Assignment

Energy Works (Hull) Ltd v MW High Tech Projects UK Ltd & Ors [2020] EWHC 2537 (TCC)

Facts

The claimant entered into the main contract with the defendant by which the defendant was to carry out works in relation to designing, procuring and constructing a power plant capable of processing refuse. The defendant sub-contracted the supply of key elements of the plant to a sub-contractor.

The claimant subsequently terminated the main contract for the defendant’s delay. As required under the main contract as a consequence of termination, the defendant assigned the sub-contract to the claimant.

Two days later the claimant issued proceedings against the defendant for delay, defect correction and associated costs totalling GBP133 million. The defendant sought to pass this liability onto the sub-contractor pursuant to the sub-contract’s liquidated damages mechanism and the indemnity benefiting the defendant in respect of claims made by the claimant. But, of course, the sub-contract had been assigned. It was common ground that the assignment was valid. The dispute concerned the effect of that assignment.

• Could the defendant pursue claims against its sub-contractor on the basis of direct, accrued, contract rights arising before the assignment? Alternatively, had all benefits, including accrued benefits, transferred to the claimant?
• If all rights, past and future, had been transferred, were all of the obligations also transferred (so as to amount to a novation)?

Held

Considering as to whether or not accrued rights had been assigned, the judge stated that the parties could have used clear words to indicate that the assignment was limited to future rights, “…but there are no such words”. Both the accrued and future rights under the sub-contract had been assigned.

As to whether the burden had also been assigned, the court provided a recap on the meaning of assignment and novation. Citing Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] she commented that: “It is trite law that it is, in any event, impossible to assign “the contract” as a whole, i.e. including both burden and benefit. The burden of a contract can never be assigned without the consent of the other party to the contract in which event such consent will give rise to a novation…”

The judge acknowledged that labels are not conclusive, commenting that use of the words “assign the contract” are commonly but inaccurately used to describe an assignment of the benefit of a contract. However, in this case the words “assign the Sub-Contract” strongly indicated that an assignment had been intended. There were no words to indicate an intention to extinguish the sub-contract and replace it with a new agreement.

Comment

The finding meant that the defendant had given up its right to pass on to the sub-contractor, under the sub-contract, claims for which it retained responsibility to the claimant under the main contract. The court acknowledged this but made clear that it was not its role to re-write contractual arrangements or impose an outcome which it considered to be fair and equitable.

The defendant would have been in a better position had it followed the other option which was available, namely termination of the sub-contract followed by the sub-contractor entering into a new contract with the claimant on broadly the same terms as the sub-contract.