Whilst taking a well-earned (in my humble opinion) break, abroad (yes, travel necessitating a passport!), I had the opportunity to read the decisions in five conjoined cases handed down by the Court of Appeal in England on 18th November. Four involved Promontoria entities (the name that Cerberus uses for its distressed debt acquisitions) and one involved my old chums at Bibby. All dealt with the rights of the recipients of assignations of debt.
Recently, of course, Promontoria cases have been rife in the Courts of the UK (and seem, similarly, to be cropping up in mainland Europe, most notably in Spain) involving “domestic” debt (residential mortgages in support of personal guarantees) but assignation of debt is a well-established and widely used commercial finance tool with a long history. In that latter respect, in Scotland, I have had my fair share of attempts by debtors of an assigned debt trying to utilise the arcane thickets of Roman law (the requirement for Notarial intimation, being one) to avoid liability by striking at the assignation and, therefore, the ability of the holder of the assignation to demand payment.
In these five cases the argument of the debtor in each (and the reason why they were conjoined in the Court of Appeal) was focused on the use of redacted documentation to support the assignation of the claim. For various commercial reasons (principally confidentiality, but also simple convenience), aspects of the documentation in support of the claim which had been lodged with the Court in each case had been redacted. The argument presented by the debtor in each case was, in essence, that the Court required to see an entire document that was to be founded upon; the redaction of clauses, etc., meant that the document was not complete; that, as a result, the Court could not rely upon it; and so there was no evidence to support the claim for payment by the creditor – res ipsa loquitor, the claim must fail.
The Court of Appeal took a very commercial approach to the argument. Whilst being very clear and forthright about the requirement that a court must have full sight of documents that require to be interpreted by the court (for example, where there is a dispute as to the meaning of a particular passage or term), the Court of Appeal found that there was no defence to the liability, simply a claim that the assignation had not effectively transferred the claim to the creditor in each of the actions. In these circumstances, it decided, a court simply had to have sufficient evidence to show that there had been a full transfer of the claim by way of assignation. This will be a relief to not only Cerberus and their ilk, but also to the commercial lenders involved in the deft factoring and invoice discounting industry.
Having acted for the purchasers of debt (both commercial and secured) over many years, it has always been my approach in cases involving the sale of debts which have a security attached to them to have a detailed agreement with all the commercial clauses necessary but, in addition, to provide in that agreement for there to be a stand-alone, clear and unequivocal assignation of the debt and the right to the security, which refers simply to the obligation of the assignor to grant the deed to the assignee. This is evidence of the assignee’s right, title and interest in and to the debt and the security without any extraneous information which may, subsequently, need to be redacted.
