Equity And Trusts

EQUITY AND TRUSTS

Ð''The statute does not forbid or destroy equitable assignments or impair their efficacy in the slightest degree." Per Lord Macnaghten in William Brandt's & Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, 461

Discuss critically the above statement with regard to the Malaysian legal position.

Before receiving his title deed, a person may obtain a loan from a financier by assigning the rights to the property to the financier. Similarly, a creditor may obtain a loan from a factor by assigning in his favor all his rights over a debt. These type of assigned rights are called Ð''choses in action', which are intangible rights as opposed to Ð''choses in possession' (a right to tangible objects). Channell J defined the expression Ð''choses in action' in Torkington v Magee , to mean "all personal rights of property which can only be claimed or enforced by action, and not by taking possession." When a right in the nature of a chose in action is transferred from an assignor to an assignee, an assignment is made.

Assignment is commonly used in Malaysia to transfer rights to book debts, securitisable assets, goods, and other receivables. An assignment is not itself a contract between assignor and debtor: its legal nature is that of a direction amounting to the transfer of a right. There are two types of assignment, namely legal and equitable; with the main distinction between the two being the degree of legal right being transferred. Since legal and equitable assignments have different requirements, a pertinent issue arising is whether or not an assignee has the right to take action against the debtor without involving the assignor, or vice versa.

The rules governing this area have been settled after the Civil Law Act 1956 (CLA) came into force on 7 April 1956 for West Malaysia and 1 April 1972 for East Malaysia. According to S4(3) CLA, if the assignment fulfils the criteria of a statutory assignment provided in that section, the assignee may sue the debtor directly. However, if the assignment cannot constitute a statutory assignment, it may stand as an equitable assignment, whereby the assignee needs to enjoin the assignor in order to take action.

Since s4(3) CLA is similar to the s25(6) of the English Supreme Court of Judicature Act 1873 (CJA), it would be relevant to examine the English position on assignment. s3 CLA provides for courts in West Malaysia to apply the common law and rules of equity administered in England on 7 April 1956; for Sabah as administered in England on 1 December 1951 and for Sarawak as administered in England on 12 December 1949.

In England prior to the CJA, there existed a dual system of separate courts which operated on different rules, causing some cases where dissimilar administration in the courts of common law and equity led to inconsistent remedies. For example, the old common law rule forbade assignment of any choses in action (whether legal or equitable). This was on the grounds of its "intensely personal character", and the fear that it would lead to "multiplying of contentions and suits, of great oppression of the people" . Following the common law doctrine of privity of contract, an assignee of a legal assignment of rights could not sue the debtor, for lack of privity. Since the common law did not recognize assignments of choses in action, such assignment had to be made under equity, in order to be valid. The Federal Court elaborates in the case of Nouvau Mont Dor (M) Sdn Bhd,

"As is well known, an ordinary debt or chose in action before the Judicature Act 1873 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 debtÐ'... had to make his assignorÐ'... party in order primarily to bind him and prevent his suing at lawÐ'..."

According to Buller J. , "the Courts of Equity from the earliest times thought the doctrine too absurd... to adopt." Hence, equity formulated its own rules regarding the validity of assignments by recognizing the assignment of equitable as well as legal things in action. For equitable assignments, an assignee could bring action in his own name; whereas for legal assignments, proceedings needed to be in the name of the assignor, since the assignment was not recognized at law. If the assignor refused to allow the assignee the use of his name, an injunction could be used to compel him. As a result, an assignee had to go to two courts in order to enforce a legal assignment. Before he went to the common law court to take action, he first had to go to the court of equity to compel the assignor to lend his name. "

With the introduction of the CJA, the dual system was abolished and the legislature became fused. The reorganization of the courts produced one Supreme Court administering both law and equity. S24 of CJA gave the power and conferred the duty to every judge to recognize and give effect to both legal and equitable claims. Further, s25 provided that in case of conflict between the rules of common law and the rules of equity, the rules of equity should prevail. This transformed the position of an assignee, who could now seek enforcement of an equitable assignment from any court where previously he could only have done so at the Court of Chancery. As for legal assignment, the assignee needed only go to one court, provided he joined the assignor as co-plaintiff. If the assignor refused assent, equitable jurisdiction could be evoked to oblige him to do so.

Besides merging the two streams, CJA also introduced statutory assignment. S25(6) of the 1873 Act has now been replaced by s136 of the Law of Property Act 1925 which is resembles Malaysia's s4(3) CLA. Accordingly, an assignee of a valid statutory assignment may bring action in his own name. The concurrence of the assignee is not needed as the legal right is transferred to the assignee from the date the notice is given. In order to fulfil the criteria of statutory assignment, the following requirements must be met:

(1) The subject of the assignment must be debts or other legal choses in action. The phrase "legal chose in action" has been interpreted to mean "lawfully assignable chose in action". So, even traditionally equitable choses in action can be assigned under statute. But future choses in action cannot be assigned by statute.

(2) The assignment must be absolute and unconditional. Partial assignment , conditional assignment or an assignment by way of charge is not sufficient. Whether or not a particular assignment is absolute or merely by way of charge