Category Archives: Trade Finance

Failed Construction Assignment Might Work as Declaration of Trust for Lender

Where a contract prohibits assignment without consent, the contract cannot be effectively assigned without the consent of the other party.

In any event the other party should be given written notice of any assignment to perfect it in the legal sense.

In Stopjoin Projects Ltd v Balfour Beatty Engineering Services (HY) Ltd [2014] a struggling sub contractor Brunel had assigned the benefit of its debts to a lender. The main contractor, then called Haden Young, was now applying to get the lender’s claim against it, under the sub contract, ruled out summarily on the basis the lender had no arguable claim for any debt.

The court found that HY had never waived the prohibition against the benefit of the sub contract being assigned. Firstly it had written taking issue with the lender’s position as a stranger (i.e. non party) to the construction sub contract. Secondly HY had never thereafter paid the lender or corresponded with it.

So the lender argued that Brunel held the benefit of the sub contract on trust for the lender.

The court appeared unconvinced by the idea that a failed assignment could amount to a declaration of trust of the sub contract benefits it was supposed to have assigned legally. After all trying to assign your legal rights to something is hardly a promising basis for later holding those same benefits on trust for the intended assignee of those legal rights. The two things are mutually inconsistent. An assignment of a legal right is an attempt to clothe the assignee with legal ownership of that right and entirely at variance with a trust where the person making the disposition retains legal ownership of the contract and merely clothes the other person with the right of enjoyment i.e. beneficial ownership.

The court also pointed out that the assignment clause might expressly or impliedly prevent the benefit of the sub contract being held on trust.

However the court thought that the lender’s argument was sufficiently arguable to refuse HY (since renamed Balfour Beatty) summary judgement leaving the issue to go to a full hearing.

This blog is posted out of general interest. It does not replace the need to get proper legal advice in individual cases.