Assignation Transfers Rights, Not the Assignor’s Liability: Limits of “assignatus utitur” and the Preconditions for Rescission

Case: Lorna McLean against Elderbridge Ltd (Court of Session, Outer House)
Citation: [2026] CSOH 4
Judge: Lord Lake
Date: 27 January 2026

1. Introduction

This Outer House decision concerns the consequences of a loan and standard security originally granted by Hamish McLean over properties on the Breda Estate, and later assigned to Elderbridge Ltd. The pursuer (now the executor of Mr McLean) sought multiple remedies including reduction of the loan documents and the standard security, suspension/interdict against enforcement, and—centrally for this Opinion—a large claim for damages of £5,000,000.

The damages case was built on an allegation that the original lender, Commercial First Business Limited (“CFB”), paid a “secret commission” to the borrower’s agent, rendering the transactions voidable and (it was said) giving rise to reparation. The key issues argued at debate were:

• whether any liability of CFB to pay damages transmitted to Elderbridge as assignee of the loan/security; and
• whether Elderbridge’s own conduct (notably refusal to discharge/consent) could found a damages claim, given rescission and restitutio in integrum requirements; and
• whether the pursuer’s pleadings on loss were relevant and sufficiently specific.

2. Summary of the Judgment

Lord Lake held that the pursuer’s damages case (the third plea-in-law and supporting averments in Article 13 of Condescendence) was irrelevant and should be excluded from probation. In consequence, he sustained the defender’s first plea-in-law quoad the pursuer’s third plea-in-law and Article 13 averments, and allowed a proof before answer on the remaining parts of the action (e.g., reduction/suspension issues).

The decision turned on two principal conclusions:

• No transmission of CFB’s damages liability by assignation: an assignee is exposed to defenses/exceptions the debtor could have pled against the cedent, but does not inherit the cedent’s liability such that the debtor can sue the assignee in damages for the cedent’s breach/wrong.
• Rescission not immediate where restitutio is outstanding: relying on Westville Shipping Co Ltd v Abram Steamship Co Ltd 1923 SC (HL) 68, rescission does not take effect merely upon election if restitutio in integrum must first be performed. The pursuer’s case was circular because the alleged claims extinguishing any restitutio obligation depended on a discharge obligation which itself depended on rescission having already taken effect.

Lord Lake also indicated (obiter, given his dispositive findings) that: (i) conditional reduction on payment is established practice; (ii) notional interest may be relevant in restitutionary calculations; and (iii) in any event the pursuer’s pleaded losses were poorly specified.

3. Analysis

3.1 Precedents Cited

(a) Secret commission and cross-border alignment

• Wood v Commercial First Business Ltd [2021] EWCA Civ 471, [2022] Ch 12
  The pursuer relied on Wood as modern authority that a secret commission makes the contract voidable and supports claims beyond mere avoidance. Lord Lake did not finally determine the substantive “secret commission” merits at debate; rather, he focused on assignation and rescission mechanics. Still, Wood framed the pursuer’s attempt to treat the claim as one that could be advanced against the assignee and to incorporate restitutionary logic (including cost-of-funds reasoning) into the Scottish dispute.
• Oil States Industries (UK) Ltd v S [2022] CSOH 52, 2023 SC 209
  Cited for Lord Braid’s observation that Scots and English law are the same “in this respect” (secret commissions). Lord Lake did not dispute this general proposition, but the present case turned less on the substantive secret commission doctrine than on (i) assignation effects and (ii) the timing/conditions of effective rescission.
• Gloag, Contract (2ndedition), page 522
  Raised to support the defender’s position on the availability of claims against a third party who pays the secret commission. Lord Lake treated it as common ground that a principal may have a claim against the third party payer; however, the decisive question remained whether such liability (if it existed as against CFB) travelled to Elderbridge by assignation.

(b) Assignation, “assignatus utitur”, and defensive pleas vs transmitted liabilities

• Redfearn v Ferrier (1813) 1 Dow 50
  The pursuer relied on Lord Redesdale’s dictum that the principle applied to “all the exceptions or counter claims” the original debtor had against the creditor. Lord Lake treated the passage as obiter and, read in context with Stair and Bankton, as addressing defensive pleas against the assignee’s enforcement rather than creating an affirmative right to recover damages from the assignee.
• The Scottish Widows Fund and Life Assurance Society v Buist 1876 3R 1078
  Both parties invoked Lord President Inglis’ statement that the assignee is “subject to all exceptions and pleas pleadable against the original creditor.” Lord Lake preferred the defender’s interpretation: this supports the debtor’s right to resist or qualify the assignee’s claim (e.g., reduction/avoidance/compensation as defense), not a rule that the assignee bears the cedent’s liabilities for damages.
• Binstock, Miller & Co v E Coia & Co Ltd 1957 SLT (Sh Ct) 47 and Alex Lawrie Factors Ltd v Mitchell Engineering Ltd 2001 SLT (Sh Ct) 93
  These sheriff court authorities squarely addressed the attempted use of counterclaims for damages against an assignee based on the cedent’s pre-assignation breach. In both, the counterclaim was dismissed: the assignation did not transfer liability for breach. Lord Lake agreed with Sheriff Taylor’s distinction: “no better right” for the assignee is not the same as “same liabilities.”
• McBryde, Contract (3rd Edition) at paragraphs 12-71 to 12-73
  The pursuer adopted Professor McBryde’s critique that the sheriff court line produces “surprising results,” including insolvency risk. Lord Lake rejected the policy argument: the debtor’s position on suing for damages remains anchored to the original contracting party; assignation should not, without more, change the identity of the party liable in damages. He also pointed to commercial reality: routine loan book sales/assignations would become impractically risky if liabilities automatically followed rights.

(c) Rescission and the role of restitutio in integrum

• Westville Shipping Co Ltd v Abram Steamship Co Ltd 1923 SC (HL) 68
  Central to the court’s analysis. Lord Atkinson’s dictum was used to reject the idea that a mere assertion of rescission immediately terminates the contract where restitutio is required. If restitutio is due, it must be performed before rescission is “effectually accomplished.” This directly undermined the pursuer’s attempt to found post-assignation damages on an allegedly wrongful failure to discharge securities said to arise immediately upon rescission.

(d) Conditional reduction and restitutionary practice (obiter)

• Spence v Crawford 1939 SC (HL) 52, Micro Leisure Ltd v County Properties & Developments Ltd 1999 SC 501, and MacDonald v Carnbroe Estates Ltd [2019] UKSC 57, 2019 SLT 1469
  Cited by the pursuer for the established practice of granting reduction conditional upon payment required for restitutio, rather than refusing reduction because payment may be difficult.
• Boyd & Forrest v The Glasgow and South-Western Railway Company 1915 SC (HL) 20 and Western Bank of Scotland v Addie (1867) 5 M (HL) 80
  Raised in the defender’s argument about “impossibility/ability” to restore. Lord Lake indicated these did not support a rule barring conditional reduction merely due to practical inability to pay, distinguishing factual impossibility from financial difficulty.

3.2 Legal Reasoning

(a) Assignation: defensive exposure does not equal liability transfer

Lord Lake’s reasoning separates two different propositions that are sometimes rhetorically conflated:

• Proposition 1 (accepted): an assignee cannot be in a better position than the assignor as to enforcing the assigned right; therefore the debtor may raise against the assignee the “exceptions and pleas” available against the assignor (e.g., set-off/compensation, reduction, avoidance, etc., where relevant).
• Proposition 2 (rejected): the assignee becomes liable in damages to the debtor for wrongs/breaches committed by the assignor prior to the assignation, as if liabilities automatically “run with” the right.

On authority, Binstock, Miller & Co v E Coia & Co Ltd 1957 SLT (Sh Ct) 47 and Alex Lawrie Factors Ltd v Mitchell Engineering Ltd 2001 SLT (Sh Ct) 93 were treated as directly in point and persuasive. On principle, Lord Lake emphasised that an assignation is an agreement between cedent and assignee; it should not, without a special legal basis, alter the identity of the party against whom a third party (the debtor) holds an affirmative damages claim.

Policy was explicitly addressed: automatic liability transfer would chill ordinary commercial practices (debt factoring, assignation as security, loan book sales). The court rejected the notion that insolvency risk justifies shifting liability from the original contracting party to an assignee.

(b) Rescission and circularity: the “self-extinguishing restitutio” problem

The pursuer’s damages theory also failed because it depended on rescission having taken effect at a point when restitutio in integrum had not been performed, and because the pursuer attempted to neutralise the restitutio requirement by pointing to claims for damages that themselves depended on rescission.

Applying Westville Shipping Co Ltd v Abram Steamship Co Ltd 1923 SC (HL) 68, Lord Lake treated effective rescission as conditional where restitution is due: election alone does not immediately terminate the contract if payment is required to restore the parties. The pursuer’s pleadings sought to assert immediate rescission by arguing that (i) damages claims against the defender exceeded any restitutionary payment and thus (ii) no payment was required. But the alleged damages claims arose (on the pleadings) from failure to discharge securities—an obligation which only arises once the contract has been rescinded. This produced a circular structure:

• rescission is said to be effective because no restitutio is due;
• no restitutio is due because damages claims extinguish it;
• damages claims exist because the defender breached a duty to discharge arising on rescission;
• but that duty only arises if rescission has already been effective.

The court held there were no pleaded claims capable of extinguishing the restitutio obligation at the time of election; therefore rescission was not immediately effective and the predicate duty to discharge did not arise when the pursuer needed it to.

(c) Temporal mismatch: losses pleaded for the wrong period

Even if an “offer” to make restitutio could have legal effect (a point not fully argued), the pursuer’s “Wood” case was only added by adjustment in 2022. Yet the losses were pleaded as accruing broadly from March 2017 onward, with no clear specification of what losses occurred after the relevant 2022 pleading event. This timing mismatch was an additional reason why the damages case, as pleaded, could not succeed.

(d) Obiter guidance: restitutionary interest and conditional reduction

Lord Lake indicated that, had it been necessary, he would likely have:

• rejected the defender’s challenge to allowing a restitutionary interest component, noting the restitutionary aim of restoring the actual economic position and referring to Wood [2021] EWHC 1403 (Ch) at [26]-[27] as recognising differing costs of borrowing;
• rejected the argument that reduction should be refused because the pursuer may be practically unable to make the restitutionary payment, citing the settled practice of conditional decrees (as in Spence v Crawford 1939 SC (HL) 52, Micro Leisure Ltd v County Properties & Developments Ltd 1999 SC 501, and MacDonald v Carnbroe Estates Ltd [2019] UKSC 57, 2019 SLT 1469).

3.3 Impact

(a) Clarifying the limits of debtor remedies against assignees

The decision reinforces a practical and commercially significant boundary: a debtor may resist or qualify an assignee’s enforcement by deploying defenses available against the cedent, but cannot generally treat the assignee as the cedent’s substitute wrongdoer for affirmative damages relating to pre-assignation conduct.

Although Lord Lake relied on sheriff court authority, the reasoning—particularly the policy and conceptual distinction between “defensive pleas” and “transferred liabilities”—may be influential in future Court of Session disputes involving consumer/commercial loan assignations and securitisation-style transfers.

(b) Litigation strategy in “secret commission”/voidable loan cases

In practice, pursuers seeking damages linked to the original lender’s wrongdoing will likely need to sue the original lender (or plead a properly founded basis for liability of the assignee beyond mere assignation). Against an assignee, the more realistic role of the “secret commission” case may be to support reduction/avoidance and to defeat or reduce any enforcement claim, rather than to generate a net damages recovery from the assignee.

(c) Emphasis on pleading discipline: timing and causation

The Opinion shows the vulnerability of damages claims where pleadings do not clearly link (i) the legal trigger date for the alleged duty (e.g., discharge upon effective rescission), (ii) the defender’s specific wrongful act, and (iii) the period and quantification of losses allegedly caused by that act.

4. Complex Concepts Simplified

• Standard security: the Scottish equivalent of a mortgage over heritable property, granting the lender security for repayment.
• Assignation / assignee / assignor (cedent): transfer of a personal right (e.g., the right to be repaid a debt) from the assignor/cedent to the assignee.
• “assignatus utitur” principle: shorthand for the idea that the assignee takes the right subject to the same weaknesses/defenses as against the assignor—so the debtor can raise certain “exceptions and pleas” when the assignee sues.
• Exception/plea vs liability: an “exception” is a defensive answer that blocks or reduces the claim being enforced; “liability” is an affirmative obligation to pay damages. This case draws a hard line between the two in the assignation context.
• Rescission and restitutio in integrum: rescission unwinds a contract, aiming to restore parties to their pre-contract position. If one party must repay money or restore value to achieve that restoration, rescission may not be effective until that is done (per Westville Shipping Co Ltd v Abram Steamship Co Ltd 1923 SC (HL) 68).
• Conditional decree of reduction: the court can reduce (set aside) a deed/contract on condition that the pursuer makes a specified repayment, rather than refusing reduction because immediate repayment is uncertain.

5. Conclusion

Lord Lake’s Opinion is a targeted but significant reaffirmation of two connected ideas. First, assignation in Scots law ordinarily transfers the creditor’s right to payment, not the creditor’s historic liabilities in damages—leaving the debtor to use pre-existing claims primarily as defenses against enforcement, not as a basis to sue the assignee for affirmative damages. Second, rescission is not a pleading label that instantaneously triggers downstream duties (such as discharge of security) where restitutio in integrum remains outstanding; the law requires coherent sequencing and non-circular causation.

The pursuer’s damages case failed not because losses of the type alleged can never occur, but because (i) the assignee was not, by assignation alone, the correct damages defendant for the cedent’s alleged wrongdoing, and (ii) the pleaded rescission/restitution structure could not sustain the alleged post-assignation duties and losses. The decision therefore strengthens doctrinal clarity in assignation disputes and underscores rigorous pleading of timing, causation, and legal triggers in complex restitutionary litigation.