[2020] 1 LNS(A) xxviii Legal Network Series 1

SECTION 4(3) CIVIL LAW ACT 1956:

A HURDLE TO THE APPLICATION OF EQUITABLE
ASSIGNMENT?

Kho Yii Ting*

Kho Feng Ming**

Abstract

Assignment revolves around the action of transfer of rights, interests or

debts by an assignor to the assignee. In our Malaysian context, the
framework of legal assignment is manifestly put forth and governed by
section 4(3) of the Civil Law Act 1956. However, the interpretation on
the above provision appears to be silent on the acceptance and

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application of equitable assignment in the event the assignment fails to
satisfy the statutory requirements. Using the content analysis
methodology of research, this article intends to explain and justify that
the statute does not prevent the application of equitable assignment in
Malaysia. This paper seeks to elucidate the following for the readers, by
explaining the definition of assignment, the statutory requirements to
constitute a legal assignment, and circumstances as to when a legal
assignment will become an equitable assignment. The paper further
propounds as to how the statute does not prevent the application of
equitable assignment, and explains the requirements to be fulfilled to
constitute a valid equitable assignment with the aid of cases as
illustration.

Keywords: assignment; legal; statute; equitable; cases

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1.0 Introduction

Assignment is the transfer of personal rights and interests from an

assignor to the assignee. [1] Under such circumstances, an assignor is the
party who assigns his rights, whereas the party who receives the
assignment is known as an assignee. [2] Generally, there are two distinct
categories of assignments, viz legal assignment and equitable assignment.
A legal assignment is transfer of rights and interests which are recognised
in the eyes of the law. A legal assignment is also regarded as statutory
assignment as it is created according to the requirements laid down in the
statute. [3] On the other hand, an equitable assignment may arise when the
arrangement between assignor and assignee fails to fulfil the pre-requisite
elements of a legal assignment. Nonetheless, regardless of legal or
equitable assignments, both concepts will lead to a similar consequence

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where transfer of rights will take place from the assignor to the assignee,
but the requirements for the respective concepts are distinct from one
another.

2.0 Requirements of Legal Assignment

In the Malaysian context, section 4(3) of the Civil Law Act 1956
(hereinafter as ‘CLA’) explains the legal requirements which need to be
established in order to create a valid legal assignment. Section 4(3) of
CLA provides:

“Any absolute assignment, by writing, under the hand of the

assignor, not purporting to be by way of charge only, of any debt or
other legal chose in action, of which express notice in writing has
been given to the debtor, trustee or other person from whom the
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assignor would have been entitled to receive or claim the debt or

chose in action, shall be, and be deemed to have been, effectual in
law, subject to all equities which would have been entitled to
priority over the right of the assignee under the law as it existed in
the State before the date of coming into force of this Act, to pass
and transfer the legal right to the debt or chose in action, from the
date of notice, and all legal and other remedies for the same, and
the power to give a good discharge for the same, without the
concurrence of the assignor.”

Based on the provision above in the CLA statute, there are four essential
elements which need to be satisfied in order to constitute a valid and
binding legal assignment, viz assignment of debts or other legal chose in
action, assignment is made in writing by the assignor, the assignment

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must be absolute instead of charge and lastly, notice in writing must be
given to the person liable to the assignor. [4]

2.1 There is an assignment of debts or other legal chose in action

An assignor can only assign two distinct types of subject matter which
are debts and a legal chose in action. Debts can be assigned by the
assignor to the assignee which results in the assignee having a similar
locus standi as the assignor in enforcing his rights against the debtor.
Apart from that, a legal chose in action is an intangible right which can
be enforced only by way of court action. In other words, such right is
recoverable only by an action at law. Money that is held on trust cannot
be assigned and recovered under the law as it falls within the jurisdiction
of equity and is often regarded as an equitable chose in action. The case
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of G and T Earle Ltd v. Hemsworth [5] concluded that the amount of debts
must be ascertained for it to be assigned under the law to the assignee.

2.2 The assignment is made in writing by the assignor

A legal assignment of debts and legal chose in action must be reduced

into writing by the assignor for it to be valid and actionable. An oral
agreement to assign cannot be regarded as a valid legal assignment.

2.3 The assignment must be absolute and not by way of charge

The legal assignment intended to be created under the statute must be

absolute which connotes that the assignment of either debts or legal chose
in action must be as a whole but not partially by the assignor. In other
words, an assignor is prohibited under the law from assigning a portion of

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subject matter to the assignee while holding back some apportionments of
it under his control. Furthermore, additional terms and conditions shall
not be attached to the legal assignment by the assignor towards the
assignee. For instance, if prerequisites are imposed on any assignment of
rights by the assignor, such assignment will be regarded as invalid by
virtue of section 4(3) of the CLA on the ground that it is not an absolute
assignment in the eyes of the law. Besides, charge of title cannot be
regarded as an absolute legal assignment under the law because the
chargee can take over the title if the chargor defaulted his instalment. [6]

2.4 Notice in writing must be given to the person liable to the

assignor

A notice regarding to the legal assignment of debt or legal chose in action

must be served to the debtor. In the case of Bank Bumiputra Malaysia
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Berhad & Anor v. Lorrain Esme Osman & Ors, [7] the trial judge opined
that the notice served to the debtor is an essential element of a valid legal
assignment so that the debtor will know the person which he is
responsible to. However, the consent of the debtor with regard to the
assignment of rights and interest by the assignor to assignee need not be
attained for the notice to be valid. In order to constitute a valid legal
assignment, the assignor must ensure that the notice contains the date of
assignment as well as the amount of debt owed by the debtor.

3.0 Circumstances as to when a Legal Assignment Becomes an

Equitable Assignment

Generally, all the four requisite elements elaborated above are required to
be satisfied in order to constitute a valid legal assignment under section

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4(3) of the CLA. However, if the assignment fails to fulfil any of the
essential elements of legal assignment as required by the statute, it may
be regarded by the court as an equitable assignment. However, the statute
does not prohibit the application of equitable assignment in Malaysia.
There are a few reasons which will be elaborated below to justify that the
statute does not exclude the application of equitable assignment in the
Malaysian context.

Firstly, the interpretation on the construction of a provision can be an

effective tool in ascertaining the applicability of a principle of equity in
the Malaysian context. In the current circumstance, comparison can be
made between the construction of section 4(3) of t CLA and section 6 of
the CLA to determine the applicability of equitable principles. In the
event of unambiguous provisions, a literal interpretation will be applied
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to the construction of the provision. For instance, in section 6 of the

CLA, the wordings expressed in the provision by its very nature excludes
the applicability of equity in Malaysian land matters. [8] Section 6 of the
CLA clearly indicates that there is no room allocated for the importation
and application of equitable principles in Malaysian land matters because
our National Land Code is comprehensive and complete in governing our
land issues. [9] Section 6 of CLA provides:

“Nothing in this Part shall be taken to introduce in Malaysia or any

of the States comprised therein any part of the law of England
relating to the tenure or conveyance or assurance of or succession
to any immovable property or any estate, right or interest therein.”

On the other hand, the literal interpretation of section 4(3) of the CLA

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evidently manifests that the aforesaid provision does not expressly
prohibit or bar the application of the principle of equity in the matter of
assignment. In other words, equity is allowed to come in to assist and to
recognise those assignments which fail to comply with the prerequisite
elements enshrined in section 4(3) of the CLA. Under such
circumstances, with the aid of equity (which is not expressly prohibited
by the statute itself), such assignments may be recognised as equitable
assignments.

Besides, the existence of legal assignment which was created upon the
fulfilment of elements required by statute does not, in its slightest way,
exclude or deny the application of the principle of equity in recognising
equitable assignment. Lord Norton in the case of William Brandt’s Sons
& Co v. Dunlop Rubber Co [10] opined that common law assignment did
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not in its slightest way destroy the recognition of equitable assignment.

Equity is founded in the Court of Chancery to serve its very own purpose
which is to overcome the rigidity imposed by the common law.
Generally, the judgements in common law resulted in hardships and
inequalities among the society and this has subsequently led to the surge
in the number of cases heard in the Court of Chancery. The maxim of
‘equity follows the law’ explains that equity does not in any way destroy
or substitute the statute but it is often exercised to supplement the
statute. [11] For instance, equity aids by providing alternate equitable
remedies which are not provided by the statute. [12] In the current
circumstance, the statute of section 4(3) of the CLA requires four vital
elements to be satisfied in order to constitute a valid legal assignment.
However, there are situations where the requisite elements are not

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fulfilled which then causes such arrangements not to be regarded as legal
assignments. Since the statute does not prohibit the application of the
principle of equity, therefore, by virtue of the maxim above, equity will
intervene and assist in acknowledging such arrangements as a valid
equitable assignment, bearing in mind that initially, it failed to constitute
a legal assignment. It can be seen that the rigidity of the statute with
regard to assignment is successfully overcome by the intervention of
equity.

Based on the above discussion, it appears that although an assignment

fails to fulfil the statutory requirements, equity may come in to remedy
the situation and enable such arrangement to be valid as an equitable
assignment. However, equity only removes certain rigidity in the law,
and there are three fundamental elements needed to be satisfied in order
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to constitute a valid equitable assignment, viz there must be an intention

to assign, [13] some form of assignment [14]
and lastly, property assigned
must be identifiable. [15]

4.0 Cases

Equitable assignment is witnessed to be applicable in the Malaysian

context despite the existence of section 4(3) of the CLA which serves to
govern the operation of a legal assignment. Equitable assignment
operates in such a way that it emphasises on the maxim of ‘equity looks
at the intention rather than the form’. When an assignment created fails to
fulfil the prerequisites as required by the statute, equity will then
intervene to acknowledge it as an equitable assignment by considering
the essential element of intention between the parties in creating an

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assignment. The trial judge in the case of Malaysian International
Merchant Bankers Bhd v. Malaysian Airlines System Bhd [16] adjudged
that the assignment created by the parties are regarded as a valid one
under equity despite the fact that no proper memorandum was formally
executed by the parties in assigning their rights. Therefore, the failure to
comply with the statutory requirements in forming a legal assignment
does not disqualify the opportunity of such assignment to be regarded as
valid under equity.

Besides, the statute requires a notice in writing about the assignment of

right to be given by the assignor to the debtor because it enables the
debtor to be aware of the identity of the person whom the debts were
assigned to. However, such requirement is dispensed with and need not
be proven for it to be regarded as a valid equitable assignment. This is
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because equitable assignment emphasises on the intention of the party

rather than the existence of any form and such principle was clearly
illustrated in the subsequent case of Harris Adacom Corporation v.
Perkom Sdn Bhd. [17] The trial judge concluded that a series of documents
and letters exchanged between the parties were sufficient to constitute
notice on the assignment of rights. In addition, it was held that there is no
such requirement that a proper notice must be granted in order to amount
to an equitable assignment as the validity of such assignment is
ascertained based on the intention of the parties. However, parties are
encouraged to provide notice of assignment to the debtor so as to entitle
the assignee to enjoy both right in rem and right in personam.

In the light of the above discussion, the judgements of Peh Swee Chin
FCJ in Public Finance Bhd v. Scotch Leasing Sdn Bhd [18] are to be

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scrutinised in this paper. His Lordship opined that the authenticity of an
equitable assignment is not affected merely by the existence of section
4(3) of the CLA which is enacted to dictate the operation of legal
assignment. In addition, such position is further strengthened where His
Lordship suggested that the statutory provision would not prevail over
the equitable assignment which was executed previously. Hence, it may
be concluded that equitable assignment is applicable in the local context
alongside with legal assignment as provided in section 4(3) of the CLA.
However, it is essential to note specifically on the advantage of creating a
legal assignment under the law compared to an equitable assignment,
where in the case of the former, it confers an assignee the right to claim
against the debtor his own locus standi or capability, whereas such right
is not available for the assignee under an equitable assignment.
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5.0 Conclusion

Based on the above discussion, the author humbly believes that the
statutory provision as provided in the Civil Law Act 1956 does not, in the
slightest way, interfere with the application of an equitable assignment in
Malaysia. The applicability of an equitable assignment was widely
witnessed in the above cases as judges did not hesitate to acknowledge
such assignment in the event that the assignment failed to satisfy the
statutory requirements in section 4(3) of the CLA. This shows that both
legal assignment and equitable assignment coexist, yet they do not
interfere with their respective applications, such as those in the words of
Ashburner on the fusion of law and equity: “the two streams of
jurisdictions, though they run in the same channel, runs side by side and
do not mingle their waters”. [19] In other words, equitable assignment will

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only come into existence when the arrangement fails to be regarded as a
valid legal assignment under the law.

* Corresponding author. Faculty of Law, University Malaya khoyiiting@gmail.com.

** LL.B (1 st Class Honours) Universiti Kebangsaan Malaysia Associate

Qualification in Islamic Finance, IBFIM winkhomedic@yahoo.com.my.

[1]
Gregory Tolhurst, The Assignment of Contractual Rights, Bloomsbury Publishing,
2006, p 30.

[2]
John McGhee, Edmund Henry Turner Snell, Paul Vivian Baker, Snell’s Equity,
Issue 3, Sweet and Maxwell, United Kingdom, p 81.

[3]
Zuraidah Ali, Sharifah Zubaidah, Nor Asiah Mohamad, Hamimah Hamzah, A
Student Guide to Equity and Equitable Remedies in Malaysia, LexisNexis, Petaling
Jaya, 2016, p 51.
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[4]
Zuraidah Ali, Sharifah Zubaidah, Nor Asiah Mohamad, Hamimah Hamzah, A
Student Guide to Equity and Equitable Remedies in Malaysia, pp 52-54.

[5]
[1928] All ER Rep 602.

[6]
Durham Brothers v. Robertson [1898] 1 QB 765.

[7]
[1987] CLJ Rep 472; [1987] 1 MLJ 502.

[8]
Haji Abdul Rahman v. Mohamed Hassan [1917] AC 209.

[9]
United Malayan Banking Corp Bhd v. Pemungut Hasil Tanah, Kota Tinggi [1984]
1 CLJ Rep 51;[1984] 2 MLJ 87.

[10]
[1904-7] All ER 345.

[11]
Wong Siew Choong Sdn Bhd v. Anvest Corp Sdn Bhd [1999] 3 CLJ 738; [1999] 3
MLJ 577.

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[12]
Munah v. Fatimah [1967] 1 LNS 108; [1968] 1 MLJ 54.

[13]
Intention to assign can be ascertained by word of mouth indicated by the assignor
to assign his rights or interests to the assignee. Such words must be plain in meaning
and understandable by the parties that the assignee shall enjoy the benefits and rights
assigned by the assignor.

[14]
In the case of William Brandt’s Sons & Co v. Dunlop Rubber Co [1904-7] All ER
345, it was concluded that sufficient mode of assignment must be in existence to
assist the court in ascertaining the intention of the parties in an assignment. The
court must be able to determine the intention of the assignor to assign the benefits to
the assignee through their communication or other modes of assignment.

[15]
The property intended to be assigned must be identifiable by the courts as such a
failure may cause the assignment to be invalid under equity.

[16]
[1982] CLJ Rep 545; [1982] 2 MLJ 59.
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[17]
[1994] 4 CLJ 683; [1994] 3 MLJ 504.

[18]
[1996] 3 CLJ 635; [1996] 2 MLJ 369.

[19]
Walter Ashburner, Principles of Equity, 2nd edition, Butterworth & Company,
1902, p 23.

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