Assignation of claims
Section 1 – Assignation of claims: general
5.Section 1 sets out key rules on assignation (i.e. transfer) of claims. A claim is the right to the performance of an obligation, usually the right to payment of a debt. See section 41(1) of the Act for the full meaning of “claim”.
6.Subsection (1) has the effect that a claim must be assigned by means of a document (an “assignation document”) which is executed or authenticated by the assignor. This means that it must be signed by or on behalf of the assignor, either in ink if a hard copy (“executed”) or with an electronic signature if an e-document (“authenticated”). The assignor means the person assigning the claim. See section 41 for the definition of “assignor” and section 120(2) for the meaning of “executed” and “authenticated”.
7.Subsection (2) requires the claim to be identified, but subsection (3) makes it clear that claims do not need to be individually identified in the assignation document, provided that these fall within an identifiable class and are identified as such. Thus, for example, it would be possible for a business to assign all invoices raised against a particular customer, or all invoices rendered in a period specified in the assignation document.
8.Subsection (4) provides that a claim that is not yet held by the assignor at the date of the assignation, including a claim that has not yet come into being, can be assigned. For example, a plumbing business may wish to assign to a factor the invoices for work not yet instructed by a customer. It is not possible to complete the assignation by intimating such a claim until the work has been done and the debtor can be identified. However, it will be possible to assign such a future claim by registering it in the Register of Assignations under section 19 of the Act.
9.Subsection (5) clarifies that the ways in which a claim can be identified in an assignation document include by making reference to another document, the terms of which are not reproduced. The term “document” is defined broadly in schedule 1 of the Interpretation and Legislative Reform (Scotland) Act 2010 and this provision would therefore include, for example, making reference to information uploaded to an electronic database.
10.Subsection (6) provides that nothing in Part 1 applies to the assignation of a claim as part of a financial collateral arrangement within the meaning of the Financial Collateral Arrangements (No.2) Regulations 2003. For example, a credit card company assigning the amounts due to it by its customers to its bank as security for its obligations would constitute such an arrangement (specifically, a title transfer financial collateral agreement). The law in relation to such matters is left unchanged by the Act.
Section 2 – Assignation of claim subject to a condition
11.This section provides that an assignation can be made subject to a condition which must be satisfied before the claim is transferred. For example, the assignation might be conditional on the grant of planning permission or on the assignee getting married.
12.Subsection (2) requires that the condition is set out in the assignation document, in order to enable a third party to be able to discover from the document whether there is such a condition. In the case of a registered assignation document, a copy of the document will be included in the assignations record.
13.Subsection (3) provides that a condition may relate to a thing happening, or not happening (in either case regardless of whether or not it is certain that the thing will happen). The condition can also be simply the occurrence of a specified date being reached.
14.Subsection (4) enables a condition to be specified by reference to another document (for example, the loan agreement that relates to an assignation in security).
Section 3 – Transfer of claims
15.This section provides for the transfer of an assigned claim where there is a validly constituted assignation document in accordance with section 1. The person to whom the obligation under the claim must be performed is the “holder” of the claim. The assignee is the person to whom the claim is assigned (who becomes the new holder, in place of the assignor).
16.Subsection (1) provides that a claim is transferred when the four conditions in subsection (2) are all met. The conditions can be met in any order. Subsection (2) has the effect that a claim will transfer when:
the assignor is the holder of the claim,
the assignation is intimated (see section 8(1)), or registered in the Register of Assignations (“RoA”),
the claim is identifiable as a claim to which the assignation document relates, and
any condition to which the assignation is subject is met.
17.It follows that if a claim is not identifiable then the transfer is postponed until it becomes so identifiable.
Example 1
Arthur assigns to Barbara his claim to a current debt of £1,000 owed by Zoe. Barbara registers the assignation in the RoA. The claim transfers on registration because the claim as constituted by the debt exists and is clearly identifiable.
Example 2
Debra assigns to Excellent Factors claims in respect of customer invoices to be issued by her as described in schedules to be sent from time to time to the factors. Excellent Factors registers the assignation in advance of any such schedule being sent. There is no transfer at the date of registration as no claim can be identified (and might not exist). The claims listed in the first such schedule transfer when that schedule is issued as they exist and can be identified at that time.
18.Subsection (3) provides that any rule of law as to accretion is to be disregarded in determining any matter which relates to the transfer of such claims as are mentioned in section 1(4) of the Act (assignation of a claim not yet held by the assignor). A person cannot convey property which that person does not own. However, as a general principle, accretion may operate where a person has purported to do that and then subsequently acquires the property. The effect of accretion would be to cure the defect in the title of the assignee. It is, however, not clear that accretion applies where “future” claims are assigned, so subsection (3) clarifies that it does not, with the effect that the measures in the Act replace any common law rule.
19.Subsection (4) provides that although registration of an assignation document can be one of the elements which allows a claim to transfer, it is only effective registration that counts (see section 27).
20.Subsections (5) and (6) make provision for the situation where there are competing assignation documents in relation to the same claim. In most cases, the claim will transfer to whichever assignee first registered or intimated the assignation document, because that will usually be the final requirement to be met under subsection (2) and so will give rise to the transfer. However, if the assignor is not the holder of the claim at the time of granting the competing assignation documents, them becoming so might be the final requirement to be met. That would mean that all of the competing documents would meet the requirements of subsection (2) at the same time. Similarly, the competing assignations could be made subject to conditions. Those could be the final requirement to be met under subsection (2), and might all be met at the same time. Alternatively, the claims might not be identifiable initially as claims to which the assignation documents relate. Them becoming so could be the final requirement to be met under subsection (2) and could be met in relation to the competing assignations at the same time. The result of subsection (6) is that in such cases the claim would therefore transfer to whichever of the assignees first meets the requirement as to intimation or registration.
21.Subsection (7) provides that the rule about claims transferring is subject to section 4. That section makes provision about the effect of insolvency on assignations where the claims being assigned are not held by the assignor at the time of granting the assignation document (either because the claim does not exist yet, or because it exists but someone else is the holder).
22.Subsection (8) enables the Scottish Ministers to prescribe certain categories of claim which can only be transferred by registration of the assignation. For example, in some jurisdictions, assignments in respect of invoices that have yet to be paid must be registered to have third party effect. If registration of assignments of so-called trade receivables was to become required in England and Wales then there may be support for this to be the position in Scotland as well.
Section 4 – Assignation of claims: insolvency
23.Section 4 sets out what the legal effect of an assignation document is in the event of the assignor’s insolvency.
24.Subsection (1) provides that this section is relevant only where the claim that was assigned was not held by the assignor at the time of granting the assignation document. This covers assigning a claim that is not yet in existence, as well assigning a claim which exists but which the assignor does not yet hold. Where the assignor becomes insolvent after granting an assignation document in respect of such a claim, this section will apply.
25.Subsection (2) provides that an assignation of such a claim is, subject to subsection (3), ineffective if the assignor becomes the holder of the claim after becoming insolvent (i.e. during the period of the insolvency or after being discharged).
Example
A tradesman assigns future invoices to a factor. The tradesman is sequestrated, and then issues an invoice for a new job carried out after the date of sequestration. The tradesman only becomes the holder at that point. The claim in respect of that invoice will not transfer to the factor.
26.Subsection (3) has the effect that an assignation is, however, effective where the claim is in respect of income from property in existence at the time the assignor becomes insolvent, and is not attributable to anything done or agreed to be done by the assignor after the insolvency.
Example 1
A musician has licensed the use of a song in an advert, and assigns the royalties due in respect of that use. The assignation is effective even if the musician becomes insolvent.
Example 2
A landlord assigns the future rent on a property to a bank. The landlord is sequestrated. The assignation remains effective for rents arising after the date of sequestration because the rents derive from an asset (the property) of, and not from efforts by, the landlord.
27.An assignation that is ineffective under subsection (2) does not become effective if the assignor is discharged from the insolvency. However, subsection (4) provides that claims that remain effective on an insolvency (i.e. they survive under subsection (3)) become ineffective under subsection (5) if the assignor is discharged from a sequestration or from a protected trust deed. The effect is that any claim which comes into being after such a discharge is not transferred by the assignation, with the effect that the assignor makes a fresh start after insolvency.
28.Subsections (4) and (5) will mainly benefit individuals, as only a few types of legal person can be sequestrated (for example, partnerships). This protection does not otherwise apply to legal persons, and indeed the effect of a corporate insolvency is in nearly all cases the dissolution of the corporation.
29.Subsection (6) provides for the meaning of insolvency for the purposes of section 4, in respect of both individuals and legal persons (such as limited companies).
30.Subsection (7) gives the Scottish Ministers power to amend the list of insolvency processes listed in subsection (6), as well as to apply subsections (4) and (5) to circumstances other than sequestration or the granting of a trust deed.
Section 5 – Assignation in part
31.Subsection (1) provides that a claim may be assigned in whole or in part.
Example
Andrew lends £2,000 to Brenda. He then has a claim for repayment of that sum. But he could assign £500 of that claim to Carol and the other £1,500 to Doris. These would be assignations in part.
32.Subsection (2) provides that where the claim is not one requiring payment of money, assignation in part is only permissible where the claim is divisible and one of two circumstances applies:
the first is where the debtor (i.e. the person against whom the obligation is enforceable) consents,
the second is where the assignation in part is not likely to result in a significantly greater burden on the debtor.
33.For example, say Elaine has an obligation to deliver 30 motor vehicles to Frank. Her obligation may not become significantly more burdensome if Frank assigns part of his claim to one person and the remainder to another. If, however, Frank assigns the claim to 30 persons then the obligation may well be likely to become significantly more burdensome (and therefore not assignable in part in that manner). The assessment as to result is carried out at the time of making the assignation in part and is based on the likely outcome, which means that the assignation in part could not appear to be valid and then be challenged in future as a result of unforeseen events arising.
34.Subsection (3) enables the debtor to recover from the assignor, unless agreed otherwise with the then-assignor, the expenses attributable to a claim being assigned in part under subsection (1). For example, sending payments to several partial assignees rather than one assignee may be more costly. The additional cost in doing so is therefore recoverable.
35.This section does not make provision as to how any consent or agreement for the purposes of this section is to be constituted. It might, for example, be in the agreement which gives rise to the claim or in a subsequent agreement.
Section 6 – Limitations as to assignability: general
36.Subsection (1) continues the effect of any current enactment or rule of law that prevents the assignation of a claim. For example, the assignation of a claim to certain social security payments is barred by section 187 of the Social Security Administration Act 1992.
37.Subsection (2) excludes the preservation of other enactments or rules of law which contradict provision made in this Part of the Act that allows for the assignation to be effective. In particular, it was previously a rule of law that future claims could not be assigned (due to the impossibility of intimation until a debtor existed). That rule of law is now displaced by section 1(4) and that prevails over section 6(1).
38.Subsection (3) makes it clear that the debtor and the holder of the claim can agree (or a person giving a unilateral undertaking can state) that the claim cannot be assigned, or cannot be assigned in part. This is known as an anti-assignation (or, following England and Wales, a non-assignment) clause and is a permitted clause in a contract or undertaking.
39.Subsection (4) provides that although the language of “the holder of the claim” is used in subsection (3), this includes a person who is not yet the holder at the time of agreement. This allows anti-assignation agreements to be entered into in anticipation of becoming the holder of a claim (for example, because the assignation is of future claims).
40.Subsection (5) has the effect that subsection (3) is subject to any enactment which renders anti-assignation clauses ineffective, such as sections 1 and 2 of the Small Business, Enterprise and Employment Act 2015.
41.As with section 5, this section does not make express provision as to how any agreement or statement is to be constituted.
Section 7 – Claim in respect of wages or salary
42.This section prevents an individual assigning a claim to payments of wages or salary due to them, including for this purpose any associated payments such as bonus and redundancy payments.
43.This section will sit alongside other, more specific statutory provisions restricting the assignation of income, which also continue to have effect unless and until they are repealed. However, there are some limited cases where the assignation of such a claim is possible – for example, section 34 of the Merchant Shipping Act 1995 generally restricts the assignation of wages, but some exceptions are made to this (such as for those payable to a relevant fund under subsection (3). Those exceptions are preserved by section 7(3).
Section 8 – Intimation of the assignation of a claim
44.Section 3 of the Act sets out that an assigned claim may be transferred by intimation under subsection (1) of this section (where the other requirements of section 3(2) have also been met).
45.Subsection (1) sets out a new rule governing the types of intimation that must be used in order to effect the transfer of a claim which otherwise satisfies the requirements of section 3(2). It replaces the existing statutory rules on intimation in the Transmission of Moveable Property (Scotland) Act 1862, which is therefore repealed by section 40 of the Act. There are a number of different options under subsection (1), although subsection (1)(a) is likely to apply most often.
46.Subsection (1)(a) provides that either the assignee or the assignor may serve notice of the assignation on the debtor.
47.Subsection (1)(b) provides, first, for “constructive” intimation to a debtor who has knowledge of the assignation of the claim and acknowledges having such knowledge.
Example
Having become aware of the assignation other than by notice, the debtor may perform – or promise to perform – to the assignee something which the assigned claim obliges the debtor to perform to the holder of the claim. The claim is transferred by the performance or the promise without any need for written intimation to the debtor (provided that all of the other requirements as to transfer of the claim under section 3(2) have already been met).
48.Subsection (1)(b) provides, second, for intimation to be given where the debtor is a party to judicial proceedings in which the assignation is founded on.
Example
The assignee raises an action against the debtor for performance of the obligation to which the claim relates. Thus if Andrew lends £2,000 to Brenda, and then he assigns the right to repayment to Carol, intimation to Brenda would be effected by Carol raising proceedings against Brenda founding on the assignation. Provided that all of the other requirements as to transfer of the claim have already been met under section 3(2), this would therefore effect the transfer of the claim.
49.Subsection (2) provides that intimation to any one co-debtor is to be treated as intimation to all the co-debtors (as it is under the existing law).
Example
Kenneth lends £1,000 to Leslie and Max. If he assigns the right to repayment to Nicola then the claim will be transferred to her by intimation to either Leslie or Max.
50.Subsections (3) to (12) provide more detail on assignation by notice to the debtor.
51.Subsection (3) concerns the form and content of the notice. It should be read with section 15 of the Act which sets out the right of the debtor to seek information about an assignation. The notice:
must provide the name and address of both the assignor and assignee, as well as details of the claim (or part claim) being assigned,
need not be set out in a single document (“document” is defined in schedule 1 of the Interpretation and Legislative Reform (Scotland) Act 2010 and would include e-mails and attachments to e-mails),
need not be signed either in ink or electronically; the effect is to authorise the practice of some factors whereby stickers are placed on invoices instructing the debtor to pay the factor, but the stickers are not signed,
can, in the case of a monetary claim, be in a style form prescribed by the Scottish Ministers under regulations, although there would be no consequence to using or not using such a form.
52.Subsection (4) makes it clear that, in the case of an electronic intimation, the required information may be provided through a link to a website or portal.
53.Subsection (5) permits three forms of service: (a) by personal delivery; (b) by post or courier (including ordinary post, not just registered delivery); and (c) by transmission to an address provided for electronic communication. Intimation can be made either to the “proper address” of the debtor as defined in subsection (11), or an address supplied by the debtor.
54.Subsections (6), (7) and (8) allow the parties to make a determination that a notice must be served by means of a particular one of the permitted ways (e.g. by electronic means), or to a particular address. In other words, the default rules can be replaced up to a point. Intimation by oral means is not, however, permitted. A determination of this nature must be agreed in writing between both parties (the holder of the claim and the debtor) unless the claim arises from a unilateral undertaking, in which case it can be effected by that person in writing. However, once a determination of this nature has been agreed, it can be updated by the debtor unilaterally.
55.Subsection (9) provides that a notice served by post or other postal services in the UK is deemed to be received 48 hours later unless earlier receipt can be shown. Subsection (10) sets out a similar rule for electronic transmission, though in that case it is deemed to be received after 24 hours unless earlier receipt is shown. The effect is to provide, where required, certainty as to the time of intimation. This is important in a question with third parties, such as creditors carrying out diligence, as the claim will transfer on intimation (assuming the other requirements of section 3(2) are already met). If the notice has not actually reached the debtor (for example, by going missing in the post) then the good faith protection rule in section 10 may need to be relied upon by the debtor.
56.Subsection (11) makes it clear that a determination can be entered into between a debtor and the prospective holder of a claim. It also defines certain terms by reference to the Postal Services Act 2011, as well as providing for what the “proper address” of the debtor means.
57.Subsection (12) allows service to be made on a party who is authorised to act on behalf of the debtor for that purpose, such as a solicitor.
Section 9 – Warrandice implied in the assignation of a claim
58.This section provides for the warranties that an assignor is deemed, unless agreed otherwise, to give to the assignee in respect of an assigned claim when granting an assignation document. It replaces the current law and clarifies the effect of warrandice. See section 17(1)(d) for the repeal of the current law.
59.Subsection (2) provides that for assignation documents granted for value, the implied warrandice reflects the common law principle of warrandice debitum subesse (the debt exists). This principle means that the assignor guarantees to the assignee the existence of the claim. As such, if the assignee finds that the claim is barred because, for example, the assignor personally barred themselves from seeking performance, the assignor is in breach of warrandice and must compensate the assignee.
60.Subsection (3) provides that in the case of assignation documents granted gratuitously (for no value), the implied warrandice reflects the common law principle of warrandice of facts and deeds only.
61.Subsection (4) provides that the assignee is not held to warrant that the debt will be paid. In other words, the assignor does not guarantee that the debtor is solvent and can pay the debt.
62.Subsection (5) has the effect that the warranties are, where applicable, implied in any contract relating to the assignation of a claim as well as in the assignation document itself.
