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RIGHTS OF ASSIGNORS AND ASSIGNEES TO SUE UNDER AN ABSOLUTE ASSIGNMENT AND ASSIGNMENT BY WAY OF CHARGE USED AS A SECURITY FOR LOAN
If a borrower acquires a property in which the individual title deed has not been issued and he intends to obtain a loan by using the property as a security, the financier will require the borrower to assign all his rights in the sale agreement with the developer/vendor in favour of the financier with notice of assignment to the former. Likewise, a creditor can obtain a loan by assigning all his rights over a debt to the factor by giving notice of assignment to the debtor. These assigned rights are also known as choses in action which simply means things recoverable by action as opposed to a chose in possession which entitles a person to have actual physical possession. In the words of Channell J in Torkington v Magee  2 KB 427 at 430, the expression choses in action means all personal rights of property which can only be claimed or enforced by action, and not by taking possession.
This paper, therefore, examines the rights of an assignor and an assignee in an assignment of rights particularly over the sale agreement in the event there should be a dispute between the assignor and the developer/vendor. A common clause in such a loan agreement cum assignment will look like this:
In consideration of the Facility granted to the Assignor upon the terms and conditions contained in this Agreement, the Assignor as beneficial owner hereby absolutely assigns all of the Assignor's rights and title to and interest whatsoever in the Property including all rights and interest of the Assignor in the Sale and Purchase Agreement to the Bank.
In this respect, one is often faced with the question of whether an assignor can found an action against the developer without involving the assignee. Likewise, can the assignee sue the developer directly without involving the assignor? The law in this area is at least settled after the date of coming into force of the Civil Law Act 1956 ("CLA") which is 7 April 1956 for West Malaysia and 1 April 1972 for East Malaysia as s 4(3) CLA provides that if the assignment is a statutory assignment under that section, then the assignee can sue the developer/debtor directly without the concurrence of the assignor which means the assignor cannot sue the developer/debtor directly without the concurrence of the assignee unless it is an assignment by way of charge.
Position of the English law prior to 1873
In fact, s4(3) CLA is similar to s 25(6) of the English Supreme Court of Judicature Act 1873. It is, therefore, relevant to examine the English position of an assignment and English authorities before and after the 1873 Act as courts in West Malaysia shall apply the common law of England and the rules of equity as 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 subject to local circumstances. (See s 3 CLA.)
In England prior to 1873, common law and equity were administered in different courts the common law courts (the Court of Exchequer, Court of Common Pleas and the Court of Kings Bench) would enforce legal rights and the court of equity (Chancery Court), equitable rights. Hence, common law courts would only recognise legal rights, but not an assignment of legal choses in action save in the case of bills of exchange, bills of lading and stocks and shares in incorporated companies. It follows that in the case of assignment of equitable choses of action, the assignee could always bring an action in the Chancery Court in his own name if it is an absolute assignment of equitable choses or by joining the assignor if it is a non-absolute assignment of equitable choses in action.
On the other hand, an assignee of a legal assignment of rights, whether absolute or not, could not sue the debtor at common law since there is no privity of contract between the two a legal principle, albeit the assignor could always sue the debtor for the recovery of the debt in the common law courts. There would be no problem if the assignor agreed to sue, but in most cases he would not be bothered after having assigned his legal rights over the debt. However, equity has always allowed the assignment of both legal and equitable choses of action. Thus in the case of an assignment of legal choses of action, the action had to be brought in the name of the assignor but equity would compel the assignor to lend his name to the assignee in the proceedings. As a result, a legal assignee had to go to two courts in order to enforce an assignment of legal choses of action the court of equity to compel the assignor to lend his name to sue the debtor and the court of common law to commence the action against the debtor in the assignors name.
Position of the English law after 1873
The old courts of common law and equity were then abolished by the English Supreme Court of Judicature Act 1873 which established in their place a single Supreme Court of Judicature comprising now a High Court with three divisions Kings Bench, Chancery and Family. Each of these divisions could now administer both law and equity, but the latter is to prevail in the event of a conflict.
This has brought a significant change in the position of an equitable assignee who can now enforce an equitable assignment in any of the courts unlike prior to 1873 when he could only do so at the Chancery Court. As regards the assignee of legal choses in action, now he need only to commence one legal action in any of the divisional courts by joining the assignor as a co-plaintiff. However, if the assignor refuses to be so joined, the assignee will still have to sue the assignor as a co-defendant with the debtor. The cause of action against the assignor would still be invoking the equitable jurisdiction to compel the assignor to lend his name to the assignee and the common law jurisdiction to enforce the legal rights against the debtor in the assignors name. Hence, even though the 1873 Act fused the administration of law and equity, it did not really fuse law and equity per se as the oft-quoted saying goes, the two streams have met and now run in the same channel, but their waters do not mix.
Statutory Assignment under s4(3) CLA
Apart from abolishing the old courts of common law and equity, the 1873 Act also introduced a statutory assignment. S 25(6) of the 1873 Act has now been replaced by s 136 of the Law of Property Act 1925 which is similar to our present s 4(3) CLA. In simple terms, an assignee of a valid statutory assignment can now sue the debtor in his own name. This is effectual in law to transfer to the assignee from the date of notice of assignment the legal right to a debt or chose in action, all legal and other remedies and the power to give a good discharge for the same without the concurrence of the assignor.
However, for the Clause to create a statutory assignment under s 4(3), four conditions must first be satisfied, namely (1) the assignment is in respect of a debt or other legal chose in action; (2) the assignment must be in writing under the hand of the assignor; (3) express notice in writing of the assignment must be given to the debtor, trustee or other person from whom the assignor would have been entitled to claim the debt or chose in action; and (4) the assignment must be absolute and not purporting to be by way of charge only. S 4(3) CLA further provides that such an assignment is subject to equities having priority over the assignee, that is, the assignee takes the assignment subject to any defects in the assignors title and all other claims the debtor may have against the assignor. The assignment takes effect from the date of receipt of the notice of assignment by the debtor, an exception to the postal rule that acceptance takes effect upon posting. (See Holt v Heatherfield Trust Ltd  1 All ER 404.)
As regards condition (1), the debt or other chose in action must be one that is existing at the time of assignment, albeit the debt is payable later. (Earle v Hemsworth  All ER 602.) Also, the debt must be of an ascertained amount and it was held in Jones v Humphreys  1 KB 10 that whilst an assignment of so much of an income which shall be necessary and requisite for payment to you of the sum of 22l.10s. might define the sum, any further or other sums in which I may at any time hereafter become indebted to you" is too indefinite and would fall outside the ambit of s 25(6) of the 1873 Act as an assignment by way of charge.
As respects condition (2), in order to be within s 4(3), the assignment has to be in writing under the hand of the assignor. In other words, if an agent signs the assignment, then this will be outside s 4(3). (Wilson v Wilson 1880 5 Ex D 155.) Whilst s 4(3) does not prescribe the exact form of assignment, the assignment must still be one of absolute assignment and not by way of charge.
Condition (3) requires an express notice of assignment in writing to be given to the debtor (Bank Bumiputra Malaysia Bhd & Anor v Lorrain Esme Osman & Ors  1 MLJ 502) even if the parties knew that he could not read and oral notice has been given (Hockley and Papworth v Goldstein  90 LJKB 111) so that the debtor knows to whom he must now pay the debt. Consent from the debtor to the assignment is not necessary. (Tan Ah Chim & Sons Sdn Bhd v Ooi Bee Tat & Anor  3 MLJ 633.) The date of assignment must also be stated correctly, (Stanley v English Fibres Industries Ltd (1899) 68 LJQB 839) albeit if no date is given at all, the notice is still not defective. (Van Lynn Development Ltd v Pelias Construction Co Ltd  1 QB 607) The notice will also be bad if the amount of debt has been stated incorrectly. (W F Harrison & Co v Burke  2 All ER 169.) Though s 4(3) does not prescribe a particular form of notice, where there is doubt, the notice should also specify that the assignee was to receive the money for itself as principal, not to account of or on behalf of the assignor or as its agent. (United Overseas Bank Ltd v Singapore Engineers Ltd  2 MLJ 267.) Upon receipt of the notice, the debtor must make all payments of the debt to the assignee and not the assignor and if he pays the assignor without the consent of the assignee, he may have to pay the assignee all over again. (Malayawata Steel Berhad v Government of Malaysia & Anor  2 MLJ 103, even though it involved an equitable assignment. See also Malaysian International Merchant Bankers Bhd v Malaysian Airlines Sytem Bhd  2 MLJ 59.)
Condition (4) is perhaps the most important, that is, the assignment must be absolute and not by way of charge. Generally, the requirements of an absolute assignment are: (1) the assignment must be in respect of the whole and not part of the debt (Jones v Humphreys Ibid.); the assignment must not be conditional and (3) the assignment must not be by way of charge and labels (BP (Sabah) Sdn Bhd v Syarikat Jubrin Enterprise (sued as a partnership firm & Ors)  4 MLJ 715) are not important in construction. Thus the oft-repeated question is if the assignor has a right to redeem the loan, is the assignment an absolute assignment? In this respect, it has been held more than a century ago that an assignment of a debt to secure a loan given to the assignor with the assignors right to reassignment upon redemption has been held to be an absolute assignment without affecting the absolute character of the assignment. (Tancred v Delagoa Bay Ry 23 QBD 239 and Hughes v Pump House Hotel Co.  2 KB 190.) This applies equally to the assignor under the Clause. An assignment by way of charge is different as it only entitles the chargee to the right of repayment without involving a transfer of title to the chargee. For example, in Durham Brothers v Robertson  1QB 765 where the assignment only states that it is a security for advances until the money with added interest has been repaid and silent on the point of reassignment to the assignor with notice to the debtor, it was held that such an assignment is not absolute but one by way of charge because the debtor would not be able to know when the loan has been repaid and when the assignment has ceased since such an assignment ceases upon repayment and not upon reassignment.
If the assignment fails to meet the above conditions of s 4(3), then the assignment will be an equitable assignment in which case the assignee has to join the assignor as a co-plaintiff or as a co-defendant, as the case may be, but the assignor is entitled to sue direct.
Hence, where there is an absolute assignment under s 4(e), only the assignee can sue the developer/debtor, but not the assignor since the latter has already assigned all his rights and has no more right to sue. This works fine in a factoring agreement where the assignee factor can sue the debtor directly to recover the debt as the assignor creditor will not be interested in suing the debtor since he has already obtained the loan from the factor by divesting all his rights in the debt. (The Chartered Bank v Rashid Bin Mohadmed  2 MLJ 219.) Likewise, if the assignor defaults in his loan repayment, the absolute assignee bank can always dispose of the property by way of assignment to a third party with notice to the developer and without the concurrence of the assignor borrower. However, the assignment if given by a company requires registration as a charge under s 108(3)(e) of the Companies Act 1965 because it is an equitable mortgage (see Chuah Eng Khong v Malayan Banking Berhad  3 MLJ 97 and Ng Wei Teck Michael & Anor v Oversea-Chinese Banking Corp Ltd  1 SLR 55); otherwise the charge will be void against the liquidator and any creditor of the assignor. (s 108(1) Companies Act 1965.)
But problems arise if during the currency of the absolute assignment, the assignor has a dispute with the developer particularly in relation to late delivery and defective workmanship. The assignor will find that he has no locus standi to sue the developer and has to run to the assignee to persuade the latter to personally sue the developer or sue in the name of the assignor. In most cases, the assignee bank will be reluctant to do so and it is always a time-consuming process to get the assignee to agree to this course of action, much to the advantage of the developer.
The above legal position was well settled by the Malaysias highest court in Nouvau Mont Dor (M) Sdn Bhd v Faber Development Sdn Bhd  2 MLJ 268 and Hipparion (M) Sdn Bhd v Chung Khiaw Bank Ltd  2 MLJ 149 which held that a clause such as the Clause (above) is an absolute assignment under s 4(3) CLA notwithstanding that the assignment would later be converted into a legal charge under the National Land Code 1965 (NLC) upon issuance of the individual title. However, it is common knowledge in the housing industry that this is unfair to the assignor if the assignee refuses to sue the developer, a fortiori during the boom years of the nineties when thousands of apartment and condominium units without individual strata titles were sold in Malaysia, and loans were secured by loan agreements and assignment with clauses of assignment not dissimilar from the one in Nouvau Mont Dor. Also, it takes years before strata titles are issued when the assignments are then converted into a legal charge under the NLC which would then confer the assignor now a chargor the right to have direct recourse against the developer.
As a result, many High Court judges attempted to circumvent s 4(3) by holding that such assignment is outside s 4(3) CLA by applying a different construction to the principle laid down in Nouvau Mont Dor which is whether an assignment is an absolute one is to be gathered only from the four corners of the instrument itself even though the clauses of assignment were similar to the one in Nouvau Mont Dor. Further, some judges were of the view Nouvau Mont Dor had been overruled by the later Federal Court case in Chooi Siew Cheong v Lucky Height Development Sdn Bhd & Anor  1 MLJ 513 which held that when construing a document, one must look at the surrounding circumstances and not at one clause in isolation. By doing so, the judges were able to hold that the assignment is by way of charge which entitles the assignor to sue the developer in his own name.
The High Courts in Loh Hoon Looi & Ors v Viewpoint Propertues (Sabah) Sdn Bhd [1995-4 MLJ 804], Lim Hock Lai v Hwa Kwong Development Sdn Bhd  5 CLJ 515, Max-Benefit Sdn Bhd v Phuah Thean An & Anor  1 MLJ 553 and Sakinas Sdn Bhd v Siew Yik Hau & Anor  5 MLJ 498 all held that whether an assignment was an absolute one would depend on the aim of the transaction, and if it was intended as a security for a loan, it could not be absolute and therefore the assignor was entitled to sue in his own name! Another judge in Pak Ki Yau & Anor v Kumpulan Promista Sdn Bhd  6 MLJ 220 held that as repayment of the loan as well as the execution and registration of the subsequent charge is an uncertain event, the result of which had made the assignment conditional and not absolute!
In Chan Min Swee v Melawangi Sdn Bhd  7 CLJ 1, the judge went even further to hold that even if the assignment was not absolute, the assignee bank must still be made a party to the action either as a co-plaintiff or a co- defendant on the ground that the assignee bank has an interest in the matter. The court also held that a letter of consent with reservation of rights from the assignee bank is not a good consent for the assignor to sue in his name.
To further protect the assignor purchaser, the Court of Appeal in Phileo Allied Bank (Malaysia) Bhd v Bupinder Singh Avatar Singh & Anor 3 MLJ 157 held that as an absolute assignment is an equitable charge or mortgage, the assignee bank could only dispose of the property by way of a court order pursuant to Order 83 of the Rules of High Court (RHC), triggering off a deluge of foreclosure cases being filed in the courts.
Finally, the Federal Court put an end to all these upon appeal in Phileo Allied Bank (Malaysia) Bhd v Bupinder Singh Avatar Singh & Anor 2 MLJ 513 which reinstated the law in Nouvau Mont Dorand also held that the RHC could not extend into an area of substantive law and in the absence of any statutory provisions or common law requiring the equitable mortgagee to obtain a court order to realise its security under an absolute assignment of rights to land, the court should recognise the contractual rights of the parties. Hence, the assignee bank is once again entitled to foreclose the property by way of public auction without a court order. (Ngoi Thiam Woh v Maxwell, Kenion, Cowdy & Jones (sued as a firm) & Anor 3 MLJ 341.)
However, this still does not solve the problem of the poor assignor purchaser who is still incompetent to sue the developer. But his position has improved substantially if he is a homebuyer when Parliament passed the Housing Developers (Control and Licensing) Amendment Act 2002.The 2002 amending Act seeks to insert a new section 22C in the Housing Developers (Control and Licensing) Act 1966 which has the effect of overriding s 4(3) CLA and the decision of Nouvau Mont Dor if it involves a homebuyer who is a purchaser of a housing accommodation or has a dealing with a licensed housing developer under the 1966 Act. This new section will allow the assignor homebuyer to sue the developer directly unless a contrary intention is expressed in any assignment between the homebuyer and his financier in which case the prior written consent of his financier must first be obtained. This section operates notwithstanding anything contained in any written law or any rule of law and applies retrospectively to every assignment.
In conclusion, it cannot be gainsaid that a statutory assignment under our s 4(3) CLA is a common security for a loan if there is no individual title to the property, but not an assignment by way of charge. Therefore, there is a need for the legislature to look at the predicament of an assignor purchaser as particularised above just as what it did for the assignee under s4(3) CLA and a homebuyer under the Housing Development (Control & Licensing) Act 1966.