Lloyd's Maritime and Commercial Law Quarterly
Assignees, equities and cross-claims: principle and confusion
Andrew Tettenborn *
This article concerns a simple question: where a debt is assigned, in what circumstances ought the debtor who has a cross-claim available against the original creditor to be allowed to oppose it to the assignee? I argue that the present rules, while impeccably logical in view of the history of the law of set-off from which they derive, are often neither rational nor just. I try to suggest principles that might make them more so.
The assignee of a chose in action, as any commercial lawyer will tell you, takes it subject to equities. In particular, one aspect of this rule is that when he sues he may have to give credit for certain claims which the debtor had against the assignor, his original creditor. How far he has to do so, and which debts affect him, is an awkward topic. It is also a vital one in England, and in any other jurisdiction where the taking of security over receivables is a widespread form of finance, since it considerably affects the efficacy of security taken by banks and other financiers.
The object of this essay is not primarily to provide yet another account of the law here (even though it is both astonishingly complex and at times scandalously uncertain): this has been done, twice, in detail1
and on a number of other occasions in summary.2
Rather, I would like to stand back and look at the matter as one of principle. Why should we ever insist that an assignee take subject to cross-claims,3
and if so when? And, in the light of the answer to this question, is there any way we can guide or improve the way English law copes with the problem?
I. THE POINT OF PRINCIPLE
Although most lawyers4
accept that there are at least some cases where an assignee must give credit for cross-claims, few have stood back to ask why, or to look for the principles
* Bracton Professor of English Law, University of Exeter.
1. S.R. Derham, Set-Off,
2nd edn (1996), ch. 13; R Wood, English & International Set-Off
(1989), ch. 16.
2. At times, one must admit, very summarily: C. Vaines, Personal Property,
5th edn (1973), 267–268, and A.P. Bell, Modern Law of Personal Property in England & Ireland
(1989), 378–379, both cover the area in a couple of pages or so.
3. The rather unwieldy term “cross-claims” is used for width. It covers all claims of a debtor against his creditor, whether they engender a set-off or a mere counterclaim, and whether or not both claims would have fallen to be determined in the same hearing had there been no assignment.
4. Apart from English-based systems, the UCC deals with the issue in a similar, but not identical, way to English law: UCC, § 9–318(1)(b). Nor is the idea limited to the common law. Scots law knows an analogous principle (see Stair, I.18.5 and, e.g., Shiells
v. Ferguson, Davidson & Co.
(1876) 4 R. 250), as does the German BGB, which specifically provides in § 406 that claims acquired by the debtor after notice of the assignment cannot be set off.
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