Protection of debtors
Section 10 – Protection of debtor who performs in good faith
63.Previously, a claim would only transfer if the assignation was intimated to the debtor. However, the effect of the changes in the Act is both to extend the scope of intimation and to enable registration as a method of effecting a transfer of a claim. As such, the debtor may not know that a claim has been assigned, and may in good faith pay an assignor who is no longer the creditor.
64.This section has the effect that a debtor who does not, and should not, know that a claim has been assigned will still be discharged from the debt to the extent of any payment made to the assignor (or any person nominated by the assignor).
Example
Paul lends Roger £5,000. Paul assigns his right to repayment to Susan, and she registers the assignation in the RoA. The effect is to transfer the claim so that payment is due to Susan. But Roger, who knows nothing of the assignation repays Paul, and Paul accepts payment rather than telling Roger to pay Susan. Roger does not require to pay Susan any amount that he has paid in good faith to Paul.
65.Subsections (1) and (2) provide for a general rule protecting a debtor who performs in good faith to the assignor where a claim has been assigned in whole or in part. Co-debtors are also discharged to the extent of the performance, as if the debt is a joint one then it is discharged (to the extent of the performance) for all debtors, albeit that one debtor may have an ability to recover from the other. The “last known holder of the claim” formulation in subsection (1) deals with the fact that there may have been a chain of assignations rather than only one.
66.Subsection (3) provides that the fact that an assignation document has been registered, or that it is deemed to have been intimated, does not of itself mean that the debtor does not perform in good faith. In particular, debtors should not be expected to have to check the RoA.
67.Good faith is not further defined in this section. However, section 116 places the onus of showing that the debtor has performed other than in good faith on the person making such an assertion. Whether or not a debtor is in good faith will depend on the facts of the case.
Example
Susan might make intimation to Roger by means of sending him a 200-page document dealing with many matters, but including the words of intimation half way down page 172. Roger may be in good faith if he still pays Paul.
Section 11 – Further provision as to protection of debtor
68.This section provides protection for debtors who are in good faith where an assignor is not. It also protects debtors against inadvertent errors by assignors (such as forgetting that a claim has already been assigned).
69.Subsection (1) sets out the four criteria which must each be met in order for the protection in subsection (2) to apply:
The first criterion is that the holder of the claim grants more than one assignation document in respect of the same claim (or part claim) to different people,
The second criterion is that the claim is transferred by one of the assignation documents to the true holder (typically, by registration of the assignation),
The third criterion is that the debtor is informed that the claim is assigned to the purported holder (either by notice from the original holder of the claim or the purported holder, or by being made party to judicial proceedings), and
The fourth criterion is that by virtue of being so informed, the debtor performs to the purported holder.
70.Subsection (2) has the effect that if the performance to the purported holder is in good faith then the debtor is discharged from the claim (or part) to that extent, and does not need to compensate the true holder. This also extends to co-debtors (see paragraph 65 of these Notes).
Example
Liana owes Kimberley £1,000. Kimberley then assigns her claim to Monica. Monica registers the assignation in the RoA (and does not intimate). Kimberley then assigns the same claim again to Neil, who intimates to Liana. Liana pays Neil, who is not the true holder, but provided she is in good faith she is discharged from the obligation to pay Monica.
71.Subsection (3) imports the rules that apply under section 10 of the Act, namely that the debtor is not in bad faith merely because an assignation document has been registered in the RoA, or because intimation has been deemed to have taken place. See paragraph 66 of these Notes.
72.In relation to good faith, see paragraph 67 of these Notes and section 116 of the Act.
Section 12 – Performance in good faith where claim assigned cannot be transferred by intimation
73.This section protects debtors who in good faith pay the assignee as a result of an assignation document that should have been registered (see section 3(8) of the Act) but was not.
74.Subsection (1) sets out the two criteria which must each be met in order for the protection in subsection (2) to apply:
The first criterion is that the assignation relates to a claim of a type prescribed by the Scottish Ministers under section 3(8) of the Act as being a claim that can only be transferred by registration, but the assignation has not been registered and this is the only reason that the claim has not transferred,
The second criterion is that, despite the claim not having transferred, the debtor performs in good faith to the (supposed) assignee (perhaps because the assignation has been intimated).
75.Subsection (2) provides that the debtor is discharged from the claim (or part) to the extent of the performance to the assignee. This also extends to co-debtors (see paragraph 65 of these Notes).
76.Subsection (3) sets out that the debtor will not be in good faith if the debtor knows that the assignation has not been registered, and that registration was required in order to transfer the claim, and still performs to the purported assignee (who is not the holder).
Section 13 – Performance in good faith where claim assigned subject to condition
77.This section protects debtors who do not know that an assignation document is subject to a condition, or who mistakenly believe the condition has been satisfied. Although section 15(8) and (9) of the Act grants an information-gathering right to debtors in respect of conditions, debtors are not required to be on guard against conditional assignations.
78.Subsection (1) sets out the criteria which must be met in order for the protection in subsection (2) to apply:
The first criterion is that the assignation is subject to a condition which must be satisfied before the claim transfers,
The second criterion is that the claim has not transferred and the only reason for this is that the condition has not been satisfied,
The third criterion is that, despite the claim not having transferred, the debtor performs in good faith to the assignee (perhaps because the assignation has been intimated without the debtor being told of the existence of the condition).
79.Subsection (2) provides that the debtor is discharged from the claim (or part) to the extent of the performance to the assignee. This also extends to co-debtors (see paragraph 65 of these Notes).
80.Subsection (3) applies the rules set out in section 10(3) here too. See paragraph 66 of these Notes.
Section 14 – Asserting defence or right of compensation
81.This section puts the common law rule assignatus utitur jure auctoris (the assignee takes the rights of the assignor) into statutory form. The new rule applies by default, so that it is open to the debtor and the assignor to agree that the debtor may not assert a particular right. This section does not make express provision as to how any agreement is to be constituted, although it will need to pre-date the assignation document.
82.The effect of subsection (1) is that, unless agreed otherwise, any defences which the debtor can plead against the assignor can also be pled against the assignee.
Example
Ona sells goods to Peter at a price of £1,000. The sale is on credit, and Ona assigns her claim for payment to Quentin. It turns out that the goods are defective. If this entitled Peter to refuse to pay Ona then he is equally entitled to refuse to pay Quentin. It does not matter that Quentin is in good faith.
83.Subsection (2) states that any agreement made by the parties that a defence cannot be asserted against the assignee is subject to a contrary rule in any enactment. For example, a consumer debtor may be protected by the unfair contract terms provisions in the Consumer Rights Act 2015.
84.Subsection (3) provides that a debtor is not to be treated as having been told about the assignation of a claim only because the assignation document has been registered. This rule applies for the purpose of any enactment or rule of law about compensation, set-off, retention, balancing of accounts or counterclaims.
Section 15 – Right to withhold performance until information as to assignation is provided
85.This section provides protections for debtors who:
are unsure about the veracity of the intimation made to them (subsection (1)),
are unsure whether an assignation document has been granted in a case where intimation has not been made to them (subsection (5)), or
are unsure whether the assignation of a claim is conditional and/or whether the condition has been satisfied (subsection (8)).
86.The first information right is found in subsection (1). It will often be the case that the debtor has little or no knowledge of an assignee, either before or after an assignation document is intimated. There is no requirement to include a copy of the assignation document for the purposes of intimation. Subsection (1) therefore applies where notice of an assignation document having been granted has been given to the debtor by the assignee rather than the assignor. It has the effect that the debtor may request from the assignee reasonable evidence of the assignation document having been granted.
Example
George owes Henry £500. Henry assigns the claim for payment to Imogen, who registers the assignation document in the RoA, and then assigns the claim to Jay, who intimates to George. George can request reasonable evidence of the assignation document granted by Imogen to Jay.
87.Subsection (2) gives an example of “reasonable evidence”, namely written confirmation from the assignor of having granted the document. There is no express requirement to provide a copy of the assignation document as it may contain information confidential to the assignor/assignee or a third party.
88.Subsection (3) makes it clear that the right to request information in subsection (1) applies equally to a purported notice of assignation and a purported assignee as it does to a valid notice of assignation and a “real” assignee.
89.Subsection (4) sets out the remedy where no reply is received to an enquiry under subsection (1). Where an assignation document has been granted, the debtor will be entitled to withhold performance from each of the assignor and the assignee until the evidence is provided by the assignee. Where an assignation document has not been granted, the debtor will be entitled to withhold performance until either the purported assignee or the purported assignee confirms in writing that an assignation document has not been granted in respect of the claim. This deals with the situation where the “assignee” is a fraudster who wants to prejudice the holder of the claim by making a fake intimation, or where the intimation has been made in error.
90.The second information right is found in subsection (5). Subsection (5) applies where the debtor has not received formal intimation of the assignation, but has reasonable grounds to believe that an assignation document has been granted. The debtor may state those grounds to the supposed assignor, and ask that party to confirm the position in writing. If an assignation document has been granted then, if the assignor provides the requested written statement, subsection (6) requires the statement to include the name and last known address of the assignee. Under subsection (7), if a written statement is requested under subsection (5), the debtor may withhold performance until a statement confirming whether the claim is the subject of an assignation document and (where applicable) fulfilling the requirements of subsection (6) is received.
91.The third information right is found in subsection (8). A claim that is the subject of a valid assignation document transfers upon the last of the requirements of section 3(2) being met. Where an assignation document is subject to a condition, that may be the last requirement to be met. Knowing that an assignation document has been granted in respect of the claim, and even that it has been intimated or registered, will only provide the debtor with part of the answer; they may still not know to whom they should perform. Subsection (8) therefore allows a debtor to ask the assignor or assignee to provide a written statement as to whether the assignation is subject to a condition. It also allows them to ask whether the condition has been fulfilled. Under subsection (9), performance can be withheld until a statement confirming the position has been received.
92.A request for evidence, or a statement of grounds, need not be in writing. The written statements which are provided in response can be provided electronically; the only requirement is that they are in writing.
93.The right to withhold performance under this section is a free-standing right and separate from the protections provided for by sections 11 to 14 of the Act.
94.However, where there are co-debtors then subsection (10) provides that it is only the debtor who actually makes an information request under subsection (1), (5) or (8) who is entitled to withhold performance pending the provision of that information.