The Law of Property Act 1925 (LPA 1925) was enacted 99 years ago in April 1925. A few years before the first commercial radio and telephone service. Historians might argue about the comparative economic and social significance, and value, of the ability to assign debts and/or the right to sue now and then. No one could argue that the form and content of commercial documentation and communications has not changed dramatically in those 99 years. Yet the wording of s 136(1) of the LPA 1925 has not changed at all. Electronic communications are now the norm in the commercial world. They have brought with them less formality and less time to think than pen and paper afforded us in the past. This article focuses principally on how we should understand that 1925 provision today in order to ensure valid, legal (or statutory) assignments that bind the debtor, or third parties are effected. This article is confined to the legal position in England and Wales.
Debts or other choses in action (intangibles) were not assignable at common law. As is so often the case equity intervened and where equity intervened statute followed. A general ability to assign such assets and interests was first introduced in 1873. Since 1 January 1926 there have been two ways to assign debts and choses in action: a legal or statutory assignment under s 136 of the LPA 1925 or an assignment taking effect in equity. Equitable assignments may arise because that is what the parties intended or had to do or because, although they intended to effect a legal assignment it was defective.
SECTION 136 LPA 1925
The advantage of a legal assignment is that there is no need to consider whether it is necessary to sue in the name of the assignor or join the assignor to any proceedings to enforce the assigned debt or chose in action. It follows compliance with s 136 streamlines the business of such enforcement.
Section 136(1) of the LPA 1925 is in these terms:
"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 other 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 other thing in action; he may, if he thinks fit, either call upon the persons making the 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."
It follows to secure the benefit of s 136 and effect a legal assignment, the assignment must be:
- absolute and not by way of a charge;
- in writing;
- under the hand of the assignor; and
- express notice in writing, of the assignment, must be given to the debtor or trustee.
The essence of a legal assignment as described in s 136(1) is that the assignee is themself entitled to enforce the right and give discharge for its satisfaction and the debtor can confidently pay a new person, the assignee, without fear of the assignor seeking to enforce and rejecting the payment to the assignee as discharge. Seen in that way the need for both the assignment itself and the notice is unsurprising.
IN WRITING AND UNDER THE HAND OF THE ASSIGNOR:1 THE FORM
Section 136 does not require an assignment to take a particular form. Chitty on Contracts (35th Edition para 23-016) has long described what is required as:
"A direction in writing by a creditor to his debtor to pay the assignee, handed to the assignee, may amount to an assignment, but such a direction handed to the debtor will not by itself constitute an assignment unless there is evidence that the assignee has requested or consented to it ... ."
That description highlights the bilateral nature of the assignment itself in that both assignee and assignor must agree. However, the requirement for writing relates to the debtor.
The words "under the hand of" is understood to simply mean written and signed. It does not require a document to be executed as a deed: Trustee Solutions Ltd v Dubery [2006] EWHC 1426.
The addition of the words "of the assignor" after "under the hand" have been applied strictly by the courts in both Technocrats International Inc v Fredic Limited [2004] EWHC 692 (QB) and Frischmann v Vaxeal Holdings SA & ors [2023] EWHC 2698 (Ch). In both cases it was successfully argued that the wording of s 136(1) requires the signature authenticating the written assignment to be that of the assignor themselves, and not an agent or attorney of the assignor. The fact that elsewhere in the LPA 1925, for instance s 40 (now repealed) and s 53, provisions expressly refer to the signatures of a person or their agent as being required and sufficient was a strong reason for the different language in s 136 to be construed as confined to the assignor. Accordingly, both Field J in Technocrats at paras 53-55 and Master McQuail in Frischmann at 61 conclude the assignor themselves must sign an assignment for it to comply with s 136 and so amount to a legal assignment.
That strict interpretation is helpful for practitioners against the background of the recent decision suggesting ordinary email signatures are signatures for the purpose of other formalities. In Neocleous v Rees [2020] 2 P.&C.R. 4 an automatic email signature of a solicitor was found to be sufficient for compliance with s 2 of the Law of Property (Miscellaneous Provisions) Act 1989 on a compromise involving a disposition of an interest in land. It follows for that purpose emails exchanged between solicitors, with their automated signatures, might all else being equal bind their clients (as s 2 permits signature by agents). An email signature that is automatically applied to authenticate a communication can be a signature for the purposes of most formalities. As a result, Neocleous sent shivers down the spines of many solicitors concerned that rapid email exchanges result in binding agreements they did not intend to make or have instructions for.
It follows, in the sphere of assignments, thanks to the words "under the hand of the assignor" solicitors are not at risk of unintentionally binding their clients. However, creditors and potential assignees communicating directly by email may effect a binding assignment without being clear that is what they meant to do.
ABSOLUTE ASSIGNMENT: THE CONTENT
The words "any absolute assignment" suggest the transfer of rights away from the assignor to the assignee so that it is the assignee who has the entire benefit of, and can enforce the rights, not the assignor. Indeed, that is likely to be the layperson's view as well. A purchaser of leasehold property would have no doubt that the transaction they engaged in, which the lawyers refer to as an assignment, was an absolute transfer of the rights in and to the property and the contract (the lease) from the seller to them, as purchaser and the new proud owner.
At a high level that is the conventional modern view of both a legal and equitable modern assignment. The alternative view, at least in relation to equitable assignments is that there is no assignment of the rights, rather there is a carving out of new rights for the assignee which encumber the assignor's rights, not unlike a declaration of trust.
However, that does not mean that in order for there to be an absolute assignment the assignor must relinquish all interest or possible benefit from the asset for all time. Transactions may involve the provision of security in some circumstances and/or an ability to require a further transaction by which assets are transferred back.
The concept of an absolute assignment, be it legal or equitable, involves a transaction that is complete in the sense of not being conditional and not by way of charge. The meaning of those concepts was considered by Waksmann J in USAF Nominee No 18 Ltd & ors v Watkin Jones & Son Ltd [2023] EWHC 1880 (TCC).
The court heard detailed arguments and carefully analysed the previous authorities including The Halcyon [1984] 1 Lloyds Rep. 283 and Bexhill v Razzaq [2012] EWCA Civ 1376. Waksmann adopted Aikens LJ's characterisation of the nature of an assignment in Bexhill at paras 44 and 45:
"The assignee becomes either the legal or beneficial owner of the thing in action and its benefits. He does not become a party to any contract or deed which contains or gives rise to the right. The assignee will only become a party to the contract (or deed) if there is a novation of the instrument containing or giving rise to the right."
And he then went on to approve the description of an absolute assignment given by Mathew J in Hughes v Pump House Hotel Co [1902] 2 KB 190 as:
"... if, on consideration of the whole instrument it is clear that the intention was to give a charge only, then the action must be in the name of the assignor; while on the other hand, if it is clear from the instrument as a whole that the intention was to pass all the rights of the assignor in the debt or chose in action to the assignee, then the case will come within section 25 and the action must be brought in the name of the assignee."
Waksmann concluded at para 196 with the following observations:
"First, it is clear that the exercise of determining whether there has been an absolute assignment or not is highly fact sensitive. Further, ... it may be that on a proper analysis, Clause 2.1(c) operates as an absolute assignment in relation to some of the relevant interests and not others. Further, there may be circumstances where, within a particular class of interests purportedly assigned, some would be the subject of an absolute assignment and others would not. It all depends on the exercise of contractual interpretation in the relevant context. In other words, this is not a 'one size fits all' exercise."
It follows that the question whether there has been an absolute assignment or assignments for the purpose of s 136 is a multiple layered question which involves careful interpretation of the particular contract that effects the assignment and the subject matter. If the assignment is subject to satisfaction of a condition it is not an absolute assignment and it is not in compliance with s 136.
NOTICE IN WRITING TO DEBTOR: THE CONTENT, FORM AND MEANS
As discussed above the purpose of notice to be given to the debtor is that it enables the debtor to pay a new person (the assignee) without fear of the assignor seeking to enforce the debt against them, rejecting the payment to the assignee as discharge.
Consistent with that purpose as demonstrated by the Court of Appeal in Van Lynn Developments Ltd v Pelias Construction Co Ltd [1969] 1 QB 607 approving Atkin J in Denney, Gasquert and Metcalfe v Conklin [1913] 2 KB 177 even before the LPA 1925, no particular form of notice is required. In Denney Lord Denning was clear that instead what was required was simply writing that brings "... 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".
In Van Lynn the Court of Appeal agreed that that continued to be the case so that the notice must expressly state three things. First that there had been an assignment, second the names and addresses of the assignees and finally what was assigned. Other details were not necessary. If other details are added and are erroneous in a way that undermines the three pieces of information that are required, then the notice is not valid. The notice must fulfil the obvious aim of ensuring that the debtor knows they should pay someone other than the assignor (who in most cases will be the person with whom the debtor has had all relevant dealings). That analysis was recently relied upon in Bedford Investments Ltd v Sellman & ors [2021] EWHC 799 (Comm).
Bedford is an important modern case where notice of assignment was challenged. The notice which the court concluded contained the necessary information was sent by email. The judgment does not suggest the email had a formal notice attached to an email and makes no reference to notice being sent by any other means. There was no defence based on an allegation that the email was not in fact received.
It is clear that s 196(1) of the LPA 1925 applies to notices of assignment under s 136 of that Act:
"Any notice required or authorised to be served or given by this Act shall be in writing."
Sub-sections 196(2), (3) and (4) contain provisions deeming certain forms of delivery as sufficient service. Sub-sections (5) allows parties to contract out of those deeming provisions.
Section 196 was not addressed in Bedford, nor did it need to be.
It is clear that an email is "writing" so whether the email was a covering email with a notice attached or the body of the email contained the information needed to give notice it would have complied with s 196(1).
Sub-sections 196(2), (3) and (4) contain deeming provisions relating only to "notices required or authorised by this Act to be served". They do not refer to notice being given as opposed to served. However, the court have been consistent in concluding giving notice is service.
The view of most commentators as detailed by Hugh Sims KC previously in this Journal (2020) 8 JIBFL 523 is that the requirement under s 136(1) of the LPA 1925 for written notice of assignment will be satisfied by an electronic communication. That was clearly the position adopted in Bedford.
Arnold J in E.ON UK plc v Gilesports Ltd [2012] EWHC 2172 (Ch); [2013] 1 P & CR 4; [2013] 3 EGLR 23 came to a view about the effect of s 196 and its deeming provisions in the context of an application for consent to assign a lease that calls the view that written notice of assignment will be satisfied by an electronic communication into question. Arnold J rejected the argument that the deeming provisions in s 196 were sufficient means of service as opposed to the required means of service. In other words, on the basis the lease expressly incorporated s 196, the judgment concluded that notice of the assignment had to be served on the landlord by one of the two methods in ss 196(3) and (4) and as neither method had been used, the relevant application had not been served. It appears from the judgment that s 196 was expressly incorporated in a clause dealing with notices without any other means of service or delivery of an application for consent being provided for.
It appears Arnold J had not referred to the earlier decision of Nicholas Strauss KC sitting as a Deputy High Court Judge in Michael Gerson Leasing Ltd v Greatsunny Ltd [2010] Ch 558. In Gerson the court took a very different view as to the effect of the deeming provisions in s 196. Strauss J concluded:
"Section 196(2) to (4) contains a series of provisions, the general import of which is to provide a liberal regime as to the contents and mode of service of any notice required or authorised by this Act to be served. It is to be noted that these provisions do not say "to be served or given", but this makes no difference, since there is no difference, as regards a written notice, between serving and giving it. As shown by the authorities cited above, both mean putting a written notice before the party to whom the notice is to be given. ...
The purport and effect of subsection (5) is not, in my judgment, to impose a stringent requirement for writing, where this is not required by the contract or other instrument affecting property. Rather, it is to relax the requirements as to the mode of service and contents of notices, where the notices are already, by the terms of the instrument, required to be served or (which is the same thing) to be in writing."
The E.ON approach if applied to notice under s 136 leads to a very curious situation. The need to give written notice under s 136 is a statutory requirement. The statute refers to two methods of sending the required written notice. There is no express wording providing that those two methods are the only methods or media by which notice can be sent or given. The two sub-sections are deeming provisions. They deem sufficient service to have happened so that the method of sending is deemed to have achieved delivery to the debtor, whether or not notice reaches the debtor. That means the sender can send the necessary written notice by one of those methods safe in the knowledge that, whether or not it is actually delivered to the debtor, notice will be treated as given. The E.ON approach operates to treat the debtor to whom notice was in fact given as if the required notice did not reach the debtor, because a different method of sending succeeded in delivery to the debtor. Much of the argument in favour of s 196 imposing methods of service or giving notice rest on the requirement for "writing". The court historically understood something that was writing to be a physical item that would necessarily be delivered to the receiving party's location by hand or by post. However, since we are now in a world where emails are accepted by the courts to be writing that logic is flawed.
In reality, until the point is taken to the Court of Appeal notice given by email for the purpose of s 136 of the LPA 1925 cannot be treated as sufficient "giving" with certainty. However, it would be surprising if the Court of Appeal came to a different conclusion faced with that question now.
With the introduction of company registered email addresses under s 29 of the Economic Crime and Corporate Transparency Act 2023 another opportunity and another risk arise. A registered email address for a company should not be mistaken for an electronic version of the company's registered physical address. Rather it equates to the requirement for directors' addresses to be recorded. The purpose of the registered email address for the company is to facilitate communications between Companies House and the company. It should not be assumed by third parties that communications via that address will be sufficient communication or come to the attention of the company for other purposes. However, it is always open to parties when contracting, given the required existence of that address, to expressly provide for notice to be given or served by being sent by email to that address.
DEFECTIVE NOTICES AND EQUITABLE ASSIGNMENT
Where assignor and assignee have effected a valid assignment but no valid notice has been given to the debtor, as required by s 136 of the LPA 1925, the assignment takes effect in equity as between assignor and assignee.
An equitable assignment arises where there is the intention to assign, the subject matter is described so that it can be identified, and the assignor does something showing he is transferring the debt or chose in action to the assignee. Writing is not required until the chose in action (the contract) requires it. If the chose in action is a future right rather than an existing one consideration is necessary.
When a statutory assignment fails to take effect in law simply because the requirements of s 136 were not complied with the first question should be has the assignment taken effect in equity.
Where the non-compliance is confined to the giving of notice to the debtor the answer will be that the assignment is equitable. The failure to notify the third party to the assignment, the debtor, is not a requirement for the creation of a binding assignment as between assignor and assignee.
The consequence of the failure to give valid notice to the debtor is that it is arguable that the assignee can bring a claim in its own name as assignee but it may be necessary to join the assignor.2 The easier course is to give notice, or further notice if there is a challenge to the validity of the alleged prior notice. It is clear from decisions such as Van Lynn, discussed above, that a demand or letter of claim sent on the basis notice has already been given can amount to notice itself.
Originally published by LexisNexis (JIBFL)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.