Equity and Trusts

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‘The statute does not forbid or destroy equitable assignments or impair their efficacy in the slightest degree." Per Lord Macnaghten in William Brandt's & Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, 461

Discuss critically the above statement with regard to the Malaysian legal position.
Before receiving his title deed, a person may obtain a loan from a financier by assigning the rights to the property to the financier. Similarly, a creditor may obtain a loan from a factor by assigning in his favor all his rights over a debt. These type of assigned rights are called ‘choses in action', which are intangible rights as opposed to ‘choses in possession' (a right to tangible objects). Channell J defined the expression ‘choses in action' in Torkington v Magee , to mean "all personal rights of property which can only be claimed or enforced by action, and not by taking possession." When a right in the nature of a chose in action is transferred from an assignor to an assignee, an assignment is made.

Assignment is commonly used in Malaysia to transfer rights to book debts, securitisable assets, goods, and other receivables. An assignment is not itself a contract between assignor and debtor: its legal nature is that of a direction amounting to the transfer of a right. There are two types of assignment, namely legal and equitable; with the main distinction between the two being the degree of legal right being transferred. Since legal and equitable assignments have different requirements, a pertinent issue arising is whether or not an assignee has the right to take action against the debtor without involving the assignor, or vice versa.

The rules governing this area have been settled after the Civil Law Act 1956 (CLA) came into force on 7 April 1956 for West Malaysia and 1 April 1972 for East Malaysia. According to S4(3) CLA, if the assignment fulfils the criteria of a statutory assignment provided in that section, the assignee may sue the debtor directly. However, if the assignment cannot constitute a statutory assignment, it may stand as an equitable assignment, whereby the assignee needs to enjoin the assignor in order to take action.

Since s4(3) CLA is similar to the s25(6) of the English Supreme Court of Judicature Act 1873 (CJA), it would be relevant to examine the English position on assignment. s3 CLA provides for courts in West Malaysia to apply the common law and rules of equity 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.

In England prior to the CJA, there existed a dual system of separate courts which operated on different rules, causing some cases where dissimilar administration in the courts of common law and equity led to inconsistent remedies. For example, the old common law rule forbade assignment of any choses in action (whether legal or equitable). This was on the grounds of its "intensely personal character", and the fear that it would lead to "multiplying of contentions and suits, of great oppression of the people" . Following the common law doctrine of privity of contract, an assignee of a legal assignment of rights could not sue the debtor, for lack of privity. Since the common law did not recognize assignments of choses in action, such assignment had to be made under equity, in order to be valid. The Federal Court elaborates in the case of Nouvau Mont Dor (M) Sdn Bhd,

"As is well known, an ordinary debt or chose in action before the Judicature Act 1873 was not assignable so as to pass the right of action at law, but it was assignable so as to pass the right to sue in equity. In his suit in equity the assignee of a debt… had to make his assignor… party in order primarily to bind him and prevent his suing at law…"

According to Buller J. , "the Courts of Equity from the earliest times thought the doctrine too absurd... to adopt." Hence, equity...
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