Hendry v Chartsearch Ltd [1998] EWCA Civ 1276 (23 July 1998)

1 This appeal is from a judgment given by His Honour Judge Raymond Jack QC on 30 January 1995 in the Bristol Mercantile Court. The defendants applied by Summons to strike out what was then an amended statement of claim on grounds, which were largely upheld, that the pleading disclosed no reasonable cause of action. On the other hand, the judge rejected an alternative submission that the proceedings were an abuse of process, and in the light of the subsequent decision of the House of Lords in Norglen Ltd v Reeds Rains Prudential Ltd [1977] 3WLR 1177 he was right to do so.

2 The Rules of the Supreme Court require that on an application under order 18 rule 19(1)(a) to strike out a pleading on the ground that it discloses no reasonable course of action the pleading alone shall be considered: no evidence is admissible (rule (19)(2)). The further submissions that the pleading was an abuse of process and that it should be struck out as frivolous or vexatious (rule 19(1)(b)) were not so restricted, and some evidence was placed before the judge. But the abuse of process application is not now pursued, in the light of the House of Lords decision, and the judge made no finding on the application under rule 19(1)(b), so it is important that for the purposes of the plaintiff’s appeal we should confine ourselves to the pleaded allegations.

3 The plaintiff was chairman and shareholder of Interface Data Centres Ltd (“Interface”). He held one share and the his wife the other of two issued shares. The original Statement of Claim relied upon two written agreements between Interface and the defendants which were known as the Samms Agreement dated 2.2.91 and the Namebank Agreement dated 10.11.92. These were described as facilities management agreements under which Interface undertook in return for payment by the defendants to provide certain data processing facilities and services on computer hardware and software. It was alleged that the defendants were in breach of these Agreements. In particular, on 25 June 1993:-

The plaintiff was not a party to those Agreements. However, he alleged that on 9 September 1993 Interface passed a special resolution “whereby it was agreed that the company would transfer and assign to the Plaintiff its causes of action against the Defendant arising from the Defendant’s failure to pay contractual sums to Interface and from the Defendant’s wrongful inducement of Interface’s employees to break their contracts with Interface.” (para 17)

5 The Writ was issued on 21 April 1994. The Statement of Claim was amended on 6 September 1994, the effect of the amendments being to allege that in or soon after November 1988 the Plaintiff wrote the specification for a computer programme to be called Namebank and that he had entered into an oral agreement on behalf of Interface with the Defendants, under which he would develop the programme and a handbook and the Defendants, in short, would market it. Copyright was to be with Interface. This oral agreement was evidenced, at least in part, in a written agreement dated 3 April 1990. The amended pleading alleged that the Plaintiff developed the programme and handbook and gave them to the Defendants.

7 There was no allegation in this pleading of any assignment by Interface to the Plaintiff of any of its rights under the “Exploitation Agreement”. Nor was it alleged that the Plaintiff was a party to that Agreement. It followed that the pleading omitted a vital ingredient in the Plaintiff’s claim under this head. The claims under paragraphs (1) to (4) but not (5) were made in his capacity as assignee.

The Client [Defendants] shall not be entitled to assign licence or otherwise transfer the benefit of this Agreement whether in whole or in part without the prior written consent of the Interface... Interface shall not be entitled to assign or otherwise transfer this Agreement in whole or in part or to sub-contract any of obligations hereafter without the prior written consent of the Client which shall not be unreasonably withheld”.

9 Interface had not obtained the prior written consent of the Defendants to the Special Resolution of 9 September 1993 which the Plaintiff relied upon as an assignment to him of Interface’s causes of action under the Samms and Namebank Agreements. Nor had any request been made for such consent, and it followed that consent had not been refused, whether reasonably or not. When the Defendants were given notice of the assignment in November 1993, as the Plaintiff alleges that they were, it is not suggested that either party made any reference to the need for consent, or to the fact that it had not been given. Nor, when the Summons was issued on 19 October 1994, had they been asked to give their consent retrospectively.

There followed an express concession that “insofar as the contractual term prevents the assignment of contract, the court is bound to follow Linden Gardens ( Linden Gardens v Linesta [1993]AC 85) and hold that the assignment is not effective as against [the Defendants] at the moment”. The letter continued by reminding the Defendants that their approval was not to be unreasonably withheld, and asking them to approve “the assignment of [Interface’s] right to payment under the terms of the Samms and Namebank Data Processing Agreements which it entered [into] with you.”

12 Before the Norglen judgment, which was given on 27 November 1997, there was Court of Appeal authority for the view that an assignment of a cause of action by a company to an individual, who unlike the company could obtain legal aid and was not subject to a potential liability to an order to provide security for the Defendant’s costs, was invalid, but the contrary decision of the Court of Appeal in Norglen itself was upheld by the House of Lords. Hence the “abuse of process” application in the present case, which is no longer pursued. It was in relation to that application, however, that a certain amount of background evidence was placed before the judge. The evidence made it clear what the reason for the assignment was. Interface was insolvent as at 30 June 1993, according to audited accounts, subject to its claims against the Defendants. The Plaintiff was a significant creditor. The Plaintiff’s evidence showed that it was his belief that the Defendants had set out to destroy his, namely Interface’s, business, so that they could enjoy the full fruits of his software development. He says that they starved him of cash - the outstanding debt at 30 June 1993, according to the accounts, was about £16,000 - and that they moved in on 25 June and took the computer equipment from him and induced five of his (Interface’s) six employees who operated the equipment to leave and join the Defendants, as they did shortly afterwards. The Defendants’ version of events is shown by the terms of the Defence. They say, in summary, that they were justified in retrieving the equipment on 25 June because, prior to that date, Interface was in breach of its obligations towards them with regard to confidentially and use of the equipment and software. They deny that they induced the Interface employees to break their contracts of employment. Rather, the employees resigned, with or without the agreement of Interface, and they were interviewed and subsequently employed by the Defendants on or after 28 June.

13 This was the basis on which the defendants made their application on 28 November 1994 to the learned judge. But before the hearing the Plaintiff’s solicitors served on the Defendants and on the court a proposed Re-amended Statement of Claim. No Summons was issued applying for leave to make this re-amendment, but clearly the hearing proceeded as if such an application was being made. There were two significant proposed amendments. The first was to plead an assignment to the Plaintiff of Interface’s claims for money due under and breaches of the exploitation agreement. The assignment relied upon was a further Special Resolution said to have been passed on 20 November 1994, a few days earlier, together with a previous Special Resolution relating to copyright on 6 June 1994, which was also after the date of the Writ. There was no term of the exploitation agreement, written or oral, which barred or restricted the right of assignment. The Defendants submitted that this re-amendment should be disallowed because the assignment or assignments relied upon took place after the issue of the Writ. It followed from this, they submitted, that the Plaintiff had no cause of action under the exploitation agreement at the date when the Writ was issued.

14 The second proposed re-amendment was an application to add Interface as second Plaintiff, but only for a limited purpose, which was to claim, together with Mr Hendry as first plaintiff, a declaration that the Defendants had unreasonably withheld their consent to Interface to assign the benefit of the Samms and Namebank Agreements to Mr Hendry, together with an order that the Defendants should give their written consent to such an assignment and that any sums founds to be due from the Defendants under the said contract should be paid to Mr Hendry. The remaining heads of claim were expressly limited to claims by Mr Hendry, and in each case he was claiming as assignee from Interface.

15 The learned judge gave judgment on 30 January 1995 after receiving certain further written submissions on behalf of the Plaintiff in relation to the Defendants’ objection to the amendments which relied upon a post-writ assignment. The judgment deals clearly and concisely with the issues that were raised before him. The outcome was as follows. The claims made by the Plaintiff as assignee under the Samms and Namebank Agreements were struck out on the ground that the assignments relied upon were ineffective as against the defendants because their prior written consent was not obtained. The claims under the exploitation agreement were likewise struck out because the Plaintiff was not entitled to bring them in his own name. Leave to re-amend the Statement of Claim in order to plead the post-writ assignment was refused, on the grounds that there was no power to allow such an amendment and as a matter of discretion in any event. The claim for damages for inducing breaches of the employees’ contracts of employment, which was “based in tort and not subject to any restrictions or assignment”, was not struck out, but the judge expressed doubts as to its “viability and substance”.

(1) Should the claims made by the plaintiff as assignee of the Samms and Namebank Agreements be struck out? The judge did strike them out. The basic ground for doing so was that the defendants did not give their “prior written consent” to the assignment by Interface upon which the Plaintiff relies. A further question is whether the Plaintiff should be given leave to re-amend the Statement of Claim in order to refer to the letter dated 25 November 1994, quoted above, by which the defendants refused their consent to any assignment to the Plaintiff, and to add Interface as Second Plaintiff in order to claim the Declaration and Order referred to above.

Interface would have made when costing out the employees, namely 100% of salary. If Interface’s business effectively came to a halt when Chartsearch removed the equipment, it may be that the loss of Interface’s employees caused it no additional loss because there would have been no work for them. thus it could be that the outcome of any inducing breach of contract was simply to relieve Interface of the salary burden rather than to cause loss. I was not, however, addressed on this basis, and so I say no more about it. The facts may establish otherwise.” (para 40f)

The defendants cross-appeal on the specific ground (Respondents Notice under 0.59R.6(1)(A) para(1)) that damages are claimed in the sum of £6,344 whereas the assignment dated 7 September 1993 upon which the plaintiff relies provides that the first £10,000 of any received shall be paid to Interface. “Accordingly, there was no effective assignment in that the whole of the benefit thereof was retained and maintained for the Company” (para 1(c)).

18 In my judgment, this contention does not provide a basis for striking out the claim. There may or may not be reasons for regarding the plaintiff as a nominal plaintiff only, the substantial plaintiff being Interface, with whatever consequences might follow from that. But the claim should not be struck out on this ground. In addition, Mr O’Mahoney indicated that the damages claims may be more substantial than at presently pleaded, though why, if that is the case, the pleading is worded as it is I do not understand. In a separate ground of cross-appeal, the defendants say that the assignment was a “sham, device or stratagem”. Mr Freedman did not pursue this aspect in any detail and in my judgment he was precluded from doing so by the House of Lords judgment in Norglen. For these reasons, I would dismiss the cross-appeal against this part of the judge’s order.

The judge refused leave on the ground that Eshelby v Federated European Bank [1922] 1KB254 should be applied. After the hearing but before judgment was given (and after seeing a draft judgment) Mr O’Mahoney made a further submission in writing, relying upon Vax Appliances Ltd v Hoover Plc [1990] RPC656 and referring also to Roban Jig and Tool Co Ltd v Elkadart Ltd [1979] FSR 130. The judge said this:-

This Rule, which was introduced post - Eshelby in 1962, is in the most general terms, as is the court’s general power to grant leave to amend a pleading under Order 20 Rule 5(1). Mummery J so observed (page 661). He effectively distinguished Roban Jig and Tool Co ; where leave to amend was refused, because the “the plaintiff had no cause of action at all at the date of the writ” and “there was no cause of action to add to or be the subject of substitution”. In Vax Appliances , on the other hand, the defendant (seeking leave to amend the counterclaim) did have a cause of action at the date of the service of the counterclaim (page 661).

22 Mr Freedman submits in effect that it follows from this passage and from the judgments in Roban Jig and Tool Co that leave to amend cannot or should not be given unless the party seeking leave to add a fresh cause of action had some cause of action at the date of the Writ (or counterclaim). This would amount to a significant restriction on the apparently general discretion given by Order 20 Rule 5(1) and Order 19 Rule 9.

23 I would reject this submission. The scope of the RSC has been extended since the days when Eshelby was decided in 1932. In accordance with modern practice generally, the court has a general discretion which should not be restricted by hard-and-fast rules of practice, if not of law, such as that which is suggested here. The judge therefore was wrong to consider that the court had no power to give leave to make the re-amendment. In my view, he was wrong also to consider that the discretion was somehow restricted by what he called “the principle set out in Eshelby and in Roban “ (page 22). It is a general power which in modern parlance has to be exercised in accordance with the justice of the case.

24 I therefore proceed to consider whether leave should be granted in the present case. The statement of claim in its original and amended forms contains a clear statement of the causes of action relied upon under the exploitation agreement. The claims are made in the name of the plaintiff although it is also pleaded that the contracting party was Interface. The purpose of the re-amendment is to specify the reason why the plaintiff alleges that he is entitled to bring the claim. The cause of action remains the same: the additional facts cause no prejudice or embarrassment to the defendants. I cannot see any ground for refusing leave to make the re-amendment, and as the exploitation agreement does not contain an assignment clause there is no contractual basis for objecting to the amendment. In any event, I do not consider that the tort claim so lacks “viability and substance” that the case is equivalent to Roban Jig , where the plaintiff had no existing cause of action at the date of the writ.

26 Here, the central issue is whether the plaintiff can sue as assignee from Interface when the defendants did not give their prior written consent to the assignment upon which the plaintiff relies. They did not do so in fact, and when they were asked to consent, they refused. The defendants say that they cannot be sued under or for breaches of these Agreements except by Interface, or by an assignee from Interface to whom they cannot reasonably object. They say that they are entitled reasonably to object to an assignee (1) who cannot be ordered or does not offer to provide security for their costs, this being an order which they would seek against Interface under section 726 of the Companies Act 1985, and (2) who being an individual is eligible for legal aid. The plaintiff, they say, is objectionable on both grounds.

28 First, is it fatal to the plaintiff’s claim as assignee from Interface that the defendants were not asked to consent to the assignment, so as to give them the opportunity to give or withhold their consent, before it was made? Is it relevant in this context (1) that at the relevant date Interface was no longer carrying on business and the Agreements for practical purposes were at an end, and (2) that the defendants did not object to the assignment, or to the failure to give them prior notice, when they were notified of it, as the plaintiff alleges, before the writ was issued?

30 Third, is it necessary for Interface to be joined as a party to the proceedings for the plaintiff to rely upon the assignment and to claim the Declaration and Order which he seeks in paragraph (1) and (2) of the proposed re-amended Statement of Claim? If so, there are considerable problems. Interface has been struck off the Register of Companies, although if necessary it could, Mr Hendry asserts, be restored.

If it was necessary for the validity of the plaintiff’s claim as assignee that Interface should become a party to the action, then I would refuse leave to re-amend because of the impracticability of doing this without further cost and delay. But I do not think that it is necessary. The plaintiff claims as an equitable assignee, and the established practice is that the assignor should be made a party to the proceedings whether as co-plaintiff or as co-defendant with the alleged debtor. The reason for this is to ensure that the assignor is bound by the court’s judgment and that the debtor will not be sued for the same debt a second time. That practical consideration does not arise here; if it is raised by the defendants, then whatever order is appropriate can be made. But the inference is clear. The plaintiff’s right of action does not depend upon the assignee being co-plaintiff with him.

These were post-assignment as well as post-writ. The plaintiff does not allege that there was a subsequent assignment, or purported assignment, in relation to which he can assert that there was a request for prior consent, which was unreasonably refused. There was no request for retrospective consent to the assignment which, it is alleged, had already been made on 9 September 1993. In these circumstances, it seems to me, the letters add nothing to the plaintiff’s existing claim. He either is or is not entitled to rely upon the earlier assignment for which consent was never sought, given or refused. If the assignment was invalid or ineffective as regards the defendants for want of their prior written consent, then their subsequent refusal does not establish a cause of action. At most, it provides evidence, if evidence is needed, of what the defendants’ attitude would have been, and in this respect the reason given for their refusal (though not their only reason) may be relevant - “it cannot have been the intention of the parties to expect a consent to an assignment when their commercial relationship is at an end and when they are in dispute”. But, as evidence, this need not be pleaded.

These issues arise on the defendant’s strike-out application rather than the plaintiff’s application for leave to re-amend. The material facts are already pleaded. I do not think that the defendant’s failure to object, when notice (as it is alleged) of the assignment was given, can make the assignment valid or effective if it was not so before. The plaintiff’s failure to make a pre-assignment request is bound up with what I have called the central issue, namely, whether there could be a valid and effective assignment without the defendant’s prior written consent. To this central issue I now return.

34 The distinction between ‘absolute’ and ‘qualified’ is important, because Mr O’Mahoney for the plaintiff accepts that, if the bar on assignments was absolute, then a purported assignment in breach of the claims would be ineffective as regards the debtor: Linden Gardens v Lenesta Sludge [1994] AC85 per Lord Browne-Wilkinson at 108F. Lord Browne-Wilkinson made it clear that the clause could bar assignments not only of the contractual rights to require performance by the other party, the primary obligations under the contract, but also claims or causes of action (secondary rights) arising out of breaches of contract (pages 103-106).

35 The judge relied upon the Linden Gardens judgment in holding that the plaintiff’s claims under the Samms and Homebank Agreements should be struck out. Mr O’Mahoney submits that he was wrong to do so. Where the bar is qualified, so that consent is required but may not be unreasonably withheld, then the reasonableness or otherwise of the other party’s refusal, or right to refuse, must be considered in the light of all the circumstances of the case, taking both parties’ interests into account. He submits that this is the correct approach by analogy with landlord and tenant cases, citing International Fluid Drilling Ltd v Louisville Investment [1986] 1 Ch 513, and that since these matters require investigation the claim should not be struck out at the interlocutory stage. He relies in particular upon what he alleges is the fact, namely, that the defendants deliberately sought to destroy the company’s business so as to starve it of funds and thereby prevent it from bringing proceedings on its own account.

36 Mr Freedman QC responds that, without consent, the assignment was a nullity, and alternatively that the defendants were entitled reasonably to withhold their consent, if they had been asked to give it. The trading relationship was at an end, and the proposed assignment was for the purpose of enabling litigation against the defendants, by a legally-aided plaintiff who would not be liable to be ordered to give security for the defendants costs (Respondents’ Skeleton Argument, para 20).

37 In my judgment, there are three separate issues which have to be considered. The first is whether the bar on assignment without consent continues to operate when, as Mr Freedman puts it, the trading relationship has come to an end. I note that the defendants’ solicitors in their letter dated 25 November 1994 refusing consent, quoted above, may have suggested that the clause cannot have been intended to operate in these circumstances, whereas the plaintiff’s solicitors, in their letter which was under reply, expressly conceded that the Linden Gardens decision applied and that the assignment which was pleaded was not effective against the defendants “at the moment”. Putting both these letters to one side, it seems to me that the clause can and does continue to operate, notwithstanding that the parties are no longer trading with each other and their relationship continues only for the purpose of resolving disputes governed by the terms of the Agreement. But the change in the nature of their relationship means that the circumstances which are relevant to the reasonableness or otherwise of refusing consent have changed also. In principle, the party who is entitled to refuse consent may have a legitimate interest in the identity of the other party in litigation or arbitration - see

38 In this connection, we were referred to two recent decisions of this Court which were concerned with the extent to which contractual undertakings may continue to be binding notwithstanding that the contract has “come to an end”, as it is sometimes put, by reason of a repudiatory breach “accepted” by the other party. These authorities are Rock Refrigeration v Jones [1997] 1All ER1 and Hirst v Boyle [1997] 2 All ER 283 (we were told that an appeal to the House of Lords is pending in the latter). This led to submissions as to whether or not the Agreements were terminated in this way in the present case, and if so, when. In my judgment, the question whether a particular undertaking “survives” repudiation and acceptance depends always on the true construction of the contract in the particular case, and for the reasons given above clause 26 is capable of doing so.

39 The second issue is whether the grounds on which consent was or would have been refused in the present case were clearly reasonable, so much so that the plaintiff’s claim as assignee should be struck out. The grounds put forward are that the plaintiff as an individual is entitled to seek legal aid and is not liable to an order to provide security for the defendants’ costs. Apart from these specific matters, it is difficult to see that the defendant can be affected in any way by the fact that the plaintiff is Mr Hendry personally, rather than Interface Ltd, which on any view was his company. A response to this argument is that Mr Hendry having sought the advantages of incorporation for his trading venture should not be permitted to resile from the specific disadvantage, namely, the liability under s.726 of the Companies Act 1985 to provide security for costs, which that corporate status also brings see Norglen [1997] 3WLR 1177 per Lord Hoffman at p1188H). Nevertheless, this could be regarded as “a harsh and unrealistic judgment” (ibid p1187G).

40 In Norglen the House of Lords held that the assignment to an individual was not unlawful or contrary to public policy (though the issue was regarded as one of statutory interpretation: see page 1186C) merely because the assignee was entitled to seek legal aid (page 1189), nor because he could not be ordered to provide security for costs under section 726 (page 1188H). It does not follow from this, however, that the debtor is acting unreasonably if he refuses his consent to an assignment on these grounds.

41 If the eligibility for legal aid objection stood alone, then I should be reluctant to hold that it was reasonable for the debtor to refuse his consent on this ground. The essence of Lord Hoffman’s speech in Norglen, with which the other members of the House of Lords agreed, is that legal aid is available to impoverished litigants who would otherwise be deprived of access to the courts. Even though legal aid is not available to companies, Parliament had not intended to restrict the rights of companies to assign their property to individuals who could be granted legal aid and thereby enabled to pursue their claims. I doubt whether a debtor should rely upon the existence of the legal aid scheme as a reason for objecting to an assignment and thereby ensuring that no proceedings or no effective proceedings could be brought against him.

42 The position with regard to security for costs is, however, different. The debtor has a statutory right, “for better or worse” (page 1188H), which protects him from being in the unenviable position of being sued by an impecunious plaintiff (page 1181C). However great the disadvantages to the creditor, company or individual, I do not see how it could be regarded as unreasonable for the debtor to insist upon this statutory right.

43 For this reason, I would hold that the defendants were entitled to refuse consent in the present case, as they did after the assignment in November 1994 and as they doubtless would have done if asked before 9 September 1993. The third issue, namely, whether the assignment was invalid or ineffective on the ground that no prior request was made, even though consent could not reasonably have been refused, therefore does not arise. Although I have read the judgment of Millett L.J. in draft, I prefer to leave open the question whether the established law concerning leases necessarily applies to assignments of contractual rights. There appears to be no authority on this issue (see e.g. Chitty on Contracts (27th ed.) para. 19-025 where none is cited) and it may be arguable that the debtor cannot object to the validity of an assignment on the ground that he was not asked for his consent, when he could not reasonably have refused it. The distinction between leases and contractual obligations simpliciter may be relevant here, and I note that in Eastern Telegraph Co. Ltd v. Dent [1899] 1 QB 835 the purported assignee in fact had moved into occupation of the premises. I must emphasise, however, that I do not dissent in any way from his analysis of the lease assignment cases.

44 I would add just this. If the individual assignee was willing and able to provide security in accordance with section 726 on the same terms as if he was the company, then it seems to me as at present advised that the debtor could not reasonably refuse his consent on this ground. Moreover, since section 726 gives a discretionary power, the factors urged on us by Mr O’Mahoney would be relevant to any such application, for example, his allegations that the company’s impecuniosity may have been deliberately brought about by the defendants. If therefore a plaintiff was prepared to undertake and could demonstrate that he was willing and able to provide such security as might have been ordered against the company if it was the claimant, then it might be that the claims by him as assignee should be permitted to stand. But that as I understand it is not the position here.

On the point which separates my brother judges, I am of opinion that where an assignment of contractual rights (such as a chose in action) is prohibited without the prior written consent of the other contracting party (such consent not to be unreasonably refused) then there can be no valid assignment until after 1) written consent has been granted, or 2) the court has declared that the consent has been unnecessarily refused. That “prohibition on assignment normally only invalidates the assignment as against the other party to the contract so as to prevent a transfer of a chose in action” ( Linden Gardens Trust Limited -v- Lenesta Sludge Disposals Limited [1994] AC 85 at 108, per Lord Browne-Wilkinson).

The suggestion that the assignor can validly assign in breach of his contract without ever seeking prior consent by asserting that, as such consent could not reasonably be refused, so it is unnecessary, seems to me to be a recipe to promote uncertainty and speculative litigation. I prefer the simple certainty that prior consent never applied for is never withheld or refused (whether reasonably or otherwise). The burden of suing should be on the party who asserts that he is not obliged to ask for prior consent as his contract required him to because it could not reasonably be refused.

I have had the advantage of reading in draft the judgment of Evans LJ. Save in one respect I agree with it and with the orders which he proposes. The one respect in which I venture to differ from him is that I regard it as fatal to the validity of the assignment on which the plaintiff relies that the defendants’ consent was not sought before the assignment was made. The hypothetical question whether if their consent had been sought it could reasonably have been refused is in my opinion irrelevant and is not a proper subject of inquiry.

A lease creates a legal estate in land. One of the incidents of ownership is the right to dispose of the property. A condition against alienation which is directly attached to the estate is repugnant to this right and void. It is, therefore, not possible to deprive a lessee of his ability to make an effective assignment of the lease. But it is possible for the lessor to take a covenant against assignment and to reserve a power of re-entry for breach of the covenant. An assignment in breach of covenant is effective to vest the legal estate in the assignee: Old Grovebury Manor Farm v Seymour Plant Sales & Hire (No. 2) [1979] 1 WLR 1397; but the assignee takes a defeasible interest only which is liable to forfeiture for breach of covenant.

A covenant against assignment may be in absolute terms or conditional on obtaining the lessor’s prior consent; and such a condition may be qualified by a proviso that the lessor’s consent shall not be unreasonably withheld. Where the condition is qualified in this way the lessor does not undertake not unreasonably to refuse his consent, but an unreasonable refusal of consent leaves the lessee at liberty to assign without it: Treloar v Bigge (1874), 9 Exch. 151.

As between the parties to it, an ordinary commercial contract is not property but obligation. There is therefore no objection to making the benefit of the contract non-assignable. There is no need to take a covenant against assignment or reserve a power to treat assignment without consent as a repudiatory breach of contract, neither of which would provide an adequate or appropriate remedy to the other party. It is sufficient to provide, as the present contract does, that a party should not be entitled to assign the benefit of the agreement without the prior written consent of the other.

Such a clause takes effect according to its tenor. The assignment which was made without the prior written consent of the defendants was effective as between assignor and assignee, but was ineffective as between the assignor and the defendants. The making of such an assignment did not put the assignor in breach of contract, let alone in repudiatory breach; it simply did not affect the defendants’ legal position and could be disregarded by them with impunity.

In the case of a lease, the fact that an assignment in breach of covenant is effective to vest the term in the assignee means that it is too late to seek consent; the breach of covenant is complete and the lease is liable to forfeiture. That is not so in the case of the benefit of a contract. The assignment does not constitute a breach of contract and is without legal effect so far as the other party to the contract is concerned. It is not too late for the assignor to ask for consent. But the contract requires the assignor to obtain the prior consent of the other party; retrospective consent, if given, may operate as a waiver, but cannot amount to the consent required by the contract. The proper course is for the assignor to ask for consent to a new assignment and to wait until it is given or unreasonably refused before proceeding to make it.

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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Hendry v Chartsearch Ltd [1998] EWCA Civ 1276 (23 July 1998) URL: http://www.bailii.org/ew/cases/EWCA/Civ/1998/1276.html Cite as: [1998] CLC 1382, [1998] EWCA Civ 1276, (2000) 2 TCLR 115

England and Wales Court of Appeal (Civil Division) Decisions