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RETHINKING ASSIGNABILITY

Published online by Cambridge University Press:  23 July 2020

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Abstract

When should a contractual right be assignable to a non-party? English law's answer to this question is complex, and many of its rules are difficult to justify. In some respects, the law appears unreasonably pro-assignment, whereas sometimes it denies assignability to rights that should be assignable. This article contends that, in developing the law of assignability, the judiciary and Parliament have relied on a series of dubious ideas that deviate from the law's usual approach to contracts, and the current law rests partly on intuitive policy rationales that do not withstand scrutiny. The main aim of the article is to propose a new framework for thinking about the law of assignability that is more closely aligned with general ideas about contract law.

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Copyright © Cambridge Law Journal and Contributors 2020

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Footnotes

*

Assistant Professor, London School of Economics. Thanks to Brian MacMahon, Henry Smith, Joe Spooner, Nick Sage, Emmanuel Voyiakis, Richard Calnan and Deirdre Mask for helpful discussions, and to the Journal's anonymous reviewers for useful comments.

References

1 The other main body of doctrine enabling the transfer of rights created by contract is the law of negotiable instruments, which are uncontroversially transferable.

2 The most comprehensive scholarly treatment of the topic is Tolhurst, G., The Assignment of Contractual Rights, 2nd ed. (Oxford 2016)Google Scholar. Other especially significant recent contributions include Tolhurst, G.J. and Carter, J.W., “Prohibitions on Assignment: A Choice to be Made” (2014) 73 C.L.J. 405CrossRefGoogle Scholar; Edelman, J. and Elliott, S., “Two Conceptions of Equitable Assignment” (2015) 131 L.Q.R. 228Google Scholar; Bridge, M., “The Nature of Assignment and Non-Assignment Clauses” (2016) 132 L.Q.R. 47Google Scholar.

3 Useful overall summaries of the current law of assignability of contractual rights include Beale, H. (gen. ed.), Chitty on Contracts, 33rd ed. (London 2016)Google Scholar, ch. 19 (chapter ed.: A. Burrows); Tettenborn, A., “Problems in Assignment Law” in Burrows, A. and Peel, E. (eds.), Contract Formation and Parties (Oxford 2010)Google Scholar.

4 Mulkerrins v Pricewaterhouse Coopers [2003] UKHL 41, [2003] 1 W.L.R. 1937, at [13], per Lord Millett: “The general rule is that the benefit of a contract may be assigned to a third party without the consent of the other contracting party.”

5 Chitty on Contracts, para. 19-056.

6 Ibid.

7 Business Contract Terms (Assignment of Receivables) Regulations 2018, S.I. 2018/1254.

8 Trendtex Trading Corp. v Credit Suisse [1982] A.C. 679.

9 E.g. McCormack, G., “Debts and Non-Assignment Clauses” [2000] J.B.L. 422Google Scholar; McMeel, G., “The Modern Law of Assignment: Public Policy and Contractual Restrictions on Transferability” [2004] L.M.C.L.Q. 483Google Scholar; Tettenborn, A., “Assignment of Rights to Compensation” [2007] L.M.C.L.Q. 392Google Scholar.

10 See e.g. Akseli, O., “Contractual Prohibitions on Assignment of Receivables: An English and UN Perspective” [2009] J.B.L. 650Google Scholar; Beale, H., Gullifer, L. and Paterson, S., “A Case for Interfering with Freedom of Contract? An Empirically-Informed Study of Bans on Assignment” [2016] J.B.L. 203Google Scholar. I have applied a broadly similar perspective to the US law of assignability, which is different from Anglo-Commonwealth law in several respects. MacMahon, P., “Contract Law's Transferability Bias” (2020) 95 Indiana L.J. 485Google Scholar.

11 In this respect I agree with Andrew Tettenborn's claim that “lawyers in England have never developed a coherent theory of why there should be limitations on assignment”: Tettenborn, “Assignment of Rights to Compensation”, p. 401. However, as will be apparent below, I do not agree with Tettenborn's framing of the issue (why assume that the question is whether there should be limitations on assignment as opposed to permissions to assign?): see Section III(C) below.

12 Section III(A) below.

13 Section III(B) below.

14 Akseli, “Contractual Prohibitions”, p. 662. See Section III(C) below.

15 Section III(D) below.

16 Section III(E) below.

17 In referring to assignments as “transfers” of contractual rights in a functional way that includes both ordinary equitable and statutory assignments, I adopt the standard view, rather than Edelman and Elliott's contention that an equitable assignment involves the creation of a new right that encumbers the assignor's right. See Edelman and Elliott, “Two Conceptions”; cf. Tolhurst, The Assignment of Contractual Rights.

18 See Goode, R., “Inalienable Rights?” (1979) 42 M.L.R. 553Google Scholar, 554. The line between assignments that transfer a right to sue and those that transfer only a right to the proceeds or performance is sometimes difficult to draw and was muddied to some extent during the discussion of the Court of Appeal in First Abu Dhabi Bank PJSC v BP Oil International Ltd. [2018] EWCA Civ 14. See Turner, P.G., “Prohibitions on Assignment: Intellectualism v. Law” (2018) 134 L.Q.R. 532Google Scholar.

19 But see McCormack, “Debts and Non-Assignment Clauses”, p. 438, arguing that promisors may have legitimate reasons to invalidate assignments even as between assignee and assignor.

20 The discussion here is more comprehensive than previous accounts, but draws on McCormack, “Debts and Non-Assignment Clauses”, pp. 424–26; Turner, P.G., “Legal Assignment of Rights of Restricted Assignability” [2008] L.M.C.L.Q. 306Google Scholar, 313; Goode, R., “Contractual Prohibitions Against Assignment” [2009] L.M.C.L.Q. 300, 302–03Google Scholar; J. Kramer, “When Should Contracts Be Assignable? An Economic Analysis” (2004) Harvard Law and Economics Discussion Paper No. 484 (available on SSRN).

21 William Brandt's Sons & Co. v Dunlop Rubber Co. [1905] A.C. 454.

22 Business Computers v Anglo-African Leasing Ltd. [1977] 1 W.L.R. 578.

23 Don King Productions Inc v Warren [2000] Ch 291, 319, per Lightman J.

24 The idea of a “relational contract” has recently been imported into English contract law doctrine; a term of good faith and fair dealing is now implied into certain kinds of contracts like joint ventures, distributorships, and franchise agreements: Al Nehayan v Kent [2018] EWHC 333 (Comm), [2018] 1 C.L.C. 216. To a greater or lesser extent, however, all contracts have some relational element: D. Campbell, “The Relational Constitution of Discrete Contract” in D. Campbell and P. Vincent-Jones (eds.), Contract and Economic Organisation: Socio-Legal Initiatives (Aldershot 1996).

25 Macneil, I.R., The New Social Contract: An Inquiry into Modern Contractual Relations (New Haven 1980)Google Scholar.

26 E.g. Macaulay, S., “The Real Deal and the Paper Deal: Empirical Pictures of Relationships, Complexity and the Urge for Transparent Simple Rules” (2003) 66 M.L.R. 44CrossRefGoogle Scholar.

27 Cf. Turner, “Prohibitions on Assignment”, p. 532 (“the law presumes that obligors are indifferent as to the identity of those whom they must deal with, regarding their contractual obligations and rights” though “evidence that the counterparty's identity mattered to the obligor can rebut the presumption”).

28 U.C.P. 600, art. 38(a). This provision does not affect the ability to assign the proceeds of the credit. Ibid., art. 39.

29 J.C.T. Design and Build Contract, Design and Build Contract, 2016 ed. (London 2016), section 7.1. A prior version of this provision was the subject of the litigation in Linden Gardens Trust Ltd. v Lenesta Sludge Disposals Ltd. [1994] 1 A.C. 85.

30 J.C.T. Design and Build Contract, section 7.2.

31 E.g. Watford Electronics Ltd. v Sanderson CFL Ltd. [2001] EWCA Civ 317, [2001] 1 All E.R. (Comm) 696, at [55], per Chadwick L.J.: experienced commercial parties “should be taken to be the best judge on the question whether the terms of the agreement are reasonable”.

32 See Cserne, P., “Freedom of Contract (and Economic Analysis)” in Marciano, A. and Ramello, G.B. (eds.), Encyclopedia of Law and Economics (New York 2018)Google Scholar.

33 The Unfair Contract Terms Act 1977, however, provides a clear example.

34 See National Westminster Bank plc. v Morgan [1985] A.C. 686, 708.

35 See Union Eagle Ltd. v Golden Achievement Ltd. [1997] A.C. 514, 519.

36 See Merrill, T.W. and Smith, H.E., “Optimal Standardization in the Law of Property” (2001) 110 Yale L.J. 1Google Scholar, 30.

37 Linden Gardens v Lenesta Sludge [1994] 1 A.C. 85, 107.

38 See Merrill and Smith, “Optimal Standardization”, pp. 31–34.

39 That, at least, was the response of Judge Richard Posner to an assignee who claimed to have taken an assignment of a right made non-assignable by the parties: Bank of America v Moglia, 330 F.3d 942 (7th Cir 2003).

40 Ayres, I. and Gertner, R., “Filling Gaps in Incomplete Contracts” (1989) 99 Yale L.J. 87CrossRefGoogle Scholar.

41 See Collins, H., “Implied Terms: The Foundation in Good Faith and Fair Dealing” (2014) 67 C.L.P. 297Google Scholar.

42 Ayres and Gertner, “Filling Gaps”, p. 127.

43 Peden, E., “Policy Concerns Behind Implication of Terms in Law” (2001) 117 L.Q.R. 459Google Scholar.

44 Mulkerrins v Pricewaterhouse Coopers [2003] UKHL 41, at [13], per Lord Millett.

45 See Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd. [1903] A.C. 414, 420, where Lord Macnaghten justified his decision in favour of assignability by saying that “the plain intention of the parties” was to allow subsequent owners of the cement business to assert rights under the contract.

46 Geys v Société Générale [2012] UKSC 63, [2013] 1 A.C. 523, at [55].

47 Bridge, “Non-Assignment Clauses”, p. 54.

48 See Geys v Société Générale [2012] UKSC 63, at [55].

49 See Malik v Bank of Credit and Commerce International S.A. [1998] A.C. 20, 45.

50 Liverpool City Council v Irwin [1977] A.C. 239, 254.

51 Crossley v Faithful & Gould Holdings Ltd. [2004] EWCA Civ 293, [2004] 4 All E.R. 447.

52 Geys v Société Générale [2012] UKSC 63, at [56], per Lady Hale: “There is much to be said for that approach, given the way in which those terms have developed over the years.”

53 Bridge, “Non-Assignment Clauses”, p. 54.

54 See ibid., at p. 47: “The assignment of things in action sits precariously between contract law and property law.”

55 Pollock, F. and Maitland, W., A History of English Law Before the Time of Edward I, Vol. II (Cambridge 1895), 204–07Google Scholar.

56 Fitzroy v Cave [1905] 2 K.B. 364, 373.

57 Camdex International Ltd. v Bank of Zambia (No. 1) [1998] 1 Q.B. 22.

58 Barbados Trust Co. Ltd. v Bank of Zambia [2007] EWCA Civ 148, [2007] 1 C.L.C. 434, at [7].

59 Ibid., at para. [43], per Waller L.J. See also ibid., at para. [88], where Rix L.J. refers to the debt as a form of “property” in the course of concluding that the right-holder could declare a trust over it.

60 Day, W., “Non-Assignment Clauses – the Statutory Solution” (2019) 135 L.Q.R. 205Google Scholar (“An overly-simplistic argument that contractual rights are property rights and that property rights should be capable of alienation has given way to a more refined approach”).

61 Akseli, “Contractual Prohibitions”, p. 662.

62 Barbados Trust v Bank of Zambia [2007] EWCA Civ 148, at [112].

63 Ibid.

64 Goode, “Contractual Prohibitions”, p. 300.

65 Ibid.

66 Linden Gardens v Lenesta Sludge [1994] 1 A.C. 85, 107.

67 Ibid.

68 Tettenborn, “Assignment of Rights to Compensation”, p. 403.

69 Unlike some others, Tettenborn does not take this claim about sterilisation too far; he appears to be happy for courts to enforce non-assignment clauses: Ibid., at p. 405.

70 See Hammond v Messenger (1838) 59 E.R. 383.

71 See Tolhurst and Carter, “Prohibitions on Assignment”, p. 425, n. 64.

72 Torkington v Magee [1902] 2 K.B. 427, 435, reversed on other grounds, [1903] 1 K.B 644; Tolhurst v Associated Portland Cement Manufacturers (1900) Ltd. [1902] 2 K.B. 660, 676–77; [1903] A.C. 414, 424.

73 Camdex International v Bank of Zambia (No. 1) [1998] Q.B. 22, 33.

74 Ibid., at p. 39.

75 Hockin v Royal Bank of Scotland [2016] EWHC 925 (Ch), at [34].

76 Ibid., at para. [44].

77 Trendtex Trading Corp. v Credit Suisse [1982] A.C. 679, 694.

78 Criminal Law Act 1967, s. 14(2).

79 Re Trepca Mines Ltd. (No. 2) [1963] Ch. 199, 219–20.

80 Tettenborn, “Assignment of Rights to Compensation”, p. 403.

81 Massai Aviation Services v Attorney General [2007] UKPC 12.

82 Linden Gardens v Lenesta Sludge [1994] 1 A.C. 85, 107.

83 Barbados Trust v Bank of Zambia [2007] EWCA (Civ) 148.

84 Ibid., at para. [6].

85 Ibid., at paras. [43], per Waller L.J., and [89], per Rix L.J.

86 Vandepitte v Preferred Accident Ins. Corp. of New York [1933] A.C. 70, 79.

87 Edelman and Elliott argue that an equitable assignment is the same thing as a declaration of trust. Nevertheless, they suggest that the majority position in Barbados Trust might possibly be justified on the basis that the no-assignment clause could be construed only to apply to legal assignments. Edelman and Elliott, “Two Conceptions”, pp. 248–49. That, however, does not seem a plausible interpretation of the clause any more than Rix L.J. and Waller L.J.'s does.

88 For a meticulous explanation of the differences, see Turner, “Prohibitions on Assignment”, pp. 535–36.

89 Barbados Trust v Bank of Zambia [2007] EWCA (Civ) 148, at paras. [129]–[143], per Hooper L.J., dissenting.

90 Ibid., at para. [112].

91 Ibid.

92 See e.g. the boilerplate non-assignment clause suggested in Thomson Reuters Practical Law Commercial, “Assignments and Other Dealings” (accessed 21 January 2020): “Neither party shall assign, transfer, mortgage, charge, subcontract, delegate, declare a trust over or deal in any other manner with any of its rights and obligations under this agreement” (emphasis added).

93 Tolhurst and Carter, “Prohibitions on Assignment”, p. 422.

94 Barbados Trust v Bank of Zambia [2007] EWCA (Civ) 148, at [118].

95 Small Business, Enterprise and Employment Act 2015, s. 161.

96 Business Contract Terms (Assignment of Receivables) Regulations 2018, SI 2018/1254, r. 2(1).

97 Beale et al., “A Case for Interfering with Freedom of Contract?”, p. 229.

98 Law Commission of England and Wales, Company Security Interests, No. 296 (2005), at [4.38].

99 Ibid., at para. [2.35].

100 Ibid., at para. [2.38].

101 Beale, Gullifer and Paterson did interview two customers, who explained that the purposes of non-assignment clauses were related to “first, practical issues over incorrect invoices and, secondly, to the commercial relationship between the parties”. Beale et al., “A Case for Interfering with Freedom of Contract?”, pp. 221–22.

102 Ibid., at p. 229.

103 See Draft Business Contract Terms (Assignment of Receivables) Regulations 2015; Draft Business Contract Terms (Assignment of Receivables) Regulations 2017.

104 See Mayer Brown, “Withdrawal of Draft Regulations on Contractual Terms with Respect to Assignment of Receivables” (1 December 2017). For the City of London Law Society's hostile response to the first draft of the Regulations, see R. Calnan, “Ban the Ban: Prohibiting Restrictions on the Assignment of Receivables” [2015] J.I.B.F.L. 136.

105 Business Contract Terms (Assignment of Receivables) Regulations 2018, SI 2018/1254, r. 3. Regulation 3 also exempts cases where the supplier is a “special purpose vehicle”.

106 Day, “Non-Assignment Clauses”, p. 208, notes that “a cynic might decry the power of special interest lobbying”. His remark appears to be directed at the decision to exempt various classes of contract from the Regulations, but a thoroughgoing cynic might think something similar about the Regulations themselves.

107 Companies Act 2006, s. 465.

108 Tolhurst v Associated Portland Cement [1902] 2 K.B. 660, 668.

109 Mulkerrins v Pricewaterhouse Coopers [2003] UKHL 41, at [15], per Lord Millett.

110 Fitzroy v Cave [1905] 2 K.B. 364.

111 Ibid., at p. 368.

112 Comfort v Betts [1891] 1 Q.B. 737.

113 Fitzroy v Cave [1905] 2 K.B., at p. 374.

114 Winfield, P.H., “Assignment of Choses in Action in Relation to Maintenance and Champerty” (1919) 35 L.Q.R. 143, 150–51Google Scholar.

115 Tettenborn, “Assignment of Rights to Compensation”.

116 [1982] A.C. 679.

117 Ibid., at 694.

118 It left the issue of whether the assignment agreement as a whole was void to the Swiss courts.

119 Trendtex Trading Corp v Credit Suisse [1982] A.C. 679.

120 Ibid., at 703.

121 See Tettenborn, “Assignment of Rights to Compensation”.

122 Comfort v Betts [1891] 1 Q.B. 737.

123 [1963] 1 W.L.R. 829.

124 Camdex International v Bank of Zambia (No 1) [1998] 1 Q.B. 22. In Camdex, half-hearted attempts were made to distinguish Laurent v Sale, but the judges failed actually to explain what divides the two cases. See Tettenborn, “Assignment of Rights to Compensation”, p. 399, n. 57.

125 The sharp distinction between the treatment of debt claims and damages in the law of assignability has long been criticised. Winfield, “Assignment of Choses in Action”, pp. 150–51; Tettenborn, “Assignment of Rights to Compensation”, pp. 399–400.

126 Camdex International v Bank of Zambia (No 1) [1998] 1 Q.B. 22, 27.