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City of London Law Society issues note on execution of legal assignments
Keen readers of this newsletter will recall the discussion of Frischmann v Vaxeal Holdings SA [2023] EWHC 2698 (Ch) (Spring, 2024). To recap, Frischmann was a challenge to the assignment of rights under two loan agreements and a guarantee. This involved consideration of the requirements of a valid legal assignment (sometimes called a statutory assignment), i.e., one pursuant to section 136 of the Law of Property Act 1925 (“LPA 1925”). Among other things, s.136 requires the assignment to be in writing and “under the hand of the assignor” – in other words, signed by the assignor.
One of the defendants’ arguments had been that the assignment was ineffective as it was not under the hand of the assignor – in fact, it had been executed by an agent acting under a power of attorney. The court agreed, finding that execution by an attorney was inadequate to give rise to a legal assignment under s.136 of the LPA 1925. The court rejected the argument that the LPA 1925 should be read and understood in the context of the provisions of the Powers of Attorney Act 1971. Although there was no valid legal assignment, the court nevertheless held that there was an equitable assignment, as it is well-established that such assignments can be informal (arising even, for example, by conduct of the parties).
Frischmann did not establish any new propositions of law and was a decision on a summary judgment application. Prior to Frischmann, the most recent case to consider the same point was Technocrats International Inc v Fredric Ltd (No.1) [2004] EWHC 692 (QB). There, the assignment in question was executed by the assignor’s wife with his authority, which the court held that this was inadequate to bring about an assignment under s.136 LPA 1925.
In light of the decision in Frischmann, the Financial Law Committee (FLC) of the City of London Law Society (the CLLC) has published a note on the execution of legal assignments by English companies, foreign companies and English limited liability partnerships. The note offers the following views in relation to assignments executed by such entities:
- First, the FLC points out that both Frischmann and Technocrats concerned assignments by individuals – there is no caselaw which examines this requirement of s.136 in the context of companies or other corporate entities.
- However, the LPA 1925 itself contains specific provisions concerning execution by corporations, located in s.74. In broad terms, these permit the attorney of a corporation to execute certain instruments on its behalf which have the effect of conveying any interest in property. Further, s.74(6) provides that, notwithstanding the content of s.74 LPA 1925 , any mode of execution or attestation authorised by: (i) law; (ii) practice; or (iii) by the statute or other instrument constituting or regulating the affairs of the corporation, will – in addition to the modes of execution permitted by s.74 – be as effectual as if s.74 had not been passed.
- Accordingly, where an English or foreign company, or an English LLP, executes a legal assignment, in the opinion of the FLC that assignment will engage s.136 if it is executed on behalf of the relevant entity by an attorney acting in accordance with s.47 of the Companies Act 2006 (“CA 2006”). This provides as follows:
“(1) Under the law of England and Wales or Northern Ireland a company may, by instrument executed as a deed, empower a person, either generally or in respect of specified matters, as its attorney to execute deeds or other documents on its behalf.
(2) A deed or other document so executed, whether in the United Kingdom or elsewhere, has effect as if executed by the company.”
- In support of this proposition, the FLC points out that a company cannot do anything except through the agency of its directors (or others holding proper authority to act on its behalf). They also point to similar provisions in the CA 2006 to s.47, notably ss.43 (company contracts) and 44 (execution of other documents).
- Sections 43 and 44 are applied to foreign companies by the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009, albeit with modifications. Section 47 does not apply to overseas companies, but the FLC opines that an attorney of an overseas company can nevertheless sign a legal assignment if execution in accordance with s.44 (as modified) is permitted by the laws of the territory of incorporation of the company.
- The FLC also points to decisions in relation to different statutes which refer to the need for certain documents to be executed under the hand of a party. For example, in Re Diptford Parish Lands [1934] Ch 151, the High Court considered s.11 of the Charitable Trusts Act 1869, which required a certain type of petition for appeal to be made in writing under the hand of the appellant in that case – a Parochial Church Council. In the event, the petition was signed by the Council’s solicitor, but the High Court held that the statutory requirement for signature by the Council was sufficiently met by the solicitor’s signature, pointing out that it was far from clear how a body such as the Council could execute the petition under its hand in any event.
- In relation to English LLPs, similar considerations apply because ss.43 to 47 of the CA 2006 are applied (with modifications) by reg. 4 of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009.
Comment
Legal assignments are frequently executed by corporations. In our view, although there is apparently no direct authority on the point, the opinions expressed by the FLC in its note are correct. Otherwise, no corporation (or similar entity) would ever be capable of executing legal assignments under s.136 LPA 1925. Nevertheless, in each case, care must be taken to ensure that the requirements of s.136 (and the CA 2006, as appropriate) have been complied with, as otherwise parties will be left with arguing that the assignment took effect in equity only, which may complicate claims which later need to be brought on behalf of the assignee.