KEY POINTS Feature –In the authors’ view, adoption of a contract approach to prohibitions is at odds with the current rules governing assignment. –The model of assignment is based on property and an approach to prohibitions that reflects that model sufficiently caters for the intention of the parties without creating a need for unique rules. –Recognition of a declaration of trust or of an equitable assignment in the face of a prohibition results in a legal relationship between the obligor and beneficiary/assignee thus denying the purpose of the prohibition.

Authors GJ Tolhurst and JW Carter Prohibitions on assignment: contract or property?

This article considers whether prohibitions on assignment should be analysed as to or perform for a third party, so that mere contractual restraints on alienation that do not in law inhibit assignment in the right may remain property and be equity or whether they characterise contractual rights as property rights and deprive transferable for other purposes. The them of their inherent transferability.1 concept of property also allows for issues to be carefully nuanced. It is not an all or PROHIBITIONS ON ASSIGNMENT: CONTRACT OR PROPERTY?PROHIBITIONS ON ASSIGNMENT: nothing institution. Where it reflects the INTRODUCTION purpose of such prohibitions was said to intention of the parties, it is possible to Prohibitions on assignment come in be to “ensure that the original parties to distinguish between a true prohibition ■ various forms. The main categories the contract are not brought into direct and a promise not to assign. Consider also are clauses drafted as true prohibitions, contractual relations with third parties”. a term that prohibits assignment without clauses drafted as promises not to assign, The debate concerns how this purpose is consent where that consent is not to be clauses prohibiting assignment without achieved. For some it is by recognising that unreasonably withheld. An attempted consent (often adding that consent is not in bringing into existence a contract, the assignment without consent being to be unreasonably withheld), clauses parties may characterise those rights as sought or, if it is asked for, consent being restricting assignment to certain people or they see fit, including to deprive them of reasonably withheld, would be ineffective.8 entities and clauses that make contractual their transferability. We adopt this view. Here the intention of the parties is that rights personal. Until the decision of the Since the right comes into existence by the chose has the characteristic of being House of Lords in Linden Gardens Trust agreement and would not exist without transferable but that transferability Ltd v Lenesta Sludge Disposals Ltd,2 the that agreement, it is logical to accept is contingent. However, if consent is efficacy of prohibitions on assignment – that the parties can characterise the requested and is unreasonably withheld other than the last type mentioned – was contractual rights (and obligations) under then we suggest that not only will that be not clear. That case upheld such provisions the agreement as they see fit. This is an a breach of contract but the assignment and recognised that they were not contrary aspect of freedom of contract. There will will be effective. The condition of requiring to public policy. be exceptions to this position which are consent is intended to give the obligor some choice as to who it accounts to but it is limited by the criterion of “reasonableness”, “... if consent is requested and is unreasonably withheld otherwise the inherent assignability of the then we suggest that not only will that be a breach of chose is operative. On another view, there are thought contract but the assignment will be effective” to be limits to the ability of the parties to characterise contractual rights. They The basis upon which the House of informed by public policy. Examples may not modify the inherent property Lords upheld the prohibition in that case include regularly traded debts and the aspects of such rights and one of those has been debated. The House of Lords use of personal property as security.6 aspects is transferability. On this view a held that the effect of a prohibition on But it is important to many commercial prohibition works by characterising the assignment depends on construction,3 transactions that a prohibition be given obligation of the obligor, the contractual however, in most cases the parties’ effect to, for example the set-off and close- right itself remains assignable in equity intention is to invalidate the assignment out netting provisions in ISDA master but the obligor need only perform for or “so as to prevent the transfer of the chose in agreements depend on full effect being account to the assignor. The purpose of the action”.4 Usually even a clause drafted as a given to prohibitions on assignment.7 prohibition is achieved on the basis that “promise” not to assign will be interpreted Usually a promisor will only be concerned the assignment, being equitable, only gives as a prohibition on assignment.5 The with ensuring it is not liable to account the assignee rights against the assignor. In

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our view, although it is right to give weight to assignee applies as much before the contract and so could have no objection to the purpose of the prohibition, this performance of the contract as it does to the beneficiary having recourse to a cannot be done in a commercial manner to the fruits of performance. The debtor mere procedure to bring about that same if it involves drawing fine distinctions and is entitled to say that he will not give result as the procedure merely prevents the if only lip service is paid to the words of performance to an assignee, but what beneficiary first having to bring an action the contract which prohibit assignment. legitimate interest can he have in saying against the trustee to enforce the contract; Moreover, as we seek to show below, the that not even equitable ownership can although the action was in the name of approach that has been adopted in some be transferred, with the result that, the beneficiary it operates as if brought recent cases does not uphold that purpose. where an assignor who has been paid for by the trustee.19 Indeed Walker LJ even the contract right becomes insolvent, expressed the view that a prohibition on THE CONTRACT ANALYSIS OF the intended assignee is merely an all forms of alienation might not inhibit PROHIBITIONS unsecured creditor? ... So, whether we the declaration of such a trust as the The view that prohibitions on assignment are looking at the fruits of performance purpose of not creating a legal relationship merely operate at the level of contract and or at the right to performance, a no- between the obligor and a third party is do not characterise contractual rights assignment clause is valid only so far maintained.20 Rix LJ thought access to is supported by Professor Goode who as it operates as a matter of contract, the procedure was “necessary to get the argues that that analysis was adopted by conditioning the duty to perform, not as legal claim before the court, through the the House of Lords in Linden Gardens.9 a restraint on alienation.” party who owned it”21 and expressed a view It is certainly true that Lord Browne- Wilkinson said that a “prohibition on assignment normally only invalidates the “Moreover, the primary focus is on the purpose of assignment as against the other party to prohibitions, to prevent the obligor being placed in a the contract”.10 However, he went on to express the legal effect of a prohibition legal relationship with a third party” as to prevent “the transfer of the chose in action”, stating that an attempted In Barbados Trust Company Ltd v that public policy might inhibit a clause assignment was “ineffective to transfer Bank of Zambia16 the Court of Appeal which attempted to extinguish all forms such contractual rights”.11 It was after this affirmed the earlier decision in Don King of alienation.22 Importantly the envisaged that he referred to the purpose of such Productions Inc v Warren,17 that a party to trust was not a trust over the fruits of provisions stating that, “if the law were a contract can declare that he or she holds the contract, it was fully vested and the otherwise, it would defeat the legitimate the benefit of a contract on trust for a third beneficiary through a procedural device commercial reason for inserting the party even if the rights under the contract could enforce unperformed accrued rights contractual prohibition, viz, to ensure that are personal and not assignable and even under the contract so as to “obtain what he the original parties to the contract are not if the contract contains a prohibition on is beneficially entitled to”.23 brought into direct contractual relations assignment. The decision in Barbados The decision inBarbados seems to with third parties”.12 concerned a declaration in the face of a support the approach to prohibitions on Goode stated his view in the following prohibition on assignment. The court held assignment advocated by Goode. There terms:13 that on construction the prohibition did are views expressed as to policy limitations not capture a declaration of trust. It was on prohibitions, one cannot extinguish “The first point to make is that an thought that a declaration of trust was alienability. Moreover, the primary focus assignment of a contract right in breach not at odds with the intended purpose of is on the purpose of prohibitions, to of a no-assignment clause takes effect the prohibition as the beneficiary could prevent the obligor being placed in a legal only in equity... only enforce its rights against the trustee, relationship with a third party. So long as no legal relationship existed between the that is maintained the promisee is free to “The second point, though one beneficiary and obligor. Walker and Rix deal with the chose in action. which became apparent only in light of LJJ were prepared to go further and, if There appears to us to be two primary [Don King Productions Inc v Warren,14 necessary, allow the beneficiary access to issues with the approach taken in this and Barbados Trust Company Ltd v the procedure that allows it to bring an case and a number of more general issues Bank of Zambia15] is that the absence action in its own name against the obligor with the contract view as it relates to of legitimate grounds for the debtor to if the trustee refuses to act.18 Walker LJ prohibitions. First, the ability of the seek to negate a transfer of ownership reasoned that the obligor could have no beneficiary to enforce unperformed of the contract right from assignor objection to the promisee/trustee enforcing contractual rights seems necessarily to

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result in the beneficiary having an interest ASSESSING THE CONTRACT of construction28 and it has never been in the contract; it must therefore have ANALYSIS the law that an attempted assignment of a legal relationship with the obligor. So Putting the issue of declarations of trust a personal contractual right is effective the alleged purpose of the prohibition is to one side, in this section we address in equity; rather equity has respected the not upheld. Moreover, it seems fictional some particular concerns of recognising personal rights rule.29 It would therefore today to suggest the beneficiary has no the possibility of assigning the benefit appear that unless the personal rights substantive right to enforce the contract of a contract in equity in the face of a rule is varied it is easy to draft around but merely access to a procedure that prohibition on assignment. If the contract any policy consideration that underpins brings about the same result. That legal analysis of prohibitions is accepted as the the contractual approach to prohibitions: sleight of hand is the type of reasoning better explanation of how prohibitions simply make the rights personal. that commercial parties despise when it operate, so that the benefit of the contract Fourthly, the rule that upon receipt of neglects reality: the action will be brought, remains assignable in equity, then it will be notice of an assignment the obligor cannot planned and funded by the beneficiary. In necessary to determine how that approach obtain a discharge from the assignor has addition, as a bare trust, the beneficiary- fits into the general rules governing always applied to equitable assignments of assignee has an immediate right to call for assignments. In our view the principal contractual rights. Yet its operation in the PROHIBITIONS ON ASSIGNMENT: CONTRACT OR PROPERTY?PROHIBITIONS ON ASSIGNMENT: the trust property. issues that would need to be addressed in case of this valid equitable assignment in Second, the result in the Barbados case adopting the contract view are as follows. the face of a prohibition seems misplaced, it would not appear unconscionable for the obligor to ignore such a notice, but “... it seems anomalous to have a position that to ignore it would call into question recognises an equitable assignment in the face of a the efficacy of assignment which vests equitable title in the assignee. This results prohibition on assignment” from having the model of assignment being based on property and then confusing is based on the view that a beneficiary First, it seems anomalous to have a that model with one aspect of assignment has no direct rights against the obligor. position that recognises an equitable – assignments in the face of prohibitions If that is correct then it must also apply assignment in the face of a prohibition on assignment – being based around to equitable assignments of legal rights on assignment. The assignment is surely principles of contract. It seems nonsensical as there is still a strong view that these a breach of contract and the assignee is to create this discrete exception to a long only operate as between the assignee asking equity to uphold a transaction established rule when there is no need to and assignor. For our part we think this the basis of which is a breach of another do so by adopting a property approach to is a dated view of such assignments and contract.27 prohibitions. that today there is a legal relationship Secondly, if the assignment in the face Fifthly, and related to point four, it between the assignee and obligor resulting of a prohibition on assignment is effective, is a rule of assignment that upon receipt from the assignee’s ownership of the how is it that the assignee is bound by the of notice of the assignment the obligor chose. That this is so can be seen in prohibition in the sense of not being able to cannot agree a variation of the contract or a the requirement that the joinder of the bring an action directly against the obligor? discharge of the contract with the assignor assignor in any action is today viewed There is either an assignment or there is without obtaining the consent of the as a matter of procedure.24 Moreover, not! If the prohibition only operates at the assignee.30 The reason for this rule is not under the modern law equity considers level of contract and the assignee is not a that the assignee owns the assigned right as choses in action as property for the party to the contract then it should not the assignment is effective prior to notice, purposes of transfer, they are not merely be bound by the provision. It seems to us but rather, upon receipt of such notice property because any attempted transfer that at some stage it is necessary to admit the conscience of the obligor is bound. will be protected.25 However, there is that at the level of property the prohibition However, since the obligor bargained for still much authority that holds that such characterises the benefit the assignee takes, the prohibition on assignment it cannot assignments are only effective as between that is, it characterises the chose in action. be unconscionable for the obligor to agree the assignor and assignee.26 If correct Thirdly, there is an apparent to discharge or vary the contract without it would follow then that the reasoning incongruity between the contract the consent of the assignee. But if that is in Barbados should be applied to such view of prohibitions and the rule that correct it follows that any assignee taking assignments and this further suggests that dictates that a personal contractual right an assignment in the face of a prohibition the case supports the view of prohibitions cannot be assigned. Whether or not a on assignment must accept that their rights favoured by Goode. contractual right is personal is an issue can by undercut at any time by agreement

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between the assignor and obligor and it with the objectives of commercial CONCLUSION should take appropriate indemnities from construction.31 In our view a commitment In our view the House of Lords in Linden the assignor. It would follow from this that to commercial construction would mean Gardens took the view that a prohibition on any policy that underpins the upholding of that all forms of prohibition on assignment assignment affects the transferability of the such assignments is fairly weak. are an attempt by the parties to exercise chose in action in a manner that reflects It is possible to make a few more their power to define their contractual the intention of the parties. Usually that remarks about this contract approach to rights as property rights so that in each intention will be to deny the transferability prohibitions that focus on the commercial case the right to receive performance of the chose so that the promisee cannot basis for such provisions. One important is personal to the assignor. Similarly, assign the benefit of the contract to a third point is that the contract approach appears any transaction that would create such party. Generally there will be no intention to put the purpose of the provision above a relationship between the assignor to prohibit an assignment of the fruits the words of the provision which expressly and obligor would be caught by such a of a contract and the promisor cannot state that it seeks to prevent assignment. provision whether it be an assignment, control the promisee’s ability to deal with This is not to suggest that the purpose is trust or charge. the fruits of the contract when they are not important but for the reasons given above, in our view the recognition of a declaration of trust of the type envisaged “... there seems little to differentiate a prohibition on in Barbados in the face of a prohibition assignment and a clause that makes rights personal or the recognition of an equitable assignment in the face of a prohibition when a commercial approach to construction is adopted” results in a legal relationship between the obligor and beneficiary or assignee In his defence of the contract approach in the hands of the promisee. Property is thus denying the purpose. Moreover, the Goode took the view that it is important a sophisticated institution and can deal enforcement mechanism for such a trust to recognise the assignment in the face with differing intentions and can therefore or assignment effectively forces the obligor of a prohibition so as to protect the result in a prohibition operating as no more into a relationship with the beneficiary or assignee – who has provided executed than a promise not to assign if that is the assignee. In addition, although in Barbados consideration for the assignment – from intention of the parties. This approach recourse was said to be had to the purpose the assignor’s insolvency. If that were not has the great benefit of working within of the prohibition the court did not appear the case then Goode argues the assignor’s the current property model of assignment, to appreciate the commercial approach to estate would be unjustly enriched.32 There there is no need to create any distinct construction that resort to the purpose is, however, a counter argument. Why rules of assignment if this approach is of a contract forms part of. Commercial should the creditors of the assignor be maintained. For the reasons given above, construction leans against drawing fine subject to an assignment of which they adoption of a purely contractual approach distinctions in drafting. Yet we have a have no notice? Modern approaches, not to prohibitions is at odds with the current result that a prohibition on assignment only to assignments by way of security, rules governing assignment and adds has been held to not capture a declaration but outright assignments of debts, insist complexity to an already complex area of of trust when the declared purpose of the on some perfection requirement, usually law. prohibition is to prevent legal relations registration, in order to have such priority. Finally, if the law takes the position that with third parties. However, if commercial Although at present, in England, such an assignment in the face of a prohibition construction is to be applied and if that legislation only exists for securities and should be effective as an equitable is the purpose of a prohibition then it is book debts, the fact such requirements assignment then it appears to us that it difficult to see how a declaration of trust or exist in other jurisdictions shows that necessarily follows that the personal rights an equitable assignment can be made in the as a matter of policy it is not necessarily rule must also be amended with the result face of the prohibition. In our view there the case that the assignee should be that all rights become assignable unless seems little to differentiate a prohibition protected.33 Moreover, it is possible to there are good objective reasons for refusing on assignment and a clause that makes imagine a case where the obligor performs the assignment. It must also follow that an rights personal when a commercial first and then the assignor becomes obligation that is found to be personal on approach to construction is adopted. Yet insolvent. The assignee will have the benefit construction should be capable of being that distinction seems inherent in the of the obligor’s performance, which is delegated if there exists no good objective contractual approach to prohibitions not an asset of the assignor or its estate, reasons for making it personal. There is as evidenced by the Court of Appeal in available to the obligor (as the assignor’s some support for adopting that approach.34 Barbados. The results seem inconsistent creditor) in the insolvency. However, it would radically alter our law of

Butterworths Journal of International Banking and Financial Law December 2014 695 Biog box Feature GJ Tolhurst is Professor of Commercial Law at the Faculty of Law, University of Sydney, and a consultant at Herbert Smith Freehills. Email: [email protected] JW Carter is Professor Emeritus at the University of Sydney, a consultant at Herbert Smith Freehills and general editor of the Journal of Contract Law. Email: [email protected]

assignment as it has developed and should be prohibitions and promises not to assign. He Assurance Co Ltd [1926] Ch 191 at 215 per a step taken only when all the ramifications was also dealing with the question whether Pollock MR, at 220 per Warrington LJ; have been thought through. We do not a prohibition operates as an improper Comptroller of Stamps (Vic) v Howard-Smith suggest that the supporters of the contract restraint on alienation. See also Devefi Pty (1936) 54 CLR 614 at 622 per Dixon J; Holt approach to prohibitions are necessarily Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 v Heatherfield Trust Ltd [1942] 2 KB 1 at 4 advocating such a move but the implications 225 at 234-7, where the Full Federal Court per Atkinson J; Corin v Patton (1990) 169 for legal principle of any change to the law of Australia suggest that this analysis could CLR 540 at 577 per Deane J; Showi Shoji of property or contract must always be flow from a proper construction of the Australia Pty Ltd v Oceanic Life Ltd (1994) considered and in our view such an approach contract but did not adopt it as one dictated 34 NSWLR 548 at 561; Mid-City Skin to prohibitions opens the door to this larger by doctrine. Cancer & Laser Centre v Zahedi-Anarak approach as a matter of legal doctrine. „ 10 [1994] 1 AC 85 at 108. (2006) 67 NSWLR 569 at 607-8. 11 [1994] 1 AC 85 at 108. 27 R v Chester and North Wales Legal Aid Area 1 This article is based on a longer article 12 [1994] 1 AC 85 at 108. Office (No 12) [1998] 1 WLR 1496 at 1501 published by the writers in the Cambridge 13 [2000] Ch 291 (affirmed [2000] Ch 291). per Millett LJ. Law Journal, see GJ Tolhurst and JW Carter, 14 [2000] Ch 291 (affirmed [2000] Ch. 291). 28 Tolhurst v The Associated Portland Cement PROHIBITIONS ON ASSIGNMENT: CONTRACT OR PROPERTY?PROHIBITIONS ON ASSIGNMENT: ‘Prohibitions on Assignment: A Choice to be 15 [2007] EWCA Civ 148, [2007] 1 Lloyd’s Rep Manufacturers (1900) Ltd [1903] AC 414. Made’, [2014] CLJ 405. 495. 29 RP Meagher, JD Heydon and MJ 2 [1994] 1 AC 85. 16 [2007] EWCA Civ 148, [2007] 1 Lloyd’s Rep Leeming, Meagher, Gummow and Lehane’s 3 [1994] 1 AC 85 at 105. 495. Equity, Doctrines and Remedies, (4th Edn, 4 [1994] 1 AC 85 at 108. 17 [2000] Ch 291 (affirmed [2000] Ch 291). Butterworths, Sydney, 2002), para 6.445. 5 Eg Linden Gardens Trust Ltd v Lenesta 18 The procedure is referred to as the See also, WS Holdsworth, “The History of Sludge Disposals Ltd [1994] 1 AC 85, 104 “Vandepitte” procedure after Vandepitte v the Treatment of Choses in Action by the per Lord Browne-Wilkinson; Devefi Pty Ltd Preferred Accident Insurance Corp of New Common Law” (1920) 33 Harv L Rev 997, v Mateffy Pearl Nagy Pty Ltd (1993) 113 York [1933] AC 70. Hooper LJ agreed with 1022-3. Cf Mid-City Skin Cancer & Laser ALR 225. Walker and Rix LJJ on the construction point Centre v Zahedi-Anarak (2006) 67 NSWLR 6 Eg Unidroit Principles of International but would not have allowed the beneficiary 569 at 606-8 per Campbell J. Commercial Contracts, 2010, Art 9.1.9. See to use a procedure to bring an action in its 30 Brice v Bannister (1888) 3 QBD 569. also Unidroit Convention on International own name if the trustee refused to act as that 31 See eg Fiona Trust and Holding Corp v Factoring, Art 6; United Nations would be at odds with the purpose of the Privalov [2007] UKHL 40, [2007] Bus LR Convention on Assignment of Receivables prohibition, [2007] EWCA Civ 148 at [139], 1719. in International Finance, Art 9; Personal [2007] 1 Lloyd’s Rep 495 at 520-21. 32 Roy Goode, “Contractual Prohibitions Property Securities Act, 2009, (Cth), s 81; 19 [2007] EWCA Civ 148 at [45], [47], [2007] 1 Against Assignment” [2009] LMCLQ 300 at UNCITRAL Legislative Guide on Secured Lloyd’s Rep 495 at 506-507 per Walker LJ. 306. Transactions (UN, New York, 2010), paras, 20 [2007] EWCA Civ 148 at [43], [2007] 1 33 Eg Personal Property Securities Act 2009 [106]-[110]. Lloyd’s Rep 495 at 506 per Walker LJ. (Cth), s 12(3). 7 International Swaps and Derivatives 21 [2007] EWCA Civ 148 at [102], [2007] 1 34 See LA DiMatteo, “Depersonalization of Association, Inc. Lloyd’s Rep 495 at 515. Personal Service Contracts: The Search 8 Hendry v Chartsearch Ltd, The Times, 16 22 [2007] EWCA Civ 148 at [112], [2007] 1 for a Modern Approach to Assignability” September 1998; Fulham Partners LLC v Lloyd’s Rep 495 at 516. (1994) 27 Akron L Rev 407. Cf, GJ Tolhurst, National Australia Bank [2013] NSWCA 23 [2007] EWCA Civ 148 at [29], [2007] 1 “Assignment of Contractual Rights: The 296. Lloyd’s Rep 495, at 503. Apparent Reformulation of the Personal 9 Roy Goode, “Contractual Prohibitions 24 Roberts v Gill & Co [2010] UKSC 22, [2011] Rights Rule” (2007) 29(1) Australian Bar Against Assignment”, [2009] LMCLQ 1 AC 240, 263 per Lord Collins. Review 4. 300 esp at 306-6. Goode relies in part 25 Fitzroy v Cave [1905] 2 KB 364, 372-3 per on a decision of Untermyer J in Sacks v Cozens-Hardy LJ. Neptune Meter Co (1932) 258 NYS 254 26 Eg Re General Horticultural Company (1886) Further reading at 261-2, who states that the “limitation 32 Ch D 512 at 515 per Chitty J; Gorringe v –Restrictions on the transfer of rights in is not so much imposed on the obligee’s Irwell India Rubber and Gutta Percha Works loan contracts [2013] 9 JIBFL 543 right of alienation as on the obligor’s duty (1886) 34 Ch D 128 at 132 per Cotton LJ; –Assignment: problems and pitfalls to perform”. However, the clause there Anning v Anning (1907) 4 CLR 1049 at [2013] 8 JIBFL 489 was drafted as a promise not to assign and 1064 per Isaacs J; Re Westerton [1919] 2 –Lexis PSL: Banking & Finance: Untermyer made a distinction between true Ch 104 at 111 per Sargant J; Re City Life Syndication and transfer of loans

696 December 2014 Butterworths Journal of International Banking and Financial Law KEY POINTS MODEL LAWA NEW OF SECURED TRANSACTIONS: –A new model law on secured transactions, prepared by UNCITRAL Working Group VI, Feature aims to provide a global template for modernisation and harmonisation of law in this area. –The Draft Model Law’s unique and ambitious aspirations are simplicity, brevity and conciseness. –If the Draft Model Law’s aspirations are achieved, it is likely to lead to a global trend in modernisation in this area. –English law may fall behind if it does not reform – the nearest and small opportunity is making bans on assignment ineffective but a much wider reform may be needed.

Author Dr Magda Raczynska A new model law of secured transactions: worldwide modernisation in the making?

A new model law on secured transactions is currently being prepared by the given the similar treatment of trusts WORLDWIDE MODERNISATION IN THE MAKING? UNCITRAL Working Group VI, based on its previous work – the Legislative Guide on on insolvency is the Hague Conven- Secured Transactions with its Supplement on security in intellectual property. The tion on the Law Applicable to Trusts article explains the context in which the Draft Model Law arises, and shows that its and on Their Recognition (The rationale is to provide a simple, concise and shorter model law that would facilitate Hague, 1985); worldwide modernisation in this area. Although hard to achieve, the success of the –Unidroit Convention on Substantive Draft Model Law could change the attitudes to law reform in countries where reform Rules for Intermediated Securities is opposed such as England. (Geneva, 2009). –conflicts of laws convention: –The Hague Convention on the Law INTRODUCTION Belgium, France, Jersey, Malawi and Qatar.2 Applicable to Certain Rights in A new model law on secured transactions At the international level, modernisation of Respect of Securities Held with an ■law is currently being drafted by secured transactions law is promoted mainly Intermediary (The Hague, 2006). Working Group VI of the UN Commission but not exclusively through harmonisation –model laws: on International Trade Law (UNCITRAL). efforts. The law of security interests, seen –Model Inter-American Law on Secured The purpose of this note is threefold: first, to as part of the law of property, has been Transactions, adopted in 2002 by the explain the need for this new instrument by historically difficult to harmonise. This initial Organisation of American States; setting out the context in which it arises and demur has been progressively overcome over –Model Law of the European Bank its aims, secondly to suggest ways in which the last three decades through the work of Reconstruction and Development the model law can develop to advance these of various international organisations and (2004); goals, and finally to identify areas of particular entities. The result to date is an array of –Unidroit Model Law on Leasing relevance to English law. international instruments, including: (2008). –international conventions to unify –legislative and reference guides: DO WE NEED A GLOBAL MODEL LAW aspects of substantive law: –UNCITRAL Legislative Guide on ON SECURED TRANSACTIONS? –Unidroit Convention on International Secured Transactions (2007) and Importance of a sound legal Factoring (Ottawa, 1988); Supplement on Security Rights in framework and its development –Unidroit Convention on International Intellectual Property (2010); Secured credit is hugely important to market Financial Leasing (Ottawa, 1988); –Draft Common Frame of Reference, participants and growth of the economy. –United Nations Convention on the which includes Book IX devoted to With the increasing reliance on secured credit Assignment of Receivables in Inter- security interests and which could be and the growing market interdependency, national Trade (New York, 2001); seen as a reference guide, prepared by there is a pressing need to have a sound legal –Unidroit Convention on International the Study Group on a European Civil regime for security interests in personal Interests in Mobile Equipment (Cape Code and the Research Group on EC property in both domestic and cross-border Town, 2001) and its protocols: Pro- Private Law. transactions. There is evidence to suggest that tocol on Matters Specific to Aircraft –binding regional instruments: effective laws, supported by efficient judicial Equipment (Cape Town, 2001), Pro- –Uniform Act Organizing Securities system and enforcement mechanisms, can tocol on Matters Specific to Railway (1997) adopted by the Organization help attract credit and in so doing promote Rolling Stock (Luxembourg, 2007) for the Harmonization of Business economic growth.1 and Protocol on Matters Specific to Law in Africa; A number of countries across the world Space Assets (Berlin, 2012); –EU Directive 2002/47/EC on finan- are modernising their laws on secured credit. –Although not strictly in the area of cial collateral arrangements, amended A few recent examples include Australia, secured transactions but relevant to it by the Directive 2009/44/EC.

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