• In the case of Linden Gardens v Lenesta Sludge [1994] 1 A.C. 85, it was held that the wording of the Standard Form Building Contracts 1963 Clause 17(1) prohibited the assignment of a contract by the employer without the contractor’s consent. A party to this contract might have a genuine commercial interest in ensuring that contractual relations with the selected party are preserved.

Facts of the Case

  • The original leaseholder of a building, entered into a standard form contract with D2 to remove asbestos from the building.
  • Clause 17(1) of the contract states ‘the employer shall not without written consent of the contractor assign this contract.
  • D2 subcontracted their work to D1, who failed to remove all asbestos from the building. The leaseholder then contracted with D3 to remove the asbestos.
  • The original leaseholder then assigned the lease to C and, without any of the D’s consent, assigned the right of action against D2 to C.
  • C found asbestos remained in the building and removed it at their own expense. C sued all Ds for breach of contract.
  • Ds alleged that since the right of action had been assigned by the original leaseholder without their consent, it was invalid and C could not bring action against them.

Issues

  • Was the assignment valid without D’s consent, thereby leaving them liable for damages?

Held by the House of Lords

  • Finding for D, that the wording of Clause 17)1 should be interpreted and upheld by its literal meaning. Without the consent of D, any benefit of the contract and assignment of any entitlement to a cause in action was not passed to C. Thus, C was unable to take advantage of the assignment.

Lord Browne-Wilkinson

  • Clause 17(1) clearly prohibits the assignment of a contract without the consent of the contractor. This is because only the benefit of a contract (entitlement to a cause of action) will be passed on, allowing another party to sue a defendant.
  • “I find it impossible to construe clause 17 as prohibiting only the assignment of rights to future performance, leaving each party free to assign the fruits of the contract. The reason for including the contractual prohibition viewed from the contractor’s point of view must be that the contractor wishes to ensure that he deals, and deals only, with the particular employer with whom he has chosen to enter into a contract. Building contracts are pregnant with disputes: some employers are much more reasonable than others in dealing with such disputes” [105D].
  • The sheer possibility of confusion if a contract could be so easily assigned persuades me that the parties must have intended that the contractor must consent to the contract being assigned to any third party.
  • It was submitted that it is normally unlawful to seek to render property inalienable on grounds of public policy. Since contractual rights are a species of property, it is argued that a prohibition against assigning such rights is void as being illegal.
  • “The House is being invited to change the law by holding that such a prohibition is void as contrary to public policy. For myself I can see no good reason for so doing. Nothing was urged in argument as showing that such a prohibition was contrary to the public interest beyond the fact that such prohibition renders the chose in action inalienable. Certainly, in the context of rights over land the law does not favour restrictions on alienability. But even in relation to land law a prohibition against the assignment of a lease is valid. We were not referred to any English case in which the courts have had to consider restrictions on the alienation of tangible personal property, probably because there are few cases in which there would be any desire to restrict such alienation. In the case of real property there is a defined and limited supply of the commodity, and it has been held contrary to public policy to restrict the free market. But no such reason can apply to contractual rights: there is no public need for a market in choses in action. A party to a building contract, as I have sought to explain, can have a genuine commercial interest in seeking to ensure that he is in contractual relations only with a person whom he has selected as the other party to the contract. In the circumstances, I can see no policy reason why a contractual prohibition on assignment of contractual rights should be held contrary to public policy” [107B].

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