Phoenix Group Foundation v Harbour Fund II LP & Ors.

An agreement to assign future property is effective in equity only if it contains a clear outward expression of an immediate and irrevocable intention to divest the assignor and vest the property in the assignee, describes the future property with sufficient clarity, and is supported by value. Once the property arises, the equitable interest vests automatically. Construction is objective. The court cannot imply security or reassignment provisions merely to make a bargain commercially effective. Where documents impose only a personal obligation to procure payment and contemplate a later payment direction, they do not themselves assign the future property. An assignment of future debts may be sufficiently certain when the debts arise, but that principle does not cure the absence of an intention to assign or transform an unsecured arrangement into security.

Phoenix appealed from Foxton J’s order following the trial judgment reported at [2021] EWHC 1272 (Comm). The order declared that future distributions payable to SMA Investment Holdings Limited as shareholder of the Arena Companies would be held on the Harbour Trust. Phoenix argued that clauses 2.4 and 2.6 of the Liquidation Inter-Creditor Settlement Agreement, made as part of a wider settlement, constituted an equitable assignment of SMA’s future rights to Phoenix. The Settlement Parties argued that the agreement required only a later payment direction and that any assignment limited by the outstanding Loan Note would be uncertain. The Respondent’s Notice raised priority and no-clean-hands issues, but those issues were adjourned. The central question was whether the agreement effected an immediate equitable assignment of the future distributions.

Disposition. Snowden LJ gave the judgment, with Carr LJ and Phillips LJ agreeing. The appeal was dismissed. It was therefore unnecessary to hear argument on the Respondent’s Notice.

1. Nature of the property. Under section 207(3) of the BVI Insolvency Act 2003, SMA had no existing right to a liquidation surplus at the date of the settlement. It had only mere expectancies, because any right would arise after the relevant creditors, costs and expenses had been paid and a surplus identified. Such non-existent property could not be legally assigned under section 136 of the Law of Property Act 1925 or be the subject of a presently subsisting trust. It could, however, be dealt with by an agreement to assign in equity.
2. Requirements for equitable assignment. The agreement required: a clear outward expression of an immediate and irrevocable intention to divest the assignor and vest the future property in the assignee; sufficient clarity to identify property falling within the agreement; and value given for the agreement. If satisfied, the equitable interest would vest automatically when the assignor acquired the property.
3. Construction of the LICSA. Whether the document effected an equitable assignment was a question of objective construction: Burridge v MPH Soccer Management [2011] EWCA Civ 835. Clause 2.4 imposed only a personal obligation on Dr. Cochrane to procure payment. It contained no direct undertaking by SMA to divest itself of its future rights. Clauses 2.3 and 2.6 were general or machinery provisions, and the Notice merely recorded the arrangement rather than directing payment because the rights had been transferred. The agreement therefore contemplated a later payment direction, if and when procured by Dr. Cochrane, rather than an immediate assignment.
4. Security and certainty. The LICSA contained no security language, reassignment provision or accounting mechanism. The related Loan Note expressly stated that it was unsecured and that the obligations ranked pari passu with other unsecured obligations. Those provisions made it impermissible to imply security or reassignment terms. The Court corrected the Judge’s reliance on a general statement about indeterminate portions of existing debts, but held that this did not affect the result. Tailby v Official Receiver (1888) 13 App Cas 523 concerned future debts assigned by way of security, with reassignment and accounting consequences, and did not assist Phoenix.
5. Commercial purpose. The conclusion did not defeat the settlement bargain. The parties had accepted an unsecured personal covenant and the associated risk of default. Arnold v Britton [2016] AC 1619 confirmed that the court must not impose its own terms under the guise of construction.

The Court did not decide the late argument concerning whether a Tomlin Order would have discharged security, since it found that the LICSA created no such security. Snowden LJ recorded a preliminary view that Phoenix’s answer on that point would have been correct.

1. Court of Appeal (Civil Division) — In [2023] EWCA Civ 36, the Court dismissed Phoenix’s appeal against the assignment aspect of Foxton J’s order. The Respondent’s Notice was not determined.
2. High Court, Commercial Court — Foxton J’s judgment, [2021] EWHC 1272 (Comm), followed by an order dated 11 June 2021, held that the LICSA did not constitute an equitable assignment of SMA’s future rights to liquidation distributions and declared that those distributions would be held on the Harbour Trust.