Court Of Appeal Decision Has Confirmed That Restrictions On Assignment Of Receivables Need Not Be Barriers To Receivables Financing

Author:Mr Edward Sunderland and Sharon Smith
Profession:Pinsent Masons LLP

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Restriction on assignment did not stop economic value of receivables moving to funders by other means in receivables finance deal Decision emphasises importance of considering overall contract when construing individual clauses First Abu Dhabi Bank PJSC (formerly National Bank of Abu Dhabi PJSC) v BP Oil International Ltd [2018] EWCA Civ 14 Speed Read

LEGAL UPDATE: The Court of Appeal has said that a company did not misrepresent to a bank in saying it was not prohibited from disposing of receivables in a case where there was a restriction on assignment of receivables in an underlying contract but there were also other methods of transferring the value of the receivables to the bank. The Court said that the restriction on assignment did not prevent a company from paying amounts actually received by it to the bank, or prevent it from creating a trust over proceeds of receivables or debts owed to it in favour of the bank.

The ruling means that receivables finance funders may not be able to claim compensation for breach of a broadly drafted representation as to no prohibition on disposal or sale of receivables where there is a narrowly drafted restriction on assignment in an underlying contract and broader methods of transferring the economic value of the receivables to funders. Funders will need to conduct due diligence to check the scope of the restriction in the underlying contract. However, funders will find it helpful that the Court of Appeal has reaffirmed its position set out in Barbados Trust Company Ltd v Bank of Zambia [2007] EWCA Civ 148 that a restriction on assignment provision in an underlying contract does not prevent a trust being created over receivables. Nor does it prevent amounts actually received under those contracts being paid over to funders.

The decision also serves as a useful reminder of rules relating to construction of contracts as the Court of Appeal, citing the recent Supreme Court decision of Wood v Capita Insurance Services Ltd [2017] UKSC 24, emphasised the importance of considering the overall scheme of a contract when construing its individual clauses.

You can read more about the implications of the ruling in our analysis.

In December 2013, BP Oil International Limited (BPOI) entered into an English law contract with to Société Anonyme Marocaine de L'Industrie de Raffinage (SAMIR), which incorporated BPOI's general terms and conditions, for the sale and purchase of crude oil.


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