Upping The 'Anti' On Anti-Assignment Clauses In Business Contracts?

Author:Mr Andrew Kinnes
Profession:Shepherd and Wedderburn LLP

On 31st October 2018, The Business Contract Terms (Assignment of Receivables) Regulations 2018 ("the Regulations") were approved by both the House of Commons and the House of Lords. The Regulations are due to come into effect on 31 December 2018.

Before looking at the Regulations themselves it is useful to understand the historical position as to how the Regulations came about.

Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd

In this case from 1994, two parties entered into a construction contact which included a clause stating: "[the] employer shall not without written consent of the contractor assign this contract". Despite this clause, the employer assigned the contract without the permission of the contractor.

The question came before the House of Lords to determine whether:

the clause prohibiting the assignment was valid; whether anti-assignment clauses are contrary to public policy; and whether the purported assignment was effective, despite the prohibition. The House of Lords held that:

the clause prohibiting the assignment was valid; anti-assignment clauses are not contrary to public policy; and the purported assignment was not effective. Criticism of the Linden Gardens case and the draft Regulations

The introduction of a legislative prohibition on anti-assignment clauses was discussed in a 2005 Law Commission report (Company Security Interests). The proposals in the Law Commission report lay dormant until 2014 when the UK Parliament discussed a prohibition on anti-assignment clauses to facilitate the sale of invoices by UK small businesses to invoice finance companies.

In 2017 a first draft of the Regulations was issued. This first draft of the Regulations aimed to:

nullify anti-assignment of receivables clauses in all contracts other than excluded contracts; and nullify certain restrictions on what information can be passed to an assignee in respect of receivables. The draft Regulations included a list of ten forms of excluded contract. The list of excluded contracts included, amongst others:

contracts for financial services; contracts for the sale of land; contracts for the sale of shares or a business; contracts relating to national security interests; and petroleum licences. The first draft of the Regulations was criticised by the legal and business community on the basis of it being disproportionate to its aims, and potentially damaging to English law on the basis that it applied to all contracts and...

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