Reform of Assignation in Security: Lessons from the Netherlands

Document Cited authorities (28) Cited in Related
Date01 January 2012
DOI10.3366/elr.2012.0082
Published date01 January 2012
AuthorJan W A Biemans,Ross Gilbert Anderson
Pages24-57
INTRODUCTION

The Scottish Law Commission has published a Discussion Paper on the reform of the Scots law of assignation and assignation in security, as part of a larger project on “moveable transactions”.1

Scottish Law Commission, Discussion Paper on Moveable Transactions (Scot Law Com DP No 151, 2011). This paper was written prior to the publication of the Discussion Paper.

The Scots law of assignation has a rich history. But it has perhaps been a victim of its own success: ancient principles have endured for so long that there has been little development in either case law or legislation. In recent years, however, there have been considerable developments elsewhere, both in other national legal systems and at the supra-national level. The publication, in 2010, of the full edition of the DCFR, which draws heavily, in the context of assignation, on the Principles of European Contract Law, provides an international benchmark against which Scots law may be measured. The most recent re-codification of private law in Western Europe,2

There are codification projects in Central and Eastern Europe: the new draft Hungarian Civil Code, adopted by the Hungarian Parliament in 2009, encountered difficulties in the Constitutional Court and, at the time of writing, had not been brought into force. A new Czech Civil Code was adopted in November 2011.

 meanwhile, is Dutch law: not only did it adopt an entirely new civil code in 1992, it amended its assignation provisions in 2004.3

The French Code civil amended its provisions on nantissement in 2006 and 2007: see Code civil art 2355 ff.

 Scots law has many historical links with the Netherlands and its law may provide an obvious source of inspiration. But Dutch law is, in addition, particularly interesting because its law on “pledging” claims – that is to say, the recognition of a limited security interest in the underlying claim – is as developed as any jurisdiction in Europe. Although there have been two valuable studies of the Scots law of assignation with a comparative dimension,4

P Nienaber and G L Gretton, “Cession/Assignation” in R Zimmermann, D Visser and K G C Reid (eds), Mixed Legal Systems in Comparative Perspective: Property and Obligations in Scotland and South Africa (2004); G Lubbe, “Assignment” in H L MacQueen and R Zimmermann (eds), European Contract Law: Scots and South African Perspectives (2006).

 there has been rather less consideration of the position of the law in relation to using claims as collateral.5

For which, see generally W Johnston (ed) Security over Receivables: An International Handbook (2008).

 And there is the natural difficulty of accessibility to Dutch law for Scots lawyers without Dutch. This paper therefore seeks to set out this aspect of Dutch law for a Scottish audience in the context of the debate about reform SCOTS LAW IN COMPARATIVE CONTEXT Terminology

“Assignation” is a paradigm Scotticism. “Assignation” is what, elsewhere, is referred to in English as an “assignment” or a “cession”. Where “Assignation” is used in the German language sources, it tends to refer to the related, but different, concept of a mandate to pay, the Anweisung.6

§ 1400 ABGB (the Austrian civil code) uses the language of “Assignation” for Anweisung; see too the Swiss Obligationenrecht §§ 466 ff. Cf §§ 783 ff BGB (the German civil code). For discussion from a Scottish perspective, see R G Anderson, Assignation (2008) paras 4-41.

And if the Scottish terminology appears unusual for outsiders, it is a peculiarity that has been recognised by Scots lawyers too.7

See D Scott, “Anomalies in Scots Law” (1919) 31 JR 256 at 260. For literary usage, see John Dryden's play, The Assignation, or Love in a Nunnery (1673) reproduced in G Saintsbury and Sir Walter Scott (eds), The Dramatic Works of John Dryden (1883) vol 4, 365 ff; Edgar Allan Poe, The Assignation (1845). Neither work is worth reading.

 Be that as it may, however, although both “cession” and “assignment” are sometimes referred to in the Scottish sources,8

See, for example, Hume, Lectures III, 2-3 who, over these two pages, uses the full spectrum of terminology.

 “assignation” is one of those terms of art that Scots lawyers have taken to heart

The transferor in an assignation is known as the “cedent” or, as a result of the use of English styles, the “assignor”. The transferee is the “assignee”. The object of an assignation is an “underlying claim”. One party, whose passive participation is, in Scots law at least, essential, is the debtor in the underlying claim. But one difficulty in referring to “the debtor” is that there are often multiple mutual debtors. In the case of assignation, the term “account debtor” is often used to refer to the debitor cessus in the underlying claim. Matters are complicated further where the underlying claim is the object of a juridical act that is analogous to, but different from, an assignation. The classic case in Scots law is the arrestment. In such a case, the account debtor in a claim which is the object of an arrestment is known as the “arrestee”. In a case of a competition between an arrester and an assignee, however, it means that one party, the account debtor/arrestee, has two names. Moreover, when consideration is given to whether Scots law should adopt a limited security right in claims, as in Dutch law, terminology becomes even more complex, for, in the pledge case, there are two debtors: the account debtor is the debtor of the pledgor and the pledgor is a debtor of the pledgee. Scots law – and the English language – does not have ready terms to hand to describe the debtor in the underlying claim. That being so, we refer to the debitor cessus, as well as the debtor in a claim which is the object of a pledge, as the “account debtor”.

 Scots Law <italic>de lege lata</italic>

There are perhaps two features of Scots law which are relevant to using claims as collateral. The first is that the only way to create a security over claims9

The discussion here is limited to claims, but similar issues arise with other assets too (intellectual property rights form one important category).

in Scots law is by way of an assignation in security. There is not, under the existing law, any method whereby a limited security right may be vested in the underlying claim in favour of a security taker. Scots law is thus to be contrasted with systems like Germany, France, the Netherlands10

See C.3 below.

 and South Africa11

The nature of the South African cession in securitatem debiti is somewhat controversial and is not discussed further here, primarily because it is well treated elsewhere: see generally P Nienaber and G L Gretton, “Cession/Assignation” in R Zimmermann, D Visser and K G C Reid (eds), Mixed Legal Systems in Comparative Perspective (2004) 787 at 814 ff.

 where such a pledge of claims is possible

How, then, to characterise the Scottish assignation in security? There are two possible interpretations. The first is that the Scottish assignation in security is a security by way of fiducia cum creditore.12

Enviroco Ltd v Farstad Supply A/S [2011] UKSC 16, [2011] 1 WLR 921 at para 4 per Lord Collins.

It is an outright transfer to the creditor. It matters not, at least for this purpose, whether or not the assignation is described as being “in security”. The security takes effect only on intimation of the assignation to the debtor (intimation raises its own difficulties, to which we return), the effect being that the assignee (the creditor in the underlying agreement giving rise to the assignation in security) becomes the creditor of the account debtor. The fiducia analysis is the better view of the Scots law of assignation in security. But it should be mentioned that some writers have sought to draw a distinction, probably drawing on the pre-1970 law of heritable securities, between an ex facie absolute assignation, qualified by a back-bond, on the one side, and, on the other, an assignation which is expressly stated to be in security. There is certainly one difference between the two security documents: an ex facie absolute assignation may be used as a security for “all sums due and to become due”.13

Hamilton v Western Bank (1856) 19 D 152; National Bank v Forbes (1858) 21 D 79; National Bank v Dickie's Tr (1895) 22 R 740 (these cases, in so far as they suggest that a pledge of a bill of lading results in a transfer of ownership to the pledgee, are no longer good law: North Western Bank v Poynter Son & Macdonald [1895] AC 56). For discussion, see W M Gloag and J M Irvine, The Law of Rights in Security and Cautionary Obligations (1897) 469 ff; and A J M Steven, Pledge and Lien (2008) para 4-11 ff. Cf Companies Act 2006 s 881(1).

 An assignation expressly stated to be in security, in contrast, is a valid security only in respect of indebtedness in respect of which the assignation in security was granted. But this difference does not concern the patrimonial effect of the assignation in security which, in both cases, is an outright transfer; the difference concerns rather the underlying indebtedness covered by the security. Even this distinction, however, is somewhat theoretical. In the first place, an assignation expressly in security may be granted in “all sums” terms. And, in the case of an ex facie absolute assignation granted by a company or LLP, where the sum contained in the back-bond is increased, the increase is considered to create an additional charge and will require further additional registrations if the security is validly to cover the additional advances.14

Companies Act 2006 s 881(2).

The second problem, as indicated above, lies with the onerous requirement of debtor notification: intimation is not merely informative, it is constitutive. Intimation applies to outright and security assignations alike, because, as was indicated above, the prevailing view is that there is no material difference – in terms of the patrimonial effect of the assignation15

There may be important...

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