Whether prohibition on assignment of contract in JCT Standard Form of Building Contract preventing assignment of accrued claims or benefit of contract-measure of damages — Whether assignees could recover cost of remedial works from building contractor where assignor sold building for full market value prior to assignment and without consent — Whether terms of contract precluded assignment of contractual right — Two appeals raising similar issues — House of Lords allowing appeal in first case and dismissing appeal and cross-appeal in second case
In each case building works were carried out with somebody having a proprietary interest in the building when the contract was made. The contractors allegedly failed to achieve proper performance. The original employers transferred their interest in the building to the plaintiffs in each case and purported to assign the building contracts. The contracts, on standard JCT forms contained a term in clause 17 that employers would not assign “this contract” without the contractor’s consent. Consent was never obtained.
In the first case, the assignees, Linden, sued the second and third defendant contractors, McLaughlin & Harvey plc (`M&H`) and Ashwell Construction Co Ltd for damages. In the second case, both the original employers St Martin’s Corporation (`Corporation`) and the assignees St Martin’s Investments (`Investments`), sued Sir Robert McAlpine & Sons Ltd. In each case the Official Referee ruled that by virtue of the terms of the contracts, the employer was precluded from assigning to the assignee a right of action against the contractor. The two cases were heard together on appeal. The Court of Appeal allowed the appeals by Linden and Corporation but dismissed an appeal by Investments. M&H and McAlpine appealed and Investments cross-appealed to the House of Lords.
Held The appeal by M&H was allowed. The appeal by McAlpine and the cross-appeal by Investments were dismissed.
1. Clause 17(1) of the contract prohibited the assignment by the employers of the benefit of the contract. That by itself was fatal to the claim by Investments (as assignees) in the Corporation case.
2. Clause 17 clearly prohibited the assignment of any benefit of or under the contract. The purported assignment to Linden without the consent of the contractors constituted a breach of Clause 17. The claim of Linden as assignee therefore failed, unless it could be shown that the prohibition in clause 17 was either void as contrary to public policy or, notwithstanding the breach of clause 17, the assignment was effective to assign the chose in action to Linden.
3. There was a long-term acceptance of the validity of such prohibition against assigning rights under a contract: see Re Turcan (1888) 40 ChD 5; Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262; and Reed Publishing Holdings Ltd v Kings Reach Investments unreported May 25 1993, CA.
4. There was no policy reason why a contractual prohibition on assignment of contractual rights should be held contrary to public policy.
5. An assignment of contractual rights in breach of a prohibition against such assignment was ineffective to vest the contractual rights in the assignee: see Turcan, Helstan and Reed above.
6. However, Corporation as original employer, was entitled to substantial rather than nominal damages for any breach by McAlpine of the building contract as it fell within the rationale of the exceptions to the general rule that a plaintiff could only recover damages for his own loss.
John Dyson QC and Anthony Speaight (instructed by Jaques & Lewis) appeared for Linden; Sidney Kentridge QC and Justin Fenwick (instructed by Masons) appeared for McLaughlin; Richard Fernyhough QC and Marcus Taverner (instructed by Glovers) appeared for McAlpine; Humphrey Lloyd QC and David Westcott (instructed by Stephenson Harwood) appeared for the Corporation.