Following last month’s article, we
look at the position where consent to assign is not available but
seller and buyer want to sell and buy equipment and lease, or
receivables.
One might ask why a lessee would
object to assignment without consent? The lessee might be concerned
that they would overlook a notice of assignment or lose rights of
set-off, but these are technical legal issues which may not be on
everyone’s mind.
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The lessee’s main concern may be
that they simply do not want to have to deal with anyone other than
the person they have entered into the lease with, especially if it
is necessary to renegotiate the terms of the lease in any way.
It has to be said that the law is
quite unsympathetic to these concerns, its basic attitude being
that legal property of any kind should be readily transferable. So
the benefit of the lease should be as easy to transfer as title in
the equipment.
As a consequence, fairly clear
wording has to be used to prevent restrictions being
circumvented.
In any event, it is unrealistic to
place reliance on a relationship with a third party in a commercial
context given that changes of management or policy may occur on a
regular basis.
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By GlobalDataThe basic view is that restrictions
on assignments are just that. They may prevent an assignment
without consent being enforced against the lessee, but there is
nothing to stop a seller declaring itself to be the trustee of an
unassignable contract – unless the contract itself declares that
this cannot happen – and enforcing the terms for the benefit of the
purchaser.
This was first made clear in
litigation between the boxing promoters Don King and Frank Warren
in 2000, when the judge decided that the proceeds of unassignable
contracts Warren had brought to their partnership (which had
subsequently broken up) could be the subject of a permanent trust
in favour of the partnership.
The question may be asked as to
what will happen if the seller becomes insolvent or refuses to
co-operate. In King vs Warren, the judge said that the
“Vandepitte procedure” would not be available to enable the
beneficiary to enforce the contract when Warren would not.
The Vandepitte procedure is a legal
procedure under which the beneficiary of a trust can enforce it by
litigation in the name of the trustee – which results in the other
party effectively being forced into litigation with the
beneficiary.
However, the majority of the court
in the later Barbados case thought otherwise when looking at the
issue. So whether the trustee is insolvent or unwilling, it seems
that the Vandepitte procedure could be used although this issue has
not been looked at where the trustee has actually ceased to exist
as a consequence of death or insolvency.
The author is a partner at
Watson, Farley & Williams
