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The Law of Assignment, 3rd Edition by Smith, Marcus; Leslie, Nico (8th March 2018)

Part IV Intangible Property that is Incapable of Transfer, 21 Assignment of Burdens

From: The Law of Assignment (3rd Edition)

Marcus Smith, Nico Leslie

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber: null; date: 25 August 2019

Subject(s):
Obligations of the buyer — Obligations of the seller — Contract formation and trade practices

(p. 521) 21  Assignment of Burdens

A.  Overview of the Chapter

21.01  In general, while a benefit or right under a contract is assignable, a burden or obligation under that same contract will not be assignable. The reasons for this principle are discussed in Section B, along with the potential adverse consequences if such assignments were allowed. However, it is also important to emphasize that a number of exceptions to this general principle have developed: both in specific contexts, such as the lien of an unpaid vendor of land or the transmission of freehold restrictive covenants, and more generally in relation to conditional benefits, where a benefit is intrinsically tied to a concomitant burden. These exceptions are analysed in detail in Section C.

B.  The General Rule

21.02  There are two reasons why burdens should not be assignable without consent:

  1. (1)  It would be wrong in principle for A to be able to transfer to C an onerous obligation without C ’s consent.1

  2. (2)  What is more, given that A’s obligation will be owed to B, B may very well have the right to expect performance by A (as opposed to C), and certainly ought to have the right to hold A to account for the performance of that obligation.2

Thus, it follows that the transfer of a burden ought generally to require the consent of A, B, and C: in other words, a novation.3

21.03  This may be illustrated by Figure 21.1, which shows that a transfer of a burden at one and the same time means (i) shifting the burden from transferor A to transferee C and (p. 522) (ii) providing the obligee/beneficiary B with a different counterparty for the performance to which he is entitled.

Figure 21.1  Theoretical transfer of an obligation

21.04  Clearly, we are here concerned with the triangle of relationships that characterizes the bilateral as opposed to the multilateral chose.4 The position as regards multilateral choses is very different:

  1. (1)  In the first place, the transfer of a multilateral chose from A to B does not involve the shift of an obligation from A to B. Thus, for example, a patent confers an essentially negative right on the holder against the world, without the holder of the right assuming any kind of obligation himself. The holder of a patent has the right to stop the rest of the world from using his invention without his consent; but the rest of the world has no rights against the patentee. A patent involves a benefit without a correlative burden.

  2. (2)  Secondly, multilateral choses involve essentially negative rights enforceable against a whole class of third parties, as opposed to a single person. The direct—and essentially personal—link between obligor A and obligee/beneficiary B does not exist.

21.05  The rule that burdens cannot be assigned thus needs to be considered in the context of those choses—notably contracts, but also leases and shares—that contain both benefits and burdens. The participants to these transactions assume mutual obligations and confer mutual benefits. This is particularly clear where a contract is concerned: an enforceable contract requires the presence of consideration.

C.  Exceptions to the General Rule: Transfer of Obligations to Third Parties

21.06  There are a number of limited exceptions to the general rule that obligations cannot be transferred except by way of a novation. Instances are:

  1. (1)  The unpaid vendor’s lien over land;

  2. (2)  The rule that the burden of a restrictive covenant over freehold land can bind successive owners of that land;

  3. (3)  The transfer of obligations contained in leases through successive landlords and tenants;

  4. (4)  The assumption of obligations by a new shareholder on the transfer of the legal title in the shares to him;(p. 523)

  5. (5)  The doctrine of ‘conditional benefits’ which applies to the assignment of rights under a contract. According to this doctrine, the assignee of a conditional benefit assumes also the burden of obligations associated with that benefit.

These exceptions are considered in turn below.

(1)  The Unpaid Vendor’s Lien5

21.07  From the moment of entering into a contract of sale, the vendor of land retains a lien at common law until the purchase price is paid.6 More pertinently, the vendor retains an equitable lien on the land if he transfers the legal estate to the purchaser or gives him possession before the purchase money is paid in full.7 The unpaid vendor’s lien arises automatically by operation of law.8 The unpaid vendor’s equitable lien arises simultaneously with the making of the contract of sale.9 These days, under the Land Registration Act 2002, if a vendor’s lien is to survive the contracted transfer of his title, the vendor must protect the lien by entering a ‘notice’ in his own register of title immediately following the contract which generates the lien.10 In this way, the vendor is able to claim protected priority for his lien as against the disponee who takes the registered estate on performance of the contract to transfer.

(2)  Restrictive Covenants over Freehold Land11

21.08  The benefit of a restrictive covenant granted by A to the benefit of B can generally be assigned by B to a third party, C. In Tulk v Moxhay,12 Lord Cottenham held that the burden of such a restrictive covenant could bind B’s successors in title. In this case, the claimant had sold a vacant piece of ground in Leicester Square to one Mr Elms, who covenanted on behalf of himself, his heirs, and his assigns, that he would keep and maintain that land ‘in an open state, uncovered with any buildings, in neat and ornamental order’. The land subsequently passed by a further conveyance into the hands of the defendant. The defendant’s conveyance did not contain any such covenant as that spelt out in the original conveyance from the claimant; but the defendant admitted that he had purchased with notice of the restrictive covenant imposed. When the defendant attempted to build on the land in defiance of the covenant, the claimant sought an injunction to prevent him from doing so. The injunction was granted.

(p. 524) 21.09  The decision in Tulk v Moxhay was broadly based. In effect, equity was prepared to intervene to restrain any unconscionable conduct in respect of a contractual undertaking in relation to land of which a third party—not a contracting party—had notice. The effect of the decision was to elevate covenants falling within the scope of the rule in Tulk v Moxhay from merely contractual rights to a proprietary interest in the land of the covenantor.13

21.10  Following Tulk v Moxhay, until the commencement of the 1925 property legislation, the transmission of the burden of freehold restrictive covenants was governed uniformly by the equitable doctrine of notice;14 since 1925, such covenants are protected in accordance with provisions contained, first, in the Law of Property Act 1925 and, now, the Land Registration Act 2002.15

(3)  Transfer of Leasehold Obligations

21.11  The enduring of obligations arising out of a lease through successive ownerships is obviously critical. In City of London Corp v Fell,16 Lord Templeman stated:

Common law, and statute following the common law, were faced with the problem of rendering effective the obligations under a lease which might endure for a period of 999 years or more beyond the control of any covenantor.

It simply could not be that the essential covenants of a lease fell away with the disappearance of the original contracting parties, leaving the residue of the leasehold term ungoverned by clear or durable ground rules.17 The solution was to annex to the term of a lease and to the reversion the benefit and burden of covenants which touch and concern the land.18 This concept is known as ‘privity of estate’. Where privity of contract refers to the relationship between two parties to a contract, privity of estate (which arises only in the context of leases) refers to the relationship between any two persons who, in respect of the same leasehold estate, stand currently vis-à-vis each other in the position of landlord and tenant. As the title or status of each person ‘privy’ to a particular leasehold estate is passed on by transfers of the lease or its reversion, each successive assignee can describe himself as holding either as landlord or as tenant to one other identified person.

21.12  The doctrine of privity of estate, and the manner in which obligations arising out of leases bind successive landlords and tenants, is considered in greater detail in Section C of Chapter 18.

(4)  The Assumption of Obligations by a New Shareholder on the Transfer of the Legal Title in the Shares to Him

21.13  It has already been noted that the statutory contract between a company and its members and between the members of the company themselves gives rise to contractual rights (p. 525) and obligations on the part of each member as regards the company and every other member.19

21.14  Although some kind of ‘privity of estate’ doctrine could have been evolved so as to provide for the passage of shareholder obligations from one shareholder to his successor in title, this is not in fact the route the common law took.20 Instead, the present statutory rules for the transfer of the legal estate in shares, which are considered in Sections C, D, E, and F of Chapter 19, owe a great deal to the common law rules, which are based firmly on a novation between the company, the transferring shareholder, and that shareholder’s transferee.21

(5)  Conditional Benefits: The Passing of Burdens under a Contract

The general rule that burdens cannot be transferred

21.15  Both of the rationales described above apply to create a general rule that the obligation to perform a contractual burden cannot be transferred without a novation:22 no-one should be able to transfer an onerous obligation to an unknowing third party; and the (contractual) counterparty to the person attempting to assign the burden is entitled to have ‘his’ benefit performed by the person he contracted with—or at least, in the manner laid down by the contract.

21.16  The general rule as to benefits and burdens was clearly stated in Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd.23 This case concerned a contract between the owner of the land (Tolhurst) and a company (Imperial Portland Cement Co Ltd ‘Imperial’), which provided that Tolhurst would supply Imperial for 50 years with at least 750 tons of chalk per week, and so much more as they might require for their manufacture of cement upon their land. The contract also included that the chalk was to be delivered in convenient daily quantities as required by Imperial by written notice given on the preceding day. Imperial, which had a small capital and was doing a comparatively small business, went into voluntary liquidation and transferred all its business and property, and purported to assign the contract to a second company (The Associated Portland Cement Manufacturers (1900) Ltd ‘Associated’) which had an extensive business, carried on at various places, and a large capital. Tolhurst contended that he was no longer bound by the original contract and sought to supply Associated with chalk at a higher price than that stipulated in the original contract. Imperial and Associated contended that there was a valid and binding contract subsisting between him and one or both of the companies.

21.17  Collins MR stated the general principle as follows:24

It is, I think, quite clear that neither at law nor in equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee. (p. 526) A debtor cannot relieve himself of his liability to his creditor by assigning the burden of the obligation to someone else; this can only be brought about by the consent of all three, and involves the release of the original debtor … On the other hand, it is equally clear that the benefit of a contract can be assigned, and can be put in suit by the assignee in his own name after notice.

21.18  Collins MR concluded that the assignment was ineffective, because it purported to transfer Tolhurst’s obligation to supply chalk under the contract from Imperial to Associated. However, the assignment did not affect the original contract, and Tolhurst remained bound to Imperial under this agreement.25

21.19  In Southway Group Ltd v Wolff and Wolff,26 Bingham LJ stated:

It is in general permissible for A, who has entered into a contract with B, to assign the benefit of that contract to C. This does not require the consent of B, since in the ordinary way it does not matter to B whether the benefit of the contract is enjoyed by A or by a third party of A’s choice such as C. But it is elementary law that A cannot without the consent of B assign the burden of the contract to C, because B has contracted for performance by A and he cannot be required against his will to accept performance by C or anyone other than A. If A wishes to assign the burden of the contract to C he must obtain the consent of B, upon which the contract is novated by the substitution of C for A as a contracting party.27

21.20  Although Bingham LJ’s analysis is expressed as an absolute statement of the law, there is one further possibility that he did not consider. This is where the contract between A and B is such as to impose obligations on any future assignee of the benefit of that contract. This was the analysis adopted by the House of Lords in Tolhurst,28 affirming the decision of the Court of Appeal on different grounds and finding that Associated was entitled to call on Tolhurst to deliver at least 750 tons of chalk per week at the contractual price. Giving the lead judgment, Lord Macnaghten held that the original contract between Tolhurst and Imperial was to be read:29

… as if it contained an interpretation clause saying that the expression ‘Tolhurst’ should include Tolhurst and his heirs, executors, administrators and assigns… [and] that the expression ‘the company’ should include the company and its successors and assigns.

21.21  Although Lord Macnaghten’s attention was on the assignment of a benefit under the contract (ie Imperial’s right to be supplied with 750 tons of chalk per week at a fixed price), the same reasoning should extend to its burdens. Imperial had obligations under the contract,30 and it would follow that these obligations were also assumed by Associated. If so, then this would suggest that A can agree with B that both the benefits and burdens of their contract are assignable to a third party, C. Whether such an arrangement truly amounts to an assignment, or is really a form of novation, has been the focus of substantial recent dispute.31

(p. 527) Burdens, benefits, and conditional benefits

A tripartite distinction

21.22  As noted at paras 21.15 to 21.19, an initial analysis suggests that rights under a contract can be classified either as benefits or as burdens, the former being assignable and the latter not. However, this is too simple an analysis: some benefits are hedged with qualifications which can easily be construed as burdens. The law thus not merely draws a distinction between burdens and benefits, but also sub-classifies benefits into conditional benefits and independent benefits.

Conditional benefits and independent benefits: definition

21.23  The distinction between conditional benefits and independent benefits was considered by Megarry V-C in Tito v Waddell (No 2).32 He defined a conditional benefit as follows:33

An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain burdens assumed, such as an obligation to make certain payments. Such restrictions or qualifications are an intrinsic part of the right: you take the right as it stands, and you cannot pick out the good and reject the bad. In such cases it is not only the original grantee who is bound by the burden: his successors in title are unable to take the right without also assuming the burden. The benefit and burden have been annexed to each other ab initio, and so the benefit is only a conditional benefit.

21.24  By contrast, independent benefits are benefits which, although they arise out of the same instrument, are independent of each other. Thus, A grants a right to B and, by the same instrument, B independently promises to do something for A.34

21.25  The distinction between conditional benefits and independent benefits is clearly an important one. It represents the only way in which a burden arising out of a contract can be transferred without a novation; and the reason the law allows such a transfer is because without holding that the assignee is bound by an onerous condition, he effectively gets something for nothing. The underlying rationale is a simple principle of ordinary fairness and consistency, that ‘You can’t have it both ways’ or ‘You can’t have your cake and eat it’. Thus, a conditional benefit can be assigned; but, in such a case, the assignee cannot take free of the burden that is inextricably linked with the benefit.

The distinction between independent benefits and conditional benefits

21.26  Whether a promise in a contract can be regarded as a ‘pure benefit’ or a ‘conditional benefit’ very much depends on the nature of the obligation, which itself turns on a question of construction of the contract.35

(p. 528) 21.27  The clearest instance of a conditional benefit, where the assignee takes the burden along with the benefit, is where the enforcement of a given contractual right is constrained in a procedural sense. Thus, the following types of contractual provision have been found to be qualifications on a contractual benefit such that, if the benefit is assigned, the assignee takes subject to the qualification:

  1. (1)  Choice of jurisdiction clauses. In Glencore International AG v Metro Trading International Inc,36 Moore-Bick J held that an assignee of rights under a contract was only entitled to enforce those rights in accordance with the terms of the contract, and that included an exclusive jurisdiction clause:37

The ordinary rule is that an assignee of a chose in action under English law cannot be better off than the assignor and so takes the chose assigned to him together with any restrictions attaching to it, including an exclusive jurisdiction clause.38

  1. (2)  Arbitration clauses. The presence of an arbitration clause in a contract does not, of itself, render any rights under the contract unassignable.39 However, where the assignor could enforce an obligation subject only to an arbitration agreement, the assignee cannot enforce the benefit assigned to him without recognizing the obligation to arbitrate.40 This result now appears to be uncontroversial, although the precise mechanism by which it takes effect continues to be the source of debate.41

  2. (3)  The right to claim under a contract of insurance. Where the right to recover under a contract of insurance is assigned,42 the assignee will be bound to perform any conditions precedent to recovery, such as giving notice of loss.43

21.28  Moving away from procedural fetters on a right, it seems clear that where a right under a contract is limited by an exclusion clause, the assignee will be bound by that clause. Britain (p. 529) & Overseas Trading (Bristles) Ltd v Brooks Wharf & Bull Wharf Ltd44 concerned a contract of bailment of certain goods between the warehousemen and the owner of the goods. The owner of the goods assigned the benefit of the contract to the third party purchaser of his goods, which remained in the warehouse. The goods were damaged, and the assignee sought to sue on the contract. Widgery J held that the assignee was bound by an exclusion clause contained in the agreement:45

I am inclined to think that when the goods are sold and the warrant handed over there is an assignment of the contract of bailment to the buyer, or at any rate an assignment of the rights under that contract, and that the buyer steps into the shoes of the seller and is bound by the same contractual terms.

Again, this outcome is readily comprehensible. Indeed, it is difficult to see an exclusion clause as a burden in any real sense. An exclusion clause is really a restriction on a right. It defines, or delimits, the obligation of the debtor or the right in the assignor/assignee.46 The same may be said of a choice of law clause: it simply defines the nature of the assignor’s/assignee’s right.

21.29  Are there circumstances in which a conditional benefit involves the imposition of a substantive obligation on the assignee? In Tito v Waddell (No 2),47 Megarry V-C considered a series of cases in which an agreement between A and B gave A rights to use B’s land (eg for mining). Under such an agreement, amongst other provisions, A promises to make good any damage done to the land. Suppose A then assigns the benefit of his contract to a third party, C. Can C escape from the obligation to make good any damage? Megarry V-C plainly considered that C could not, even if the obligation to make good arose out of a separate covenant in the agreement.48

21.30  Ultimately, as Megarry V-C stated, this is a question of construction:49

… there is plainly an initial question of construction. If an instrument grants rights and also imposes obligations, the court must ascertain whether upon the true construction of the instrument it has granted merely qualified or conditional rights, the qualification or condition being the due observance of the obligations, or whether it has granted unqualified rights and imposed independent obligations. In construing the instrument, the more closely the obligations are linked to the rights, the easier it will be to construe the instrument as granting merely qualified rights. The question must always be one of the intention of the parties as gathered from the instrument as a whole …

21.31  Just how difficult such questions of construction may be, is illustrated by the decision of the House of Lords in Pan Ocean Shipping Co Ltd v Creditcorp Ltd.50 This case concerned (p. 530) the time-charter of a vessel, the Trident Beauty, by Pan Ocean from Trident Shipping Co. The hire for the vessel was payable 15 days in advance, commencing on the day of the vessel’s delivery. There was, however, specific provision in the agreement (in clause 18) providing for the return of any overpayment should the vessel be off-hire for any of this period. Although clause 18 did not provide for set-off, Pan Ocean would also no doubt have had the right to set-off any necessary adjustment from its next payment in advance, instead of waiting for Trident to make a repayment. In the words of Lord Woolf:51

If, after the hire has been paid in advance, there occurred an event which caused the vessel to be off-hire during the period for which the hire had been paid, then part or all of the hire paid in advance would not have been earned. In that situation an adjustment of account between the parties would have to be made. The necessary adjustment could be achieved by deducting an appropriate amount from the next payment of advance hire or, if there would be no further payment due, by Trident making a repayment to Pan Ocean.

21.32  In order to finance its operations, Trident had arranged credit facilities with Creditcorp, which involved an assignment to Creditcorp (made the same day as the charter) of (amongst other things) the owner’s right to the sums payable for the charter of the vessel.

21.33  In the event, there was an overpayment, which Pan Ocean sought to recover not from Trident (which appeared to be not good for the money), but from Creditcorp. Before the Court of Appeal and the House of Lords, the claim against Creditcorp was formulated in two ways. First, it was contended that the right to advance hire was provisional only, and that until it had actually been earned, there was an obligation to return unearned hire. Critically, it was suggested that this obligation was owed not by any assignee of the benefit of the hire payments, that is, Creditcorp. Secondly, it was contended that the hire was recoverable from Creditcorp on the restitutionary ground of total failure of consideration. This second aspect of the case is considered in paras 26.38 to 26.42.

21.34  As regards the first aspect, Pan Ocean explicitly relied on the concept of conditional benefits expounded by Megarry V-C in Tito v Waddell (No 2). Essentially, it was contended that the payment of advance hire was a conditional benefit and the assignee took it subject to an obligation to repay any unearned hire. In other words, the benefit of the obligation to pay hire came with the burden of clause 18, which created the obligation to repay any unearned hire. This argument failed before the Court of Appeal and the House of Lords. Lord Goff stated:52

I myself agree with the Court of Appeal that this argument is not well founded, because it rests on a misconception as to what is meant by the terms ‘provisional’ or ‘conditional’ in this context. As I understand the position, in a case such as the present they mean no more than that the payment is not final since under the contract there is an obligation, express or implied, to repay to the charterer any part of the hire payment which has not been earned … In truth, all that happened in the present case was that the benefit of receiving the hire payment was assigned to Creditcorp and, in accordance with the terms of the charter, Trident remained liable to repay to Pan Ocean any part of the hire so paid to Creditcorp which was not earned. Under the charter there were two separate contractual obligations—an obligation on Pan Ocean to pay instalments of hire in advance, and an obligation of Trident to repay any part of any such instalment which was not earned. The assignment to Creditcorp (p. 531) of Trident’s right to receive advance hire payments left undisturbed Trident’s obligation to repay any hire which was unearned; and I cannot see that in these circumstances the assignment to Creditcorp can have carried with it any obligation upon Creditcorp, additional to the contractual obligation imposed upon Trident, to repay unearned hire on the ground of failure of consideration.

21.35  The analysis of the contractual position in the House of Lords was minimal, and it may be that their Lordships—as was the Court of Appeal53—were actuated as much by the commercial importance of ensuring that assignments by way of security (as this was) are not undermined by exposing the assignee to an obligation to make a payment. Viewed apart from such commercial considerations,54 the decision is difficult to defend. Although the obligation on Pan Ocean to pay hire in advance and the obligation on Trident to repay any unearned hire were contained in separate provisions of the agreement, there was a clear relationship between the two provisions, in that they sought to ensure that whilst Trident received payment in advance, it was paid only for the time the ship was actually on-hire. What, it may be asked, would the position have been had the two provisions been contained in the same clause? Lord Goff and the Court of Appeal appeared to consider that this would make no difference, and that only a tripartite agreement could oblige the assignee to disgorge an overpayment. Lord Goff quoted Neill LJ in the Court of Appeal with approval:55

No doubt it would be possible to construct a tripartite agreement whereby the assignee of a debt from a creditor would acknowledge that the sum assigned might be repayable in whole or in part to the debtor in specified circumstances. In the present case, however, by the terms of the assignment Creditcorp were assured that the receivables were not subject to any set-off or counterclaim. The debts assigned were not of trust moneys or subject to any form of quasi-trust. The fact that the payment may have been ‘provisional’ as between Pan Ocean and Trident did not mean, as I see it, that the moneys retained some special characteristic when they reached the hands of a third party.

This emphasis on the need for a tripartite agreement overlooks the fundamental point made by Megarry V-C that what matters is the intention of the original parties to the contract. If, on the true construction of the agreement, there was an intention that the right to receive a payment in advance should be qualified, then the assignee takes subject to that qualification irrespective of what the assignor may have promised in the assignment.56

21.36  As a matter of objective construction, there is much to be said in this case for regarding the right to advance hire as a conditional benefit:

  1. (1)  The assignor—here, Trident—would presumably be very surprised to note that the effect of the assignment was not merely to transfer the right to receive hire from it to the assignee (Creditcorp), but also rendered Trident liable to pay (repay would be a misnomer) in addition any unearned hire.(p. 532)

  2. (2)  In any case where hire payments continued, that is, where the vessel was off-hire for only a limited period, the charterer (here Pan Ocean) would be entitled to deduct by way of set off the appropriate amount from the next payment to the assignee. In such a case, the charterer would presumably have an option either to claim against the owner, or to set off against the assignee. It seems anomalous that the assignee is protected when the charter comes to an end, but if the charter continues the deduction can and will be made.

Implications of the rule and the ‘pure principle of benefit and burden’

Implications of the rule

21.37  The consequence of the rule is that where a right under a contract is independent of any burden, the beneficiary of the promise will be entitled to assign it to a third party, who will himself be able to enforce the right against the promisor. This can lead to harsh results, for the assignor is entitled to enforce the promise without regard to the promisor’s right to expect performance under the contract himself. This is an inevitable consequence of the law of assignment, but one which has given the courts occasion to pause.

21.38  In Brice v Bannister,57 one Gough had agreed to build a vessel for Bannister, the price of which was to be paid by instalments. Before the vessel was finished, Gough assigned to Brice 100l out of monies due or to become due from Bannister to Gough. At the time of this assignment, Bannister was up-to-date in his payments, which he had made to Gough. However, although he was given notice of the assignment, Bannister refused to be bound by it, and paid the balance of the price of the vessel (more than 100l) to Gough and not to Brice. A majority of the Court of Appeal held that there had been a valid assignment of the 100l, and that Brice was entitled to recover the 100l from Bannister. Bannister thus had to pay twice.

21.39  The case is interesting in this context, because Gough was actually unable to complete the vessel without financial assistance from Bannister. Cotton LJ accepted this was the case, but did not let that deflect him.58 Brett LJ, however, dissented:59

I am sorry to say that with great hesitation, I differ from the judgment which has been read. I consider the principle involved in this case to be of the highest importance. The defendant and Gough were parties to a contract for building a ship, the price of which was to be paid by instalments at different stages of the building, and the ship was to become the property of the purchaser according to the different times of the payments. Before the ship was finished the builder, through want of funds, became unable to proceed with the work. I do not mean to say that there is any finding that the defendant as purchaser was compelled to take possession of the ship if he did not advance money; but practically, if he did not advance money, the ship would have been thrown upon his hands, and he must have completed the building of the ship, a most onerous charge upon him … It is true that the builder, in consideration of money previously advanced by the plaintiff, made an equitable assignment to him of the money which would become due to him at a following stage, and he afterwards did procure an advance before the appointed time from the defendant, in order to enable him to complete the ship. It is true that the defendant had notice of this so-called equitable assignment; but it was a matter between the builder of the ship and a third person, (p. 533) over which the defendant, the purchaser of the ship, had no control; and the question is whether we are to allow an equitable doctrine to hamper and impede an ordinary business transaction. I cannot bring myself to agree that, either by virtue of the Judicature Act or otherwise, business transactions are to be hampered by any doctrine which will prevent a man from doing what he otherwise might do, merely because something has happened between other parties.

21.40  Brett LJ’s dissent underlines very clearly the dangers and unfairness that can exist for the promisor where the promisee assigns the benefit of the promise that has been made to him to a third party.60 This case illustrates that the other party to the contract may be severely prejudiced by the assignment by his contractual counterparty of a right under the contract. The party will be obliged to perform his obligation to the assignee, and this may prejudice him in his position quoad the assignor.

21.41  These dangers were very apparent to Megarry V-C and led to him formulating his so-called ‘pure principle of benefit and burden’ in Tito v Waddell (No 2).

The pure principle of benefit and burden

21.42  In Tito v Waddell (No 2),61 Megarry V-C was clearly concerned that ‘if the benefit and burden doctrine is to be given the full width claimed for it, questions must arise on the many instances of assignees of the benefit of a contract not being bound by the burdens of that contract’.62 Megarry V-C sought to restrict the assignee’s ability to take the benefit of the contract without regard to the assignor’s obligation to perform his part of the contract to the debtor. As a result, he articulated a doctrine—which he referred to as the ‘pure principle of benefit and burden’. This principle applied to independent rights and burdens, arising under the same instrument (eg A grants a right to B and by the same instrument B independently covenants with A to do some act). In such cases, according to Megarry V-C, although B is of course bound by his covenant, questions might arise as to whether successors in title to B’s right could take it free from the obligations of B’s covenant, or whether they were bound by them.

21.43  This principle of benefit and burden does not appear to represent English law today, for it has been dismissed in a number of subsequent cases. Nevertheless, the principle as articulated by Megarry V-C is worth noting, together with the subsequent case law. Having considered the authorities, Megarry V-C came to the following conclusions regarding the pure principle of benefit and burden:63

First, for the reasons I have given, I think that there is ample authority for holding that there has become established in the law what I have called the pure principle of benefit and burden. Second, I also think that this principle is distinct from the conditional benefit cases … Third, it is a question of construction of the instrument or transaction, depending on the intention that has been manifested in it, whether or not it has created a conditional benefit … If it has, that is an end of the matter: if it has not, and the benefit and burden are independent, questions of pure principle of benefit and burden may arise … Fourth, the application of the benefit and burden principle will normally come later than the question of construction. If (p. 534) the initial transaction has created benefits and burdens which, on its true construction are distinct, the question whether a person who is not an original party can take one without the other will prima facie depend upon the circumstances in which he comes into the transaction. If, for instance, all that is assigned to him is the benefit of a contract, and the assignor, who is a party to the contract, undertakes to continue to discharge the burdens of it, it would be remarkable if it were to be held that the assignee could not take the benefit without assuming the burden. The circumstances show that the assignee was intended to take only the benefit, and that the burden was intended to be borne in the same way as it had been borne previously.

On the other hand, if the assignee takes as a purported assignee of the whole contract from a company which is on the point of going into liquidation, he undertaking to discharge all the burdens and to indemnify the company, then, unless the benefit and burden principle is to be rejected in its entirety, I would have thought that the circumstances showed that he was not intended to take the benefit without also assuming the burdens, and that the result would accord with the intention, vis-à-vis not only the company but also the persons entitled to enforce those burdens. No doubt the terms of any relevant document would be of major importance: but I would regard the matter as one which has to be determined from the surrounding circumstances as a whole. One possible way of looking at it is to regard the subsequent transaction as doing what the initial transaction did not, namely, annex the burden to the benefit so that the one could not be taken free from the other: but there are difficulties in this.

Fifth, a problem that is unsolved (and, it seems, unconsidered) is that of who falls within the benefit and burden principle. In the old forms of the rule there was no difficulty; a person named as a party to a deed, or a person granted an estate by a deed, could be identified without difficulty. But when the rule came to be stated in the form of ‘a person’ or ‘a man’ who takes the benefit of a deed, the answer is not so obvious. Plainly, this is wider than merely those named in the original instrument, but equally plainly it cannot sensibly mean anyone in the world.

21.44  Plainly, the pure principle of benefit and burden as formulated by Megarry V-C is a doctrine of highly uncertain scope. The concept of a conditional benefit is one that (even if difficult to apply in practice) is conceptually clear. The pure principle appears to involve some kind of linkage between benefits and burdens based on the parties’ intentions and the circumstances of the transaction falling short of contractual agreement. But it is difficult to see the need for a doctrine of such uncertain scope, when there is the possibility—if the parties so wish—of the sort of tripartite agreement mentioned by Neil LJ and Lord Woolf in Pan Ocean Shipping.

21.45  This has been the view of the courts in subsequent decisions. In Rhone v Stephens,64 the House of Lords considered the principle. Lord Templeman held:65

I am not prepared to recognise the ‘pure principle’ that any party deriving any benefit from a conveyance must accept any burden in the same conveyance. Sir Robert Megarry V-C relied on the decision of Upjohn J in Halsall v Brizell [1957] Ch 169. In that case the defendant’s predecessor in title had been granted the right to use the estate roads and sewers and had covenanted to pay a due proportion for the maintenance of these facilities. It was held that the defendant could not exercise the rights without paying his costs of ensuring that they could be exercised. Conditions can be attached to the exercise of a power in express terms or by implication. Halsall v Brizell was just such a case and I have no difficulty in wholeheartedly agreeing with the decision. It does not follow that any condition can be rendered enforceable by attaching it to a right nor does it follow that every burden imposed by a conveyance may be enforced by depriving the covenantor’s successor in title of every benefit which he enjoyed thereunder. The condition must be relevant to the exercise of the right. In Halsall v Brizell(p. 535) there were reciprocal benefits and burdens enjoyed by the users of the roads and sewers. In the present case clause 2 of the 1960 conveyance imposes reciprocal benefits and burdens of support but clause 3 which imposed an obligation to repair the roof is an independent provision. In Halsall v Brizell the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money. In the present case the owners of Walford House could not in theory or in practice be deprived of the benefit of the mutual rights of support if they failed to repair the roof.

21.46  Megarry V-C’s approach and Lord Templeman’s speech in Rhone v Stephens received further consideration in Thamesmead Town Ltd v Allotey.66 Peter Gibson LJ stated:

It is apparent therefore that the House of Lords considered Halsall v Brizell not to be an example of the pure principle of benefit and burden, which principle was rejected, but one falling into the Vice-Chancellor’s second category of conditional benefit.

The reasoning of Lord Templeman suggests that there are two requirements for the enforceability of a positive covenant against a successor in title to the covenantor. The first is that the condition of discharging the burden must be relevant to the exercise of the rights that enable the benefit to be obtained. In Rhone v Stephens the mutual obligation of support was unrelated to and independent of the covenant to maintain the roof. The second is that the successors in title must have the opportunity to choose whether to take the benefit or, having taken it, to renounce it, even if only in theory, and thereby to escape the burden and that the successors in title can be deprived of the benefit if they fail to assume the burden. On both these grounds Halsall v Brizell was distinguished. Although Lord Templeman expressed his wholehearted agreement with Upjohn J’s decision, Lord Templeman’s description of that decision was limited to the defendant being unable to exercise the rights to use the estate roads and to use the sewers without paying his costs of ensuring that they could be exercised. Nothing was expressly said about the cost of maintaining the sea wall or promenade and it is a little difficult to see how, consistently with Lord Templeman’s reasoning and, in particular, the second requirement for the enforceability of a positive covenant, the cost of maintaining the sea wall would fall within the relevant principle.

Lord Templeman was plainly seeking to restrict, not enlarge, the scope of the exception from the rule that positive covenants affecting freehold land are not directly enforceable except against the original covenantor. Lord Templeman treated Halsall v Brizell as a case where the right to use the estate roads and sewers was conditional on a payment of a due proportion of the maintenance expenses for those facilities. While agreeing with the decision, Lord Templeman made clear that for a burden to be enforceable it must be relevant to the benefit. He said that simply to attach a right to a condition for payment would not render that condition enforceable. Similarly, it is not possible to enforce every burden in a conveyance by depriving the covenantor’s successors in title of every benefit that he enjoyed under the conveyance. There must be a correlation between the burden and the benefit that the successor has chosen to take. Lord Templeman plainly rejected the notion that taking a benefit under a conveyance was sufficient to make every burden of the conveyance enforceable. Further, there is no authority to suggest that any benefit obtained by a successor in title, once the property has been transferred to him, to enable the enforcement of a burden under the conveyance is sufficient, even if that benefit was not conferred as of right by the conveyance. In my judgment, it cannot be sufficient that the taking of an incidental benefit should enable the enforcement of a burden against a person who has not himself covenanted to undertake the particular burden. Lord Templeman’s reference to rights and power suggests that the successor in title must be able as of right to obtain the relevant benefit.

(p. 536) The recent authorities

21.47  This line of case law on conditional benefits was further examined by the Court of Appeal in Davies v Jones [2009] EWCA Civ 1164. Sir Andrew Morritt C, giving the leading judgment, concluded that Rhone v Stephens and Thamesmead Town v Allotey established the following propositions:

  1. (1)  The benefit and burden must be conferred in or by the same transaction. In the case of benefits and burdens in relation to land it is almost inevitable that the transaction in question will be effected by one or more deeds or other documents.

  2. (2)  The receipt or enjoyment of the benefit must be relevant to the imposition of the burden in the sense that the former must be conditional on or reciprocal to the latter. Whether that requirement is satisfied is a question of construction of the deeds or other documents where the question arises in the case of land or the terms of the transaction, if not reduced to writing, in other cases. In each case it will depend on the express terms of the transaction and any implications to be derived from them.

  3. (3)  The person on whom the burden is alleged to have been imposed must have or have had the opportunity of rejecting or disclaiming the benefit, not merely the right to receive the benefit.

21.48  Sir Andrew Morritt C then applied these propositions to the facts of the case before him. The question was whether the second defendant, who had taken an assignment from the first defendant of the right to receive monies under a building contract, had also impliedly taken upon itself the obligation to complete the site works for which that payment was to be made. The conclusion of Sir Andrew Morritt C was that, on a true construction of the written agreements between the parties, the assignee had undertaken no such obligation. Accordingly, the assignor remained contractually bound to the claimant to complete the works, even though the right to payment for those works had passed to the assignee (the second defendant). However, the judgment emphasized that such a burden could have been effectively transferred if the obligation to complete the works had been made an express condition of the assigned right to receive payment.

21.49  Two recent Court of Appeal cases have further elaborated upon these principles. In Wilkinson v Kerdene,67 the landlord of a holiday village in Cornwall sought contributions from the owners of numerous bungalows towards the costs of various repairs and renovations. Most of the bungalow owners were successors in title to the original owners, often through complex chains of conveyancing transactions, and they argued that they were no longer bound by the original owner’s covenants to make payments towards repairs. Rejecting that argument, the Court found that the case turned on a short point: was there a ‘sufficient degree of correlation between the covenant to pay and the grant of relevant property rights’ to mean that burden of the payment covenant could be enforced against successors in title with whom there was neither privity of contract nor privity of estate.68 On the facts, Patten LJ held that there was such a correlation, even if this had not been expressly set out in the original land sale agreements.

21.50  The subsequent case of Elwood v Goodman69 raised similar factual issues. The owner (D) of an industrial estate sold the units to a consortium of tenants. Prior to the sale, D sold (p. 537) other land on the estate to a third party (E), but reserved a right of way over the road on that land, and entered into certain mutual covenants as to the maintenance of the road and D’s liability to pay a contribution towards the same. When the sale of the industrial units later completed, a dispute arose as to the liability of the consortium of tenants to pay maintenance contributions. Again giving the lead judgment, Patten LJ cited Wilkinson v Kerdene for the proposition that ‘the requirement for the rights to be conditional on the performance of the payment obligations is a matter of substance rather than form’, and held that there was a ‘clear and obvious link’ between the two.70 He also noted that counsel had raised a novel point: whether the burden in equity of a positive covenant requires registration in order to bind successors in title. In his view, this was not required; E had no more than a personal (as opposed to proprietary) right to enforce the covenant in equity.71

Conditional fee agreements: an exceptional case?

21.51  Although the higher courts have considered the doctrine of conditional benefits on a number of occasions, it remains a source of controversy. This is partly because it gives rise to difficult questions of contractual construction. However, in recent years a more fundamental point has been raised in relation to the (attempted) assignment of both the benefits and burdens of solicitors’ conditional fee agreements (‘CFAs’). The courts have been called upon to consider whether solicitors can rely on the conditional benefits principle to assign all of the benefits and burdens under their CFA retainer to another firm, or whether this necessarily amounts to a novation. This point, which might appear to be of merely academic interest, is crucial to the recoverability of costs under the CFA and has given rise to a very large body of conflicting case law in the lower courts.72

21.52  The point first arose for determination in Jenkins v Young Bros Transport,73 on account of an opportunistic argument advanced by the defendant at the costs stage. The claimant had brought a personal injuries claim and had entered into a CFA with a firm of solicitors. He grew to trust the work of the solicitor in charge of the file, and when she moved firms on two occasions during the litigation he sought to transfer his CFA so that he could be represented by her at her new firm. In due course the claim was successful, and the parties turned to the question of costs. However, the defendant argued that each of the attempted ‘assignments’ was invalid, such that none of the costs incurred by the new firms were contractually due (and so were not recoverable from the defendant). Rejecting that argument, Rafferty J held that the CFA was assignable under the conditional benefits principle; the benefit of being paid was conditional upon, and inextricably linked to, the meeting by the original firm of its burden to represent the claimant.74 This meant that all of the claimant’s costs were recoverable.

(p. 538) 21.53  On the facts of that case, this was plainly a meritorious result. However, the judge’s reasoning was not as full as it might have been. The fact that payment was conditional on performance is a feature of most services contracts, and so did not represent per se a special feature of the CFA. Perhaps for this reason, Sir Andrew Morritt C noted of this decision in Davies v Jones that ‘I have some doubt whether the relevant benefit and burden were correctly described’ (although he did not suggest that the case had been wrongly decided).75 Nonetheless, for the better part of the next decade, Jenkins was widely assumed to be good law.76

21.54  Still, the assignability of CFAs has recently gained new importance following the Jackson Reforms to civil litigation funding. These Reforms introduced fundamental changes to the statutory regime for CFAs by way of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (‘LASPO’). Crucially, s 44 of LASPO (together with the CFA Order 2013) abolished the recovery of any success fee higher than 25 per cent, a rule that applied to all CFAs entered after 1 April 2013; any CFA that materially breached this requirement was to be deemed incurably unenforceable.77 These changes had a profound impact on the personal injury litigation market, because many small firms considered that they could no longer afford to take on personal injury cases. The result was that those small firms sold their case portfolios to larger firms and ceased practice. Accordingly, very substantial numbers of CFAs were assigned between solicitors in 2013 and 2014 on the assumption that such assignments were legally valid.

21.55  It was only later that difficulties with this practice arose. As the assigned cases came to be determined and adverse costs sought, defendants began to argue that the transfers of these CFAs were not assignments at all, but novations. This had an important impact: if the assignments were in fact novations, then they would amount to new contracts entered into after 1 April 2013 and would be incurably unenforceable. In turn, this would mean that firms had worked on the assigned cases for several years without any right to remuneration. The result was a flurry of decisions in late 2015 and 2016 that grappled with whether Jenkins was distinguishable as an exceptional case (and reached differing conclusions on this point).78 One of those cases was Budana v Leeds Teaching Hospitals NHS Trust, which was appealed directly to the Court of Appeal as a test case.

21.56  The appeal was heard in July 2017, with the Law Society intervening to argue in favour of the assignability of CFAs. The parties’ core arguments were as follows:

  1. (1)  The appellant and the Law Society focussed on the principle of freedom of contract. Where debtor, assignor, and assignee all agree that the original contract (between obligor and assignor) will be kept alive, but that the assignor’s rights and obligations will be transferred to the assignee, then they should be entitled to achieve this. Further, if the conditional benefit principle can apply to some contractual burdens, why can the parties not stipulate that it applies to all of the burdens under a contract (provided the benefits and burdens are sufficiently correlated)? Finally, they highlighted the many (p. 539) policy reasons why solicitors should be able to transfer existing CFAs, for the benefit of both themselves and their clients.

  2. (2)  The respondent argued that where one party to a contract is substituted for another, this is always a novation. The reason is that the original contract cannot be said to remain in existence following such a substitution; that was the orthodox position, supported by long-established authority. Further, the test was one of substance and not form: it was immaterial that the parties had described the arrangement as an assignment, if what in fact had been achieved was a substitution by way of novation. Finally, it was suggested that the appellant (and her solicitors) could have taken other steps to protect themselves from the invalidity of the assignment.

21.57  The Court of Appeal’s judgment was received as this edition went to press. On the two principal questions, it decided that: (i) a novation had taken place, but (ii) this was not a new CFA for the purposes s 44 of LASPO. As to the second question, the Court was unanimous that a purposive construction was appropriate. However, the Court was divided on the first question. Giving the lead judgment, Gloster LJ held that the substitution of one firm of solicitors for another must amount to a novation, and drew a parallel with the position under a syndicated loan agreement.79 Beatson LJ agreed with that analysis, observing that where burdens under a contract are assigned with the consent of all parties then this amounted to a novation, otherwise ‘any contract will in principle be assignable and the doctrine of novation will be made redundant’.80 Both considered that the conditional benefits rule was inapplicable.81

21.58  However, Davis LJ came to the opposite conclusion. In his view, the question was one of contractual freedom, whether or not framed in the context of the conditional benefit rule. He concluded that:82

. . . in the last analysis, it comes down to what the parties intended and agreed in this context of seeking to transfer a CFA. They agreed—claimant, BR, NH—on an assignment of the BR CFA and intended that it, and its provisions, should be preserved, not replaced. I do not see that the law then compels the result nevertheless to be an entirely new replacement contract, by way of novation, wholly superseding the original CFA and thereby controverting the parties’ intentions and agreement.

21.59  In short, quite apart from the conditional benefit rule, the Court of Appeal was split on a more fundamental question: whether it is ever possible under English law for one party to be substituted for another under a contract such that the original contract is preserved (and not novated). Given the decision of the majority in Budana, the answer must be that it cannot; this is the orthodox position. However, the strong dissenting judgment of Davis LJ suggests that there is scope to develop the point before the higher courts in future. It is also an invitation to academics to consider afresh why, at root, English law does not tolerate the transfer of burdens.

Footnotes:

1  Even gifts can be disclaimed by a donee.

2  The doctrine of vicarious performance may allow A to procure the performance of his obligation to B by third party C: see Section F of Chapter 5. But B will have no contractual rights of action against C, and A will remain liable to B.

3  As to novations, see Section F of Chapter 5.

5  See generally Megarry & Wade 2012, [13-055], [24-002]–[24-003]; Gray & Gray 2011, [6-035]ff.

6  Lysaght v Edwards (1876) 2 ChD 499 (ChD), 506 (per Jessell MR); Re Birmingham deceased [1959] Ch 523 (ChD), 528–9 (per Upjohn J).

7  Winter v Lord Anson (1827) 3 Russ 488, 490–1, 38 ER 658, 659–60 (per Lord Lyndhurst LC); Bridges v Mees [1957] 1 Ch 475 (ChD), 484 (per Harman J); Hewitt v Court (1982) 149 CLR 639 (HC Australia), 645. The lien secures only payment of the purchase money, as distinct from the performance of other contractual obligations which are not expressed in money: Gracegrove Estates Ltd v Boateng [1997] EGCS 103 (CA).

8  ie independently of the parties’ agreement or subjective intentions, except in rare cases where the retention of a lien is manifestly inconsistent with the provisions of the contract or with the true nature of the transaction: Gracegrove Estates Ltd v Boateng [1997] EGCS 103 (CA); Barclays Bank plc v Estates & Commercial Ltd [1997] 1 WLR 415 (CA), 421 (per Millett LJ).

9  Barclays Bank plc v Estates & Commercial Ltd [1997] 1 WLR 415 (CA), 419–20 (per Millett LJ).

10  As to the relevant provisions under the Land Registration Act 2002, see Gray & Gray 2011, [6-035]; Harpum & Bignell 2004, [9.7].

11  See generally Megarry & Wade 2012, [32-068]ff; Gray & Gray 2011, [3.4.9]ff. The scope of the doctrine (in particular, its restriction to negative covenants) has been criticized. See, eg, Rhone v Stephens [1994] 2 AC 310 (HL); Gravells 1994.

12  (1848) 2 Ph 774, 41 ER 1143.

13  Re Nisbet and Potts’ Contract [1905] 1 Ch 391 (ChD), 398 (per Farwell J): ‘It is clear therefore that the person entitled to the benefit of the restrictive negative covenant over Blackacre has an equitable interest in Blackacre … ’; Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1996) 141 ALR 687 (Fed Ct Australia), 697; Megarry & Wade 2012, [32-035]. See also the comments of Lord Templeman in Rhone v Stephens [1994] 2 AC 310, 318B that the enforcement of a negative covenant ‘lies in property’.

14  ie all third parties would be bound by the covenant, except a bona fide purchaser for value of a legal estate in the covenantor’s land taking without notice of the covenant. See further paras 27.27–27.41.

15  As to the relevant provisions, see Megarry & Wade 2012, [32-005]; Gray & Gray 2011, [3-090] and [8-052]; Harpum & Bignell 2004, [25.13]–[25.14].

16  [1994] 1 AC 458 (HL), 464.

17  See City of London Corp v Fell [1994] 1 AC 458 (HL), 465 (per Lord Templeman): ‘The system of leasehold tenure requires that the obligations in the lease shall be enforceable throughout the term, whether those obligations are affirmative or negative’.

18  As previously described, this common law test has been superseded by statute: see paras 18.32–18.35.

19  See para 6.25.

20  As previously described, this had one major advantage: the novation approach, adopted by the common law with respect to the transfer of shares, ensured that the transferor of the shares took free of the obligations of a shareholder after the transfer was effected: see para 19.154. By contrast, until the Landlord and Tenant (Covenants) Act 1995, the original parties remained bound by their covenants: see para 18.32.

21  See, in particular, paras 19.153–19.154.

23  [1902] 2 KB 660 (CA).

24  [1902] 2 KB 660 (CA), 668–70.

25  The case was appealed to the House of Lords, [1903] AC 414 (HL), where the traditional rules of benefit and burden were not expressly discussed. Instead, the House of Lords construed the contract as meaning that its benefits and burdens bound both the original contractual parties and their successors and assigns (which in that case included Associated). See, in particular, Lord Macnaghten, [1903] AC 414 (HL), 420 and the discussion at paras 21.21–21.22.

26  [1991] 57 BLR 33 (CA), 52–3.

27  Bingham LJ was obviously pre-supposing the agreement of C to the transfer of the burden.

28  [1903] AC 414 (HL).

29  [1903] AC 414 (HL), 420.

30  Including a requirement that it purchase at least 750 tons of chalk per week from Tolhurst: see [1903] AC 414 (HL), 418.

31  See the discussion at paras 21.52–21.58. In favour of the argument for an assignment is the idea that contracting parties are free to define the rights between themselves however they like; if the rights under a contract are stipulated to be assignable together with certain attendant burdens, then this would engage the conditional benefits principle described at paras 21.23–21.25 (and on one view there is no difference whether the benefits are conditional on performance of one burden, or of all burdens). In favour of the argument for novation is the fact that a substitution of one contractual party for another is conventionally understood as a novation, and it is not obvious how the original contract will remain on foot in such circumstances. However, the decision of the House of Lords in Tolhurst lends support to the view that the original contract can remain effective (such that no novation can have taken place) if expressed to bind a party’s successors and assigns.

32  [1977] Ch 106 (ChD).

33  [1977] Ch 106 (ChD), 290.

34  [1977] Ch 106 (ChD), 290.

35  Tito v Waddell (No 2) [1977] Ch 106 (ChD), 302 (per Megarry V-C): ‘… it is a question of construction of the instrument or transaction, depending on the intention that has been manifested in it, whether or not it has created a conditional benefit’.

36  [1999] 2 All ER (Comm) 899 (QBD).

37  [1999] 2 All ER (Comm) 899 (QBD), 917. See also Youell v Kara Mara Shipping [2000] 2 Lloyd’s Rep 102 (QBD); Donoghue v Armco [2002] 1 Lloyd’s Rep 425 (HL), [7] (per Lord Bingham); Joseph 2015, [7.15]–[7.18].

38  This is so even when exclusive jurisdiction is conferred by Art 25 of Council Regulation No 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels Regulation Recast), which refers to an agreement of ‘the parties’. See Partenreederei ms Tilly Russ and Ernest Russ v NV Haven- & Vervoerbedrijf Nova and NV Goeminne Hout Case C-71/83, [1984] ECR 2417 (ECJ). [24]–[25]; Coreck Maritime GmbH v Handelsveem Bv, Case C-387/98, [2000] ECR 1–9337 (ECJ), [23]–[27]; Trasporti Castelletti Spedizioni Internazionali Spa v Hugo Trumpy Case C-159/97, [1999] ECR 1–1597; WPP Holdings Italy SrL v Benatti [2006] 2 Lloyd’s Rep 610, 102 (per Field J); (ECJ) See also the judgment of Schiemann LJ in Firswood Ltd v Petra Bank [1996] CLC 608, 617; also Glencore International v Metro Trading Inc [1999] 2 All ER (Comm) 899 (QBD); Joseph 2015, [7.19]–[7.25].

39  Shayler v Woolf [1946] Ch 320 (CA), 322–3 (per Greene MR); Baytur SA v Finagro Holding SA [1991] 4 All ER 129 (CA).

40  See: The Jordan Nicolov [1990] 2 Lloyd’s Rep 11 (QBD), 15–16 (per Hobhouse J); Schiffahrtsgesellschaft Detlev von Appen GmbH v Voest Alpine Intertrading GmbH [1997] 2 Lloyd’s Rep 279 (CA), 284–5, 286 (per Hobhouse LJ) and 291 (per Scott V-C); West Tankers Inc v Ras Riunione Adriatica di Sicurta [2005] EWHC 454 (Comm); Joseph 2015, [7.08]–[7.13].

41  See the decision of the Singapore High Court in Cassa di Risparmio v Rals International Pte Ltd [2015] SGHC 264, [109]–[113] (per Coomaraswamy J); and particularly the subsequent decision of the Court of Appeal: [2016] 5 SLR, [54]–[56] (per Prakash JA). In that case, the Court of Appeal was concerned by the doctrine of privity: however, if the relevant contractual right is understood as a right in respect of which the debtor has agreed to arbitrate, and if the exercise (or, arguably, even the receipt) of that right by the assignee is predicated on its agreement to arbitrate, then there is no reason why an agreement to arbitrate should not be held to exist between debtor and assignee. Compare also the decision in Baytur SA v Finagro Holding SA [1992] 1 QB 610, 618 (per Lloyd LJ).

42  As to which, see Chapter 17.

43  See MacGillivray 2015, [22-009].

44  [1967] 2 Lloyd’s Rep 51 (QBD).

45  [1967] 2 Lloyd’s Rep 51 (QBD), 60.

46  There are various different types of exclusion clause, as described by Chitty 2015, [15-003]. All, however, have the fundamental characteristic of limiting the right under the contract, as opposed to imposing an obligation.

47  [1977] Ch 106 (ChD), 296–9.

48  The analysis in none of these cases is especially clear. Moreover, the cases concerned leases and—as has been seen—very different rules apply so far as the transfer of obligations touching and concerning the land are concerned. It must be doubted whether these cases can amount to a very good guide as to the scope of the conditional benefit doctrine.

49  [1977] Ch 106 (ChD), 297.

50  [1994] 1 WLR 161 (HL).

51  [1994] 1 WLR 161 (HL), 168.

52  [1994] 1 WLR 161 (HL), 165–6. Lord Woolf reached a similar conclusion, 168–9.

53  [1993] 1 Lloyd’s Rep (CA), 443.

54  It should not be forgotten that such commercial considerations are likely to be relevant to the establishment of contractual intention. But this does not appear to have driven the reasoning of their Lordships.

55  [1993] 1 Lloyd’s Rep 443 (CA), 449 (per Neill LJ), quoted in [1994] 1 WLR 161 (HL), 166 (per Lord Goff).

56  Thus, the fact that the assignment in this case contained an assurance that there was no set-off or counterclaim, is nothing to the point: the assignee would obviously have, as a result, a claim for breach of contract against the assignor. But that could not affect any claim the debtor had against him.

57  (1878) 3 QBD 569 (QBD, CA).

58  (1878) 3 QBD 569 (QBD, CA), 577–8.

59  (1878) 3 QBD 569 (QBD, CA), 578–9.

60  Such difficulties were adverted to by Collins MR in Tolhurst v The Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 KB 660 (CA), 668–9. Collins MR appeared to consider that the ability to assign the benefit of a contract should be confined to cases where the contract had been fully executed by the promisee and only performance from the promisor remained.

61  [1977] Ch 106 (ChD).

62  [1977] Ch 106 (ChD), 299.

63  [1977] Ch 106 (ChD), 302.

64  [1994] 2 AC 310 (HL).

65  [1994] 2 AC 310 (HL), 322.

66  [1998] EG 161 (CA).

67  [2013] EWCA Civ 44.

68  [2013] EWCA Civ 44, [14] (per Patten LJ). Note that Patten LJ also highlighted the third condition set out in Davies v Jones, namely that ‘[t]he defendant must also be theoretically at liberty to disavow any use of the benefit of the property rights as a condition of renouncing the burden of payment.’

69  [2014] Ch 442.

70  [2014] Ch 442, [28].

71  [2014] Ch 442, [35]–[36].

72  See Jones v Spire Healthcare Ltd, Unreported, 11 September 2015 (District Judge Jenkinson); successfully appealed in [2016] 3 Costs LO 487 (Judge Graham Wood QC); Webb v Bromley LBC, Unreported, 18 February 2016 (Master Rowley); Sanders v Barnsley Hospital NHS Foundation Trust, Unreported, 8 June 2016 (District Judge Baddeley); Azim v Tradewise Insurance Services Limited, Unreported, 22 August 2016 (Master Leonard); Griffith v Paragon Personal Finance Ltd, Unreported, 17 October 2016 (District Judge Baddeley). See also Budana v Leeds Teaching Hospitals NHS Trust, Unreported, 4 February 2016 (District Judge Besford), which is currently the subject of a leapfrog appeal to the Court of Appeal as a test case (heard in July 2017, and with judgment awaited).

73  [2006] 1 WLR 3189.

74  [2006] 1 WLR 3189, [28]–[32].

75  [2010] 1 EGLR,67 [25].

76  See eg Cook on Costs 2013, [45.37]; Cook on Costs 2017, [5.16].

77  Pursuant to s 58 of the Courts and Legal Services Act 1990; see Hollins v Russell [2003] 1 WLR 2487.

78  See fn 71.

79  [2017] EWCA Civ 1980, [71].

80  [2017] EWCA Civ 1980, [118].

81  [2017] EWCA Civ 1980, [62] and [117]. Note that Gloster LJ held that the principle is ‘a rule of limited scope’: [62(vi)].

82  [2017] EWCA Civ 1980, [102]. Note that Davis LJ was willing to extend the conditional benefits principle in this context, although he suggested it may not be necessary: [98].