星空传媒

Construction contracts, including collateral warranties, often contain provisions relating to assignment. The provisions may confirm the right of the parties (or one of them) to assign or, more frequently, may exclude or limit rights of assignment.

Only benefits and not burdens of a contract may be assigned. That means that contractual rights, for example the right to receive payment, may be assigned but contractual obligations, for example to perform work or services or to pay, cannot. If the parties wish to transfer both benefits and burdens from one of the original contracting parties to a new party, they (that is, all three of them) must enter into a novation agreement.

A right to assign the benefit of a contract will, generally speaking, exist unless it has been excluded. So if the contract or collateral warranty is silent as to assignment, then the benefits under it should be capable of being assigned.

The requirements
If a party has a right to assign, it must make sure that any assignment it proposes to make is done properly. What is required by a party wishing to assign the benefit of a collateral warranty was recently discussed in the case of Allied Carpets Group plc versus Macfarlane decided by the Technology and Construction Court on 17 June 2002.

In the case, developers built a warehouse in order to lease it to Harris Queensway plc. The developers employed the defendants as architects and structural engineers on the project. The defendants provided a collateral warranty by deed (the warranty) to Harris Queensway. Clause six of the warranty stated: 'The company shall be entitled to assign the benefit of this deed and the rights and remedies available to it hereunder to any person to whom it shall also assign the benefit of the agreement.'

The company was defined as Harris Queensway and its successors in title. The agreement referred to the agreement for lease between the developers and Harris Queensway.

The lease was granted to Harris Queensway but it then went into liquidation. The claimant bought the warehouse and other properties from the liquidator. The claimant found problems with the warehouse and sought compensation from the defendants under the warranty. The lease between Harris Queensway and the developers had been assigned to the claimant but the issue was whether or not the warranty had been assigned. The parties agreed that there had been no legal assignment, which must be made in accordance with the Law of Property Act 1925. The question was, therefore, whether or not there had been an equitable assignment. For that, there needs to be an intention to assign and an act showing assignment by the assignor (in this case, the liquidator).

A right to assign the benefit of a contract will generally speaking exist unless it has been excluded.

The judge found that, while the liquidator had physically handed over the warranty to the claimant, along with other documents, there was no intention to assign the benefit of it. The sale documentation had been bulky and in relation to other issues 'words were not spared'. On the basis that 'it does not take many words to assign the benefit of a warranty', if the parties had intended to assign the benefit of the warranty, they would have used express words in that documentation. The handing over of the warranty also did not constitute an act of assignment.

The findings
Nonetheless, although assignment had not taken place, the court found that there had been a right to assign the warranty: clause six did not impose a restriction on assignment after the lease had been granted. The judge made it plain that if it is intended to limit or exclude the right of assignment, clear words are required. The effect of clause six was to give a limited right to assign in the period before the grant of the lease where there was only an agreement for lease.

After the grant of the lease, it was not intended to restrict the right of assignment. If this had been the intention, then it would have had to have been stated expressly within the warranty. For example, the words: 'no further or other assignment of the benefit of the deed shall be permitted' could have been added to clause six of the warranty.

Outcome
This conclusion was supported by the description of Harris Queensway in the warranty as 'the company which expression shall where the context so admits include its successors in title' which suggested that the intent was not that Harris Queensway was to be the last beneficiary of the agreement for Lease, the lease or the warranty.

If there had been a restriction on assignment and an assignment had been made in breach of that restriction, the benefit of the warranty would not have passed to the claimant following the decisions in Linden Gardens versus Lenesta Sludge and St Martin's Property Corporation versus Sir Robert McAlpine.