TC09613 - [2025] UKFTT 00989 (TC)

Given our answer to the first question, our answer to this question will have no impact on the outcome of this appeal, and so (mindful of the Senior President’s Practice Direction on Reasons for Decisions in the FTT) we will summarise our conclusions in relatively short order.

The answer to this question is bound up with a number of partnership law questions, not all of which are at all straightforward. In that context we note the relief Whipple LJ expressed (in BCM Cayman at [84]) at not needing to decide some potentially significant issues of partnership law, and we consider ourselves (if we might presume to say so) to be in good company in preferring to leave troublesome issues of partnership law for someone else on another day.

As we have seen, the Minute says that “Craig Burley will hold his rights to income from investment in film partnerships for the LLP absolutely with effect from 6 April 2009 in respect of all such partnerships held on that date.” It is common ground that, as no notice of this transaction was given to the Partnerships, this was not a legal assignment effective under section 136 of the Law of Property Act 1925.

Although this transaction did not fulfil the requirements to be an assignment at law, it is perfectly possible for an assignment to take effect in equity. It has been observed (Guest on the Law of Assignment, 5^th ed, para 2-03) that, except for the procedural advantages which attach to the statutory assignee’s legal title to sue and the absence of any requirement of consideration for a statutory assignment, there is little difference between an equitable assignment and a statutory assignment.

The first question we need to answer to decide whether the Minute operated as an assignment is whether Mr Burley’s “rights to income from investment in film partnerships” constitute an existing or a future chose in action. This distinction has been described by Professor Goode (op cit para 1-03) as “not easy to draw” and by the authors of Snell (at 3-031) as “difficult”. The importance for us of the distinction is that a future chose cannot be assigned (ex hypothesi, because nothing currently exists that can be assigned), but the assignment of a future chose can have effect in equity as an agreement to assign. In effect, such an agreement works like an assignment because, as soon as the assignor become possessed of the property, the beneficial interest in the property passes to the assignee immediately and, even before the assignor obtains the property, the assignee appears to have more than a mere contractual right to the property. We agree with Mr Cannon that none of the examples discussed in Snell is in point, but we consider that a right to future profits from a partnership is a future chose. The distinction is more extensively discussed by Professor Goode and in the New Zealand case Kelly v Commissioner of Inland Revenue, [1970] NZLR 161, it was held that the voluntary assignment by one partner to another of such income as from time to time would be earned from his interest in the partnership business was an assignment of a future chose and ineffective on the ground that it was uncertain which profits could or would be made or even whether the partnership would continue.

We can see two potential issues when it comes to concluding that the Minute is effective in equity as an agreement to assign. The first lies in the assignment being treated as an agreement to assign. The Minute is clearly a contract and an attempt by Mr Burley to assign his rights to the LLP, but the putative assignee (the LLP) is not a party to that contract. This point was briefly raised with Mr Pink in cross-examination, and he said that this was not an issue which concerned him. We were not addressed on the question whether, to have an effective assignment in a case like this, there needs to be a promise to assign made with (or a purported assignment of the future chose made as part of an agreement with) the putative assignee or whether it is enough to have a promise supported by consideration that someone (not necessarily the putative assignee) can enforce. If the former were required, it is (of course) possible that the LLP might be able to enforce the terms of the contract under the Contracts (Rights of Third Parties) Act 1999 and that might suffice, but this was not an issue canvassed before us.

The next issue is the need for consideration. One of the reasons we spent some time looking at the LLP’s accounts was in the hope that through that discussion we might learn what was given in return for Mr Burley’s agreement to hold his rights to income from the film partnerships for the LLP.

To the extent that consideration needs to be provided by the putative assignee, it is not clear to us what consideration the LLP gave. Mr. Burley was already a member of the LLP and therefore must have had some membership rights (even if only the default provision in regulation 7 of the Limited Liability Partnerships Regulations 2001), but, in the absence of a copy of the constitutional document of the LLP, it is not possible to know what, if any, additional rights in the LLP he obtained in return for his contribution. We have seen that he was credited with £1.7 million in the accounts of the LLP, and Mr. Cannon said that this would have given him rights on the liquidation of the LLP, but there is no documentary evidence to support that statement. If a shareholder contributes an asset to a company in return for an issue of shares, rather than by way of capital contribution, then clearly the company gives consideration by issuing the consideration shares, but it is not clear to us that membership rights in a LLP are necessarily created in a way which involves the LLP creating “consideration interests” in quite the same way. We would then need to deal with the point that, because Mr Burley had little (if anything) of real value to assign, it is hard to detect any substance in any interest in the LLP created to reflect that contribution, which causes Mr Waldegrave to question whether such an interest could be consideration.

If it is sufficient (as Mr Cannon first said in reply to Mr Waldegrave, when he commented that there is no need for the LLP to give consideration; it is sufficient that there is a series of valuable promises given by the members to each other) for consideration to flow from a person other than the promisee/putative assignee, we would need to identify what that consideration might be. We saw that CDL agreed to bear the write-downs in value of the Florida properties, but Mr Waldegrave was sceptical about what that meant and whether/how it might constitute consideration for Mr Burley’s contribution.

As the far as the contractual fetters on assignment are concerned, we agree with Mr Cannon that these would not prevent Mr Burley assigning his interest in the Partnerships to the LLP, and by the end of the discussion in the hearing we rather felt that Mr Waldegrave’s heart had gone out of the points he was making on this issue. In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd, [1994] 1 AC 85, although the House of Lords held that an assignment in breach of a “no assignment” provision might be unenforceable against the original party to the contract (which might have a legitimate interest in only dealing with its counterparty), Lord Browne-Wilkinson, giving the leading judgment, observed (at [1994] 1 AC 85, 108D),:

“… a prohibition on assignment normally only invalidates the assignment as against the other party to the contract so as to prevent a transfer of the chose in action: in the absence of the clearest words it cannot operate to invalidate the contract as between the assignor and assignee and even then it may be ineffective on the grounds of public policy.”

Those comments are clearly addressing a situation where the intending assignor is a party to the same contract as the person to whom the “no assignment” promise has been given. We do not understand the distinction Mr Waldegrave drew between a situation where a lender was a party to the agreement the benefit of which Mr Burley purported to assign and one where it was not; regardless of whether the lender was a party to the agreement which created the rights Mr Burley purported to assign or not, as between Mr Burley and the LLP, Mr Burley could assign those rights to the LLP.

As far as the pre-existing security assignment (by the Partnerships) of the lease receivables is concerned, Mr Burley’s right to receive income from the Partnerships is a different right. The effect of the security assignment, as we have seen, is to deprive Mr Burley’s assignment to the LLP of most (if not all) value, but it did not prevent Mr Burley effecting the assignment.

The final question is exactly what it was that Mr Burley sought to assign when he used the words “his rights to income from investment in film partnerships”. This was a question we raised with Mr Cannon. Was Mr Burley just trying to assign his rights to receive income from his investment, in other words the (net) amounts he was entitled to under the agreements governing the Partnerships? If that is the correct reading of these words, the Minute did not seek to assign the amounts we are concerned with (the lease rental amounts paid by the Partnerships to Mr Burley’s lenders) at all. If the correct reading is that the Minute was trying to do more than that, it clearly could not confer a right on the LLP in priority to the lenders (if it tried to do that it would be trying to assign something the LLP could never be entitled to) but it might give the LLP a proprietary claim subject to the lender’s rights. However, the lender’s rights are over the lease rentals received by the Partnerships, not the income distributions they would otherwise make, which might suggest that those amounts were absorbed in calculating the (net) income Mr Burley was entitled to, which again might suggest that the Minute only “bites” on the net figure otherwise receivable by Mr Burley. If the claim made for the Minute is much bolder (as originally asserted by Mr Burley, that it was an assignment of his interest in the Partnerships), we would need to deal with HMRC’s point outlined at [46].

For all these reasons, we are far from satisfied that the Minute was effective to assign to the LLP the rights Mr Cannon says it did. However, these are not uncertainties we need to resolve. Should Mr Burley appeal our decision, a more august tribunal can address them in greater detail.

If, contrary to our tentative conclusions, the Minute did have the effect claimed for it, it could only alienate Mr Burley’s income from the date it came into effect (so not before 13 January 2011) and the accounting treatment adopted is nihil ad rem.