The wrongs of assigning rights

Background

In 2007, the defendant contractor (“Shepherd”) entered into a standard form JCT Design and Build Contract 2005 edition (the “Contract”) with the employer (“Camstead”) to build student flats in Cambridge. The Contract was made under seal for which the limitation period is 12 years.

There were five sections of works which achieved practical completion between September 2008 and April 2009. Camstead transferred the freehold in 2009 to a group known as the “Hotbed companies” who sold it on to the claimants (“Aviva”) in 2012.

Following updated government guidance on fire safety in January 2020 in the wake of the 2017 Grenfell tragedy, Aviva investigated the cladding and allegedly identified defects.

In September 2020, Aviva and Camstead entered into a deed of assignment. This purported to assign to Aviva the full benefit of the Contract and the right to bring proceedings.

The claim

At the same time as entering into the purported assignment in September 2020, Aviva issued proceedings against Shepherd for c. £4m in relation to remedial works arising from the alleged defects. Aviva notified Shepherd of the purported assignment three weeks later.

In January 2021, Aviva applied to join Camstead as a claimant; CPR 19.5(2) provides for the addition of a party to proceedings after the end of any relevant limitation period. Shepherd cross-applied to strike out the proceedings under CPR 3.4(2) on the basis that no reasonable grounds had been disclosed to bring the claim because there was no basis to join Camstead, no valid assignment and therefore Aviva had no right to bring the claim. They succeeded.

JCT assignment clauses

Two assignment clauses were scrutinised. Clause 7.1 gave the employer (Camstead) the right to assign the benefit of the Contract to any person: (i) if it provided 14 days' written notice to the contractor (Shepherd); and (ii) subject to any reasonable objection by the contractor before the expiry of the 14 days.

The Judge, Mrs Justice Jefford, referred to a hypothetical position in which there was no reasonable objection as meaning the contractor was giving implied consent. The unamended form of clause 7.1 provided that “neither the employer nor the contractor shall assign the contract or any rights under it without the written consent [our underlining] of the other”.

Clause 7.2 (which was in its unamended form) applied if the employer transferred the freehold or leasehold and entitled the employer to assign to "any such” transferee or lessee, the right to bring proceedings in the employer’s name to enforce the contract.

Aviva accepted that the lack of notice (or consent) required under 7.1 meant there had been no valid legal assignment of the right to sue but argued that there had been a valid equitable assignment under clause 7.2.

The decision

The Judge found that, under clause 7.2, only the right to bring proceedings in the name of the employer could be assigned; thus  proceedings had to be brought in Camstead’s name. Aviva was the wrong claimant. Furthermore, the words of the clause meant that the right could only be assigned to the first transferee, Hotbed. The clause could not be construed in a way which would cover the subsequent transfer by Hotbed to Aviva. Further, the clause did not permit an equitable assignment of the benefit of the contract (without notice or consent). Otherwise, this would mean the limitation in clause 7.1 would have no substantive effect since the employer would always be able to assign in equity, to any future owner, the right to bring proceedings without notice or consent.

She also found that clause 7.2 expressly concerned the assignment of contractual rights and was not a basis for an assignment of rights in tort.

It is, the Judge decided, “inherently unlikely” [our underlining] that a contractor will “owe a duty of care to the employer to prevent or avoid economic loss”. Why, asked the Judge, would a contract prohibit the assignment of causes of action in contract without consent but leave the possibility that a cause of action in tort could remain? The reality is that any duty in tort will generally coexist with a duty in contract and so assignment of that right would be subject to the terms of the deed. While it is conceivable that certain specific circumstances might give rise to a cause of action in tort, independent of contract, no such duty had been pleaded by Aviva.

There was no valid assignment from Camstead to Aviva and therefore no reasonable grounds to bring the claim. The Judge refused Aviva’s application under CPR 19.5(2) to join Camstead to the proceedings after expiry of the limitation period and granted Shepherd’s strike out application under CPR 3.4(2).

Analysis

Another decision in the context of losses arising from potential cladding and fire safety risks. However and importantly, the Judge has only concentrated upon a narrow aspect of what was involved being contract interpretation or limitation on a summary basis. The court did not consider the wider issues which will be looked at if or when a claim proceeds to trial.

This case is of interest to practitioners, developers and contractors alike. It provides some analysis of the JCT forms addressing the importance of notice, consent and how the transfer of assignments are treated. It demonstrates the importance of checking the status of the claimant and the effect of clause 7.2. It is easy to overlook wording which has remained in place for 34 years with scant judicial consideration.

For further examples in our series of articles focussed on cladding related claims, see our articles about RG Securities and Martlett Homes.