The High Court considers formalities for valid legal assignments and raises restrictions on execution under a Power of Attorney
Market Insight 2023年12月7日 2023年12月7日
On 3rd November 2023, the High Court handed down a judgment in the case of Frischmann v Vaxeal Holdings SA  EWHC 2698 which considered the validity of an assignment of rights under two loan agreements and a guarantee. Mr Frischmann, the claimant, had advanced monies by way of loans to a company, IDM Ventures Limited, to support the participation in a joint venture to salvage and recover precious metal cargoes from two identified shipwrecks. IDM was the second defendant in the case as Vaxeal Holdings, the first defendant, was a dissolved company.
On 18 June 2020, all of Dr Frischmann's rights, title, interest and benefits in and to the loans and the Guarantee were apparently assigned in writing to his son, Mr Frischmann. The Assignment was executed by Mr Frischmann with his own signature "for and on behalf of Dr Frischmann by way of a Lasting Power of Attorney" and by Mr Frischmann with his own signature on his own behalf.
Master McQuail considered the status of the assignment and held that the assignment was not valid as a Legal Assignment as it did not comply with the necessary formalities of the Law of Property Act 1925 (LPA).
An assignment is the transfer of an existing right or interest in tangible property from one person to another and can be legally or equitably transferred. There are three forms of assignment:
- A legal assignment, which must meet the requirements of section 136 of the Law of Property Act 1925 and is also known as a “statutory assignment”;
- An equitable assignment, which does not meet the requirements of section 136 but can be established if the assignor can show evidence of the intention to create one and it is equitable that the assignment should not fail;
- An assignment by operation of law, which is used to describe transfers of rights under statute without a formal assignment. An example would be the transfer of contracts on a business sale as a going concern by operation of the Transfer of Undertaking Regulations 2006 (TUPE).
The Court held in this case that an effective assignment under section 136 LPA requires that it be in writing (which it was) but also “under the hand of the assignor” and that the assignment here signed by Mr Frischmann as the assignor's attorney did not satisfy that requirement given that it was not under his own hand.
Mr Frischmann had argued that the Powers of Attorney Act made clear that the execution of the document by Mr Frischmann as attorney was as effective as if it had been duly executed by Dr Frischmann (the assignor) personally. Master McQuail rejected this on the basis that to hold that the LPA permitted signature by an agent would be “to rewrite its’ terms” and cited cases that supported this approach. The cases do support the view that it would be inadvisable to use a Power of Attorney where signing on behalf of an individual assignor.
These cases do not in our view clearly support the view that a company may only execute a legal assignment “under hand” rather than by way of Power of Attorney.
So what is the position where a company assignor is using a power of attorney?
The Companies Act 2006 allows execution of documents by a company in the following ways:
- By affixing its common seal
- By the signature of the company on behalf of either two directors or one director and company secretary or one director in the presence of a witness who attests the director’s signature ; or
- By appointing a person as its attorney to execute the deed on the company’s behalf
In addition, the LPA section 74 allows for the execution of a deed under an authorised power of attorney to take effect and be valid as if executed by the company.
If a company has executed an assignment in accordance with these provisions, it would therefore be a bold judge that decides to overturn its validity.
On the facts of this case, it was held that an equitable assignment was created as all that was deficient was compliance with the formalities of the LPA.
Assignments are used in finance transactions as a key part of the security package and it is important to note that this decision related to execution by an individual, not a company but nonetheless this may have implications for the practice of executing corporate documents under a power of attorney, (frequently a solicitor acting as “attorney in fact”) if any doubt is cast on the status of this legal document.
It is worth noting that this is a decision of a chancery master and may not have the precedential weight of a decision of a full high court judge. That said, this decision is interesting as it is generally assumed that a legal assignment would be properly created under a validly executed Power of Attorney.
Although there is likely to be an equitable assignment it would nonetheless be prudent in light of this decision to ensure a legal assignment is created by arranging execution by the assignor where this is the intention of the parties as this would avoid any suggestion that the assignment does not hold the status of a legal assignment.