Factual and Procedural Background
This appeal arises from an Order of HHJ Simon Brown QC dated 11 October 2011, following a two-day trial concerning possession of a commercial property ("the Property") owned by the Defendant. The Claimant, Company A, sought possession on the basis that the Defendant had failed to repay sums secured by a legal charge over the Property, which was given as security for the Defendant's personal guarantee under a Facility Agreement between Company A and a third company, Company B, of which the Defendant was a director and guarantor.
Company A provided premium credit funding to insurance brokers, including Company B, enabling their clients to pay insurance premiums by instalments. Company B funded clients' insurance premiums upfront by borrowing from Company A under the Facility Agreement, with the Defendant guaranteeing Company B's obligations. The Defendant granted a legal charge over the Property as security for his guarantee.
Company A, however, had assigned its rights under the Facility Agreement and related documents to Bank C pursuant to a debenture. The dispute centers on whether Company A retained the right to sue the Defendant for possession of the Property or whether that right had passed to Bank C, and if Company A could sue as agent for Bank C.
The trial judge found that the legal charge secured the Defendant's guarantee obligations up to a maximum sum, but held that Company A was entitled to sue for possession, either on its own behalf or as agent for Bank C. The Defendant appealed this decision.
Legal Issues Presented
- Whether the Defendant's right to sue for possession under the legal charge was absolutely assigned by Company A to Bank C under the terms of the debenture and related agreements.
- If an absolute assignment occurred, whether Company A retained authority to sue the Defendant as agent for Bank C without joining Bank C as a claimant.
- The construction and legal effect of the contractual documents, including the Facility Agreement, debenture, and related assignments, with respect to rights to sue and enforce security.
Arguments of the Parties
Defendant's Arguments
- An agent generally has no right to bring an action on behalf of a principal because a right of action is a personal right that cannot be delegated.
- On proper construction, the contractual documents evidence an absolute assignment by Company A to Bank C of all rights, including the right to sue on the charge.
- Therefore, Company A no longer had the right to sue the Defendant without joining Bank C as a claimant.
- Even if the assignment was equitable and concerned a future thing in action, both Company A and Bank C should have been named as claimants in the proceedings.
- It was too late to add Bank C as claimant at the stage of the proceedings.
Company A's Arguments
- The assignment by Company A to Bank C was by way of security or charge only, not an absolute transfer of legal title to sue.
- The word "absolutely" in the debenture does not indicate transfer of title to Bank C before default; the commercial intention was that Bank C would remain a stranger to contracts between Company A and clients.
- The legal charge and right to sue on it were not included in the definition of "Receivables" in the debenture.
- If an assignment of the right to sue had occurred, it was re-assigned back to Company A by an amendment agreement shortly before the appeal hearing.
- If not re-assigned, permission should be granted to join Bank C as claimant, though no application had yet been made.
- On the agency point, Company A contended it had authority under the debenture to act as agent for Bank C in enforcing rights, including bringing proceedings.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Hughes v Pump House Hotel Co. [1902] 2 KB 190 |
Determining whether an assignment is absolute or by way of charge only requires construction of the entire instrument; affects who may sue. |
Applied to interpret the debenture's assignment clauses and to distinguish between absolute assignment and security by way of charge. |
| Orion Finance Ltd v Crown Financial Management [1996] 2 BCLC 78 |
Emphasizes substance and commercial sense in construing security documents. |
Supported the approach that the court must consider commercial intent and language of the debenture as a whole. |
| In re Spectrum Plus Ltd [2005] 2 AC 680 |
Clarifies the distinction between fixed and floating charges over book debts. |
Referenced in discussion of the nature of charges over the Collection Account in the debenture. |
| In re Bank of Credit and Commerce International (No 8) [1998] AC 214 |
Bank can have a fixed charge over the bank's debt to a customer. |
Used to explain the nature of the security over the Collection Account. |
| Three Rivers DC v Governor and Company of the Bank of England [1996] QB 292 |
Equitable assignee has the right to sue; assignor cannot sue without joining assignee. |
Applied to conclude that Company A could not sue without Bank C being joined unless acting as authorized agent. |
| Lloyd's v Harper (1880) 16 ChD 315 |
Authority of an agent or trustee to bring an action on behalf of another. |
Distinguished as factually different and not establishing authority to sue on behalf of equitable assignee here. |
| Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277 |
Agent may sue on contract made on behalf of principal if contract grants such right. |
Held that no such right was granted by the debenture to Company A to sue on behalf of Bank C. |
| Alfred McAlpine Construction Ltd v Panatown Ltd (No 1) [2001] 1 AC 518 |
Agent may recover damages for principal; does not imply authority to commence proceedings. |
Used to reject argument that Company A had implied authority to sue as agent for Bank C. |
| Tailby v Official Receiver (1888) 13 App Cas 523 |
Assignment of future choses in action passes beneficial interest on coming into existence. |
Applied to confirm that rights under the charge, as future things in action, were assigned in equity to Bank C. |
| Annangel Glory Compania Naviera SA v M Golodetz Ltd (The Annangel Glory) [1988] 1 Lloyd's Rep 45 |
Application of assignment principles to future sub-freights. |
Supported the principle that future rights can be assigned in equity. |
Court's Reasoning and Analysis
The court undertook a detailed construction of the contractual documents between Company A and Bank C, focusing on the debenture and related agreements. It first determined that the Defendant's right to sue on the legal charge was a "thing in action" and fell within the broad definition of "Receivables" assigned to Bank C under the debenture.
The court distinguished between an absolute assignment of rights, which transfers beneficial ownership of the choses in action to the assignee, and an assignment by way of charge only, which is a security interest without transfer of beneficial ownership. Applying established authorities, the court found that clause 3.1 of the debenture effected an absolute assignment in equity of all present and future Receivables, including the right to sue on the charge, to Bank C.
The court rejected the argument that the assignment was only by way of charge or that the commercial context required a different construction. It held that the debenture's language, the notice provisions, and the commercial arrangements were consistent with an absolute equitable assignment.
However, the court considered whether Company A was authorized to sue the Defendant as agent for Bank C without joining Bank C as a claimant. It found that the relevant clause obliging Company A to collect Receivables as agent for Bank C did not extend to authorizing Company A to commence court proceedings to enforce rights assigned to Bank C.
The court reviewed precedent on agency and assignment and concluded that authority to sue must be expressly granted, which was absent here. Furthermore, Company A had brought the claim solely in its own name and capacity, not as agent for Bank C, nor had Bank C ratified such agency.
Consequently, the court held that Company A lacked authority to sue on behalf of Bank C and that the claim could not continue without Bank C being joined as a claimant.
Holding and Implications
The appeal is allowed.
The court declared that the legal charge and the right to sue the Defendant on it were absolutely assigned in equity to Bank C. Company A does not have the right, as sole claimant, to sue the Defendant on the charge, either on its own behalf or as agent for Bank C. If the claim is to proceed, an application to join Bank C as a claimant must be made, and any such application will be remitted to the trial judge for determination.
The decision directly affects the parties by requiring proper joinder of Bank C to enforce the charge. No new legal precedent beyond the application of established principles was set.