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Choses in Action • Is It a Legal Or Equitable Chose in Action?

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Choses in Action • Is It a Legal Or Equitable Chose in Action? Transfer in Ownership – Choses in Action • Is it a legal or equitable chose in action? o There are two main types of choses in action, they can either be legal or equitable – the first step is to distinguish between whether they are legal or equitable: ▪ Legal: if the chose in action is something that can be enforced at common law, then it is a legal chose in action ▪ Equitable: a beneficiary right under a trust (the trustee has legal title and the beneficiary has equitable title) o The beneficiary has the right to compel the trustee to hold the trust for the benefit of the beneficiary [DETERMINING WHETHER THE CHOSE IN ACTION CAN BE DEALT WITH (ASSIGNABILITY)] Legal choses in action • Can the legal chose in action be assigned? – (capable of assignment at general law) o Prima facie, legal rights over intangible goods can be assigned o S12 of the Conveyancing Act illustrates the requirements of assignment ▪ Absolute assignment (you cannot assign half of the debt owed) ▪ In writing ▪ Signed by the assignor ▪ Notice of writing must be given to the debtor • What happens when you have a non-assignable chose in action? o The following choses in action cannot be assigned at general law: ▪ Note: the “benefit/burden” principle ▪ Personal service contract ▪ Bare right to litigate ▪ Public policy (for noting) ▪ Capable under general law but not assignable due to: • Materiality of identity • Contractual prohibition o A bare right to litigate cannot be assigned (assigning the right to litigate for litigation’s sake) – Glegg v Bromley - however, there are exceptions to this rule: 1 ▪ The fruits of litigation can be assigned - Glegg v Bromley – “whatever money I get from litigation, I will give to you” ▪ Where a genuine commercial interest exists - Trendtex (Credit Suisse) • In this case, Trendtex had a right to money from the Nigerian Bank which they could have assigned • But the Nigerian bank won’t pay it back, so they assigned the right to litigate to Credit Suisee (had the money to help them litigate) • Oliver LJ: where a cause of action arises out of a bare right which itself is assignable, the cause of the action equally remains assignable” – it has become a right to property • Note the existence of illegality, if there is illegality on foot (e.g. failure to register a prospectus) then the restitution rights cannot be assigned - Equuscorp o Materiality of identity – if you have a contract in which the identity of the parties is so material, you cannot assign the benefit of the contract without the consent of the party ▪ “it is one thing to provide details of production facilities and other business information to PB, it was quite another thing to have to deal with a competitor like PB in that regard” ▪ Direct competitor – it is not beneficial to be in an assignment relationship with your competitor – Pacific Brands v Underworks ▪ Apart from prohibitions created by statute or public policy, the most common such reaons will be contractual prohibitions on assignment, the materiality of the identity obligee to the contractual relationship to the obligor’s performance” – Pacific Brands v Underworks o Certain contractual rights/contractual prohibitions cannot be assigned ▪ A chose in action arising from a contract cannot be assigned if the contract’s terms prohibit it – Linden Gardens Trust • HD Point: Shouldn’t be prohibited, assignor should just have to pay breach damages i.e. as if wording was ‘warrant it will not be assigned”; o Indeed this approach has been adopted with respect to collateral property in the Personal Property Securities Act 2009, 2 o However this is cf Owners of Strata Plan 5290 - reasoned strongly that Linden holds you cannot assign a contractual right when there is an express clause prohibiting it, even when legislation allows assignment (e.g. liquidator rights in Corporations Act 2001) • HD Point 2: May have an equity workaround: o Third Party Equity Workaround: Don King Productions v Warren - rather than transferring benefit of a contract, declare yourself trustee of a chose in action for a third party (in exchange for $$) o CL still sees contract between the contractors, equity notes benefit for 3rd party o Burden of a contract cannot be assigned – Pacific Brands ▪ You cannot assign the burden of the contract without approval, you can assign the benefit as long as s12 of the CA is met ▪ Novation exception – you can novate (change the name on the contract) with the consent of the promise (this consent may be implicit in the contract) ▪ Note: materiality of identity – it won’t be implicit where the identity of the parties is important o Personal services cannot be assigned – Nokes v Doncaster ▪ You should be able to choose who your employer is – Nokes ▪ Exception: you cannot assign positive obligations but you can assign negative obligations o I.e., Doctor has employment contract, which includes a term to keep patient info confidential. (Zahedi-Anarak). When business is on-sold to new employer, his employment contract cannot be assigned, but his NEGATIVE obligations can be. Thus, Breach of Confidence can be automatically transferred with no novation. Equitable chose in action Distinct from a legal chose in action • These are rights over actions, which can only be enforced in courts of equity 3 • They can be personal or proprietary rights – for example, the right to force someone to transfer land to you Trusts There are three attributes which are common to all trusts: • A trust must have a trustee who holds title to the trust properly • The trustee must hold the property for the benefit of a beneficiary or a purpose recognised by law • Trust property must vest in the trustee • Note: the chose in action lies with the beneficiary – they compel the trustee to hold the trust property There are four main elements of a trust (the three certainties) which need to be fulfilled when creating a trust: • Intention – use of the word “trust” is determinative for intention - Byrnes v Kendle o can also infer from obligatory, not permissive, language (hope vs must/expect) • Subject matter – what is the trust property? This must be clear or the trust fails o Intangible test – clarity and certainty of language – in context o Tangible test – clarity of language and specificity of segregation • Objects – who are the beneficiaries? o Object must be a legal person – purpose trusts are automatically invalid • Constitution: The trust property must be vested in the trustee – it is not enough for the settler to declare a trust, you actually have to transfer the property to the trustee 4 .
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