law of assignment in malaysia

Assignment of Debt – What You Need to Know

By aqila zulaiqha zulkifli ~ 23 june 2023.

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Aqila Zulaiqha Zulkifli

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Occasionally, to ensure liquidity and to reduce financial risk, a creditor may assign its rights to a debt repayment to another party. Such an arrangement is known as the assignment of debt.

An assignment generally means the transfer of contractual rights and liabilities to a third party without the concurrence of the other party to the contract. [1] The assigning party is known as the assignor, whereas the recipient party is known as the assignee.

Once an assignment occurs, the assignee stands in the exact position as the assignor and has the legal right to a debt, other remedies therein, and even the power to discharge the debt. The debtor must then, make all payments to the assignee, and not the assignor. In fact, if the debtor pays the assignor without the consent of the assignee, the debtor may risk having to pay the assignee all over again. [2]

An assignment of debt is governed by Section 4(3) of the Civil Law Act 1956 (the “Act”) (cited with approval in the Federal Court case of UMW Industries Sdn Bhd v Ah Fook [3] , in which, the elements of a statutory assignment of debt can be summarized as follows:

the assignment must be in writing under the hand of the assignor (and not, i.e the agent of the assignor);
the assignment must be absolute and not by way of charge only; and
the express notice in writing must have been given to the person liable to the assignor (i.e the debtor).

The effect of a statutory assignment is that the assignee possesses the legal right to the debt and the right to sue the debtor in respect of the debt without needing to join the assignor. [4]

However, rest assured, an assignment that is not in compliance with Section 4(3) of the Act is not automatically invalid. A non-statutory assignment could still be valid in equity [5] , though the assignee would have to join the assignor in the proceeding, either as a plaintiff or defendant [6] . This is to ensure a just disposal of the action, by ensuring that all relevant parties are before the Court so that the assignor would not make a claim against the debtor in respect of the same debt.

As such, in conclusion, before accepting an assignment of debt, it is prudent for an assignee to ensure that the elements in Section 4(3) of the Act abovementioned are fulfilled. If the assignment is meant to be absolute, such terms should be clearly reflected in the deed of assignment, or the assignee runs the risk of being crippled in a legal proceeding to recover the debt in the absence of the assignor.

[1] United General Insurance Co Sdn Bhd v Progress Credit Sdn Bhd [1988] 2 MLJ 297

[2] malayawata steel berhad v government of malaysia & anor [1980] 2 mlj 103, [3] [1996] 1 mlj 365, [4] mbf factors sdn bhd v tay hing ju (t/a new general trading) [2002] 5 mlj 536, [5] khaw poh chhuan v ng gaik peng & ors [1996] 1 mlj 761 (fc), [6] chan min swee v melawangi sdn bhd [2000] 7 clj 1.

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Statutory Assignment vs Equitable Assignment

This article attempts to provide a brief overview of the differences between statutory assignment and equitable assignment. The actual application of the general rules described here would be subject to the applicable distinct facts and circumstances.

What is Assignment?

An assignment is a transfer of rights or liabilities such as those that arise under an instrument, chose in action 1 , or debt. An assignment can either be a statutory assignment or an equitable assignment.

In Malaysia, an assignment complying with Section 4(3) of the Civil Law Act 1956 was described as a ‘statutory assignment’ and an assignment not complying with Section 4(3) of the Civil Law Act 1956 was a ‘non-statutory assignment’ i.e., an equitable assignment. 2 The conditions of a statutory assignment are as follows: 3

(a) it must be absolute and did not purport to be by way of charge only;

(b) the assignment was in writing under the hand of the assignor; and

Meanwhile, an equitable assignment gives the assignee a right enforceable only in equity. The mode or form of assignment is absolutely immaterial provided the intention of the parties is clear. 4

Rules that Govern Assignments

Written notice is an essential part of a statutory assignment. Therefore, it is ineffective unless strictly accurate – accurate, for instance, as regards the date of the assignment and the amount due from the debtor. 5

However, notice is not necessary to perfect an equitable assignment. Even without notice to the debtor the title to the assignee is complete, not only against the assignor personally, but also against the persons who stand in the same position as the assignor, as, for instance, his trustee in bankruptcy, a judgement creditor or a person claiming under a later assignment made without consideration. 6

In regard to the form of notice, as mentioned earlier, a statutory assignment must comply with the form of notice required under Section 4(3) of the Civil Law Act 1956, whilst for an equitable assignment, no particular form is required to constitute a valid equitable assignment.

Additionally, it must be noted that although notice is not required for equitable assignments, an assignee must give notice to the debtor in order to get priority over other assignee(s). In this regard, the Federal Court in Public Finance Bhd v Scotch Leasing Sdn Bhd (In Receivership) (Perwira Habib Bank Malaysia, Intervener) [1996] 2 MLJ 369 explained in detail about the importance of notice:

“ We need to say a few words more about the great desirability of giving notice of assignment of a debt by an assignee to the debtor, even though absence of such notice does not affect the validity of the equitable assignment as between the assignor and the assignee. If notice is not given, the assignee must give credit for any payment made to the assignor by the debtor. This rule means that, by extension, even if the assignor assigns once more the debt to another person in fraud or otherwise on the earlier assignee, and that other person gives notice to the debtor; and if the debtor pays that other person or the second assignee, then the earlier assignee must still give credit to the debtor for his payment thus, for the debtor cannot be blamed for doing lawfully in ignorance of the title of the earlier assignee who has failed to give notice of the assignment to the debtor. Notice to debtor is for the protection of the assignee himself. It is this effect of what the debtor does lawfully as described that dims the view of the true role of the nemo dat rule in the resolution of disputed claims to a same debt. The money paid to the ‘second assignee’ can, of course, be recovered by the earlier assignee on the nemo dat principle. ”

(b) An assignee takes subject to equities

For both statutory assignment and equitable assignment, the assignee takes ‘subject to equities’, that is, subject to all such defences as might have prevailed against the assignor.

The general rule, both at law and in equity, is that no person can acquire title to a chose in action…from one who has himself no title to it. 7 In other words, the assignee can be in a no better position than the assignor was prior to the assignment. 8

Some choses in action are not assignable, and not every right which arises under or out of a contract can be assigned. 9 An example of rights incapable of assignment is where the nature of the contract is intended to be personal, therefore, it will be meaningless if it is assigned to another person.

Effect of Assignment

A statutory assignment has the sole intended effect of facilitating an assignee to sue in his own name directly irrespective of whether the chose in action is an equitable chose in action or a legal chose in action. 10

Meanwhile, the effect of an equitable assignment depends on whether the assignment is absolute or not. An absolute assignment of an equitable chose in action entitles the assignee to bring an action in his own name. 11 But a non-absolute assignment of an equitable chose in action does not entitle the assignee to sue in his own name but requires him to join the assignor as a party. 12

‘Chose in action’ is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession (Associated Tractors Sdn Bhd v Woo Sai Wa [1997] 5 MLJ 441 (High Court)).
MBF Factors Sdn Bhd v Tay Hing Ju (T/A New General Trading) [2002] 5 MLJ 536 (High Court).
Williams Brandt Sons & Co v Dunlop Rubber Co [1905] AC 454 (House of Lords).
Leong, A. P. B. (1998). Cheshire, Fifoot and Furmston’s Law of Contract (2nd ed.). Butterworths Asia, at page 861.
Guest, A. G. (1984). Anson’s law of contract, at page 400.
Meagher, R. P., Heydon, J. D., & Leeming, M. J. (2022). Meagher, Gummow and Lehane’s Equity Doctrine and Remedies (4th ed., p. 284). Butterworths LexisNexis.
Guest, A. G. (1984). Anson’s law of contract, at page 402.
Lim Chon Jet @ Lim Chon Jat & Ors v Wee Ai Hua & Anor [2022] 6 MLJ 243 (Court of Appeal).

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Malaysia – Developer’s Consent To Assign And The Imposition Of Administrative Fee.

January 31, 2020 by Conventus Law

31 January, 2020

Not all stratified properties have separate strata titles: this may be due to the developer’s failure to make necessary application or that the application is still being processed. Thus, any dealings with such properties involving the transfer of rights and interests can only be done by way of a deed of assignment which, in some cases, require the developer’s consent before the property can be assigned to another party.

Requirement for consent

Although Section 22D of the Housing Development (Control and Licensing) Act 1966 makes it an offence for developers to require consent or to impose any conditions to the assignment, the act only applies to “housing accommodations”, that is, any building, or tenement which is wholly or principally constructed, adapted or intended for human habitation or partly for human habitation and partly for business premises. This means that buildings not covered by the act, such as office buildings, will require developer’s consent to assign.

Imposition of administrative fee

As one of the conditions for giving their consent to assign, developers usually impose an administrative fee of 1% on the purchase price or on the value of the transaction (e.g. loan amount) which must be paid in order to obtain their consent. Though commonly regarded as market practice, the imposition of 1% can nonetheless be costly and unreasonable, given that the need for the consent is in some instances attributable to the developer’s failure to apply for the issuance of strata title.

Can we challenge the administrative fee amount?

In KAB Corporation Sdn Bhd & Anor v Master Platform Sdn Bhd [2019] MLJU 796, the Court of Appeal held that the administrative fee (1% of the loan facility amounting to RM 65,000.00) was plainly arbitrary, unreasonable, unfair and oppressive, and only allowed the developer to charge a nominal fee of RM 500.00.

What happened in this case?

The plaintiff is the owner of an office unit in a commercial building. It sought to assign its property to a bank, as security for a loan facility to a third party. However, as condition for its assignment, the developer required payment of administrative fee equivalent to 1% of the loan facility amount.
The plaintiff sued the developer and argued that the administrative fee was illegal and excessive.
Although the sale and purchase agreement and the house rules (promulgated by the joint management body) provide for a right for the developer to impose an administrative fee for the consent, at a rate to be decided at the developer’s absolute discretion, the exercise of the discretion must not be done arbitrarily, capriciously or unreasonably;
(i) it results in varying amounts being charged based on the value of the transaction even though the administrative work involved was the same for each and every office unit;
(ii) The developer’s obligation to undertake the administrative work was attributable to their failure and or neglect to obtain the strata titles despite the lapse of time after the completion of the property;
As such, a nominal administrative fee of RM 500.00 is fair and reasonable.

Commentary

i) it provides some form of control on the fees that can be levied by developers;
ii) developers may no longer be able to benefit from their failure or neglect to apply for strata titles.
However, without legislative intervention, the law remains inadequate as the only way owners could obtain remedy is through litigation which is often time consuming and costly.

For further information, please contact:

Donovan Cheah , Partner, Donovan & Ho

[email protected]

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