Deed’s drafting could be criticised for infelicity, but assignment was effective

In Promontoria (Henrico) Ltd  v Melton [2019] EWHC 2243 Mr Justice Barling held that a recorder had been correct to look at  extraneous factors within the factual matrix to decide whether a deed of assignment referred to the material debt. Under a facility agreement, Clydesdale Bank (“the bank”) made a loan facility of £347,000 available to Mr Melton and took charges on a number of properties as security. In September 2016 the bank advised Mr Melton that the facility agreement and legal charges were being sold to Promontoria (Henrico) Ltd (“Promontoria”). In September 2018, Promontoria obtained judgment against Mr Melton for possession of the properties and a requirement that he pay £367,233.09, which he was said to owe under the facility agreement. Promontoria’s case throughout the proceedings was that by an agreement dated 28 October 2016 (“the deed of assignment”) there was a legal assignment of the bank’s rights under the facility agreement and the legal charges. Mr Melton appealed contending that the recorder was wrong to find that there had been a valid legal assignment under s136 of the Law of Property Act 1925 (“the LPA 1925”). Section 136(1) of the LPA 1925 states: “Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action of which express notice in writing has been given to the debtor,  trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action,  is effectual in law (subject to equities) to pass and transfer from the date of such notice –(a) the legal right to such debt or thing in action; (b) all legal and other remedies for the same; (c) the power to give a good discharge for the same without the concurrence of the assignor…” On appeal, it was argued on behalf of Mr Melton that Promontoria had failed to show that the deed of assignment was effective. It was said that the deed of assignment failed to properly identify the debt. It referred to groups of assets which required the reader to construe the schedules of the deed. These were either redacted or so minutely printed as to be unintelligible. The reference to Mr Melton which could be seen had nothing to help the uninitiated reader  comprehend what had been assigned. It was argued that (for the purposes of section 136 of the LPA 1925) it was not sufficient to write a legal document essentially in code. The deed of assignment also referred to a schedule which appeared to be missing. It was argued that the recorder should not have  looked to extraneous evidence to satisfy himself that the deed of assignment covered Mr Melton’s loan and securities and that he had been wrong to do so. The Honourable Mr Justice Barling was not persuaded. Although he had sympathy with the complaints made about the drafting of the deed of assignment, that was not enough. He said: “The real question … is whether the reference [in the deed of assignment] is sufficient,  in the context of this agreement, for the deed of assignment to be construed as assigning the facility letter and legal charges in question… In my view,  the fact that one is concerned with satisfying the formalities of section 136 does not mean that one is not legitimately involved in a contractual construction exercise. In order to see whether this deed does comply,  as it must,  with the requirements of section 136,  and in order to see whether it assigns the facility letter and legal charges in question, one has to construe it. In construing a document, one is entitled to do so in the context of the surrounding circumstances or, as it is sometimes called, the factual matrix.” It was also argued that although initially a valid notice of assignment had been given, as an invalid one (giving the wrong date) had subsequently been served Mr Melton was in an impossible confusion which could not be remedied unless the invalid notice was withdrawn. The court was unimpressed, “assuming all other requirements were satisfied,  once the valid notice… was received… the legal assignment was complete and effective in accordance with the terms of s136. In my view,  the fact that there was a subsequent inaccurate and invalid notice could have no effect on the legal transfer that was already effective as of the earlier date.” Practitioners will also note that the court accepted that there could be good reasons for redacting signatures on deeds assigning loans and charges and observed that the fear of fraud is not uncommon in this area. Elizabeth Haggerty is a barrister at Lamb Chambers