property law act nsw assignment of debt

Bankruptcy & Insolvency News SLF Lawyers News Is Your Notice Assignment of Debt Valid? May 25, 2020

A creditor (assignor) can transfer their rights to receive and seek payment of a debt to a third party (assignee). Once the transfer of their rights has occurred, the assignor can then seek payment of that debt from the debtor. Once assigned, the assignee has the legal right to such debt and has the power to give a good discharge of it  without the concurrence of the assignor. [1]

There are two factors that an assignee must consider before attempting to recover a debt from a debtor:

SERVICE OF THE NOTICE

The assignee must issue a notice of assignment of debt (“ Notice ”) to the debtor at the debtors last known residential address. This is where the confusion and issues around the service of the Notice can occur by the debtor. Generally, a bank will assign the debt to a collection company after years of attempting collection/locating debtor. It is at this stage that the debtor may have moved residential addresses and may not receive the Notice. The assignee is required to comply with section 347 of the  Property Law Act 1974  (Qld), whereby service of any notices must be made to the person’s last known place of abode.

STATUTE OF LIMITATIONS

An assignee must ensure that they are within the statue of limitations to legally commence recovery of the debt. The purpose of a statute of limitations is to limit the delay for creditors to take action against a debtor for outstanding monies. The limitation period for a contract debt is six (6) years, calculated from the point of breach. Where an assignee has been assigned a debt, the point of breach will commence from the date the debt was assigned to the assignee. However, in some circumstances, where a debtor acknowledges the debt or makes a payment in respect of the debt, the point of breach starts from the date of acknowledgement or the last payment made by the debtor.

SLF Lawyers specialises in legal recoveries and various enforcement options and can assist in providing advice with respect to ensuring the Notice has been issued correctly.

If you have any questions, please contact Partner – Mark Smith of SLF Lawyers Brisbane on (07) 3839 8011.

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The Enforcement of Assigned Debts

In the realm of financial recoveries, the assignment of credit contracts in default is a well-established practice. Banks and financial institutions frequently assign defaulting credit card and personal loan accounts to debt collectors in an effort to streamline their cost-effective recovery processes. At RCR Lawyers, we recognize the importance of understanding the legal intricacies surrounding the assignment of debts, and we are here to provide you with valuable insights and guidance.

Assignment of Debts: The Legal Framework

Under the Property Law Act 1974 (Qld), specifically in Section 199, provisions are made for the assignment of debt at law. This allows for the transfer of debt ownership from the original credit provider (the assignor) to the new owner (the assignee). However, it’s crucial to note that this assignment must be absolute, and written notice must be given to the debtor. Importantly, the debtor’s consent is not a prerequisite for this assignment.

Once a debt is assigned, all rights and responsibilities vested in the original credit provider are now transferred to the new owner. This transfer grants the assignee the authority to collect on the debt as if they were the initial credit provider. This includes the ability to charge interest as per the original contract terms and to initiate legal proceedings to recover the debt.

The National Credit Code: A Comprehensive Framework

The National Credit Code, a crucial component of the National Consumer Credit Protection Act 2009 (Cth), extensively addresses the assignment of debt. It outlines the responsibilities of all credit lenders, providing a comprehensive framework for debt assignment and recovery.

Debtor Confusion and Legal Challenges

For debtors, the collection of assigned debts can often lead to confusion. While written notice of the assignment is a requirement, this notice extends only to the last known address (or last provided address) of the debtor. Many debtors are not familiar with the concept of debt assignment and often have not scrutinized the details of their credit contracts. As a result, an assignee who initiates legal proceedings to recover an outstanding balance may encounter significant obstacles.

In legal matters related to assigned debts, the case of Clark v Gallop Reserve Pty Ltd [2016] QCA 146 serves as an illustrative example. In this case, the validity of the Westpac Bank Corporation’s Deed of Assignment was challenged, as it did not explicitly include the judgment debt in the description of the outstanding debt owed to Westpac.

Philip McMurdo JA, in his judgment, emphasized that the wording “Westpac assigns to the Transferee all of Westpac’s full, absolute and entire legal and beneficial interest, right and title in and to the Westpac Debt, the Westpac Finance Documents, and the Westpac Guarantees” was sufficient to encompass the judgment obtained by Westpac before assignment. This exemplifies the court’s acknowledgment of the validity of the debt assignment and the assignee’s right to enforce the judgment debt.

Enforcement Options for Assignees

Once a debt has been validly assigned (following the absolute written assignment and proper notice to the debtor’s last known residence), and there are no offsetting claims available to the debtor, the assignee is entitled to pursue legal steps to recover the outstanding debts. These enforcement options may include:

• Commencing legal proceedings
• Obtaining judgments
• Enforcing judgments through methods such as statutory demands, bankruptcy notices, creditors’ petitions, warrants for property seizure and sale, garnishee orders, and more.

The RCR Recovery Team possesses extensive knowledge of various enforcement methods applicable in all Australian jurisdictions, particularly in the recovery of assigned debts. We are also well-equipped to provide guidance on the assignment of debts and the obligations that arise once such assignments occur.

If you have any inquiries or require further information on this topic, please don’t hesitate to contact RCR Recoveries at 07 3009 8444. Our legal team is ready to assist you with any questions or concerns you may have regarding the assignment and recovery of debts, ensuring that you have the necessary support to navigate these complexities with confidence.

At RCR Lawyers, we are dedicated to empowering you with the knowledge and guidance you need to effectively manage and recover assigned debts while upholding the highest legal standards.

If you have any queries in relation to the above, please contact RCR Recoveries on (07) 3009 8444 . Alternatively, you can contact us online or email us at [email protected] . 

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Home » Insights » Assigning the right to sue – the new provisions’

Assigning the right to sue – the new provisions’

Author: Thomas Russell

Service: Restructuring & Insolvency

External administrators of companies can now assign any right to sue that is conferred on them by the Corporations Act, for example voidable transaction claims and insolvent trading claims.

External administrators of companies can now assign any right to sue that is conferred on them by the Corporations Act, for example voidable transaction claims and insolvent trading claims. Previously these were considered rights that could only be utilised by the appointed liquidator and so could not be assigned. Now they can.

Thomas Russell ,  Partner  and  Brendan May ,  Lawyer  discuss these new changes and what they mean for insolvency practitioners.

When did this start?

• This has already begun. It commenced on 1 March 2017.

What legislation brought this about?

• The  Insolvency Law Reform Act 2016  (Cth) has introduced a  new schedule  to the  Corporations Act 2001  (Cth). The schedule is called “ Schedule 2 – Insolvency Practice Schedule (Corporations) ”( the Schedule ).
• The external administrator is able to assign his or her right to sue under section 100-5 of the Schedule.
• The  Bankruptcy Act 1966  (Cth) now also has a  Schedule 2  called “ Schedule 2 – Insolvency Practice Schedule (Corporations) . Section 100-5 similarly provides that any right to sue conferred upon a trustee of a debtor’s estate (including a bankrupt estate) can be assigned.

How does it happen?

• In the usual way anything is assigned, for example by Deed of Assignment. The right is broad, and – subject to one or two things – allows the external administrator to assign “ any right to sue that is conferred on the external administrator by this Act ”.
• if the external administrator’s action has already begun, the external administrator cannot assign the right to sue without the approval of the Court;
• before assigning any right to sue, the external administrator must give written notice to the creditors of the proposed assignment; and
• once assignment has been effected, a notice of assignment must be issued that complies with  s 12 of the  Conveyancing Act 1919  (NSW) . Note this is a piece of New South Wales legislation, however there are equivalent provisions in other state legislation.
• if the right is assigned pursuant to an arrangement that will extend for more than three months, for instance an assignment in exchange for, among other consideration, an uplift or success fee upon the entry of judgment or recovery of monies; or
• if the right being assigned is a debt due to the company (for instance a right to recover compensation for insolvent trading) and the circumstances of the assignment are such that this “debt” is effectively being compromised. There is (for obvious reasons) yet to be any case law on this situation but liquidators would be well advised to play it safe.

Who does this apply to?

• It applies to “External Administrators”. This is defined in item 5-20 of the Schedule:

5-20 Meaning of external administrator of a company

A person is an external administrator of a company if the person is:

(a) the  administrator of the company ; or

(b) the  administrator under a deed of company arrangement  that has been entered into in relation to the company; or

(c) the  liquidator of the company ; or

(d) the  provisional liquidator  of the company.

Note: A person is  not  an external administrator of a company for the purposes of this Schedule merely because the person has been appointed as a receiver, receiver and manager, or controller in relation to property of the company.

Why could this not happen before?

• The simple reason it couldn’t happen before is that people tried it, and the Courts said it couldn’t be done.
• A right to sue is known as a  chose in action . The  common law  had long held a distrust of assignment of choses in action. However  equity  permitted it to happen, and over time it became accepted. However, the ability to assign a chose in action has always been the exception, rather than the rule.
• The law has also had a historical wariness of “champerty” and “maintenance” – allowing a third party to meddle in and/or to profit off litigation. They used to be crimes and “torts” (unlawful acts).
• section  588M  (insolvent trading) the statute provides “The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage”, or
• section  588FF  (voidable transactions) provides “Where, on the application of a company’s liquidator, a court is satisfied that a transaction is voidable…”

…and said that the statute says only a liquidator can bring the action, so we won’t let the liquidator assign it to someone else.

• This has now changed.

What could an external administrator already assign before these provisions?

• A liquidator of a company could (and still can) sell or otherwise dispose of, in any manner, property of the company pursuant to section  477(2)(c) .
• Common law rights of action, vesting in the liquidator, are considered to be property of the company. So an external administrator always had a right at common law to assign debts, and some other causes of action which we will discuss shortly.
• Likewise, straight-up debts (such as trading debts due by customers of the company) are, and always have been, assignable.
• The only condition with debts and other legal actions is that notice of the assignment must be given to the debtor in order to effect a legal assignment pursuant to  section 12  of the  Conveyancing Act 1919  (NSW). Without this, it is only an “equitable assignment”, that is, a partly-completed assignment that still needs to be completed by compliance with the correct legal procedure.
• Note that there is a general principle that claims for misleading and deceptive conduct cannot be assigned. The reason is that the relevant statutory provision giving a right to damages for loss suffered as a result of a breach (section 82 of the TPA, now section 236 of the  Australian Consumer Law ) does not provide for the award of damages in respect of a loss suffered by another, i.e. one that was not suffered by any party to the proceedings:  Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd  [2006] FCA 1352 .
• The good news is that there is a line of authority, including in NSW ( CBD Prestige Property Holdings No 3 Pty Ltd v Metropolitan Local Aboriginal Land Council  [2013] NSWSC 1005 ), that suggests a liquidator is a special exception to the general principle above. The bad news is that this is in conflict with other authority from other states and at federal level on the same point, meaning that the position is not settled as far as the law is concerned.
• If you are ever required to consider whether or not you are able to assign a claim for damages for misleading and deceptive conduct, specific legal advice should be sought and your advisor’s attention should be drawn to the two cases mentioned above.

What’s the big deal about notice and the  Conveyancing Act ?

• It must be an absolute assignment (so you cannot legally assign part of something, e.g. half a bank account if it was a debt);
• It must be in writing;
• It must be signed by the assignor; and
• Written notice must be given to the debtor or potential defendant. Note that the written notice has to come  after  the assignment, and it does not matter whether written notice comes from the assignor or the assignee, as long as somebody tells them ‘The right, title and interest to the claim against you has been assigned by  x  to  y ’.

What happens if notice is not given?

• If notice is not given, you only have an equitable assignment, not a legal assignment.
• This means legal title to that claim has not actually passed – only that (provided consideration has been paid) equity will treat it that it should have been passed. So the assignor technically retains legal title to the action, while the assignee has equitable title. The assignee can sue on the claim, but a rule of practice and procedure requires the assignor to be a party to the action.
• If the assignor is not joined in such an action, there are decisions (see  Jennings v Credit Corp Australia Pty Ltd As Assignee From Citicorp Person To Person Financial Services Pty Ltd  [2000] NSWSC 210 ) which have held that until the legal assignor is joined or notice given, the equitable assignee cannot recover under the claim. The easiest way if notice hasn’t been given but proceedings have commenced is just to give notice. It is then perfected into a legal assignment and will operate retrospectively.
• An equitable assignment is also susceptible of being defeated by other principles of equity (for example, if the equitable assignee does not come to court with ‘clean hands’).

Who will be interested in purchasing these claims?

• Litigation funders would seem to be the most obvious market for these claims.
• controlling the vote at a meeting of creditors (see Rule 75-110(4) of the bankruptcy IPRs re valuation of assigned claims, but note that no equivalent rule exists for corporations); or
• ensuring the claim is under the control of a friendly party, for asset protection reasons or to obtain a tax benefit.

Should you have any questions, please contact either Thomas Russell or Brendan May.

Thomas Russell

+61 2 9253 9906

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Home » Dictionary » Absolute assignment

Absolute assignment

Absolute assignment is an unconditional transfer of property or a right that leaves an assignor no interest in the assigned property or right. A common assignment that takes place is in relation to debts. A creditor may transfer their right to accept payment from a debtor for money that is owed to a third party. In order for the assignment to be absolute, the whole of the debt must be assigned and the assignment must be unconditional. This protects both the debtor and the third party, in that the debtor is certain of who to pay and the third party is able to sue the debtor for the entire debt in their own name. The English case of Durham Bros v Robertson [1898] 1 QB 765 is an example of a case where there was no absolute assignment of a book debt. The assignment was conditional on the third party repaying money to the creditor in order for the book debt to be assigned. As there was a condition precedent for the assignment, there could be no absolute assignment of the book debt.

Pursuant to section 12 of the Conveyancing Act 1919 (NSW) an absolute assignment must:

• be in writing;
• signed; and
• be given to the debtor, trustee or other liable person as notice of the assignment.

Furthermore, the requirement of writing is particularly important in the assignment of real property (land). Pursuant to section 23C of the Conveyancing Act 1919 (NSW) no interest in land can be created or disposed of unless the transfer is in writing and signed by the person who wishes to dispose of their interest.

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Annulment of Bankruptcy where assignment of debt in doubt

Articles , Restructuring + Insolvency

Aug 19, 2016

A recent Federal Court decision highlights the importance of those receiving an assignment of a debt to properly document that assignment and to lead evidence of the assignment if a dispute as to the assignment arises in legal proceedings.

Assignment of debts

Creditors regularly assign their rights of debt to third parties.   This can often occur when one creditor sells a debt to another party.  When this occurs the creditor becomes the assignor, the third party receiving the benefit of the debt becomes the assignee, and the transaction is referred to as an assignment.

Once an assignment is completed, the assignee should have all the same rights and obligations as the assignor had in recovering the debt.  However, the assignee must adhere to certain statutory requirements in order for an assignment to be valid at law.

These rquirements are almost identical in each state (see for example s134 of the Property Law Act  ( Vic )  or s12 of the Conveyancing Act (NSW) ) and are broadly as follows:

• there must be an assignment;
• the assignment must be absolute;
• the assignment must be in writing under the hand of the assignor; and
• express notice in writing of the assignment must be given to the debtor.

Recent Case

In the recent decision of Ozdil v Vrsecky ,  Justice Jessup of the Federal Court of Australia in Victoria considered the issue of whether express notice of the assignment had been given.

In prior proceedings the assignee had been awarded a default judgement against the debtor. The debtor did not pay the default judgement and a bankruptcy noticed was issued and served. The debtor did not comply with the bankruptcy notice within the required time frame which constituted an act of bankruptcy.  As a result, the Court made a sequestration order against the debtor.

The debtor (now bankrupt) sought an annulment of her bankruptcy pursuant to section 153B of the  Bankruptcy Act   and sought to challenged the debt on the basis that she did not receive a notice of assignment of the debt from the assignor to the assignee.  She argued that, as a result of this failure of notice, she did not owe the debt to the assignee at all.

Importantly, the only evidence before the Court was an affidavit sworn by the bankrupt personally and the lawyers for the assignee did not cross examine the debtor in relation to the matters set out in her affidavit.

The assignee did not produce evidence addressing whether the notice of assignment was given to the debtor.  As his Honour could only address what evidence was before him, as the issue of the notice had never been judicially determined, a decision was made in the debtor’s favour and the bankruptcy was annulled.

It is unclear why the assignee chose not to lead evidence in this case of the notice of assignment or cross-examine the debtor.  The case stands as a warning that those seeking to enforce their rights arising from an assignment of a debt should ensure that they both meet all the legal requirements of an assignment and put on evidence of matters they wish the Court to consider should the validity of the assignment be challenged in legal proceedings.

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Assigning debts and other contractual claims - not as easy as first thought

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

• In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
• In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
• Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

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IS YOUR ASSIGNMENT OF DEBT VALID?

Introduction

The judgment of Justice Jessup of the Federal Court of Australia in Ozdil v Vrsecky (Trustee) [2016] FCA 881 (“the Ozdil case”) highlights the importance of ensuring that a debt has been legally assigned, prior to commencing bankruptcy or other legal proceedings. The Applicant had her bankruptcy annulled after providing uncontested evidence that she was never served with a notice of assignment of a debt owed by her. This was despite not filing her application until 20 months after being declared bankrupt. The debt was assigned by Westpac Banking Corporation (“Westpac”) to Baycorp Collections PDL (Australia) Pty Ltd (“Baycorp”).

Relevant facts

Prior to bankruptcy, in July 2013 legal proceedings against the applicant were filed in the Federal Magistrates Court of Australia, where Baycorp alleged that:

• the Applicant entered into a credit card contract with Westpac. Westpac then extended credit to the Applicant on the basis she paid interest at the rate published by Westpac and make minimum monthly repayments to Westpac;
• the Applicant failed to make the minimum repayments to Westpac and owed $12,196 to Westpac;
• pursuant to a deed dated 27 May 2008, Westpac assigned the contract and the debt to Baycorp;
• notice of the assignment of debt was purportedly given to the Applicant on 6 May 2009;
• subsequently the Applicant reduced the debt by making some payments to Baycorp;
• Baycorp issued a notice of default to the Applicant on 20 May 2013, demanding payment of the debt, plus interest;
• between 6 May 2009 to 8 July 2013, interest accrued on the debt, bringing the Applicant’s indebtedness to $16,668 (“the outstanding amount”); and,
• despite the notice of default, the applicant failed or neglected to pay the outstanding amount.

The Applicant had 21 days to file a notice to defend Baycorp’s allegations, which she failed to do. On 5 August 2013 default judgment was entered for $16,558, plus costs (“the default judgment”).

On 21 November 2013 the Applicant was served with a Bankruptcy Notice which relied on the default judgment, plus post-judgment interest.

The Applicant failed to comply with the Bankruptcy Notice within the statutory time, thereby committing an act of bankruptcy on 12 December 2013. Baycorp then petitioned in the Federal Circuit Court for the Applicant’s bankruptcy. A Sequestration Order was made on 5 August 2014

The Applications

The Applicant sought an annulment of her bankruptcy pursuant to Section 153B of the Bankruptcy Act 1966 (Cth) (“the Act”). She also applied under Section 30(1) of the Act to set aside the bankruptcy notice that led to the Sequestration Order.

The Applicant made four allegations to support her applications. The only allegation considered by the Court was that she not served with a notice of assignment of debt from Westpac to Baycorp.

Justice Jessup upheld the Applicant’s allegation that she was not served with a notice of assignment from Westpac to Baycorp. Accordingly, His Honour held that the Applicant was entitled to challenge the reality of the debt relied upon and which, pursuant to Section 153B of the Act, gave rise to the following issues:

• what consequences did this have for the debt on which Baycorp sued the Applicant in the Federal Circuit Court; and,
• could the Applicant now challenge the Bankruptcy Notice and/or the sequestration order as a result?

Under Section 134 of the Property Law Act 1958 (Vic), the effective assignment of a debt requires “express notice in writing” of such an assignment to the debtor. All other Australian States and Territories have the same requirements, set out as follows:

• Section 205 of the Civil Law (Property) Act 2006 (ACT);
• Section 12 of the Conveyancing Act 1919 (NSW);
• Section 86 of the Conveyancing and Law of Property Act 1884 (TAS);
• Section 15 of the Law of Property Act 1936 (SA);
• Section 182 of the Law of Property Act 2000 (NT);
• Section 20 of the Property Law Act 1969 (WA); and,
• Section 199 of the Property Law Act 1974 (QLD).

It is possible that, in an application to set aside a Bankruptcy Notice, a Court can go behind the judgment upon which the Bankruptcy Notice was based, if it is shown that the debt relied upon did not in fact exist. However, different considerations apply when the Bankruptcy Notice has expired.

Justice Jessup followed Re Vella; Ex parte Seymour (1983) 67 FLR 287 (“the Vella case”), where the debtor had failed to comply with the Bankruptcy Notice within the specified time period. The debtor later applied to have the judgment set aside, on which the notice was based, and also to have the Bankruptcy Notice set aside. In the Vella case, the underlying judgment was set aside, but not the Bankruptcy Notice, the Court concluding that the debtor committed an act of bankruptcy by failing to either comply with the Bankruptcy Notice or take appropriate action under Section 41(6A) of the Act. The act of bankruptcy was therefore still valid.

Justice Jessup therefore concluded, for the same reasons outlined in the Vella case, that it was too late for the Applicant to challenge the Bankruptcy Notice served on her.

However, Justice Jessup considered that the Sequestration Order would not have been made, had the Court been aware that the Applicant had not been provided notice of the assignment of debt.

The Court was troubled by the fact that the Applicant did not contest the proceedings that resulted in the default judgment, or appear on the return of the creditor’s petition. The Applicant filed the current proceedings some 20 months after being declared bankrupt. In other circumstances, greater weight would have been placed by the Court on these factors. However, Justice Jessup concluded that proper legal notice of an assignment of debt struck so fundamentally at the intrinsic merits of the case for the sequestration of her estate, so as to persuade the Court to use its discretionary power to annul her bankruptcy.

Another consideration to keep in mind

Serving an appropriate notice of the assignment of debt is only one factor that creditors must consider when using legal proceedings to recover a debt. One must also consider statutory limitation periods. The two main limitation periods are:

• In most States and Territories, other than the Northern Territory where it is three years, the time limit to file legal proceedings to recover debts is generally six years from the date of last payment or when the debtor admitted the debt was owed, in writing; and,
• for most States and Territories, other than Victoria and South Australia, where the time limit is 15 years, where judgment debts are obtained, the time limit is 12 years from date of judgment.

All States and Territories require express notice in writing to the debtor of any assignment of debt. Financial institutions are usually well appraised of these requirements. However, private financiers may not be as well informed. The ability to provide documentary evidence that the notice of assignment was provided to the debtor is also very important.

When considering an application to annul a bankruptcy under Section 153B of the Act, the Court is not limited to considering the facts that were before the Court at the time that the Sequestration Order was made. The Court may also consider the true facts that existed at the time that the Order made.

• 07 3369 5858

Mortgage Reporter

Assignment of mortgage & loan agreement in dispute.

Posted January 25th, 2018 by elliottmay

The issue of an Assignment of Mortgage came under dispute in a recent Supreme Court of Western Australia ruling. Was the transfer of loans to a third party valid?

In La Trobe v MDVest [2017], the borrowers disputed three prior judgments in favour of the lender. They contended that the lender was not entitled to judgment in each action. The borrowers presented a number of reasons for resisting judgment, including the issue of Assignment.

What is an Assignment of Mortgage?

A mortgage over a property provides the lender with security for loans made to a mortgagor. From time to time banks or lenders will buy or sell these mortgages. An Assignment is the legal process by which the debt and associated mortgage is transferred from one lender to another. This will often be formalised by way of a deed of assignment including a transfer of mortgage. 

A Notice of Assignment informs the debtor that a third party has taken over their debt and security.

In August 2013 the credit provider, Permanent Mortgages, entered a loan agreement with the borrowers. A mortgage over a property in Dempster Road, Myrup provided security for the loan. Permanent Mortgages was the first registered mortgagee.

The initial loan had a 12 month repayment term. A further 2 year renewal resulted in the loan repayment expiring on 31 August 2016.

Assignment of mortgage, loan agreement and guarantee

In October 2015 Permanent Mortgages assigned its interest in the loan agreements, mortgage and guarantees to La Trobe Financial. In December the registration of the transfer of mortgage occurred. However, due to an oversight, no written assignment of the loan agreement and guarantee occurred in October.

Subsequently, the borrowers defaulted on the terms of the loans and the lender obtained judgments.

The borrowers, however, contested the right of La Trobe to the judgments.

Assignment of mortgage not effective

The borrowers contended that the assignment of mortgage, loan agreement and guarantee was not effective.

The first argument was that the Deed of Rectification was not admissible as it was not stamped for duty. According to the Duties Act 2008 (WA) , duty is imposed on dutiable transactions. However, if the balance of the mortgage is equal to or greater than the market value of the security interest, then the assignment is not a dutiable transaction. The Court found this to be the case, concluding that no duty was payable.

Secondly, the borrowers argued that, on the balance of probabilities, the assignment did not occur. In this instance, the Court disagreed and found no reason to dismiss the evidence provided by La Trobe’s mortgage manager. The evidence, together with the recitals to a Deed of Rectification, satisfied the Court that the assignment indeed took place in October 2015.  

No notice of the assignment given

The borrowers further asserted that they received no written Notice of Assignment.

The Property Law Act 1969 (WA) states that in the assignment of debt, the debtor must receive notice in writing. However, evidence showed that on 2 occasions the lender provided written communication of the assignment to the borrowers.

Periodically the assignment of debt takes place between lenders. Therefore it is important that the arrangement is properly documented. And that both the debt and all relevant forms of security are transferred to the assignee. It is too often the case that a lender will assign the debt but neglect to assign or transfer the mortgage.  This results in a situation where the assignee holds the right to enforce the debt but no right to recourse against any security property as this remains with the original lender. When this happens, the assignee is in the unenviable position of being an unsecured creditor.

Proper notice of the assignment of the debt and security should also be provided to the debtors and mortgagors without delay.

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This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances.  

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