In a recent adjudication enforcement case, the Technology and Construction Court looked at the rules around assignment of contracts.
The Defendant and Responding Party in the adjudication, Galliford Try, alleged that the Claimant and Referring Party, Mailbox were not entitled to commence the adjudication in its name as it had assigned its benefits under the building contract to Aareal Bank AG (“Aareal”) so the adjudicator’s decision was a nullity. Mailbox argued that Galliford was wrong because either there was no assignment of the building contract, or if there had been, it had been re-assigned. Galliford lost the adjudication and was ordered to pay Mailbox over £6.5m. Mailbox looked to enforce the adjudication decision in the courts.
Mailbox was a SPV set up in respect of the development of retail and office space. Mailbox instructed Galliford to carry out refurbishment works and the parties entered into a contract for c. £19 million on an amended JCT Design & Build Contract. Mailbox executed a term loan facility with Aareal as the security trustee (and others) for a loan facility for purchasing the property and a deed of debenture was executed in favour of Aareal which assigned the contract to them. Notice of the assignment was given to Galliford. Mailbox alleged that Aareal had taken reassignment of the contract but Galliford were not given notice until August 2016, after the adjudication had been started.
The court concluded that when the notice of adjudication was served, there had only been an equitable re-assignment to Mailbox as Galliford had only been given notice in August 2016. The general rule is that the equitable assignee has a right to sue as it is beneficially entitled to the remedy in the action, but a court will often require the assignor to be joined in proceedings. However in this matter, there was no dispute between the assignee and the assignor as to the effect of the assignment so this was not required.
Accordingly, the adjudicator’s decision was enforced. In coming to its conclusion the court looked in detail at the deed of debenture and the notice of assignment given to Galliford. The court also considered s.136(1) of the Law of Property Act 1925 for the requirements of a legal assignment.
The decision is a reminder to all parties involved in assigning contracts, to consider carefully the wording used in the assignment and the timing of any notices of assignment. Finally, before taking steps to adjudicate, it is necessary to consider if you have sufficient legal standing to do so and whether the assignor would also need to be involved.
Posted by Daniela McDonough on 6 April 2017.