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Court rules on anti-assignment clauses

21 Mar 14 Ben Preece of Gregg Latchams LLP reports on Stopjoin Projects Ltd v Balfour Beatty Engineering Services.

Ben Preece of Greg Latchams LLP
Ben Preece of Greg Latchams LLP

It is stating the obvious that construction companies often require outside finance. Similarly, it is unfortunately no secret that they frequently encounter cash-flow issues. Lenders therefore, as in other commercial situations, will require security for their finance.

If there is real property then a mortgage can be taken, but frequently that will not be available and a lender may instead have to rely on a fixed and/or floating charge. Construction companies often carry significant debts and so an assignment of the book debts can also seem attractive to a lender. Factoring companies largely base their businesses on it.

The problem for the lender is that many construction contracts contain so called “anti-assignment” clauses which, as confirmed in the case of Linden Gardens, prevent such an assignments taking place in law.  

This was the case in Stopjoin Projects Ltd v Balfour Beatty Engineering Services. Stopjoin, the lender, provided Brunel, the construction company, with significant funds so that it could carry out construction projects in return for security which included an assignment of the book debts. Some of those projects were for Balfour Beatty. Stopjoin argued that Balfour Beatty owed Brunel money and so, by virtue of the assignment, they owed Stopjoin.

Unfortunately for Stopjoin, Balfour Beatty’s terms included an “anti-assignment” clause.

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Stopjoin tried to get around it in two ways: the first was to argue that on one of the contract the clause had not been included in the contract (Brunel at the time had protested about its inclusion). The second was to argue that because the parties had tried to assign the contract, a trust arose in equity which would allow for the same thing: the money to flow to Stopjoin.

Balfour Beatty believed both arguments to be meritless and argued they should be struck out. His Honour Judge Havelock-Allan QC agreed on the first point but disagreed that the trust argument was meritless and found in favour of Stopjoin.

The case continues in Bristol’s High Court.        

The wider implications of this judgement remain to be seen. In February the High Court in London decided in Co-Operative Group Ltd v Birse Developments Ltd & Ors, on different facts, that a failed assignment did not give rise to a trust. This area of law is therefore somewhat up in the air and it is possible that the Court of Appeal will have to decide the issue in the near future.

The full text can be found at: http://www.bailii.org/ew/cases/EWHC/TCC/2014/589.html

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