Case Analysis
A recent decision from the Sheriff Appeal Court in the case of Charles Thompson McKinlay v Avellierie Limited & Kenneth Scott raises important issues relating to assignations and commercial common sense.
The decision, issued on 10 March 2025, serves as a reminder of the significance of the Moveable Transactions (Scotland) Act 2023 (the Act), which came into force on 1 April 2025 and its importance in the Scottish legal landscape.
Background
In April 2017, Croftwalk Limited loaned £20,000 to Avellierie Limited. A Minute of Agreement - a formal legal document setting out the terms of the agreement reached - was prepared, and Kenneth Scott, a director of Avellierie, provided a personal guarantee for the loan. Later in 2017, another loan of £33,000 was made to Avellierie and a further Minute of Agreement was entered into for the second loan.
When Avellierie defaulted on repayment, Croftwalk assigned (a legal term for transferred) the debt and associated rights to Charles Thompson McKinlay, a director of Croftwalk, in December 2020. Mr McKinlay subsequently raised a court action for repayment against Avellierie and Mr Scott.
Court Findings
The court initially held that Mr Scott did not have liability under a guarantee to Croftwalk for the second loan, making it unrecoverable against him. During a subsequent evidential hearing, the court examined whether the assignation included the personal guarantee. It was disputed whether the personal guarantee granted by Mr Scott had been assigned. Unless the assignation had the effect to transfer both (a) the rights under the Minute of Agreement and (b) the rights under the personal guarantee, there was no right of recovery against Mr Scott. The court ultimately held that the assignation did transfer the rights under the personal guarantee, making Mr Scott personally liable for the debt. Mr Scott appealed this decision.
The Appeal
Mr Scott argued that the Sheriff did not apply the correct principles of construction to the formal assignation. Conversely, Mr McKinlay contended that the assignation of debt "will impliedly assign all rights of the cedent required to make the assignation effectual". The appeal court upheld the lower court's decision, finding that the personal guarantee was incidental to the loan and necessary for the assignation of the loan to be effective. The court found that deciding otherwise - i.e. that the guarantee was not transferred - would not make commercial common sense. The appeal was refused, and Mr Scott was found liable for the expenses of the appeal process.
The Moveable Transactions (Scotland) Act 2023 and Beyond
The Act, which came into force on 1 April 2025, addresses accessory security rights and resolves the question of whether an assignation of a claim of debt should carry with it an associated security. Section 16(2) of the Act states:
"… the assignee acquires, by virtue of the transfer of the claim, any security (in so far as the security is transferable) which relates to, and only to, the claim transferred." In the Act, "security" includes both a right in security and the correlative right in respect of a cautionary obligation (i.e., a guarantee). This removes the ambiguity presented in the Avellierie case and is significant for lenders and borrowers.
Additionally, the Act introduces the Register of Assignations (ROA), a publicly searchable statutory register, maintained by the Keeper of the Registers of Scotland. Registration of an assignation in the ROA will be an alternative to intimation, which is needed to perfect an assignation. This means that an assignation (either absolute or in security) can be created by the registration of the assignation, rather than by intimation.
This evolving area of law will undoubtedly impact future transactions.
