With notable distinction placed on assignment. What if it’s just not an option?

Stephanie Canham

Whilst arguably not the most exciting topic in the world, assignment is important. In the construction world, getting it wrong means that a party who thought they had rights of recourse against a contractor, consultant or other member of the supply chain suddenly doesn’t. Whilst they may not be left entirely without remedy (rights may exist against the party who purportedly assigned but enforcement may be unpalatable if it’s a group company or insolvent), it would be far better to get it right at the outset and ensure the ability to assign is clearly dealt with, or recognise that assignment is not an option and consider other alternatives.

Construction contracts usually contain contractual restrictions on the parties’ ability to assign their rights. These restrictions come in a variety of shapes and sizes including no assignment, assignment with consent, a fixed number of assignments without consent and thereafter with consent (not to be unreasonably withheld or delayed), and variations in between. Restrictions tend to be included at the behest of professional indemnity insurers or brokers and are agreed by parties keen to make sure that contracts are ‘within cover’.

So what if assignment is not an option? Perhaps the permitted number of assignments has been used up or consent is not forthcoming. This is what was considered earlier this year in two unconnected construction decisions from the TCC: Co-Operative Group Ltd v Birse Developments Ltd and others [2014] EWHC 530 and Stopjoin Projects Ltd v Balfour Beatty Engineering Services (HY) Ltd [2014] EWHC 589.

It has long been recognised that, provided it is not prohibited by the contract in question, a party’s rights can be put into trust for the benefit of others. There are a number of cases which confirm that this is perfectly acceptable where an express trust is created – namely the parties are aware that assignment may not be possible and so agree to put the benefit of the relevant document(s) in trust.

Whilst arguably not the most exciting topic in the world, assignment is important

The two recent decisions, however, have looked at a slightly different point: what happens if the parties don’t realise that the assignment is either prohibited or that the number of permitted assignments has been exhausted (perhaps because of a group reorganisation/internal transfer of property)? Can the failed assignment lead to the creation of an implied trust? Whilst the judges came to slightly different conclusions, there are a couple of useful strands of thought which can be taken from the judgments:

  • Whether a trust has been created depends on the parties’ intentions;
  • If there is an intention to transfer the benefit of a contract and that can only be achieved through a trust (an absolute prohibition on assignment, for example, or the number of permitted assignments has been used up and no right to request consent to further assignments exists), this is a factor in favour of finding a trust – on the flipside, if assignment is a possibility (but subject to consent which has not been obtained), this will undermine the finding of a trust;
  • Assignments and declarations of trust are ‘different legal creatures’ and so drafting for one does not automatically lead to the other – so, the existence of a deed of assignment (effective or otherwise) will not automatically lead to the assumption of creation of a trust (it depends on the parties’ intentions).

Arguing for an implied trust in the event of a failed assignment is a bit like grasping at straws. Much better to properly consider assignment with any transfer of interests in the property or rights to payment and deal with assignment or the creation of a trust expressly.

Stephanie Canham is national head of projects and construction at law firm Trowers & Hamlins