to note that the difficulty with this explanation is that it should continue to apply even if the damages claim ceases to exist as a result of the expiration of a limitation period, that is, where the expiration of the limitation period extinguishes the remedy and the right. Yet there is authority suggesting that abatement
297
R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 2.94. However, it should be noted that the defence is not predicated on the basis that the defendant need only pay the true value. If it were there would be no hesitation in concluding that the effect is substantive—although, such a calculation would be at odds with the principles governing contract law damages. Rather, the price is reduced by the amount of damages suffered. In an action for breach of warranty, in the context of sale of goods, the buyer is entitled to recover the difference between the value which the goods would have had had the warranty been true, and their actual value, but this does not mean the buyer has to pay the true value of the goods. For example, if a buyer agrees to pay £100 for goods which, if a warranty had been true, would have been worth £120 and in fact the goods are worth £100, then the buyer is entitled to refuse to pay any more than $80, which is less than the true value of the goods. 298
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here would not continue.299 However, there is also authority for the view that if the limitation period merely prevented enforcement without extinguishing the right, then abatement would be available.300 This would make sense if the defence is substantive but not if it is procedural.301 However, the fact that abatement is not possible where the limitation provision extinguishes the right and remedy does not necessarily mean it is not substantive. The defence requires the buyer to exercise its right to abate. If it fails to do so within time, it should lose that right if the limitation provision is to this effect. It is not an automatic defence. It should be noted that equitable set-off is a recognised substantive defence and it too would not survive a limitation provision that extinguished the right and remedy. It is because the diminution or extinction of the price is based on the buyer setting up a breach of contract (that is a secondary right to damages) as a defence, that it must follow that, substantive or not, it would not survive a limitation provision that extinguished the right. [8.79] It is difficult to come to any firm conclusion whether abatement is a procedural or substantive defence. There is perhaps little doubt that it certainly started off as a procedural defence. Nevertheless, the view that it originated to offset some of the harshness of the presumption of dependency of obligation is not entirely persuasive. The classic case of an independent obligation is an agreement to purchase goods and pay the price on a day certain irrespective of delivery. How could abatement ever help a buyer in that case? The buyer must pay even if the goods are not delivered. It would appear that the right to abate the price arose in cases where a purchaser had lost its right to reject the goods. And it originated prior to the modern distinction between conditions and warranties. It allowed the breach of contract to be set up against the claim for the full price. It is these types of examples that are given by Parke B in Mondel v Steel 302 to explain the doctrine, and these are not concerned with the dependency or independency of obligations. The fact that historically the defence was procedural does not necessarily mean it should stay procedural, and Lord Diplock’s statement in Gilbert-Ash can perhaps be taken as a statement of the modern rule. Moreover, today, equitable setoff would be available in most cases where abatement was available, and perhaps there is therefore little reason to be too concerned with explaining abatement.303 In addition, it would appear odd to have one of these defences procedural and the 299 Aries Tanker Corp v Total Transport Ltd [1977] 1 WLR 185 at 188 per Lord Wilberforce. Cf Sidney Raper Pty Ltd v Commonwealth Trading Bank of Australia [1975] 2 NSWLR 227 at 238 per Moffitt P. 300 Henriksens Rederi A/S v THZ Rolimpex (The Brede) [1974] 1 QB 233 at 248 per Lord Denning at 260 per Roskill LJ. See also Atlantic Lines & Navigation Co Inc v The Ship “Didymi” and Didymi Corp (The Didymi) [1988] 1 Lloyd’s Rep 97 at 102. 301 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 2.95; see also para 4.39. 302 (1841) 8 M & W 858 at 870–2, 151 ER 1288 at 1293. 303 See Sim v Rotherham Metropolitan Borough Council [1986] 3 All ER 387 at 412, 413 per Scott LJ.
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other substantive. Nevertheless, the case for it being a substantive defence would be stronger if its effect was that the defendant merely had to pay the value of the plaintiff’s performance. It is perhaps not possible to read too much into the words under sale of goods legislation which allow a breach of warranty to be set up in diminution or extinction of the price. On its face, this may be interpreted as being substantive in effect. However, it appears to be generally accepted that the sale of goods legislation in Anglo-Australian law merely followed the law as laid down in Mondel v Steel, which, as already noted, is open to either interpretation.304 Moreover, if the legislator intended to change the defence from procedural to substantive, one would expect a reference to the “obligation to pay the price” rather than “the price”. Thus, as already noted, in Healing (Sales) Pty Ltd v Inglis Electrix Pty Ltd Kitto J, in adopting the procedural view, emphasised that abatement does not reduce the price but merely the seller’s verdict, and it is only in this sense that there is a diminution of the price. Two further points may be noted. First, where an abatement is raised, the fact that the outcome may not be known until a verdict is given is not at odds with it being substantive. This does not dictate that it is a procedural defence. The buyer can use the breach of warranty to resist the seller’s claim for the full price (when it accrues), and will not be held to be in breach of contract for not paying if it is proven that there was a breach of warranty.305 If the buyer brings a separate action for breach of warranty, he or she remains liable for the price.306 Secondly, the view expressed by Kitto J in Healing that abatement is not substantive as it requires an election and is not automatically executing cannot be the criterion of a substantive defence, because if it were this would equally apply to equitable set-off 307 and logically it might also apply to the right to elect to terminate a contract for breach, which clearly has a substantive effect on the obligation to perform. In the result, it is suggested that abatement should be viewed as a substantive defence. If it is not, then claims for abatement arising after notice of the assignment should not be capable of being raised against the assignee. [8.80] Rectification. It appears to be accepted that an equity to rectify a lease is an equity of a proprietary kind.308 It may follow from this that an “equity” to rectify a contract is, in any case, a sufficient defect in title to bind an assignee of contractual rights.309 304 See AG Guest (ed), Benjamin’s Sale of Goods (6th edn, London, Sweet & Maxwell, 2002) para 17.048; MG Bridge, The Sale of Goods (Oxford, OUP, 1997) at 591; KCT Sutton, Sales and Consumer Law (4th edn, Sydney, LBC, 1995) para 22.25. 305 See Newman v Cook [1963] VR 659. 306 See ibid. 307 [8.64]. 308 See National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1238 per Lord Upjohn; Smith v Jones [1954] 2 All ER 823. 309 See Todd Petroleum Mining Co Ltd v Shell (Petroleum Mining) Co Ltd [2005] NZCA, CA155/05, 23 Sept 2005, para 97.
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(v) The Rights of the Obligor: Unconscionable Conduct and the Obligor’s Defences against the Assignor to which the Assignee is Subject [8.81] Introduction. This section is concerned with defences to which the assignee of a contractual right to performance will be subject if arising prior to notice of the assignment. A number of expressions have been formulated to describe the position that pertains prior to the obligor receiving notice of the assignment. It is said that “an assignee takes subject to the state of account between the debtor and original creditor at the date when notice is received by him”.310 While that expression on its face appears to capture payments being made to the assignor prior to notice, other expressions have focused on the idea that, as against any claim made by the assignee, an obligor can rely on any defence that has accrued against the assignor by the time the obligor received notice of the assignment. For example in Roxburghe v Cox,311 James LJ said an assignee “takes subject to all rights of set-off and other defences which were available against the assignor”.312 In Edward Nelson & Co Ltd v Faber & Co,313 Joyce J said that an assignee takes subject “to all equities—in other words, whatever defence by way of set-off or otherwise the debtor would be entitled to set up against the assignor’s claim up to the time of his receiving notice of the assignment”.314 These statements dictate that the types of defences that an obligor can raise against claims made by the assignee are not limited by the principle of transfer if the defences arose prior to the obligor receiving notice of the assignment. It is suggested that the legal position here can be explained by recognising that a legal relationship exists between an assignee and an obligor that is policed to prevent unconscionable conduct. The prevention of unconscionable conduct represents the guiding legal principle governing the operation of the “subject to equities” rule prior to notice. The relationship arises simply by virtue of the efficacy of the assignment which entitles the assignee to the performance of the relevant contractual obligation. However, neither party can be guilty of unconscionable conduct prior to receiving notice of the assignment. As soon as the assignee is aware of the assignment, its conscience is bound. This, of course may be well before the obligor is given notice of the assignment. It also follows that the
310 OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 181. See Mathews v Wallwyn (1798) 4 Ves 118, 31 ER 62; Norrish v Marshall (1821) 5 Madd 475, 56 ER 977; Dixon v Winch [1900] 1 Ch 736 at 742 per Cozens-Hardy J; Turner v Smith [1901] 1 Ch 213 at 219 per Byrne J; De Lisle v Union Bank of Scotland [1914] 1 Ch 22; Parker v Jackson [1936] 2 All ER 281. 311 (1881) 17 Ch D 520. 312 Ibid, at 526. 313 [1903] 2 KB 367. 314 Ibid, at 375.
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obligor’s conscience is bound only upon it having notice of an effective assignment.315 It is at this point that the obligor becomes limited by the principle of transfer in terms of what “equities” it can raise against the assignee if they arise after notice. Prior to this point it would be unconscionable for the assignee to deny existing defences available against the assignor because that would be to exploit the obligor’s vulnerability to assignment. It should be noted that, although “notice” here will generally be when formal notice of the assignment is given and mere knowledge of the assignment is not sufficient,316 an obligor may be estopped from raising an equity if it knows one exists and has knowledge that the assignee is being deceived by the assignor and fails to speak up.317 In addition, because the guiding principle here is that of preventing unconscionable conduct, it is theoretically possible that a defence originating after notice of the assignment, which does not bind the assignee by virtue of the principle of transfer, may nevertheless bind the assignee if to reject it would constitute unconscionable conduct. Such occasions are rare, and so this section focuses on the position prior to notice. [8.82] Approach to the section. The approach to this section is to outline the main pre-notice “defences” that may be raised to show how unconscionable conduct underpins this area. The discussion deals only with equitable assignments as there can be no legal assignment until notice is given to the obligor. Moreover, the concern is with defences that arise after the assignment but prior to notice. Clearly, in the case of a debt, if, prior to the assignor entering into any assignment, the obligor pays off part of that debt or is otherwise released, then the principle of transfer will dictate that the assignee will obtain a right to the amount that remains unpaid.318 Similarly, if the assignor has lost a right, such as a right to terminate or to rescind or a right to restitution, the assignee will not obtain such a right.319 There is no need here for a special “non-transfer” subject to equities rule. However, because an equitable assignment is operative prior to the obligor 315 The few authorities that suggest the relevant date is the date of the assignment rather than the date of notice must therefore be taken to be wrong: see Dixon v Winch [1900] 1 Ch 736 at 742 per Cozens-Hardy J; Turner v Smith [1901] 1 Ch 213 at 219 per Byrne J. 316 [7.18]. 317 [8.60]. 318 See Coorey v Bolous (1933) 50 WN(NSW) 187 (here the assignor, by reason of a misrepresentation of the debtor, released the debtor prior to the assignor attempting to assign the debt to the assignee; the assignor took no steps to repudiate the release and the assignee was therefore subject to the release). See also Ostabridge Pty Ltd v Stafford [2001] NSWCA 335 (here a bank settled a claim against certain guarantors and assigned the secured debt to the guarantors; however, prior to the assignment being operative, a covenant not to sue given by the bank to the debtors took effect and the assignee guarantors were subject to the effect of that covenant). See further Felix Hadley & Co v Hadley [1898] 2 Ch 680. 319 Eg Cory v Gertcken (1816) 2 Madd 40 at 51, 56 ER 250 at 254.
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receiving notice, a special rule is required if the obligor is going to be able to raise against the assignee the fact that it has made a payment to the assignor after the assignment but prior to receiving notice of the assignment. The principle of transfer clearly cannot explain a result that makes the assignee subject to that payment unless one adopts the position that all such cases involve bona fide contract variations. However, the case law clearly has not taken that route. [8.83] Main categories of pre-notice equities: by way of defence. In the context of the assignment of contractual rights, the main examples of “equities” an assignee will be subject to if they arise prior to notice are:320 Statutory set-off. Where statutory set-off continues to apply,321 a right under the statutes of set-off, although procedural,322 is a defence to a claim and therefore an assignee will take subject to such a defence where there exist mutual debts between the assignor and assignee at the time of notice.323 On one view the reason such a set-off cannot be raised after notice is that there is a lack of mutuality. If that is correct then a cross-debt arising after assignment but before notice cannot be raised as a set-off because an equitable assignment is operative prior to notice and mutuality will be lost at that point.324 The better view is that mutuality is determined by the legal title to the cross-debt.325 This better reflects the historical procedure for enforcing such assignments. As noted earlier, when equity gave effect to an assignment of a legal right it still did not enforce the 320 There is no separate discussion of the rule in Cherry v Boultbee (1839) 4 My & Cr 442, 41 ER 171, as it does not generally arise in the context of assignments of contractual rights. That rule requires a person to make any obligatory contribution to a fund prior to being able to participate in that fund. The right to any benefit from the fund is treated as paid, pro tanto, out of the assets of the fund the legatee has in its pocket: see RP Meagher, JD Heydon and MJ Leeming, Meagher Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) paras 37.125–37.190. Generally, the same principles apply; a debt due to the fund by the assignor which accrues prior to notice of the assignment being received by the fund administrator may be “set off” against the assignor’s share in the fund and the assignee takes subject to this. The assignee, however, does not take subject to a debt due after notice: see Stephens v Venables (No 1) (1862) 30 Beav 625, 54 ER 1032, and see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 14.53, 14.58. 321 Statutory set-off was repealed in New South Wales and Queensland. It has recently been reintroduced into New South Wales: see Civil Procedure Act 2005 (NSW) s21(1).There is an argument that it still can be claimed in Queensland under the Uniform Civil Procedure Rules 1999 (Qld) s173(1) as that section allows a defendant to rely on set-off “whether or not of an ascertained amount”. 322 See further on the procedural nature of statutory set-off R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 2.33. 323 Eg Chick v Blackmore (1854) 2 Sm & Giff 274, 65 ER 398; Stephens v Venables (No 1) (1862) 30 Beav 625, 54 ER 1032; Roxburghe v Cox (1881) 17 Ch D 520; Biggertaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93; Lawrence v Hayes [1927] 2 KB 111; Banco Central SA and Trevelan Navigation Inc v Lingoss & Falce Ltd and BFI Line Ltd (The Raven) [1980] 2 Lloyd’s Rep 266 at 271 per Parker J. See further R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) at paras 17.10–17.12. The assignee cannot in good conscience attempt to circumvent such set-offs by seeking only to enforce its equitable right rather than joining the assignor to enforce the legal right. 324 See Telford v Holt [1987] 2 SCR 193. 325 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.03.
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assignee’s claim. The claim was enforced in the common law courts and in the assignor’s name. It followed that the debtor could raise any defence it had against the assignor, and this included statutory set-off. Mutuality therefore had to be determined by reference to mutuality at law.326 The ability to raise such a set-off is best explained by reference to unconscionable conduct. In order to raise the defence it is sufficient if the debt owed by the assignor has accrued by the time of notice.327 That is, it is sufficient if the debt exists prior to notice, and a debt will exist when an obligation to pay exists. The debt need not be payable prior to notice,328 although it would need to be payable (on one view) at the commencement of the action or (perhaps the better view) by the time the defence was filed.329 There is some authority suggesting that if the debt owed by the assignor is not payable by the time of notice, then it is necessary that it be payable before the assigned debt becomes payable.330 There appears to be no doctrinal or policy reasons why that should be so, and the better view is that it is sufficient if the debt is payable at the time the defence is filed.331 Moreover, prior to notice, it is possible for the debtor to have a cross-debt owed by the assignor to a third party assigned by that third party to the debtor, and for this debt to be used by way of set-off.332 An issue, however, arises as to conditional or contingent obligations to pay. That is, where at the time of notice there is a transaction in place between the assignor and obligor under which the assignor may or will be required to pay the obligor, but where that obligation to pay is at the time of notice of the assignment conditional or contingent upon the occurrence of some event. Can the obligor 326
See Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 109 per Dixon J. Christie v Taunton, Delmard, Lane & Co [1893] 2 Ch 175 at 181–2. See also Wilson v Gabriel (1863) 4 B & S 243, 122 ER 450; Watson v Mid-Wales Railway Co (1867) LR 2 CP 593; Downes v Bank of New Zealand (1895) 13 NZLR 723 at 733; Re Pinto Leite and Nephews [1929] 1 Ch 221 at 233; Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578 at 585. 328 Christie v Taunton, Delmard, Lane & Co [1893] 2 Ch 175 (prior to notice of the assignment the debtor made a call on shares held by the assignor which brought a debt into existence which was not payable until after notice; in the circumstances of the case, the assigned debt became payable prior to the cross-debt, however, the debtor was still allowed to raise the cross-debt against the assignee; however, the debtor was not allowed to set off calls made after notice of the assignment). See also Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 21–2 per Mason J. 329 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.10. 330 See Jeffreys v Agra & Masterman’s Bank (1866) LR 2 Eq 674 at 681 (here is was suggested that the transaction from which the set-off arises must exist prior to the receipt of notice and the set-off will be available if the amount claimed as a set-off is due and payable at the time the assigned debt is due and payable). In Re Pinto Leite and Nephews [1929] 1 Ch 221, the decision in Jeffreys was interpreted as requiring an obligation to pay to exist prior to notice (and for the cross-debt to be payable at the time the assigned debt is payable) rather than merely requiring the contract from which the cross-debt arises to be existing prior to notice. 331 See further R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.10. 332 Bennett v White [1910] 2 KB 643; Tony Lee Motors Ltd v M S MacDonald & Son (1974) Ltd [1981] 2 NZLR 281. Cf the position after notice: see NW Robbie & Co Ltd v Witney Warehouse Co Ltd [1963] 1 WLR 1324 at 1339 per Russell LJ. 327
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raise such liabilities against the assignee if it turns out that the obligation to pay accrues and becomes payable by the assignor by the time the obligor is required to file its defence? There is authority for the view that it is not sufficient simply for there to be in existence (prior to notice) a contract between the assignor and debtor that may give rise to a debt owing by the assignor to the debtor.333 This on its face may be innocent enough, because it could still be said to allow for a set-off to be raised if the debt becomes payable prior to the time a defence has to be filed. The only limit it sets is that the transaction from which the set-off arises must exist and be vested in the obligor prior to notice. This requirement is readily accepted. However, this initial statement can also be construed as suggesting that it is not merely sufficient for the debt to accrue prior to notice, but that it must accrue prior to notice. That is, it requires there to be an accrued obligation to pay even though it does not go so far as to require the debt to be payable at the time of notice. This interpretation carries the weight of authority,334 and would not allow for the obligor to have recourse to what at the time of notice constituted an existing conditional or contingent contractual obligation to perform which had become an unconditional obligation to pay (and which is payable) by the time a defence must be filed.335 In short, it is not sufficient for there to be in place, at the time of notice, a contract from which a debt payable by the assignor to the obligor may accrue. For example, in Watson v Mid Wales Railway Co,336 the assignor assigned a debt to the assignee; however, the assignor was also the tenant of the obligor and this lease was entered into before notice of the assignment was received but after the creation of the debt.
333 Jeffreys v Agra & Masterman’s Bank (1866) LR 2 Eq 674 at 680 and cf at 681. See also the interpretation of this case in Re Pinto Leite and Nephews [1929] 1 Ch 221. See above n 330. 334 Stephens v Venables (No 1) (1862) 30 Beav 625, 54 ER 1032; Watson v Mid Wales Railway Co (1867) LR 2 CP 593; Re China Steamship Co (1869) LR 7 Eq 240 at 243; Re Pinto Leite and Nephews [1929] 1 Ch 221; Christie v Taunton, Delmard, Lane & Co [1893] 2 Ch 175 at 181, 185; Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578 at 585. 335 Moreover, as already noted there is authority for the view that in addition to the necessity of there being an accrued obligation to pay at the time of notice, the cross-debt must be payable by the time the assigned debt is payable: see above n 329. 336 (1867) LR 2 CP 593. See also Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578 (here a charge crystallised upon the appointment of a receiver; at the time of notice of the assignment (to debenture holders) that occurred by virtue of this crystallisation the debtor was owed a sum by the assignor which was payable, and this could be set off against the claim of the assignee; in addition, at the time of notice the assignor was in breach of contract in failing to make a payment under a lease to the debtor; however, the debtor did not exercise an express right to terminate the contract for this breach and perhaps could be said to have elected to affirm the contract despite that breach (cf at 582–3 per Templeman J); later, after notice, the receiver repudiated the lease and the debtor then terminated the lease; this brought into operation a liquidated damages provision which the debtor then sought to set off against claims by the assignee; this set-off was refused; the unconditional right to the liquidated sum arising from the election to terminate accrued after notice but from a contract entered into prior to notice and from which it could be said that a right to such a sum at the time of notice was merely contingent).
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It was held that the obligor could not set off against the assignee rent that accrued after notice of the assignment.337 The correctness of this view has been questioned. Derham suggests that a “set-off should be allowed where there is a possibility of a perception of a form of security in the existence of cross-demands” and that “this should be ascertained by reference to the state of affairs existing when a binding contractual relationship was entered into, as opposed to when a debt arose as a result of that contract”.338 On his view it should be sufficient that there are presently payable cross-debts (arising from contracts entered into prior to notice) at the date of the assignee’s action.339 That is, it is not necessary that the debt exist prior to notice. It certainly appears as if the line drawn in these cases is somewhat arbitrary. It is suggested that there should be only two requirements that need be satisfied: first, the transaction from which the set-off arises must exist and be vested in the obligor prior to notice and, secondly, the cross-debt must be payable prior to the time the obligor must file its defence. This does not go much further than Derham’s suggestion but his formulation introduces the requirement of “a possibility of a perception of a form of security in the existence of cross-demands”. It is quite clearly the case that an assignee may be bound by such a set-off even though they had no idea that an accrued debt against the assignor existed at the time of notice. As has already been noted, the debtor can set off a claim it obtained by way of assignment from a third party. There appears to be no added reprieve from surprise for the assignee by drawing a line that dictates that an assignee may be subject to a set-off for a debt that accrued before notice (and is payable prior to the time a defence has to be filed), but an assignee is not subject to a debt that 337 Marshall makes the point that rent under the lease should have been constantly accruing even though not payable until a fixed time and therefore some partial set-off should have been allowed: see OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 191. However, usually a debt such as rent or wages will accrue only at the end of a period and not constantly during every moment of the period. 338 R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.12. 339 He cites Handley Page Ltd v Commissioners of Customs and Excise and Rockwell Machine Tool Co Ltd [1970] 2 Lloyd’s Rep 459 at 464–5 (in this case A agreed to purchase goods from B; Customs required import deposits to be charged on imported goods; it was agreed that A should accept bills of exchange drawn by B and then B would pay the deposit and A would receive repayments; B then discounted the bills and paid the deposit; later a receiver was appointed to A and the bills were dishonoured; B discharged its liability under the bills and sort repayment of the deposit from Customs; A argued that B was in breach of contract in trying to obtain the deposit from customs and that B could not set off A’s liability for the face value of the bills as it had obtained those bills only after notice of the assignment which occurred upon the appointment of the receiver; it was held that B could assert the set-off on the basis that, when the bill came back to B (after B discharged its liability under the bill— this was always a possibility even though A was the party primarily liable on the bill), the legal position was that B was considered to have never departed with it; perhaps this conclusion is peculiar to bills of exchange; quaere also how strong this authority is as regards the conditional or contingent obligations point being discussed; when a bill of exchange is accepted, although it is not immediately payable, it still encapsulates an unconditional obligation to pay and therefore a debt; however, credit is given as payment is deferred).
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becomes payable before a defence has to be filed, but which did not accrue prior to notice even though it arose from a contract entered into prior to notice. It is difficult to see why a failure to recognise the first of these cross-demands would amount to unconscionable conduct by the assignee but a failure to recognise the latter would not. It clearly cannot be said that it would be unconscionable for the debtor to try to exert the latter. The debtor has no control over whether or not the other party to the contract will assign its rights under the contract and, if such an assignment occurs, it is then totally out of the debtor’s control as to whether he or she will have an accrued debt against the assignor prior to or after notice, or whether he or she will merely have a contract with the assignor from which such a debt may arise. The subject to equities rule must be applied by reference to principle not chance. Ultimately, however, the “subject to equities” rule here is attempting to give effect to the notion that the obligor is to be no worse off by virtue of the assignment, and that the assignee is to be no better off than the assignor at the time of the assignment. When not governed by a strict rule such as the principle of transfer, this is a notion upon which views may differ as regards results. However, the important point is that the guiding legal principle which gives effect to this notion is that of the prevention of unconscionable conduct.340 Finally, something needs to be said about assignments of future property. The question that arises is whether a debtor can raise as a set-off a cross-debt that arose from a transaction entered into after notice of the assignment but before the subject matter of the assignment actually came into existence. In such a case, there is in fact no assignment at the time of notice even though the assignee’s interest prior to the property coming into existence is said to be more than merely contractual.341 The current weight of authority suggests that, so far as formalities are concerned, a notice given prior to the subject property coming into existence, or a notice given while there exists only an agreement to assign, is not good notice.342 If that is right, then, the obligor can continue to have resort to such set-offs arising after the property comes into existence until the time a proper notice is provided. However, it may be questioned whether, for the purposes of the subject to equities rule, the conscience of the obligor should be bound by such a notice even if, for other purposes, the view is taken that such a notice is not sufficient. Again,
340 The idea that unconscionable conduct governs the application of this type of set-off here is also adopted by Derham: see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.03. 341 [4.32]. 342 See Roxburghe v Cox (1881) 17 Ch D 520 at 527 Baggally LJ; Shaw v Foster (1872) LR 5 E Ir App 321; Canadian Admiral Corp Ltd v LF Dommerich & Co Inc (1964) 43 DLR (2d) 1. Compare the views of PR Wood, English and International Set-Off (London, Sweet & Maxwell, 1989) para 16.117 with F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 8.3 at 240. It is also not good notice for the purpose of preserving priority: see Somerset v Cox (1865) 33 Beav 634, 55 ER 514. See also Re Dallas [1904] 2 Ch 385. See further [7.18] and [8.06].
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ultimately this is an issue upon which views may differ because the result is based on what one considers unconscionable. The subject to equities rule can appear harsh as it draws a line as regards the defences that may be raised against the assignee even though, because of the contract or relationship existing between the assignor and obligor, the obligor is bound to continue dealing with the assignor which brings the risk of equities being created that the obligor cannot raise against the assignee. Therefore, where the assignor and debtor enter into a contract and later the assignor agrees to assign an unconditional right to payment under the contract prior to that right unconditionally accruing, that is, an assignment of future property, then the debtor, arguably, should be able to ignore any notice which is received prior to that debt unconditionally accruing. However, where there is an assignment of a right under a contract not yet entered into, then, if the obligor is given advance notice of that assignment, prior to entry into the contract, he or she may be in a better position to control future equities than in the former case, as there may still be the opportunity of not going on with the contract, thus defeating the assignment.343 Where, after assignment but prior to notice, the debtor pays the assignor, this discharges the debtor from all or part of the debt, as the case may be, and the assignee takes subject to this.344 As noted earlier, this is an issue that is relevant only to equitable assignments of legal rights, because in the case of a legal assignment there is no assignment until notice and, in that case, the assignee takes subject to a payment made to the assignor prior to notice by reference to the principle of transfer. However, the principle of transfer does not explain this result where the assignment is effectual prior to notice, and where a payment is made to the assignor. The notion that the assignee takes subject to the “state of account”345 between the assignor and obligor prior to notice best encapsulates the operation of the subject to equities rule here. Moreover, it is suggested that the reason the assignee must take subject to this payment, despite being the beneficial owner of the legal right at the time the payment is made, is that it would be unconscionable to do otherwise. It is within the assignee’s power to give notice, and until it does so 343
See further R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 17.19–17.21. Williams v Sorrell (1799) 4 Ves Jun 389, 31 ER 198; Re Lord Southhampton’s Estate (1880) 16 Ch D 178. See also Dixon v Winch [1900] 1 Ch 736 (here the obligor effectively made the assignor his agent, and since the assignor had notice of the assignment, that notice was imputed to the obligor who then could not take advantage of the rule that the assignee takes subject to payments made to the assignor before notice). See further Stocks v Dobson (1853) 4 De GM & G 11, 43 ER 411; Ord v White (1840) 3 Beav 357, 49 ER 140. It has also been held that where a debtor provides an assignor/creditor with security by way of promisory notes and a collateral mortgage to secure payment on the notes, and where the assignor assigns the mortgage and promisory notes to an assignee who is aware of the circumstances in which the note was given, then if, prior to notice, the debtor continues to pay the assignor the assignee cannot seek separately to enforce the promisory notes but is limited to claiming the amount due as between the debtor and assignor. The result may be different if the notes are without the knowledge of the assignee, severed from the mortgage: see Brennan v Pitt Son & Badgery Ltd (1889) 20 NSWR 179. 345 [8.81]. 344
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the assignor will still appear to the obligor to be the person entitled to payment. To assert otherwise would be to exploit the obligor’s vulnerability to assignment. Similarly, and for the same reasons, if, after the assignment but before notice is received, the assignor releases the debtor from the debt then the assignee takes subject to that release.346 Moreover, an assignee will be bound by any election that the assignor makes as regards its contractual rights prior to notice, and the obligor can raise against the assignee any estoppel it could raise against the assignor if it arose prior to notice.347
(vi) Counterclaims [8.84] Introduction. So far the discussion has focused on defences available to the obligor. It is still necessary to consider the position as regards cross-demands that can be heard in the same proceedings, that is, counterclaims. In such actions, if both the plaintiff and defendant are successful, the court will issue two judgments and then set-off the sums owed under each judgment so that only the balance is payable.348 In the case of a set off, because it operates as a defence, where it is successful, only one judgment will issue for the balance. [8.85] It was noted above,349 that, in Bank of Boston Connecticut v European Grain and Shipping Ltd,350 Lord Brandon351 approved a test for set-off that was earlier formulated by the Privy Council in Government of Newfoundland v Newfoundland Railway Co,352 to the effect that the defendant’s cross-claim must flow out of and be inseparably connected with the dealings and transactions which also give rise to the claim. Judges and commentators353 who have expressed doubts about whether this formulation merely updated the language of the impeachment test have noted that the Newfoundland case was in fact a case dealing with the position between an assignee and obligor, that is, it was an assignment case and not a straight forward
346 Stocks v Dobson (1853) 4 De GM & G 11, 43 ER 411. Cf the position after notice De Pothonier v De Mattos (1858) 27 LJQB 260. In the case of a release, it is necessary in each case to construe the release to determine its extent: see Re Perkins [1898] 2 Ch 182. 347 See Bay of Plenty Electricity Ltd v Natural Gas Corporation Energy Ltd [2002] 1 NZLR 173. 348 McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 62 per Dixon J. In Victoria there is continuing debate whether legislation has done away with the distinction between set-off and counterclaim: see R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 340–4; R Derham, “Set-Off in Victoria” (1999) 73 ALJ 754. 349 [8.64]. 350 [1989] 1 AC 1056. 351 With whom Lords Keith, Oliver, Goff and Jauncey agreed. 352 (1888) 13 App Cas 199. 353 In practice it is difficult to see how it could be argued that this formulation is not broader than the impeachment test: see further R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 333.
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set-off case.354 The suggestion then runs that the rule that an assignee takes subject to the equities is broader in scope than equitable set-off, and the Newfoundland decision should not be seen as a case of equitable set-off or as a case formulating a statement of when an equitable set-off arises. Rather it should be seen as a case formulating a statement of the subject to equities rule as it applies to cross-demands. Thus, in cases where there needs to be a determination of the availability of a substantive equitable set-off, a court may come to an incorrect conclusion if it relies on a “set-off” formulation from a case which was in fact concerned with the subject to equities rule, as it is broader than the impeachment test which governs substantive equitable set-off.355 [8.86] However, to maintain this distinction between equitable set-off and the “subject to equities” rule it is necessary to accept that the Newfoundland test is wide enough to include counterclaims as well as equitable set-offs, so that an assignee must take subject to mere counterclaims arising before or after notice of the assignment if they satisfy the “inseparably connected” test.356 That this is so follows from the argument that if the Newfoundland formulation was not intended to state a test for when a set-off is available and if the formulation there is wider than that governing set-off, then it can only be that it also intended to capture some, if not all, counterclaims. There is nothing else in between set-off and counterclaim for it to be referring to. There is authority and academic opinion that this should be the case and is the case.357 There is also authority and academic opinion that this is not the case and should not be the case.358 354 McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 60 per Dixon J; James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 461–2 per Gummow J; Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578 at 585–6; Roadshow Entertainment Pty Ltd v ACN 053 006 269 Pty Ltd (1997) 42 NSWLR 462 at 482. See also ICF Spry, “Equitable Set-offs” (1969) 43 ALJ 265 at 269; R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 334–7. See further Sun Candies Pty Ltd v Polites [1939] VLR 132 at 135; Re KL Tractors Ltd [1954] VLR 505 at 508; Bayview Quaries Pty Ltd v Castley Development Pty Ltd [1963] VR 445 at 449; Edward Ward & Co v McDougall [1972] VR 433 at 438; Provident Finance Corp Pty Ltd v Hammond [1978] VR 312 at 319–20. 355 Perhaps the most well known of such cases is Hanak v Green [1958] 2 QB 9, where it was held that a defendant was entitled to set off against the plaintiff’s claim for breach of contract for failure properly to carry out certain building work cross-claims for additional work done on the basis of quantum meruit, damages for trespass to tools and damages for preventing the defendant’s workmen completing the work. It has been suggested that only the third ground would give rise to a set-off on the impeachment test: see RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 37.050. 356 It does not appear that this debate is necessarily limited to counterclaims arising before notice. That this would appear to be the case follows from the fact that equitable set-offs are relevant equities whether arising before or after notice, and if the inseparable connection test is at least close to the test for equitable set-off, it too cannot be limited to the position prior to notice. 357 See McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 60 per Dixon J; Provident Finance Corp Pty Ltd v Hammond [1978] VR 312 at 319–20 per Lush J; Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 20 per Mason J; James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 461 per Gummow J; Re Partnership Pacific Securities Ltd [1994] 1 Qd R 410 at 423–4 per Williams J. See also Walker v Department of Social Security (1995) 129 ALR 198 at 210 per Drummond J. See further
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[8.87] Analysis. It is true that the Privy Council in Newfoundland did state that it was considering the question of a counterclaim.359 In that case, the assignor had agreed to build a railway line in five years. Upon the construction and continuous operation of the line, the assignor was to be paid an annual subsidy for 35 years. This subsidy was “to attach in proportionate parts and form part of the assets of the [assignor] as and when each five mile section [was] completed and operated”.360 The assignor was also to be granted a fee simple of 5,000 acres of land for each one mile of railway completed on the completion of each section of five miles. The assignor breached the contract, but only after it had completed a portion of the line and received the proportionate grant of land together with the subsidy. The assignment took place a number of years prior to the breach of contract, and it was assumed the Government/obligor had notice of the assignment.361 The plaintiff assignees sued the government for unpaid subsidies. It was held that the assignee took subject to a claim for damages against the assignor for not completing the line.362 The Privy Council here reached its decision without hesitation, suggesting there was no need to cite authorities “for a conclusion resting on such well-known principles”.363 Nevertheless, two authorities were referred to: Smith v Parkes 364 and Young v Kitchin.365 [8.88] It is in Smith v Parkes that the inseparable connection test is first formulated.366 However, whatever one thinks of this formulation, it is quite clear that Sir John Romily MR concluded that the obligor had a right of equitable set-off. His judgment is not premised on the basis that he thought he had to decide whether an assignee takes subject to counterclaims.367 In Young v Kitchin, the assignee sued for a debt due under a building contract. The obligor sought to set off a claim for damages resulting from the failure of the RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 37.050; ICF Spry, “Equitable Set-offs” (1969) 43 ALJ 265 at 269–70, and see F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 8.2 at 230–2. 358 See D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 26 per Woodward J; Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1987] 1 Lloyd’s Rep 239. See also R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 334–7. 359 (1888) 13 App Cas 199 at 209. 360 Ibid, at 204. 361 Ibid, at 210. 362 This case in fact concerned an instalment contract and the breach related to performance obligations which accrued after the performance by the obligor which earned it the unpaid subsidies. 363 (1888) 13 App Cas 199 at 213. 364 (1852) 16 Beav 115, 51 ER 720. 365 (1878) 3 Ex D 127. 366 (1852) 16 Beav 115 at 119, 51 ER 720 at 722 per Lord Romily. See further Baker v Adam [1908–10] All ER 632 at 637 per Hamilton J; Watson v Mid Wales Railway Co (1867) 2 CP 593 at 598 per Bovill CJ. 367 (1852) 16 Beav 115 at 119–20, 51 ER 720 at 722 per Lord Romily.
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assignor to complete the work on time. The judgment, short though it is (less than one page) is not an easy one and it has probably received far more attention than it deserves. Cleasby B held that the principal question was disposed of “by holding that the defendant was entitled, by way of set-off or deduction from the plaintiff’s claim, to the damages which he has sustained by the non-performance of the contract on the part of the plaintiff’s assignor”.368 This on its own is perhaps equivocal, because it is not clear what he meant by a “deduction from the plaintiff’s claim”.369 If he had referred to a deduction from the plaintiff’s judgment then perhaps that expression could be viewed as referring to a counterclaim. However, the fact that he did not say this does not on its own clearly show that his decision is solely based on set-off. The rest of the judgment concerned the form of the “defence and counterclaim” that was filed and the word “counterclaim” is constantly used in it. The “counterclaim” was in the form of a suit against the assignee, and this clearly could not be correct as the assignee cannot be liable for a breach of contract by the assignor but may take subject to such a claim. This may in fact be a telling point; a counterclaim is not a defence and the subject to equities rule is generally formulated in terms of taking subject to defences and defects in title. It appears odd to suggest that an assignee may take subject to a counterclaim which is merely a procedure to allow an action by way of cross-demand to be brought in the same proceedings, which is offensive in nature and which will result in a judgment against the assignor. Clearly, an assignee can never be liable in respect of a counterclaim. In the case of a set-off, although the assignee is not liable for any claim the obligor has against the assignor, at least the set-off acts as a true defence to the assignee’s claim. In assessing this case, it is important, as Derham has pointed out, to look carefully at the submission put by counsel which was upheld by the court. Counsel for the defendant submitted that “[w]hatever defence might be set up against the assignor may be set up against his assignee, for the assignee cannot be in a better position than his assignor”.370 Given that a counterclaim is not a defence, and given that this was the successful submission, this would suggest that the better interpretation of the case is that Cleasby B was of the view that a true set-off arose on the facts. That is, when the reference to “set-off or deduction” is put in context it would appear that it was solely a finding as to the availability of a set-off.371 Therefore, although some may think that he came to the wrong decision and that 368
(1878) 3 Ex D 127 at 130–1. It has been suggested that this case has been misunderstood and is no more than an example of abatement: see MP Van Der Watt, “The Clarification of Equitable Set-Off” (1998) 72 ALJ 516 at 521. The reference to “deduction” could evidence this. However, it is difficult to see how a failure to complete the work on time would diminish the value of the work in the sense required for abatement. 370 (1878) 3 Ex D 127 at 129; R Derham, “Recent Issues in Relation to Set-Off” (1994) 68 ALJ 331 at 336. 371 See further D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 22; Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1987] 1 Lloyd’s Rep 239 at 253. 369
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the test for a true set-off was not satisfied, this of itself provides no reason for viewing the judgment as authority for an expansive “subject to equities” rule which encompasses counterclaims.372 [8.89] It is therefore suggested that the judgments in Smith v Parkes and Young v Kitchin were concerned with the availability of equitable set-off. It is a separate issue whether or not one agrees with these courts’ formulation and application of the rule governing the availability of equitable set-off. [8.90] Moreover, whatever one may think of the decision in Newfoundland,373 as already noted, the House of Lords in Bank of Boston Connecticut v European Grain and Shipping Ltd 374 interpreted the case as one of set-off, approved the “inseparable connection” test as a test for set-off and, arguably, rejected the view that the obligor may raise against an assignee a claim it has against the assignor even though there is no right of set-off in respect of that claim. In that case an assignee of freight earnings brought an action to recover freight and the charterer sought to set off a claim it had against the owners for loss caused by their repudiation of the contract. The claim for set-off was denied, the Court upholding a long-established rule which prevents cargo owners setting up such defences and requires them to bring a counterclaim. Lord Brandon made a number of important points throughout his speech that should be noted. First, he described the Newfoundland formulation as simply a different version375 of the impeachment test and went on to apply both in his speech.376 372 Cf RP Meagher, JD Heydon and MJ Leeming, Meagher, Gummow and Lehane’s Equity, Doctrines and Remedies (4th edn, Sydney, Butterworths, 2002) para 37.050, and see Re KL Tractors Ltd [1954] VLR 505 at 508 per O’Bryan J. Cf D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 22 per Woodward J. See further Spry who, after referring to the procedural rules of court allowing a defendant to “set-off or set up by way of counter-claim against the claims of the plaintiff any right or claim, whether such set-off or counterclaim sound in damages or not”, writes; “In these circumstances the judgment of Cleasby B in Young v Kitchen in 1878 must be read with great care. What was at issue there was not whether an equitable set-off should be allowed between the original parties to the transactions in question, but rather whether an assignee of a debt or chose in action took it subject to a claim or right which existed against the assignor. The question was accordingly not simply as to the procedure by which the defendant might establish his rights against the plaintiff, but as to the very existence of rights against a plaintiff assignee. In such circumstances equitable considerations might well require protection of the debtor by the issue of an injunction although before the assignment there was no right to an equitable set-off”, ICF Spry, “Equitable Set-offs” (1969) 43 ALJ 265 at 269. 373 See McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 60 per Dixon J (who clearly sees the case as one of counterclaim and not set-off). Cf D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 18 where Woodward J notes that Dixon J appears to have misquoted the passage from Newfoundland which he relied upon as showing that the Court was there dealing with a counterclaim and in fact the passage was contrasting legal and equitable set-off. See further SB Granat, “The Doctrine of Equitable Set-Off” (1965) 5 Melbourne L Rev 76 at 78. 374 [1989] AC 1056 at 1103. See also Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1987] 1 Lloyd’s Rep 239 at 255. 375 [1989] AC 1056 at 1102. 376 Ibid, at 1106.
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Secondly, he referred to a statement made by Lord Simon in Aries Tanker Corp v Total Transport Ltd (The Aries),377 to the effect that the cases on assignment (in particular the Newfoundland case) can be distinguished from other cases of set-off because they are based on a broader principle that an assignee cannot take the benefit of an assignment without assuming the burden because they are inseparably connected, and suggested that Lord Simon was in error in this regard.378 Thirdly, he clearly held that the decision in Newfoundland was based on there being an equitable set-off available.379 Fourthly, he rejected the argument that even though the charterers could not raise a set-off against the owners, they should be able to raise the counterclaim against the assignees on the basis of the subject to equities rule. This argument was based on the Newfoundland decision and, in answering it, Lord Brandon reemphasised that that was a case of equitable set-off. However, his speech is not an unequivocal rejection of the view that an assignee takes subject to counterclaims, because he added that no distinction can be drawn between the rights the obligor has against the assignor and the rights the obligor has against the assignee; here the obligor had no right to counterclaim against the assignor in any case.380 Thus, earlier, in a section of his speech which dealt with the position that would have applied if the action had been between the charterers and the owners, Lord Brandon rejected the argument that the charterers could obtain a procedural setoff by bringing a counterclaim in the same proceedings, obtaining judgment and having that set off against the judgment of the owners. He thought this would be an improper use of the court’s discretion, saying, “for the court to act in the manner suggested would constitute a wrong exercise of its discretion, because it would involve using rules of procedure to bring about a result contrary to the rights of the parties under substantive law”.381 [8.91] Arguably, Lord Brandon’s speech still leaves open the door for an assignee to take subject to a counterclaim that could be brought in the same proceedings as the principal claim. Moreover, clearly this decision does not govern the law in Australia and there has been some dissent from it.382 However, although the cases 377
[1977] 1 WLR 185 at 193. [1989] AC 1056 at 1105–6. See also Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1987] 1 Lloyd’s Rep 239 at 257. 379 [1989] AC 1056 at 1106. 380 Ibid, at 1109–11. 381 [1989] AC 1056 at 1109. However, earlier in his speech, when reviewing the historical rule that prevented the charterer claiming a set-off in such cases, he expressly noted that procedure now exists for the defendant to bring its cross-claim by way of counterclaim in the shipowner’s action: see [1989] AC 1056 at 1099–100. See generally R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 5.02. 382 See James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 461–2 per Gummow J. See also Dixon J’s view of the Newfoundland decision, McDonnell & East Ltd v McGregor (1936) 56 CLR 50 at 60. Cf D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 22 per Woodward J. See also Altarama Ltd v Camp (1980) 5 ACLR 513 at 519 where McLelland J adopts the Newfoundland formulation as a test for set-off. 378
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discussed here may give some cause for concern about how the law of set-off is developing, unless good reasons can be shown why an assignee should take subject to counterclaims, it would not be right to attempt to “fix” set-off by taking advantage of the fact that the principal cases involved assignments, and to explain those cases away on the basis that the “subject to equities” encapsulates counterclaims, and that this is what the cases were really about. In the result there would appear to be no authoritative decision making an assignee subject to a counterclaim. [8.92] Conclusions. The question then arises, putting aside the debate over the abovementioned authorities, whether an assignee should take subject to some counterclaims, whether arising before or after notice of the assignment.383 As has already been mentioned, most classic formulations of the “subject to equities” rule refer to the assignee taking subject to defences and other defects in title. A counterclaim is strictly not a defence; however, it may be argued that it should be a “defence” against an assignee.384 If an assignee is to take subject to such counterclaims then clearly this cannot be explained by reference to the principle of transfer, and, if this was to extend to post-notice counterclaims, it would be the exception to the rule because, as noted earlier, apart from the uncertainty surrounding abatement, the post-notice position appears to be completely explicable on the basis of transfer. Resort could be had to the idea mentioned earlier that an obligor may be worse off in fact by reason of an assignment but not worse off in law.385 From this it may be argued that the assignee need not take subject to counterclaims because, in any 383 It may be noted that under the Unidroit Convention on International Factoring (1988), Art 9, the debtor may raise “all defences arising under [the] contract of which the debtor could have availed itself if such claim had been made by the supplier”. Moreover, the debtor may assert any right of “setoff” in respect of claims existing against the assignor if available to the debtor at the time of notice. Under the United Nations Convention on Assignment of Receivables in International Trade, Art 20, the debtor may raise all “defences and rights of set-off arising from the original contract, or any other contract that was part of the same transaction, of which the debtor could avail itself if such claim were made by the assignor”. Moreover, the “debtor may raise again the assignee any other right of set-off, provided that it was available to the debtor at the time notification of the assignment was received.” The Uniform Commercial Code § 9-404(1) relevantly provides that an assignee takes subject to “all the terms of the contract between the account debtor and assignor and any defence or claim arising therefrom and any other defence of claim of the account debtor against the assignor which accrues before the account debtor receives notification of the assignment”. The UCC provisions, by referring to “claims” arising out of the same contract as the assignment, appear the most likely of these to include counterclaims. Most of the “cliams” referred to would give rise to equitable set-offs, and, if not, would fulfil the “inseparable connection test”. However, the position prior to notice would, if applying to counterclaims, appear to capture all counterclaims. See also Restatement of Contracts 2d (1979), Art 336(2) comment (c). See also, in the context of contracts for the benefit of third parties, the Law Commission’s recommendation not to include counterclaims: see Law Commission for England and Wales, Privity of Contract: Contracts for the Benefit of Third Parties (London, HMSO, 1996) Law Com 242, paras 10.10–10.12. 384 Cf Colonial Bank v European Grain & Shipping Ltd (The Dominique) [1987] 1 Lloyd’s Rep 239. 385 [6.98].
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case, the obligor will still have its right of action against the assignor. Thus, the obligor is not worse off in law. The weakness in this reasoning is that the fact/law distinction is not a means to an end. However, it may be an effect of the operation of the rules of assignment. Thus, the principle of transfer, which is the basis for most of the rules governing the assignment of contractual rights, is directed to the assignor/assignee relationship, and it protects the obligor’s position at law but generally has no regard to the obligor’s position in fact. However, whether or not an assignee takes subject to counterclaims concerns the obligor/assignee relationship, and this is governed by unconscionable conduct. If it is not unconscionable for the assignee to deny counterclaims, then the obligor will not be able to raise them and the law will tolerate the obligor being worse off in fact. However, if that is not the case, then the obligor may raise them and, here, the obligor’s position in fact will be protected as a result of the application of the rules. It is necessary then to ground an explanation on unconscionable conduct, that is, would it amount to an exploitation by the assignee of the obligor’s vulnerability to assignment to deny counterclaims? Arguably, the assignee should not be subject to all counterclaims, and no doubt this is the point that the inseparable connection test seeks to address.386 Oditah has argued that the fairest rule is “one which allows the debtor to set off all his cross-claims based on the contract irrespective of whether they arise before or after notice of assignment”.387 There is perhaps not much difference between these positions. Oditah’s justification is that “in many cases there is no way in which the debtor could have avoided giving effective credit to the assignor short of canceling the contract and possibly exposing himself to damages for breach”.388 This is no doubt true in many cases, and in such cases it may suggest exploitation and perhaps that the assignee should be subject to the counterclaim but have resort against the assignor for allowing such a cross-claim to arise.389 Interestingly it is also said that the notice rule exists to prevent the obligor bringing into existence further cross-claims and enabling him or her to diminish the value of the assigned right: that is, the obligor carries the risk of continuing to deal with the assignor.390 Ultimately, it is suggested that an assignee should not take subject to counterclaims, whether arising before or after notice of the assignment. The reasons for this are, first, that such claims cannot be identified by the principle of transfer, and so far as unconscionability is concerned there is, it is suggested, an important 386 Marshall put forward the notion that an assignee should take subject to counterclaims where the assignee can be fairly “deemed to have notice of the transaction which is the basis of the counterclaim”: see OR Marshall, The Assignment of Choses in Action (London, Pitman & Sons Ltd, 1950) at 184. 387 F Oditah, Legal Aspects of Receivables Financing (London, Sweet & Maxwell, 1991) para 8.3. 388 Ibid. 389 See United Nations Convention on the Assignment of Receivables in International Trade, Art 14(1)(c). 390 R Goode, Legal Problems of Credit and Security (3rd edn, London, Sweet & Maxwell, 2003) at 7.66.
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difference between a claim that can be raised by way of a true defence, albeit a procedural defence, which is based on recognised doctrinal principles and a cross demand that can be brought in the same proceedings as the principal claim merely by virtue of a procedural rule of court that provides a mechanism for hearing claims and cross-demands in the one proceeding, and which in any case results in two distinct judgments being made. It is difficult to see how the latter can be viewed as an exploitation by the assignee of the obligor’s vulnerability to assignment.
(e) Successive Assignments [8.93] Introduction. The operation of the “subject to equities” rule in the case of successive assignments is not without difficulty. The typical factual situation is where creditor A assigns a debt to B who then assigns it to C. In an action by C to enforce the debt, can the debtor raise equities it may have against A and B? [8.94] Equities against the original assignor. There is authority for the view that an ultimate assignee takes only subject to the equities existing against the original assignor, so that “equities” does not include claims the debtor may have against intermediate assignees.391 Putting aside the issue of intermediate assignees, it must be right that the debtor can raise equities existing against the original assignor. If the assignments between A, B and C consist of a series of legal assignments of a debt, then, although C’s title is derived from B’s, the subject matter of the assignment is still the right to the promise made by the debtor to A because this is the “thing” that is actually assigned. C then must be subject to equities that exist between A and the debtor. This follows as a matter of course in respect of those “equities” which are identified by reference to the principle of transfer, as these will affect the right assigned no matter how many hands it goes through. However, it must also be that the ultimate assignee takes subject to those equities arising prior to the debtor receiving notice.392 391 The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 108–9 per Dixon J; Banco Central SA and Trevelan Navigation Inc v Lingoss & Falce Ltd and BFI Line Ltd (The Raven) [1980] 2 Lloyd’s Rep 266 at 273 per Parker J. Cf Cavendish v Geaves (1857) 24 Beav 163, 53 ER 319 and E Pellas & Co v The Neptune Marine Insurance Co (1879) 5 CPD 34 at 39 per Bramwell LJ. See also Unidroit Convention on International Factoring (1988), Art 11. 392 If no notice of the first assignment is received, or is received only after notice of the second assignment, it may be that the prior notice of the second assignment should be sufficient to prevent further equities arising as the regards the first assignee. This can be the case only if the notice clearly evidences the first assignment and identifies the property assigned. If it does not, it is likely then to refer only to parties unknown to the debtor and lead to confusion; in such a case it cannot bind the conscience of the debtor as regards either assignment.
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If the assignment from A to B is legal but the assignment from B to C is equitable, then C, in terms of subject matter, will be the beneficial owner of a debt that was promised by the debtor to A. Although, C’s title will be derived from B, who is now the legal owner of the debt, C must still be subject to equities that exist between the debtor and A where C is seeking to enforce that legal right. Where the assignment from A to B is equitable and the assignment from B to C is equitable then (assuming the assignment from B to C was of B’s entire equitable interest), again, C will be the beneficial owner of a debt which is a right to an obligation promised by the debtor to A, and therefore C must be subject to equities existing between the debtor and A. Where C, as an equitable assignee, is merely seeking an equitable remedy to enforce its equitable right, for example, if it is enforcing the debt in equity, it will then bring an action against the debtor in its own right. Nevertheless, the result must be the same. That is, although C is enforcing its equitable title as equitable creditor, it is still enforcing its title to a right which consists of an obligation promised to A. [8.95] Equities against intermediate assignees. The issue here is whether or not the debtor can raise against C any equities it may have against B arising before or after notice of the assignment to C. As already noted, there is authority for the view that the ultimate assignee never takes subject to equities existing against an intermediate assignee. Clearly, the intermediate assignee can assign only a right equivalent to that which he or she has. Therefore, if, prior to receiving notice of the second assignment, the obligor and intermediate assignee enter into an agreement to reduce the debt owed, or if part of the debt is paid, the second assignee must take subject to this.393 This is a straightforward application of the principle of transfer. The ultimate assignee derives its title from the intermediate assignee and therefore can obtain only that which the intermediate assignee has to transfer. That is, all defects in title are transmitted.394 It is unlikely that the ultimate assignee would have to concern itself with the possible discharge or rescission of the contract by reason of an act of the intermediate assignee, as the obligation to perform will lie with the first assignor and the first assignor will also be the person responsible as regards any vitiating factor. However, in the rare case of an assignment of a contractual duty, the issue of discharge for breach by the intermediate assignee may be raised, and it would be an equity affecting title, and therefore the ultimate assignee would take subject to it. Moreover, if (in the unlikely event) the debtor did have a claim for an equitable set-off against the intermediate assignee, given that this amounts to a defect in title of that assignee, then the ultimate assignee should also take 393 394
The Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 108–9 per Dixon J. Ibid, at 109–10, 112 per Dixon J.
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The Position of the Parties
subject to this.395 Usually, however, unless the claim can be identified by reference to the principle of transfer, claims arising against the intermediate assignee after notice of the second assignment cannot be raised against the ultimate assignment. The ground left is where the liability of the intermediate assignee arises prior to notice being given to the debtor of the second assignment, and where the equity is one that is identified by reference to unconscionable conduct. Doctrinally, where the intermediate and ultimate assignees of a legal interest both take under equitable assignments, then, if the ultimate assignee wishes to enforce the legal debt, that is, enforce legal rights, it will be enforcing the legal rights of the original assignor and not the intermediate assignee. If that is the case, the result, doctrinally, would be that the debtor could not raise against the ultimate assignee a claim it had against the first assignee.396 Clearly, as regards statutory set-off, mutuality would be missing. However, and to reiterate, it is suggested that this does not apply where the equity against the intermediate assignee relates to a defect in title of that intermediate assignee (which was not a defect in title of the assignor), because here the ultimate assignee derives its beneficial title subject to that defect and cannot circumvent this by arguing that it is merely enforcing the legal rights of the original assignor. Its beneficial title in that case may be something less that the equitable equivalent of the legal right as vested in the assignor. However, where the ultimate assignee of a legal interest takes under an equitable assignment and the intermediate assignee takes under a legal assignment, then, although in terms of characterising the subject matter of the assignment it is identified (in the example being discussed) as a right to an obligation promised by the debtor to the assignor, the second assignee will be enforcing the rights of the intermediate assignee and not the assignor. Thus, the legal assignment to B would result in the debt being owned and legally owed to B. When B assigns that chose in action to C, then, although C will still obtain the beneficial ownership of a debt which keeps its character as a promise made by the debtor to A, B will nevertheless be passing on its ownership of that same chose in action. C’s beneficial title is 395 It is important to keep in mind that for the debtor to raise an equity based on the principle of transfer, it must affect the chose in action vested in the first assignee. The debtor generally cannot raise some defect in the contract of assignment between the assignor and first assignee: see The Southern National Trust Ltd v Pither (1937) 57 CLR 89 at 102 per Latham CJ, nor can the obligor raise some right of the assignor’s that exists in the contract of assignment: see Gatoil Anstalt v Omennial Ltd (The Balder London) [1980] 2 Lloyd’s Rep 489. Note, however, at 103 Latham CJ goes on to state that “the rule (in its strict sense) that an assignee of a chose in action takes subject to equities refers only to equities affecting the debt, and not to equities affecting intermediate assignments of the debt”. This is no doubt correct; the debtor cannot generally raise issues affecting a contract of assignment to which it is not a party. However, this formulation leaves out the possibility of the intermediate assignee’s title being defective and that defect arising after the assignment to that assignee. Here the debtor is not attacking the contract of assignment, but the character of the chose in action as it stands vested in the intermediate assignee. 396 Re Milan Tramways Co (1884) 25 Ch D 587 at 593 per Cotton LJ; The Southern National Trust Ltd v Pither (1937) 57 CLR 89 at 108–9 per Dixon J. See further R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 17.47–17.48.
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Insolvency
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derived from B’s ownership of the chose in action, and not simply A’s ownership. Therefore, one would expect that the second assignee must then take subject to all the equities the obligor has against the intermediate assignee where they arise prior to notice of the second assignment.397 However, the case law is against this proposition, and takes the view that the fact that the assignment is a legal assignment makes no difference to the application of principle, namely that equities existing against intermediate assignees cannot be raised against ultimate assignees.398 It is suggested, however, that the result of these cases can be upheld only by adopting a procedural view of the statutory regime which has been rejected in this dissertation.399
(f) Insolvency 400 [8.96] Insolvency of the assignor. Where a debt is assigned prior to the insolvency of the assignor and is not set aside for any reason, then the assignee, in enforcing the assigned right against the debtor is not subject to the automatic set-off regimes that exist under bankruptcy and insolvency legislation.401 This result follows whether the assignment is legal or equitable. There also remains the possibility that the debtor could lose a set-off against the assignee if the assignor is discharged from bankruptcy prior to the assignee enforcing its rights against the debtor.402 That is, because the assignor is released from the debtor’s claim, the debtor cannot raise it in an action brought by the assignee. [8.97] Insolvency of the assignee. The insolvency of the assignee does not impact on the operation of the subject to equities rule; that is, it does not make a wider range of defences available to the debtor by reason of the insolvency set-off regime that will apply to the assignee. However, the debtor will have the advantage of that regime as regards direct claims it has against the assignee.
397
See further ibid, para 17.48. Re Milan Tramways Co (1884) 25 Ch D 587 at 593 per Cotton LJ; The Southern National Trust Ltd v Pither (1937) 57 CLR 89 at 109 per Dixon J. 399 See generally ch 5. 400 See also R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 6.58–6.64. 401 Re Asphaltic Wood Pavement Co (1885) 30 Ch D 216 at 225; Re City Life Assurance Co Ltd [1926] 1 Ch 191 at 216; Hiley v The Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468 at 501–5. For a critique of this position: see A Tettenborn, “Assignees, Equities and Cross-Claims: Principle and Confusion” [2002] LMCLQ 485 at 492–3. 402 See R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) para 17.29; PR Wood, English and International Set-off (London, Sweet & Maxwell, 1989) at 894–5. 398
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[8.98] Insolvency of the debtor. Upon the insolvency of the debtor, any action by the assignee requires leave of the court.403 Therefore, unless leave is given, issues of set-off are unlikely to arise. Moreover, the operation of the statutory insolvency set-off regimes does not, upon the insolvency of the debtor, increase the crossclaims available to the debtor against the assignee as there is a lack of mutuality. If a claim proceeds against the debtor, the debtor will need to show that a substantive equitable set-off is available or a set-off under the statutes of set-off.404 Moreover, where the assignee lodges a proof of debt the debtor’s trustee can rely on a substantive equitable set-off. In addition, arguably, where a debt is owed by the assignor to the debtor prior to notice of the assignment, the debtor’s trustee should be able to assert such a set-off when the assignee lodges a proof of debt even though this would not be in the context of defending an action.405
(g) Controlling the Discretion of the Obligor [8.99] The obligor’s ability to raise a set-off against either the assignor or the assignee. An assignor may be owed two debts by the one debtor and may assign one of those debts, or he or she may assign both of them but to different assignees. If the debtor has a right of set-off against the assignor, the question arises whether the debtor must exercise the set-off against the assignor rather than the assignee, and if both debts are assigned and the set-off is exercised against one assignee whether that assignee can claim contribution against the other. Currently, the weight of authority dictates that the doctrine of marshalling operates here, with the result that if the assignor retains a debt the set-off must first be exercised against that debt, and if both debts are assigned the set-off operates ratably between them.406 The notion that the correct doctrine to apply here is that of marshalling has been convincingly criticised by Derham.407 Marshalling would not stop the debtor from having recourse to any debt he or she chose. Generally, marshalling allows a claimant who has a right of recourse against more than one 403 See Insolvency Act 1986 (UK) ss130(2) and 285(3); Corporations Act (Cth) s471B, Bankruptcy Act 1966 (Cth) s58(3). 404 For a discussion as to whether it is possible for a debtor to assert a substantive equitable set-off which is not captured by the insolvency set-off regimes see R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 6.16–6.20, 17.31. 405 See ibid, para 17.31. 406 See Moxon v The Berkeley Mutual Benefit Building Society (1890) 62 LT 250; Smit Tak International Zeesleepen Bergingsbedrijf BV v Selco Salvage Ltd [1988] 2 Lloyd’s Rep 398. See also Cavendish v Geaves (1857) 24 Beav 163, 53 ER 319, although this case does not refer to the doctrine of marshalling to achieve this result; see further the discussion of this case by Derham: see R Derham, “Set-Off Against and Assignee: The Relevance of Marshalling, Contribution and Subrogation” (1991) 107 LQR 126 at 135–6. 407 See also the discussion in Re Crothers [1930] VLR 49 at 60–4.
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Controlling the Discretion of the Obligor
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fund to have recourse to any fund he or she chooses. However, if that claimant chooses to have recourse to the only fund that the second claimant could have had recourse to then the second claimant is subrogated to the position of the first claimant in respect of the other remaining fund in order to enforce the second claimant’s rights.408 Moreover, in the case of an assignment of a debt, any defence the debtor may have against the assignor and which is raised to defend any action brought by the assignee is unlikely ever to involve the debtor having recourse to more than one fund in respect of the same right, which is the natural home of the doctrine of marshalling. The debtor merely has a defence against the assignor and that defence is used to defend a claim made by the assignee. There is nothing left for the assignee to take over by way of subrogation.409 Nevertheless, putting aside any agreed position between the parties, there can be little doubt about the correct result, namely, where the debtor’s cross-claim against each debt is based on the same right, such as a right of set-off,410 then in the case of an assignment of one debt the set-off should be asserted against the assignor or the assignor should indemnify the relevant assignee (or the assignee should be subrogated to the position of the assignor to enforce the second debt), and if both debts are assigned the assignee subject to the set-off should be able to claim contribution against the other assignee (or by virtue of subrogation obtain a rateable proportion of the second assignee’s debt).
408 R Derham, “Set-Off Against and Assignee: The Relevance of Marshalling, Contribution and Subrogation” (1991) 107 LQR 126 at 134–5; R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 17.51–17.52. 409 R Derham, “Set-Off Against and Assignee: The Relevance of Marshalling, Contribution and Subrogation” (1991) 107 LQR 126 at 134–5; R Derham, Set-Off (3rd edn, Oxford, OUP, 2003) paras 17.51–17.52. 410 Webb v Smith (1885) 30 Ch D 192.
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INDEX
Abatement 8.72–8.79 Abstract rights 6.10, 6.20 Acknowledgement 2.13 Agreements not to raise equities 8.26 Arbitration, see Choses in action Assignee, see also, Subject to equities rule agreements not to raise equities, benefit of 8.26 assignor liability to 8.04 rights against 8.04, 8.05 enforcement of assigned right ability to call for performance 8.07 basis of 3.21 doctrinal basis for enforcement 3.21–3.26 guarantees 8.24 insurance proceeds 8.25 specific performance 8.07 strength of assigned right 8.27–8.30 identification of 1.01 obligor damages, liability for 8.08–8.23 equitable remedies against 8.07, 8.16–8.23 relationship with 1.02, 1.03, 8.38, 8.31 ownership of assigned right, nature of 3.10 rights, whether subject to variation by obligor 8.38–8.48 Assignment, see also Transfer, Equitable assignments and Legal assignments alienation distinguished 3.05n burdens, see Burdens charge, by way of 3.17, 4.27 charge distinguished 3.17 companies, circumvention of assignment rules by 6.73 conditional, contingent and unconditional contractual rights 6.21–6.47 declarations of trust distinguished 3.18 definition provisions, and 6.71 division of rights 6.48–6.49 fractional 6.48–6.49 fruits, assignment of 6.33 rights to, assignment of 6.34–6.47 future interests 4.30–4.33 see also Future interests history of, see Choses in action institutional meaning of 3.05 meaning of 3.04, 3.05 negotiation distinguished 3.13 nominations distinguished 3.07 novation distinguished 3.06
outright assignments 3.15–3.16 security assignments distinguished 3.15–3.16 partial assignments of debts and choses in action 4.26–4.29, 6.48–6.49 choses in action 4.28 debts 4.27 parties to a contract, assignment between 6.14 privity of contract and 3.10, 3.27 property model of assignment, nature of 3.20 remedial model of 3.24 rights model of 3.21, 3.26 rules of 1.01, 1.03 sale assignments 3.15–3.16 security assignments distinguished 3.15–3.16 sale of goods and land distinguished 3.05 security assignment 3.15–3.16 outright assignments distinguished 3.15–3.16 separation of contractual rights 6.48, 6.50 vicarious performance and 3.08 Assignor assignee, liability to 8.04, 8.05 cause of action commencement of 8.03 retention of 4.05, 8.03 identification of 1.01 obligor liability to 8.03 rights against 8.03 Bankruptcy and insolvency impact on assignability of rights 6.15 maintenance, and 6.67 subject to equities rule and 8.96–8.98 Bills of exchange assignment and 2.12n Bona fide purchaser rule, relevance to assignment 8.58 Burdens, Assignment of 6.101–6.135 assignment of conditional rights distinguished 6.101 conditional assignments distinguished 6.101 ‘conditional benefit’ principle 6.104 examples of 6.116–6.123 explanation of 6.105, 6.110–6.115 limitations of 6.106
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474
Index
Burdens, Assignment of (cont.): ‘conditional benefit’ principle (cont.): requirement that burden be relevant to exercise of right 6.124–6.130 requirement that burden define right 6.109 restrictive covenants distinguished 6.107 status of 6.108 ‘pure principle of benefit and burden’ 6.132–6.135 rule prohibiting assignment of contractual burdens or obligations 6.101 transfer and 6.102 Champerty, see Public Policy Charges assignment and charges used in conjunction 3.17n assignment by way of charge and charge by way of assignment 3.17, 4.27 assignment distinguished 3.17 enforcement 3.17 fixed and floating charges 3.17n 6.56 interest created by 3.17 meaning 3.17 mortgage distinguished 3.17n nature of 3.17 partial assignment and 4.27 requirements for 3.17 transfer and 3.17 Choses in action abstract rights, and 6.09 assignment, history of 2.07–2.18 acknowledgement 2.13 common law, approach of 2.12, 2.12, 2.17 crown, assignment by and to 2.10 equity, approach of 2.16 legal assignment 2.17 maintenance and champerty, relevance of 2.09 negotiable instruments 2.12 powers of attorney, use of 2.14 bank accounts 6.37n choses in possession, distinguished 2.04 conditional and contingent debts as 2.02n contractual rights as 6.04–6.13 arbitration provisions 6.08 contracts for the benefit of third parties 6.13 damages, right to 6.06 indemnities 6.08 options 6.08 performance, right to 6.07 pre-emption, rights of 6.08 rectification, right to 6.09–6.10 rescission, right to 6.09–6.10 restraint of trade 6.08 terminate, right to 6.11 utmost good faith, duty of 6.12 debts as 2.02, 6.05 definitions 2.05 documentary intangibles as 2.03
equitable choses in action 2.02 history of 2.02–2.06 identification of 7.12 legal choses in action 2.02 meaning of 2.02, 2.05 personal choses in action 2.02, personal nature of 2.08 possession, rights to recover as 2.02 property and 2.05 assignment, relevance of 2.06, 3.19 basis of property model of assignment 3.20 real choses in action 2.02 Contractual rights, see also Choses in Action, Personal Contractual Rights benefit of contract and contractual rights distinguished 1.01n conditional, contingent and unconditional contractual rights 6.21, 6.44 fruits, distinguished from 6.33 rights to fruits distinguished 6.34–6.35 fruits, rights to as contractual rights 6.34 identification of 7.14 property rights as 3.20 property for the purposes of transfer, contractual rights as, limitations of 6.14 rights to performance, meaning and existence of 3.10 rules governing assignment of 1.01 doctrinal basis for rules 1.03 things, as 3.10 Counterclaims 8.84–8.92 Crown assignments to and from 2.12 Damages assessment of assignee’s claim against obligor 8.08–8.23 Debts actions for, nature of 2.10 enforcement 6.54 judgment debts 6.55 proceeds distinguished 6.56 property and 3.10n separation from rights to performance, 6.54 Declarations of trust assignment distinguished 3.18 equitable interests, trusts over 7.29 legal interests, trusts over 7.22 prohibitions on assignment and 6.90 Delegation, see Vicarious performance Disclaimer assignee, right to disclaim 7.31 Division of contractual rights, 6.48–6.49 capital and interest under loans 6.49 Equitable assignments, see also Formalities common law and 2.16 efficacy of 3.21 remedies, relevance of availability 3.23–3.26 equitable interests 4.03 joinder 4.03 future interests 4.30–4.33
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Index bankruptcy, and 6.15 legal interests assignable at law 4.04–4.25 assignment analysis 4.07–4.09 contract analysis 4.05–4.06 joinder, requirement of 4.10–4.18, 4.21–4.25 nature of 4.03–4.09 not assignable at law 4.26–4.29 notice, requirement and purpose of 4.10–4.20, 7.18 partial assignments 4.26–4.29, 6.48–6.49, 7.23 trust analysis 4.07n transfer and 3.11, 4.03–4.09 relation back of assignment 4.33, 7.15n Equitable charges, see Charges Equitable interests 6.09–6.10 equities and mere equities distinguished 6.09–6.10 Formalities of assignment declaration of trust over legal interests 7.22 equitable assignments of equitable interests 7.24–7.33 agreements to assign 7.28 assignment 7.27 declaration of trust 7.29 direction to trustee 7.30 disclaimer 7.31 nomination 7.33 release 7.32 writing requirements 7.26 equitable assignments of legal interests 7.15–7.23 assignable at law 7.19–7.21 agreements to assign 7.15, 7.16, 7.17 conditional and contingent assignments 7.16 consideration, requirement of 7.15, 7.16, 7.17, 7.19, 7.44 immediate assignments 7.15, 7.19 not assignable at law 7.23 notice to assignee 7.18 notice of obligor 7.18 notice requirements of 7.18 relation back 4.33, 7.15n specific performance, relevance of 7.16, 7.44 trusts, assignments given effect to by way of 7.17 voluntary assignments 7.15, 7.20–7.21 writing requirements 7.18 future contractual rights 7.44 intention to assign 3.04, 3.14, 7.03–7.10, communication requirement of 7.06 course of dealing, relevance of 7.09 declarations of trust distinguished 3.18 direction to pay and 7.07 equitable assignments 7.18 equitable charges distinguished 3.17 evidence of intention 7.07, 7.08–7.10 executed consideration, relevance of 7.10
475
extrinsic evidence, relevance of 7.09 fact, question of 7.05 form of assignment and 7.07 intention of legally assign 4.22 7.15, 7.19 legal assignments 7.35 matrix of facts, relevance of 7.09 revocable mandate distinguished 7.04 type of intention required 7.04, 7.07 legal assignment of choses in action absolute assignment, need for 7.39–7.41 conditional assignments 7.40 consideration, requirement of 7.36 intention to assign 7.35 notice, requirement and contents of 7.38 security assignments 7.41 statutory provisions, content of 5.03 ‘under hand’, requirement of 7.37 writing requirements 7.37 subject matter, identification of 7.11–7.14 choses in action and 7.12 common law approach to 7.11 contractual rights 7.14 equitable approach to 7.11 equitable assignments 7.18 future property 7.13 requirement of identification 7.11 Fractional assignment, see Partial assignment Future interests, see also Equitable Assignment and Formalities bankruptcy, effect on assignability 6.15 conditional, contingent and unconditional contractual rights as 6.21–6.47 equitable assignment, and 4.30–4.33 formalities 7.44 identification of 7.13 present property distinguished 6.17–6.20 Guarantees assignment of, 6.100 guarantees that touch and concern land, 6.100n necessity of assigning the benefit of principal contract, 6.76, 6.100 bank guarantees 6.86n enforcement by assignee, 8.24 limited class of assignee 6.76 nature of guarantees, 6.100 novation of, 6.100n variation of obligation, 6.100 Indemnities, see also Insurance contracts assignment of 6.08, 6.73 public policy and 6.59 costs, indemnities as to 4.05, 6.59 guarantees distinguished 6.100n nature 6.100 Insolvency, see Bankruptcy Insurance contracts assignment of 6.76 burdens, assignment of 6.118 formalities 7.01, 7.34 insurable interest, need for 6.76 limited class of assignee 6.76
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476
Index
Insurance contracts (cont.): necessity of transferring the insured property 6.76 personal right and 6.73 proceeds, assignee’s right to, 8.25 security over, nature of 6.12 utmost good faith, assignability of right to 6.12 variation of obligation and assignment of 6.95 Intention to assign, see Formalities Judicature Act 2.11, 2.17, 4.09, 4.11n, 4.23–4.25, 5.01, 5.04, 5.05, 5.11, 5.12, 5.17, 5.19, 5.20, 5.27, 7.34, 7.40n Legal Assignment, see also Formalities priorities and 5.22–5.26 procedural nature of 5.04–5.05 statutory provisions, content of 5.03 substantive nature of 5.06–5.21 Letters of Credit 3.10n Maintenance, see Public Policy Marshalling 8.99 Negotiability, transfer distinguished 3.13 Nemo dat rule 1.02, 1.01 exceptions to 3.12 multiple assignment and 3.12 negotiability and 3.13 priorities and 6.47 rules of assignment, and 1.03 statement of rule 3.12 Nomination provisions assignment distinguished 3.07, 7.33 effect of 3.07 Notice of assignment, see Equitable assignment and Formalities Novation assignment distinguished 3.06 effect of 3.06 meaning, 3.06 Obligations, see also Burdens, Personal contractual obligations assignment of 1.03 variation of 6.93–6.100 construction, relevance of 6.99 guarantees 6.100 liability and 6.97 nemo dat rule, and 1.03 non-variation rule of assignment 6.93 transfer and 6.94 variation in fact and variation in law 6.98 vicarious performance of 6.77 Obligor agreements not to raise equities, effect of 8.26 assignee liability to 8.04, 8.08–8.23 relationship with 1.02, 1.03, 8.38, 8.31 restitution from 8.32–8.37
rights against 8.31–8.83, see also Subject to equities assignor liability to 8.03 rights against 8.03 controlling the discretion of 8.99 discharge 8.03, 8.06 identification of 1.01 Options, see Choses in action prohibitions and 6.88 Partial assignments 4.26–4.29, 6.48–6.49, 7.23 formalities 7.23 legal assignment in Western Australia 7.39 Personal contractual obligations attendance and supervision, relevance of 6.79 confidence, relevance of 6.79 co-operation, relevance of 6.79 factors determining whether obligation personal 6.79 inherently personal obligations 6.78 limited class of delegatees 6.80 nature of services or product, relevance of 6.79 personal obligations rule 6.68, 6.77 construction and 6.77, 6.78, 6.79 repudiation, and 6.81 reputation, relevance of 6.79 skill, taste, judgment or expertise, relevance of 6.79 termination and 6.81 term of contract, relevance of 6.79 vicarious performance of 6.77 Personal contractual rights, see also Prohibitions on assignment building contracts 6.73 confidence, relevance of 6.73 credit contracts 6.73 definitions provisions, use of 6.71 dispute resolution, relevance of 6.73 employment contracts 6.73 factors determining whether right personal 6.73 inherently personal rights 6.72 insurance and indemnity contracts 6.73, 6.76 see also Insurance contracts and Indemnities limited class of assignees 6.76 nemo dat rule, and 1.03 personal rights rule 6.68 companies and 6.74 construction and 6.70, 6.72, 6.73 intention and 6.69 legitimacy of rule 6.75 publishing contracts 6.73, 6.74 obligations, relevance of 6.73 sale contracts 6.73 share farming agreement 6.73 skill, taste, judgment or expertise, relevance of 6.73 supply contracts 6.73
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Index term of contract, relevance of 6.73 transfer and 1.03, 6.75, 6.91, 6.92 Privity of contract assignment distinguished 3.10, 3.27 Prohibitions on assignment benefit of 6.89 contractual nature of 6.83 declarations of trust and 6.90 doctrinal explanation of 6.83, 6.89 efficacy of 6.84, see also legal effect Australia 6.84 England 6.84 enforcement of 6.89 form 6.87 approval clauses 6.87n consent clauses 6.87 forfeiture clauses 6.87 prohibitions 6.87, see also legal effect promises not to assign 6.87, see also legal effect termination clauses 6.87 intention, relevance of 6.83 legal effect 6.88 meaning of 6.87 equitable assignment 6.87 legal assignments 6.87 novation 6.87 subcontracting 6.87 personal rights rule, relation with 6.86, 6.88 proprietary nature of 6.83 public policy limitations 6.86 accrued rights 6.86 debts 6.86 fruits 6.86 performance rights 6.86 security 6.86 restraints on alienation and 6.85 transfer and 6.89, 6.91, 6.92 tri-partite classification of terms, relevance of 6.88 Property access theory of 3.20 assignee’s right, enforcement, relevance of property 3.21–3.26 bundle of rights theory 3.11 causative events 3.20 exclusion theory of 3.20 model of assignment 1.05, 3.19 requirement of property right for the purposes of assignment 3.19–3.26 Public Policy champerty, see maintenance meaning of 6.59 maintenance abuse of process and 6.59, 6.66 access to justice and 6.59 assignment and 6.59, 6.60 bare cause of action, meaning 6.59 charity and 6.59 choses in action and 2.09 common interests and 6.59 family ties and 6.59
477 ‘genuine and substantial interest’ 6.61–6.62, 6.65 ‘genuine commercial interest’ 6.61–6.62, 6.65 liability for costs, relevance of 6.63 meaning of 6.59 motivation for assignment and 6.64 pensions, assignment of 6.58 restriction on assignment 6.58 salary, assignment of 6.58 trustees in bankruptcy and 6.67
Releases 7.32 Restitution conditional and unconditional contractual rights and 6.24–6.31 obligor’s right to restitution from assignee 8.32–8.37 Restrictions on Assignment, see Burdens, Obligations, Personal Contractual Rights, Prohibitions on Assignment and Public Policy, Revocable mandates, see Formalities Rules of assignment 1.01 doctrinal explanation of rules 1.03 Security absolute assignments by way of security 7.41 outright and sale assignments distinguished 3.15–3.16 redemption 3.11n valuation, effect on 3.11n Separation of contractual rights 6.48, 6.50 damages, right to 6.51–6.53 debts 6.54 proceeds distinguished 6.56 distinct existence, rights having a 6.50 leases and options to purchase 6.50 Set-off bankruptcy and insolvency set-off 8.96–8.98 statutory set-off 8.83 substantive equitable set-off 8.64–8.70 Subject to equities rule bona fide purchaser rule, relevance of 8.58 counterclaims, whether assignee subject to 8.84–8.92 equities the assignee takes subject to only if arising prior to notice 8.81 explanation for rule 8.81 payment of debt 8.83 release of obligation 8.83 statutory set-off 8.83 unconscionable conduct, relevance of 8.81 equities the assignee takes subject to regardless of notice abatement 8.72–8.79 contractual set-off 8.71 discharge of contract 8.61 illegality 8.63 rectification 8.80 rescission of contract 8.62 substantive equitable set-off 8.64–8.70
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Index
Subject to equities rule (cont.): equities the assignee takes subject to regardless of notice (cont.): transfer and 8.59, 8.67–8.69 explanation of rule 8.57 extent of rule 8.55 historical basis of rule 8.52–8.53 insolvency, impact of 8.96–8.98 assignee, insolvency of 8.97 assignor, insolvency of 8.96 debtor, insolvency of 8.98 nature of rule 8.49–8.56 obligor, relevance of conduct to operation of rule 8.60 successive assignments 8.93–8.95 intermediate assignee, equities against 8.95 original assignor, equities against 8.94 Subrogation assignment distinguished 3.10n Transfer actual transfers of choses in action 3.10, 6.83 assignment as 3.04, 3.09 bank transfers 3.10n burdens, assignment of 6.102 charge and 3.17 contract formation as 3.11n creation forms of transfer 3.11 dispositions and 3.11 electronic funds transfers 3.10n equitable assignments and 3.11 4.03–4.09 extinction and creation forms of transfer 3.10 feeding title 6.46
implication of actual transfer analysis 3.10 legal meaning of 3.10 negotiation and 3.13 nemo dat rule and 3.12 personal contractual rights and 1.03, 6.75, 6.91, 6.92 principle of 1.02 prohibitions on assignment and 6.89, 6.91, 6.92 rules of assignment 1.01 doctrinal explanation of rules 1.03 thesis 1.02, 1.03 title transfers 3.10 variation of rights and 8.38–8.48 variation of obligations and 6.94 Trusts agreement to assign equitable interests and 7.28 assignment distinguished 3.18 declaration of trust over legal interests 7.22 prohibition on assignment and 6.90 trust analysis of assignment 4.07n Variation of obligations, see Obligations Variation of assigned rights transfer, principle of, allowing for variation after notice 8.38–8.48 accrued rights 8.44–8.48 unaccrued rights 8.39–8.43 Vicarious performance, see also Obligations and Personal Obligations assignment distinguished 3.08 discharge of promisee by 3.08