Goode on Legal Problems of Credit and Security (4th revised edition)

Citation

Kapsis, I. (2010), "Goode on Legal Problems of Credit and Security (4th revised edition)", International Journal of Law and Management, Vol. 52 No. 1, pp. 68-71. https://doi.org/10.1108/17542431011018561

The law of credit and security has received increased attention in recent years and Professor Sir Roy Goode's contribution to academic and judicial debates in the area has always been highly influential.

The fourth edition of his book Goode on Legal Problems of Credit and Security published by Sweet & Maxwell is therefore a significant event. The book which originated as a series of lectures, seeks to explore certain fundamental issues arising in respect of the treatment of security interests by English law. This fourth edition was prepared by Louise Gullifer who is a Reader in Commercial Law at Oxford University and an expert in the field of credit and security. The book preserves the content of the earlier editions subject to necessary amendments made by Gullifer in response to current developments in legislation, case law and academic debates.

The first chapter of the book explores the nature and forms of consensual security. Purposes and concept of security, classification of security issues, forms and permissible objects of security, accretions to the security, derivative security interests, negative pledge, subordination agreement and sale of participation in loan assets are the topics covered. The author presents the concepts in a very clear and accurate manner using plenty of examples and references to case law. A significant portion of the chapter is devoted to the discussion of what constitutes a security interest, which is an area of law where a number of contentious issues arise. The author offers a useful insight into these issues by identifying and critically assessing current trends in English law.

Chapter 2 examines the attachment and perfection of a security interest. With regard to attachment, the author explains the meaning of the concept and the conditions of its existence, which need to be met where the security arises otherwise than by operation of law. These conditions include:

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  an agreement for security;

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  an identifiable asset;

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  the existence of a debtor's interest in the asset or a power to give the latter in security;

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  the existence of an obligation of debtor to creditor for which security is provided;

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  fulfilment of any contractual conditions; and

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  actual or constructive possession given to the creditor where the security provided is a pledge.

The conditions are analysed in detail whereas particular emphasis is placed on issues arising when the security agreement is not followed by actual transfer of the asset to the creditor, when the security concerns future property and when equitable security is involved.

In respect of perfection of a security interest, the chapter considers the nature of perfection, the role of registration, which is the most important method of perfection, and situations where registration is not required. Particular mention is made to registration requirements for companies under the Companies Act 2006 and the specialist registers, which concern specific types of asset. Lastly, in the section about proposals for reform, the author discusses various proposals for reform of the Law Commission including the recommendation that registration should be made a priority point and the security interests registrable in a specialist register should not be registered under the Companies Act 2006.

Chapter 3 examines fixed security in receivables. Issues covered include characterisation and forms of security, attachment and perfection issues, rights of the assignee and legal impediments to the creation of security. From this chapter, particular mention should be made to the section dealing with charge‐backs an area giving rise to conceptual difficulties and policy problems. The book identifies these problems, the current business practices and the legislative initiatives taken in England and EU (Art. 4 of the EC Directive on Financial collateral arrangements, Reg. 17 of the Financial Collateral Arrangements (No. 2) Regulations 2003) to regulate the matter. Also, the section dealing with registration of a charge (including a mortgage) on receivables under the Companies Act 2006 and the section considering contractual prohibition against assignment or charge incorporate the latest development in legislation and case law (e.g. Barbados Trust Co Ltd v. Bank of Zambia[1] in respect of the ability of non‐assignment clause to prevent a creditor from declaring or enforcing a trust of their contractual rights in favour of a third party) over these two important topics.

Chapter 4 discusses floating charge, a concept created by equity, which is still hotly debated by academics and the courts in several aspects. The first issue examined in the book concerns the nature and characteristics of the floating charge. Here the book advances Professor Goode's view according to which floating charge can be explained by analogy to an interest in a changing fund, which maintains its distinct existence from that of its constantly changing components. As emphatically stated in the book the situation resembles the river Thames which “[… ] remains the river Thames despite the fact that the water in it is never the same from one minute to the next” (p. 127). In the same way in a floating charge the floating interest acquires immediate existence, but does not attach to any specific debtor assets until crystallisation. This view gained the approval of Lord Walker in Spectrum[2]. Further the chapter deals with the distinction between fixed charge and floating charge placing particular emphasis on the characterisation of charges over book debts another topic surrounded by controversy. The volume of litigation is divided in the chapter into four phases each reflecting changing judicial thinking on the matter. The fourth and final phase includes the Privy Council decision in Agnew v. Commissioner of Inland Revenue[3]) and the House of Lords decision in Spectrum[4]. The latter cases offered some clarity in the case law by setting out the decisive criterion for determining the type of charge (fixed or floating). All four phases are critically analysed and two main areas of uncertainty after Spectrum are identified: uncertainty about the degree of control that is necessary for a charge to be fixed and the meaning of “the charged assets”, which must be subject to the control (p. 142). Further, the chapter discusses control techniques for shifting assets and issues of crystallisation and enforcement. Overall, chapter 4 exposes a number of controversies existing in the operation of floating charge and comes to the conclusion shared by many scholars in the area too that “its success has been remarkable, but judge‐made law, which is necessarily a patchwork of large numbers of individual cases each influenced by its own particular facts, can no longer serve as a substitute for structured personal property security legislation” (pp. 171‐2).

Chapter 5 explores problems of priority in respect of fixed and floating charges. The chapter from the outset provides an indication of the nature of the situation regarding priority rules of English law by describing these rules as “an amalgam of common law rules and statutory provisions many of which lack any rational policy or responsiveness to modern commercial and financial requirements and by their complexity add to transaction costs” (p. 175). The rest of the chapter provides an outline of basic priority principles at common law and important legislative instruments. There are also sections discussing the application of priority rules in various types of situation: where competing fixed security interests are involved; where competition concerns fixed interests and other types of interest; about the ranking of floating charge; about waiver and subordination of a security interest; about the after‐acquired property clause and the subsequent purchase‐money security interest; about the impact of insolvency. The last section of the chapter contains 12 applications of priority rules in typical priority situations. Though the application of priority rules depends on the facts of the particular case, the analysis in Professor Goode's book offers insightful illustrations and useful guidance on the matter.

Chapter 6 is concerned with corporate investment securities where security and quasi‐security interests have acquired increasing role in recent years. A distinction is drawn between direct holdings where investor draws directly from the issuer and indirect holdings where investor holds through an intermediary, which is a situation commonly encountered in daily practice in the markets for corporate securities. The book considers the nature of investment securities' entitlement placing particular emphasis on the identification of proprietary interest and examines in detail the issues of interest creation and priority in directly held securities and in those indirectly held. There are also extensive references to legal instruments adopted by EU and UNIDROIT to harmonise legislation at EU and worldwide levels. Though the topic due to the daunting mass of legislation and case law could not be exhaustively analysed within the limited space of a book chapter, the authors nevertheless have been successful in identifying and presenting some fundamental concepts about investment securities which could be used as a good starting point in any discussion of these issues.

Chapter 7 considers set‐off, netting and abatement topics of great practical significance. The chapter presents the principles underlying set‐off and the latter's various types including insolvency set‐off. Recent legislative and judicial developments in insolvency law are included in the analysis as well.

Last, chapter 8 considers the general principles of suretyship law, the impact of bankruptcy and the role of guarantee as a transaction at an undervalue.

The book, overall, demonstrates a number of very positive features that make it attractive to students, academics and practitioners involved in legal research or seeking knowledge and understanding of the legal principles and developments in the area of credit and security. First, it is well written, has a workable structure and clearly identified objectives. Second, its critical element is strong which helps to bring to light issues and controversies in current law that set the ground for further inquiries and debates. The strong critical element makes the book highly interesting and particularly useful to researchers and practitioners. Third, while the topics covered are broad and concern areas of law renowned for their complexity, the body of information and analysis provided in the book does not exceed levels that would make it hard to use. This though has not reduced the depth of the analysis, which is sufficient to meet the needs of a demanding reader. Also, the legal concepts and principles are adequately explained using plenty of examples from legislation and case law. Maintaining a sensible size, while ensuring sufficient breadth and depth in the analysis, is one of the advantages of this book. Fourth, the content is authoritative reflecting accurately current developments in legislation and case law whereas the views of Professor Sir Roy Goode are always valuable contributions to debates in universities and courts.

As far as non‐lawyers are concerned they may find it difficult to use the book due to the strictly legal language used throughout. It is a book addressed to lawyers.

Notes

1. 1.

   Barbados Trust Co Ltd v. Bank of Zambia [2007] EWCA Civ. 148.

2. 2.

   Re Spectrum Plus [2005] UKHL 41 at [139], per Lord Walker.

3. 3.

   Agnew v. Commissioner of Inland Revenue [2001] UKPC 28.

4. 4.

   Re Spectrum Plus [2005] UKHL 41.