+44(0)20 7638 9271

Articles

Articles

Prohibitions on assignment and a victory for the Shorter Trial Scheme

The recent Commercial Court judgment in National Bank of Abu Dhabi PJSC v BP Oil International Limited [2016] EWHC 2892 (Comm) provides a useful summary of the key legal principles governing the effectiveness of assignments of contracts that are subject to prohibition clauses as well as representing a success for the Shorter Trial Scheme pilot (the STS).

As a result of the case being managed in accordance with the STS this substantial claim for over $70 million took just 8 months from the claim being issued on 4 March 2016 to judgment being handed down on 18 November 2016.   

The Shorter Trial Scheme

The STS was introduced on 1 October 2015 and is set to run to 30 September 2018. The scheme is applicable to wide range of civil cases brought in the Rolls Building including business cases in the Chancery Division (including the Patent Court and Companies Court), the Commercial Court, the London Mercantile Court and the Technology and Construction Court. The scheme has been inspired by similar schemes introduced in Australia and from the success of Intellectual Property Enterprise Court where, in appropriate cases, abridged procedural process and greater court control have resulted in significantly reducing litigation time scales and costs for litigants.

The overall aim of the STS, and its sister scheme the Flexible Trial Scheme, are stated in the applicable Procedure Guide to be: “to achieve shorter and earlier trials for business related litigation, at a reasonable and proportionate cost”. The schemes have an ambitious wider objective to: “foster a change in litigation culture, which involves recognition that comprehensive disclosure and a full, oral trial on all issues is often not necessary for justice to be achieved.”

Some of the key aspects of the STS are:

  • generally shorter time scales for exchange of statements of case and compliance with other court directions;
  • strict limitations on the length of statements of case and witness statements;
  • interim applications generally dealt with without a hearing;
  • key limitations on the scope of disclosure (with no obligation to disclose adverse documents); and
  • trials limited to 4 days including reading in time with limited oral evidence.

In light of these restrictions it is recognised that many cases will not be suitable to be managed under the STS. The relevant Practice Direction specifically identifies cases involving fraud or dishonesty; cases likely to involve extensive disclosure or reliance upon extensive witness or expert evidence; or cases involving multiple parties.

The case 

National Bank of Abu Dhabi PJSC v BP Oil International Limited involved a dispute  focussed on the interpretation of representations and warranties made by BP in a purchase letter entered into by the parties whereby the National Bank of Abu Dhabi (NBAD) had contracted to purchase 95% of the proceeds that BP were to make from the sale of oil to a third party SAMIR. In the purchase letter BP had agreed that it has assigned 95% of the receivable to NBAD and warranted that it was not prohibited from disposing of the receivable by any other agreement. BP also indemnified NBAD if any representation or warranty was breached. In fact in the agreement whereby BP sold the oil to SAMIR there was a prohibition on assignments.

NBAD had paid for the receivable but following the insolvency of SAMIR BP was not able to transfer the receivable to NBAD.

The case involved a single issue of contractual interpretation: whether or not the existence of the prohibition on assignment resulted in the representations given by BP to NBAD being false.

Given that there was no factual dispute between the parties as to what happened and the case turned solely on a question of legal interpretation both parties agreed early on in the claim that the case was suitable for the STS.  There  was very limited disclosure and no witness statements. In her judgment Mrs Justice Carr commended the lawyers of both parties for “the co-operative spirit in which the litigation has been conducted which has resulted in an effective and speedy process, all as envisaged by the Shorter Trials Scheme. (para. 7).   

Finding in favour of NBAD Mrs Justice Carr the judgment provides a useful summary of some important legal principles relating to assignments:

  • a prohibition on assignment prohibition applied to both legal and equitable assignments;
  • a contractual prohibition on the assignment of a debt was not contrary to public policy;
  • an assignment of contractual rights in breach of non-assignment clause is ineffective to vest the contractual rights in the assignee;
  • where assignment is prohibited without the prior consent not to be unreasonably withheld, an assignment made before the debtor’s consent is sought is ineffective; and
  • part of a debt cannot be the subject of a legal assignment but can be the subject of a valid equitable assignment

Conclusion

This case is a useful illustration of how, for the right case, the STS can be an effective alternative to standard litigation procedure in terms of significantly limiting the time and expense of litigation whilst fairly dealing with the dispute.

The decision for litigants of whether to agree that their dispute should be under the STS is a balancing act between the potentially substantial time and cost savings of the STS and the reduced scope for analysis of the dispute and consideration of evidence, which litigants may feel risk prejudicing their chances of being ultimately successful at trial.  Managing the costs of litigation is always a challenge for the parties and their lawyers but for the right case this scheme could provide an option  well worth considering.

For further information please contact Charles Spragge , Max Palmer or your usual contact. 

 This news was posted on 25 November 2016.

Share this article: