THE NATURE OF THE ASSIGNMENT
168 It is important not to confuse the nature of an assignment, with the consequence of giving notice of the assignment to the debtor or obligor. An assignment is an immediate disposition of a legal or equitable right, title or interest. Its efficacy depends on, first, the ascertainment of the fact that there has been a disposition of that right, title or interest and, secondly, the formalities under s 12 of the Conveyancing Act or in equity which must be satisfied to effect such a disposition. Different rules apply to differing types of property and to voluntary assignments, as opposed to assignments made for value.
169 Here, there is no dispute that the transactions relied on as assignments by the Bank to BNY, and then by BNY to Leveraged Equities were for value. But that is not the end of the inquiry. Before s 12 of the Conveyancing Act could be relied on by it against Mr Goodridge, Leveraged Equities must establish that the right it seeks to enforce is a "… debt or other legal chose in action". If it is not, then s 12 has no bearing and Leveraged Equities must establish that that right is property that was effectively assigned to it in equity.
170 An assignment for value will be enforceable in equity by the assignee. And, the benefit of a contract is in general assignable in equity and may be enforced by the assignee: Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd [1903] AC 414 at 420 per Lord Macnaghten. He said that the assignor was not a necessary party although it ought ordinarily be joined: Tolhurst [1903] AC at 420-421; and see too per Lord Lindley at 424 in William Brandt's Sons & Co v Dunlop Rubber Company Ltd [1905] AC 454 at 462. Lord Macnaghten said that an equitable assignment need not take any particular form and continued:
"It may be addressed to the debtor. It may be couched in the language of command. It may be a courteous request. It may assume the form of mere permission. The language is immaterial if the meaning is plain. All that is necessary is that the debtor should be given to understand that the debt has been made over by the creditor to some third person. If the debtor ignores such a notice, he does so at his peril. If the assignment be for valuable consideration and communicated to the third person, it cannot be revoked by the creditor or safely disregarded by the debtor."
171 He held that the insolvent assignor's trustee in bankruptcy had no interest in the proceedings and was not therefore a necessary party: William Brandt's [1905] AC at 462. At common law, an assignee of a chose in action can bring proceedings in the assignor's name to enforce the obligation, even though the assignor refuses to consent, because the assignment is sufficient authority to do so: MacDonald v Robins (1954) 90 CLR 515 at 524 per Dixon CJ, Webb J agreeing.
172 An equitable assignment is complete upon the expression by the assignor of an intention to make over to the assignee then and there the assignor's equitable interest in the property or right concerned. It is not necessary to give notice of the assignment to the obligor in order to perfect the disposition in equity of the property or right under the dealing between the assignor and assignee. Notice, however, is important at a practical level, because until notice is given first, the obligor can pay the assignor and obtain a good discharge and, secondly, the assignee may lose, or be postponed in its priorty. Notice will bind the obligor: Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 622 per Dixon J; Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26 per Windeyer J; see too Thomas v National Australia Bank Ltd [2000] 2 Qd R 448 at 453 [18] per Pincus JA.
173 In an equitable assignment, the assignee takes no better title than his assignor had and takes subject to all equitable interests and defects affecting the assignor's title: Southern British National Trust Ltd (in liq) v Pither (1937) 57 CLR 89 at 105 per Rich J. No debtor or obligor can relieve himself of the debt or obligation owed to another by making an agreement with a third party. Liabilities to pay debts and obligations are not assignable: Federal Commissioner of Taxation v Orica Ltd (1998) 194 CLR 500 at 513 [19] per Brennan CJ and see at 530 [67] and [68] per Gaudron, McHugh, Kirby and Hayne JJ.
174 The nature of the dealings between the Bank, BNY and Leveraged Equities had similarities to the transfer of book debts and the contractual rights of the assignor to enforce the obligations of the debtor: cp Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 160-162 per Dixon J.
175 But, the margin loan was not a static or unchanging liability due by Mr Goodridge to the Bank. Whileever he was not in default, he could draw down further on the margin loan up to his limit of $4.8 million if he provided sufficient security. And he could repay some or all of it and regain possession of some or all of the security he had provided when, on 7 January 2009, the Bank purported to assign the balance of Mr Goodridge's margin loan and his, then, units in the MCW Trust as at 1 January 2009 to BNY and BNY assigned that sum the next day to Leveraged Equities. The purported assignment also included such of the Bank's contractual rights against Mr Goodridge that could be assigned. These dealings raised the question whether, if he incurred further debts on the margin loan account and provided further security, the Bank's rights to these would pass immediately initially to BNY and then to Leveraged Equities? This would occur if the dealings were assignments because the two transfer proposals operated as assignments of future property for value that passed the property, as soon as it came into existence, to the assignee: Balding 43 CLR at 154-155 per Isaacs, 157 per Starke J, 160-162 per Dixon J; Tailby v Official Receiver (1888) 13 App Cas 523; Everett 144 CLR at 450.
176 However, because its obligation to provide the loan or further advances to Mr Goodridge had not been transferred, the Bank remained bound to him under the loan and security agreement. So, if the Bank lent more of its money and obtained security for it the questions arise how or why would the new debt and associated rights pass to Leveraged Equities? After all, the Bank had made a new advance of its, not Leveraged Equities', funds because the Bank was contractually obliged to Mr Goodridge to do so.
177 The complexity of this tripartite putative relationship in which there were one lender, the Bank, and a different assignee creditor, Leveraged Equities, was byzantine to say the least. Somehow, at the moment Mr Goodridge drew down on the facility, the Bank would have to provide him with funds and, on the respondents' argument, the right to enforce his liability to repay the new advance by the Bank would then pass to Leveraged Equities even though it had not made the advance. While there was a transitional services agreement ("the transitional services agreement") in place to cater for their internal relationships and adjustments, the Bank's former customers had no idea of what lay behind the transfer arrangements. BNY was not a party to that agreement.
178 As noted above, under cl 3(b) of the LE appointment deed, BNY transferred to and Leveraged Equities had vested in it, all BNY's rights, title and interests "in the Assets of the [2008 trust]". The expressions "Assets" and "Assigned Assets" were defined in cl 1.1 of the master trust deed. "Assigned Assets" were defined specifically in relation to transfer proposals. The expressions meant the disposing trustee's entire right, title and interest in all present and future assets, real and personal property, including choses in action and other rights as well as the benefit of all covenants and agreements and other choses in action in favour of or held by the disposing trustee under the transaction documents in relation to the disposing trust. In essence, the defined term "Assigned Assets" was intended to capture all the rights, titles and interests that the disposing trustee held under the transaction documents for the disposing trust. Also under the LE appointment deed, BNY was released from and Leveraged Equities assumed all obligations and liabilities imposed on BNY under each "Transaction Document". It is common ground that Mr Goodridge's loan and security agreement was not a "Transaction Document".
179 Next, the Bank argued that the transitional services agreement made on 8 January 2009 between the Bank, Margin Lending Nominees Pty Ltd, Macquarie Equities Ltd and Leveraged Equities operated if there were an assignment, rather than novation, in favour of Leveraged Equities. It contemplated that Leveraged Equities would get the benefit of the borrower's promise to pay in cl 4 and obtain the security held by the Bank for that promise. Importantly, the Bank would still be obliged to make advances in discharge of its obligations to Mr Goodridge and other borrowers, but somehow Leveraged Equities would receive the benefit of the borrower's promise to repay the composite borrowing. Thus, the Bank would lend money and create a debt due to it by its borrower, and Leveraged Equities would have the right to claim repayment of that debt through some internal accounting between the two of them. In such circumstances a borrower might have a real interest in the identity of his lender, which suggests that the rights sought to be dealt with in this way were personal rather than proprietary and were not capable of assignment. The Bank argued that despite this, cl 21 of the loan and security agreement contemplated that there could be such a dealing and authorised it in advance.
180 Under cl 9 of the transitional services agreement the Bank would act as settlement agent in relation to the processing of margin loans, making advances and receiving repayments (including advances made or collections made after completion of the transactions on which Leveraged Equities relies as giving it rights against Mr Goodridge) under loan and security agreements and a daily settlement of accounts between the Bank and Leveraged Equities. The Bank would undertake these activities in accordance with what cl 9 referred to as a "transition plan". The parties to that agreement undertook to negotiate a transition plan for this purpose (cl 14), but no actual plan was in evidence, only the contemplation that it might be made. And cl 12.3 provided that the Bank performed its services under that agreement as an independent contractor and not as an agent or fiduciary.
181 The respondents argued that Leveraged Equities took an assignment of the Bank's margin loan rights to, among others, Mr Goodridge's margin loan and MCW Trust units as at 1 January 2009 under the provisions of a sale and servicing deed dated 6 January 2009 between the Bank, MSL, BNY, Leveraged Equities and Bendigo and Adelaide Bank ("the sale and servicing deed"). Clause 2.4 of that deed provided:
"Sale Notice constitutes an offer to sell
A Sale Notice constitutes an offer by the [Bank] to assign to [BNY] with effect from the commencement of business on the relevant Cut-Off Date on the terms of this Deed the [Bank's] entire right, title and interest in, to and under the following:
(a) (Margin Loans) each Margin Loan identified in the schedule accompanying the Sale Notice;
(b) (Securities) all Securities in existence from time to time in relation to the above Margin Loans;
(c) (Margin Loan Receivables) all Margin Loan Receivables in existence from time to time in relation to the above Margin Loans; and
(d) (Margin Loan Documents) all Margin Loan Documents in existence from time to time in relation to the above Margin Loans." (emphasis added)
182 Under the 2008 trust deed, both the loan and security agreements and the securities relating to each margin loan were part of the defined term "Margin Loan Documents". Pursuant to cl 2.4 of the sale and servicing deed margin loan rights the Bank offered to assign to BNY those documents together with each margin loan held by the trustee, and all present and future money owing at any time in respect of the margin loan, including advances or financial accommodation made by the Bank before or after the commencement of business on the cut off date.
183 Thus, the nature of what passed, if that offer were accepted, included an "assignment" of Mr Goodridge's loan and security agreement and the securities he had provided under it. That did not make sense. His agreement was incapable of assignment since it contained not only rights but also obligations of the Bank owed to Mr Goodridge. The respondents did not suggest that only the pieces of paper comprising the loan and security agreements were assigned. That could hardly be so since the securities given under those agreements were also assigned. However, as Lord Browne-Wilkinson said in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103E (see too Orica 194 CLR at 513 [19]):
"Although it is true that the phrase "assign this contract" is not strictly accurate, lawyers frequently use those words inaccurately to describe an assignment of the benefit of a contract since every lawyer knows that the burden of a contract cannot be assigned: see, for example, Nokes v Doncaster Amalgamated Collieries Ltd [1940] A.C. 1014, 1019-1020."
184 Thus, giving the benefit of Lord Browne-Wilkinson's doubt to those who drafted these documents, I will assume that the Bank must have offered to assign only the benefit of the loan and security agreements in the sale and servicing deed. But once again that produces an unworkable tripartite relationship in which Mr Goodridge would have two "the Bank" entities from whom he was borrowing, each of which could exercise independently the rights given to "the Bank" under the loan and security agreement in respect of the margin loans and margin loan receivables in cl 2.44(a) and (d).
185 The Bank and Leveraged Equities relied on the transitional services agreement as providing a means by which the Bank could perform its obligations to its borrower under the loan and securities agreement harmoniously with the tripartite relationship it contemplated with the borrower. They contended that this ensured that while the Bank performed its residual obligations to borrowers, it did so at the ultimate expense of Leveraged Equities. And, they contended that the transitional services agreement allowed Leveraged Equities to set the policies that the Bank would apply in carrying out its obligations to its borrowers, so that even if Leveraged Equities were only an assignee of the Bank's rights, it had control effectively over all aspects of the Bank's margin lending relationship with its customer. And, Leveraged Equities said that it had had assigned to it the right to repayment of the balance of the margin loan under cll 4.1 and 4.4 of the loan and security agreement.
186 The respondents jointly submitted that a very considerable number of rights of "the Bank" under the loan and security agreement were assigned to Leveraged Equities. These included the rights:
· to be paid interest and to determine the interest rate (cl 3);
· to be repaid the loan after an event of default or other circumstance in which it became repayable (cll 4, 13);
· to make and be paid margin calls (cl 5);
· to request financial or other information from the borrower (cl 9);
· to accept or withdraw particular securities as being eligible securities for the purposes of the loan and security agreement (cl 12);
· to disclose information to an adviser of the borrower, and act as an attorney of the borrower (cl 24.3, 24.6);
· to vary the terms of the loan and security agreement (cl 24.4);
· to vary the credit time, and determine both the lending ratio and market value (cl 25.1).
187 The respondents' joint submission accepted that the Bank retained the obligation to the borrower to advance further funds and to apply the loan to the purchase of securities nominated by the borrower under cl 1.2.
188 The unworkable situation so created can be illustrated by considering the obligation of "the Bank" under cl 1.2 of the loan and security agreement to allow Mr Goodridge to draw up to the amount of his credit limit. That was defined in cl 25.1 as the lesser of $4.8 million and "the market based limit". The latter expression involved the Bank determining the market value of Mr Goodridge's securities based on its assessment of their value arrived at using its absolute discretion. However, if the respondents' argument were correct, Leveraged Equities had had that right of assessing market based value assigned to it so that, simultaneously, it could value the same property differently and exercise a power to make a margin call. So, if the right to exercise the discretion had been assigned, the Bank could not perform its obligation, and if it were not assigned, Leveraged Equities could not exercise its right to assess value in order to protect its position and to make margin calls. This suggests that the drafting of these documents proceeded on the basis of the mistake Lord Browne-Wilkinson disclaimed, and that, indeed, the parties intended to "assign" the whole of the loan and security agreements, including obligations.
189 The existence of this wide discretion to make valuations affecting the availability of finance in a person's banker, suggests that the identity of the banker would be important to the customer. Indeed, there was a pronounced change of attitude towards Mr Goodridge once the Bank ceased, and Leveraged Equities began, to manage his loan. I am not satisfied that the Bank would have classified MCW Trust units, that bore its brand name, as a "penny dreadful", even in the market conditions of 23 and 24 February 2009. It is likely that the Bank would have taken the view of Mr Norval on 10 February when he recommended to Mr Edwards extending the margin call, as I have described above.
190 These considerations are relevant to understanding the nature of the loan and security agreement and the rights of the Bank under it that might be capable of assignment in the sense explained by Northrop, Gummow and Hill JJ in Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 237-239. They said (at 238) that provisions of the agreement in that case "… are to be construed, prima facie, from the position that assignment of the benefit of the agreement is to be permitted only to the extent to which express provision is made": see CB Peacocke Land Co Ltd v Hamilton Milk Producers Co Ltd [1963] NZLR 576 at 582-583 (emphasis added); Devefi 113 ALR at 238.
191 Here, of course, cll 21.2 and 21.4 expressly provide for assignment: CB Peacocke [1963] NZLR at 582-583 per North, Turner and McCarthy JJ. The importance of cll 21.2 and 21.4 is that the parties to a contract can provide that rights or benefits under it, not otherwise assignable, can be assigned: Devfi 113 ALR at 235; Pacific Brands 149 FCR at 404 [32] (third proposition); CB Peacocke [1963] NZLR at 581-583. The respondents argued that these considerations supported the efficacy of what they had sought to achieve in the documents.
192 I reject that argument. What the documents fail to achieve is a coherence in the rights or benefits with which they purport to deal. It is impossible, in my opinion, to bifurcate the lending obligations and rights by the mechanism employed here. There cannot be two persons who meet the description "the Bank" capable of exercising the same rights and powers to determine, independently, the available credit for Mr Goodridge, the value of his securities and whether or not he is in default.
193 In my opinion, this raises a situation analogous to that discussed in Hutchens v Deauville Investments Pty Ltd (1986) 68 ALR 367 at 372-373 by Gibbs CJ, Mason, Wilson, Brennan and Deane JJ who said (Hutchens 68 ALR at 373):
"... it would seem to be simply impossible, as a matter of basic principle, to assign the benefit of a guarantee or the security for it (as distinct from the property secured) while retaining the benefit of the guaranteed debt and thereby to convert the one debt owing by both principal debtor and guarantor to the one creditor into two debts, one owing by the principal debtor to the creditor and the other owing by the guarantor to the assignee. If it were otherwise, the position would seem to be that, by assigning the benefit of a guarantee and the guarantor's security and retaining the benefit of a principal debtor's indebtedness and the principal debtor's security, a creditor could effectively divorce the guarantor's liability from that of the principal debtor and effectively deprive the guarantor of the rights which flowed from his position as such including (where available) his rights of subrogation."
194 And in Queensland Premier Mines Pty Limited v French (2007) 235 CLR 81 at 96 [38] Kiefel J (with whom the other members of the Court agreed) explained that Naylor 55 CLR 423 held that the transfer of a mortgage did not give the transferee the right to sue a surety on a guarantee contained within the mortgage. Her Honour went on to say that this did not prevent the parties to the transfer from agreeing to effect a transfer of a debt arising from a separate loan agreement: see French 235 CLR at 101 [57].
195 No doubt the overall commercial result which the various parties to the master trust deed and other related dealings sought, could be achieved by novation of the loan and security agreement, as cll 21.2 and 21.4 recognised. But, this was not done, again, no doubt, because it would have required over 18,500 borrowers to agree: cf Devefi 113 ALR at 238. Instead, the mechanism of assignment was employed to achieve a result that was beyond its reach.
196 Obviously, the courts should strive to give effect to commercial dealings and contracts. But, the law relating to assignments is an area that is bedevilled by technical rules, some of which have purposes that protect the rights of persons such as debtors or persons to whom the identity of the other party is important, who would otherwise be involuntarily made subject to a relationship with a stranger.
197 The reliance of the Bank and Leveraged Equities on commercial and administrative arrangements arrived at between them in order to make workable the practical side of their overall transaction distracts from the critical issue. That issue is the assignability of the chose in action, namely Mr Goodridge's margin loan at its value on January 2009 and his then supporting security. If the rights were assignable as a matter of law, then Leveraged Equities could assign them in turn, to X without any of those accompanying arrangements. The legal efficacy of the assignment of a right cannot depend on the practical steps any particular assignor and assignee may agree in order to make the assignment workable. The validity of the dealings here must be capable of being tested by examining the position if Mr Goodridge's loan were the only loan assigned. Could it be assigned by Leveraged Equities to X, as subsequent assignee? And when that was done, what rights would X obtain on such an assignment?
198 If the respondents were correct, X would obtain all of the rights referred to at [186], including the right of the Bank to determine market value of Mr Goodridge's securities and their LVRs, while the Bank itself remained obliged to lend to him and assist him to acquire more securities on its own determinations of market value and LVR. The Bank had an obligation to make the loan using its power to determine those factors. How could X have that power to the exclusion of the Bank? Suppose Leveraged Equities made an equitable assignment to X of this posited chose in action consisting of Mr Goodridge's margin loan and securities but did not give the Bank notice of it. How would the Bank be able to discharge its contractual obligations to Mr Goodridge to decide whether or not it would hand him more money? He had a legal right to have the Bank make determinations in accordance with the loan and security agreement as and when he applied for further advances.
199 I am of opinion that the Bank cannot have disposed, once for all, of its rights and power to determine, independently of Leveraged Equities or X, whether or not it was obliged to lend Mr Goodridge more money. First, no express provision of any document relied on by the Bank and Leveraged Equities provided for the assignment of those rights: Devefi 113 ALR at 238. Secondly, such "rights" or, rather powers and duties, are not capable of assignment because they were inherent and necessary to both the Bank's rights and its obligations under the whole loan and security agreement, i.e. the "rights" or powers and duties not just in the enforcement of the borrower's debt, but in the creation of further debts.
200 In my opinion there cannot be a separation of the Bank's existing legal right to a debt and supporting security owed by Mr Goodridge from its continuing obligation to lend to him and to assist his acquisition of further securities on the same terms and conditions. This was not simply an assignment of a debt free standing from an ongoing relationship between the assignor and debtor. The Bank and Leveraged Equities were seeking to assign pieces of the relationship to give effect to a commercial objective. But the mechanism that they chose could not assign what the Bank and Mr Goodridge had agreed would be the criteria and use of powers on which the Bank would be bound to lend him more money. That part of the loan and security agreement was inseverable from the obligation of the Bank to lend on the terms of that agreement.