THE EFFECT OF A NON-ASSIGNMENT CLAUSE
In Gravitas International Associates Pte Ltd v Invictus Group Pte Ltd [2022] SGHC 2, the Plaintiff claimed to be the assignee of all “rights, benefits, interests, claims and titles” by way of a deed, and consequently, the proper plaintiff in this suit. The High Court held that the Plaintiff did not satisfy the preliminary issue of requisite standing to bring the claims. In doing so, the High Court considered the non-assignment clause and the effect of a purported assignment contrary to the clause.
Facts. The Plaintiff, Gravitas International Associates Pte Ltd, commenced a suit based on two causes of action against the Defendant (at [1]): one in contract and one in tort. This blog will only focus on the contractual claim.
The contractual cause of action stemmed from a contract executed on 8 February 2018 for the provision of consultancy services relating to an initial coin offering (“ICO”) (the “Contract”) (at [1]) by Gravitas Holdings Pte Ltd ("GHPL”) to the Defendant, Invictus Group Pte Ltd ([2]). But GHPL is not the Plaintiff. This is because the Plaintiff claimed that pursuant to a deed of assignment (the “Deed”), the Plaintiff was the proper plaintiff, being the assignee of all of GHPL’s “rights, benefits, interests, claims and titles” under the Contract.
The Plaintiff’s other claim in tort alleged that the Defendant had induced a breach of a contract of employment entered between GHPL and one Stefano Virgilli (the “Employment Contract”) (at [4]). The Plaintiff also claimed to be the proper plaintiff for the action in tort, having been assigned all of GHPL’s “rights, benefits, interests, claims and titles” as arising from the Employment Contract (at [5]).
In respect of both claims, the Defendant’s overarching defence was that the Plaintiff was not the proper party (at [6]). The Plaintiff’s standing to bring the claims was therefore a preliminary issue before the Court.
Not the Deed. The Court found that pursuant to the Deed, GHPL intended to assign everything it could to the Plaintiff (at [10]). However, whether GHPL could assign the rights which were being enforced in the suit depended on the terms of the Contract and the Employment Contract respectively.
The Contract. Clause 8.3 of the Contract contained a non-assignment clause (at [11]):
“Neither Party may assign any of its rights under this Agreement without the prior consent of the other Party, which shall not be unreasonably withheld; provided. This Agreement shall apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the Parties.”
(Emphasis added by Court)
The Court found it likely that the inclusion of “provided” was simply a typological error (at [12]). Since parties were unable to put forth the original boilerplate clause, the Court approached it as if the word “provided” was not there (at [13]).
Interpreting the effect of non-assignment clauses. The Court considered non-assignment clauses generally (at [14]) and cited Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and another appeal [1994] 1 AC 85 (“Linden Gardens”) by the House of Lords as the leading case on this topic. The Court referred to Lord Browne-Wilkinson’s reference to a case note by Professor Roy Goode, who observed that non-assignment clauses were capable of at least four alternative interpretations (see [15] to [16]):
“16. First, as a personal undertaking not to assign, the breach of which gives rise to a claim for damages. Second, as precluding, and thus invalidating the assignment of rights to performance under the contract. Third, as precluding, and thus invalidating not only the assignment of rights to performance but also any fruits of performance. Last, as a condition of the contract, the breach of which is repudiatory. Lord Browne-Wilkinson accepted this classification and added that, although not a possibility considered by Professor Goode, it is hypothetically possible for a non-assignment clause to invalidate the assignment of rights to future performance in a subsisting contract, but not the fruits which have already accrued for performance rendered (at 105). This would fall somewhere between the second and third categories.”
(Emphasis added by Court)
The Court added that Linden Gardens had been accepted in Singapore (at [17]):
“… the approach which their Lordships took towards non-assignment clauses in Linden Gardens has been accepted in Singapore, though not yet by the Court of Appeal. … In Arris Solutions, Inc v Asian Broadcasting Network (M) Sdn Bhd [2017] 4 SLR 1 (“Arris Solutions”), after noting that Linden Gardens had been applied in Total English, Simon Thorley IJ, delivering the decision of the Singapore International Commercial Court, stated the law as follows: “Linden Gardens stands for the rule that where there is a contractual prohibition on assignment without prior consent, a purported assignment executed without obtaining such consent will be only effective as between the assignor and assignee, but will not bind the other contracting party, whose rights and obligations will remain to the assignor” …”
(Our emphasis added)
After emphasizing that the effect of a non-assignment clause is a question of construction of the clause, and that it is important to start with its text as the “first port of call” (at [22]), the Court stated that the question of interpretation should be focused and directed at asking two successive questions (at [23]):
“… First, whether the terms of the non-assignment clause suggest that parties intended for the very alienability of the right to be restricted. Second, still referring to the terms of the clause, what type of rights does it appear to capture (ie, rights to performance, rights to present or future fruits, or combinations thereof).”
Nonetheless, “the technical complexities in this area of law, ie, the assignability of choses in action, make for a rather stark mismatch between the boilerplate reality of contract drafting and the underlying legal principles … will likely entail some difficulty in the search for what parties objectively “intended” … this is not an issue which can or should be resolved by the proposal of a grand conceptual scheme in a single decision. … As much turns on the specific text of the clause, the factual background of the case, as well as the relevant contractual context, there is little more that can be said by way of general guidance.” (at [24])
Interpreting the non-assignment clause in question. The two parts of cl 8.3 of the Contract which called for interpretation were “Neither Party may assign” and “any of its rights under this Agreement” (at [25]).
“Neither Party may assign”. The Court found that the phrase “Neither Party may assign” is equivalent to the phrase “The Parties may not assign” (at [26]). Consequently (at [27]):
“27. In my view, “may not” suggests that cl 8.3 operates as a curtailment of the power of the parties to assign. To use the language of my own formulated question at [23] above, the phrase “may not” appears to me to affect the very alienability of the chose in action in question. The requirement of consent thus takes effect as a condition-precedent to a valid assignment. Such a view of the phrase “may not” is also taken by Professor Tolhurst in his text dedicated to the subject: see Tolhurst at 270. …”
(Our emphasis added)
The Court also contrasted “may not” to “shall not” in its analysis of the phrase (at [27]-[30]).
“any of its rights under this Agreement”. As for the phrase “any of its rights under this Agreement”, the Court was of the view that this phrase should include all choses in action arising from the Contract (at [31]). This is because “… [n]othing about the phrase “rights under this Agreement” suggest that the parties intended to distinguish between rights of performance, which are irrelevant in this suit, and rights to fruits, which are relevant. …” (at [31]; emphasis added by Court).
The Court therefore found that “… the legal consequence of non-compliance with the terms of cl 8.3, specifically, failing to seek the “prior consent of the other Party”, is that the purported assignment will be invalid.” (at [32])
No prior consent. It was not disputed that no prior consent was sought (at [33]), although there were letters sent by the Plaintiff – not GHPL – through its solicitors, to the Defendant or its then-counsel, after the Deed was executed on 24 April 2020 (at [35]).
The Court found that the letters gave rise to a slightly more difficult question which the English Court of Appeal considered in Hendry v Chartsearch Ltd [1998] CLC 1382 in obiter (at [36]).
In that case, the non-assignment clause provided that “… Interface shall not be entitled to assign … without the prior written consent of the Client which shall not be unreasonably withheld” (emphasis added by Court). There was also no consent sought prior to the assignment. It was held that had the defendant been properly asked, it would have been entitled to reasonably refuse consent to the assignment, so the case could be disposed of on this basis.
However, the decision also raised the following question:
“37. … Where an assignor does not even ask for consent, contrary to the terms of a non-assignment clause, may that assignment nevertheless be effective on the grounds that, had the consent of the obligor been sought beforehand, it could not in any event have been reasonably withheld? …”
(Our emphasis added)
Observing at [37] – [46], this question is not simple to answer as it raises issues that “goes to the very heart of the law of assignment and personal property” (at [45]; citing Gregory J Tolhurst and JW Carter, “Prohibitions on Assignment: A Choice to be Made” (2014) 73(3) CLJ 405–434). The Court nevertheless found that “… GHPL’s purported assignment to the Plaintiff of its rights under the Contract is plainly invalid as no prior consent was ever sought from the Defendant. The Plaintiff therefore has no standing to bring its contract claim” (at [46]) and the Court dismissed the claim (at [59]).
Significance. While it is trite, this decision makes clear that, as with any other clause, the interpretation of non-assignment clauses and the effect of non-compliance with such clauses turn on the wording of the exact clause in question and the relevant factual matrix.
Therefore, before using a boilerplate non-assignment clause, take care to ask yourself if the non-assignment clause in question is suitable for your purposes.
In addition, this decision also makes clear that if there is a breach of a non-assignment clause by failing to seek prior written consent, it may not always be so clear that the purported assignment must be void. Depending on the facts of the case, it may be possible to persuade a court to find that notwithstanding a breach, the assignment could possibly be valid. Readers should therefore keep an eye out for further developments from the courts on this issue.
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