When the borrower's customer defaulted, the borrower sought possession of the property pursuant to the charge.
The customer argued that the borrower had no right to sue for possession as whatever rights it had constituted receivables and such receivables had been assigned to the lender, which was not a party to the legal proceedings.
Absent clear wording to the contrary, a borrower who has assigned absolutely the benefit of a receivable or contract under a security document will be unable to take proceedings to recover those receivables or sue on that contract without joining the lender as a party to the proceedings.
This has cost implications for a lender and needs to be considered carefully at the outset of any relevant transaction.
Under the terms of the debenture entered into in favour of the lender, the borrower undertook that all payments received by it pursuant to the arrangements it entered into with the insurance brokers were to be paid directly into a collection account and all other receivables were to be collected by the borrower in the ordinary course of trading as agent for the lender and upon receipt paid into the collection account.
A customer of the borrower had given a legal charge over a commercial property as security to the borrower for amounts advanced under a premium credit funding arrangement.The Court also held that having assigned its rights absolutely to the lender, the borrower could not bring an action in its own name as agent as such an action would need explicit wording granting the borrower authority to act as the lender's agent.Secondly, the notion of the borrower acting as agent of the lender seemed to be inconsistent with what had been assigned to the lender and would need "clear wording" to authorise the borrower to bring proceedings in the lender's name of the very thing that had been assigned by the borrower.Once the debt has been validly assigned, B will be able to enforce payment of the debt and only payment to B will extinguish the debt.Under Dutch law, the general rule is that a chose in action (such as a claim) unless assignment is precluded by law or the nature of the right (art (1) of the Dutch Civil Code).The receivables comprised all present and future book and other debts, money claims and other amounts recoverable or receivable by the claimant.It also extended to the benefit of all rights and remedies relating to claims for damages and other remedies for non-payment.Assignment is where one person, the assignor, transfers a chose in action to another, the assignee.A chose in action is a property right which can only be enforced by legal action not by taking possession, for example a debt or a right to compensation.Where an assignment or power of attorney was made outside Canada, notice of the assignment or power of attorney shall be accompanied by a written opinion of the legal counsel to any Canadian diplomatic, consular or trade representative in the country in which the assignment or power of attorney was made as to whether the assignment or power of attorney is valid and, in the case of an assignment, whether the assignment is binding on the assignor under the laws of the jurisdiction in which such assignment was made.Moneys payable pursuant to an agreement between the Minister of Finance and a company carrying on the business of mortgage insurance whereby Her Majesty guarantees claims of holders of mortgages insured by the company, and any other chose in action arising out of such an agreement and in respect of which there is a right of recovery enforceable by action against the Crown are a class of Crown debts within the meaning of paragraph 68(1)(b) of the Act.