Borrower fails in challenge to debt assignment

• High Court dismisses borrower's challenge to debt assignment
• Judge provides clarity on opportunity for borrowers to challenge assignment
• Overzealous document redaction heavily criticised
• Nicoll vs. Promontoria (RAM 2) Ltd [2019] EWHC 2410 (Ch)

Ian Nicoll borrowed more than £10m from the Co-operative Bank between 2010 and 2013 but did not repay it in May 2015 when it was due. The Co-op Bank assigned Nicoll's debt and security to Promontoria (RAM 2) Limited in July 2016. A joint notice of assignment was sent to Nicoll from the Co-op Bank and Promontoria in August 2016 setting out the date of the assignment and the identity of the servicer to which payments should be made.

Promontoria pursued Nicoll for the debt but Nicoll applied to the court to have the statutory demand issued by Promontoria set aside. He said the assignment of his loan was not effective because he was unable to confirm if the effective date of the assignment had occurred. This was because the definition in the deed of assignment referred to a definition in the underlying loan sale agreement which had been redacted and was conditional on certain events.

Promontoria challenged decision in an earlier hearing in the Insolvency Court on a technical point and said that Nicoll's effectiveness challenge should not have been heard in the first place. The judge agreed with Promontoria's challenge and this was sufficient to dispose of the case.

However the judge decided that, having heard the arguments about the challenge to the effectiveness of the assignment, he would still consider them.

He said that the effective date had occurred or the parties to the assignment had treated it as having occurred because of the issuing of, and clear wording contained in, the notice of assignment; the fact that Nicoll had been paying Promontoria and, significantly, had not been paying the Co-op, and the fact that Nicoll had not challenged the charges registered in Promontoria's name. The judge placed great importance on the notice clearly specifying that the assignment was effective.

The judge said that an underlying borrower whose debt has been assigned has no legitimate interest to challenge the assignment when the parties to an assignment consider it to be complete. He also commented favourably on a previous case which suggested that a borrower only has an interest in the assignment insofar as they need to know who to pay and to make sure they are not asked to pay twice. Clearly, the notice is crucial to an assignment. The judge said that this was essentially an evidential conclusion that he had drawn, but these facts are typical of similar transactions.

The ruling criticised the way in which Promontoria produced evidence. It was given two chances to do so but the judge said the degree of redacting in them reflected an approach that was  "neurotic”, “ill-thought out” and “over-enthusiastic”.

Promontaria was faced with a straightforward challenge – that it was difficult to confirm if the effective date had occurred – and had the opportunity to provide unredacted documents or parts of documents to put the matter beyond doubt; however parts of the relevant definitions were still redacted the second time documents were produced. The judge said that such redaction could have meant Promontoria was unsuccessful in the case.

It is clear from this case that litigants should take a sensible approach to document redaction, adopting a 'less is more' approach, only redacting information where it is genuinely required.

Set against a background of increased number of challenges from borrowers, and although the judge's comments were only said in passing, this case should provide debt purchasers with some comfort that in circumstances where a clear notice is sent to borrowers the opportunity for a borrower to challenge the assignment should be limited.

Ross Cooper is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com