It is now common practice for debt collection companies to purchase debts from parties who may lack the resources or capacity to pursue recovery themselves. In such circumstances, a notice of assignment becomes relevant.
Subpart 5 of the Property Law Act 2007 (the 2007 PLA) governs the assignment of choses in action. Under section 48 of the 2007 PLA, a “thing in action” includes: (a) a right to receive payment of a debt; and (b) part of a thing in action. It is important to note that Subpart 5 applies only to assignments of things in action made on or after 1 January 2008. Assignments made before that date continue to be governed by the Property Law Act 1952 (the 1952 Act).
Section 50 of the 2007 PLA states:
“(1) The absolute assignment in writing of a legal or equitable thing in action, signed by the assignor, passes to the assignee—
(a) all the rights of the assignor in relation to the thing in action; and
(b) all the remedies of the assignor in relation to the thing in action; and
(c) the power to give a good discharge to the debtor.
(2) Subsection (1) applies whether or not the assignment is given for valuable consideration.
(3) Subsection (1) applies subject to—
(a) section 51; and
(b) any equities in relation to the thing in action that arise before the debtor has actual notice of the assignment and would, but for subsection (1), have priority over the rights of the assignee.
(4) The priority of an assignment to which subsection (1) applies and which is not given for valuable consideration is to be determined as if the assignment had been given for valuable consideration.
(5) A legal or equitable thing in action is to be treated as having been assigned in equity (whether the assignment is oral or in writing) if—
(a) the assignee has given valuable consideration for the assignment; or
(b) the assignment is complete.
(6) Subsection (5)—
(a) prevails over any rule of equity to the contrary; but
(b) applies subject to sections 24 and 25.
(7) An assignment to which subsection (5) applies is complete when the assignor has done everything that needs to be done by the assignor to transfer to the assignee (whether absolutely, conditionally, or by way of charge) the rights of the assignor in relation to the thing in action.
(8) Subsection (7) applies even though some other thing may remain to be done, without the intervention or assistance of the assignor, in order to confer title to the rights on the assignee.”
Section 51 of the 2007 PLA states:
“(1) This section applies to a thing in action assigned in accordance with section 50(1) or in equity.
(2) Payment of all or part of the debt to the assignor by a debtor who does not have actual notice of the assignment discharges the debtor to the extent of the payment.
(3) The debt owing by a debtor who has actual notice of the assignment is payable to the assignee.
(4) However, the debt is payable to another assignee if,—
(a) before discharge, the debtor receives actual notice of the assignment of the same thing in action to the other assignee; and
(b) the rights of the other assignee in relation to the thing in action have priority over the rights of the first assignee.
(5) A debtor may interplead in any proceeding brought against the debtor for the payment of the debt, or apply to a court for an order determining the entitlement to any right in relation to a thing in action, if the debtor has actual notice—
(a) that an assignment of the thing in action is disputed by the assignee or anyone claiming under the assignor; or
(b) that there are other opposing or conflicting claims in relation to the thing in action.”
Looking at subsection (3) of section 51, it may appear to suggest that a debt is only payable by a debtor where actual notice of the assignment has been given. It is questionable whether this reflects Parliament’s intent.
In Meroiti v Southern Receivables Ltd, the Court made clear that section 51 is directed at resolving issues of priority where multiple creditors or assignees assert competing claims in relation to the same debt.[1] The focus of subsection (3) is not whether the debt is payable, but rather to whom it is payable.[2]
In Debt Buyers Limited v Schutt,[3] Debt Buyers Limited purchased “a loan book” from Property Finance Securities Limited and subsequently sued Mr Schutt, one of the debtors, for the outstanding balance of $373,225.63. One of Mr Schutt’s arguments was that, in the absence of notice of assignment, the assignment was not effective against him.
The High Court referred to The Law of Contract in New Zealand (5th ed) by Burrows, Finn and Todd,[4] and confirmed that “notice of an assignment to the other party to the contract is not a prerequisite of a valid assignment.”[5]
The High Court held that a failure to give notice to Mr Schutt would only be relevant if Mr Schutt had continued to make payments to the assignor following the assignment, but no payments were made.[6] There was an effective assignment to Debt Buyers Limited.[7]
Key takeaways:[8]
- Under the 1952 Act, a valid assignment of a debt required both a written assignment and express notice of the assignment to be given to the debtor.Â
- The 2007 PLA does not retain the requirement for express written notice to the debtor.
- The effectiveness in law of an assignment as between the assignor and assignee is no longer postponed until the debtor has been given notice of the assignment.
- All the rights and remedies of the assignor in respect of the chose in action pass to the assignee by virtue of the signed writing of the assignment only.
- While the absence of a notice of assignment is not fatal to the validity of the assignment itself, it remains good practice to provide such notice.
[1] Meroiti v Southern Receivables Ltd [2017] NZHC 2637, at [31].
[2] Meroiti, above n 1, at [32].
[3] Debt Buyers Limited v Schutt [2017] NZHC 2876.
[4] John Burroughs, Jeremy Finn and Stephen Todd, Law of Contract in New Zealand (5th ed) Lexcus Nexis 2016 at [17.17].
[5] Debt Buyers Limited, above n 3, at [12].
[6] Debt Buyers Limited, above n 3, at [12].
[7] Debt Buyers Limited, above n 3, at [14].
[8] Meroiti, above n 1, at [34].
