61

ASSIGNMENTSANDTRANSFERSOF CONTRACTUALDUTIES:INTEGRATING THEORYANDPRACTICE

JustineKirby*

Whilecontractualrightsareusuallyassignable,theextenttowhichcontractualobligationsmay be"assigned"orotherwise"transferred"isunclear.Inthisarticle,JustineKirbyexaminesthe common law, section 11 of the Contractual Remedies Act 1979, and accepted methods of "transferring"obligations,andthencomparestheeffectsofapurportedassignmentofobligations underNewZealand,EnglishandUnitedStateslaw.Shearguesthatthelawshouldbeclarified, andoffersdraftingsuggestionstolawyerstogiveeffecttoparties'intentionswhilethelawremains uncertain.

INTRODUCTION

Commercial lawyers deal with the transfer of contracts, contractual rights and contractualobligationsasamatterofcourse.Yetthelawontheassignmentortransferof contractual obligations is far from clear due toissues arising atcommon law, under statutory provisions and from the drafting of assignment provisions and related documents. InPartII,thisarticleexaminestheassignmentofcontractualobligationsatcommon law,theeffectofsection11oftheContractualRemediesAct1979,andspecificstatutory transfers,andinPartIII,setsoutacceptedmethodsof"transferring"obligations. InPart IV, it then analyses the purported assignment of obligations by comparing the NewZealand, English and United States law and Part V focusses specifically on contractualprovisionspurportingtoenableapartytotransfercontractualobligationsin the future. Finally, Part VI offers drafting suggestions to parties wishing to transfer contractualobligations(ortoretaintherighttodosoinfuture).

LLB(Hons)BCom(Canterbury),LLM(Harvard);Associate,Debevoise&Plimpton,New York. This article was written while the author was a Senior Solicitor at Chapman Tripp, Wellington.

62

(2000)31VUWLR

II

ASSIGNORSCANASSIGNONLYCONTRACTUALRIGHTS

A GeneralPrinciple Incontractlaw,anassignmentinvolvesan"assignor"transferring1 someorallofits rights under a contract to an "assignee", so that the assignee is entitled to the correspondingperformancedirectlyfrom,andcanenforcethoserightsagainst,2 thenon assigningparty.3 Anassignmentinitselfdoesnotcreateacontractbetweentheassignee andthenonassigningpartynordoesitmaketheassigneeapartytotheoriginalcontract. 4 Showndiagrammatically:5

1 2

Thisarticledoesnotdiscussthemethodsofassignmentunders130(1)ofthePropertyLaw Act1952orinequity. Theassignee'srighttoseekremediesfromthenonassigningpartyissubjecttothetermsof thecontractbetweentheassignorandnonassigningparty:s11(1)oftheContractualRemedies Act1979. Theassignor and assignee usually do notneed thenonassigningparty's consent to the assignment(unless,forexample,thecontractprohibitstheassignmentofrightswithoutconsent, or the rights and corresponding obligations are of such a personal nature that the parties' intentionisthattherightsarenotassignablesuchasinKempvBaerselman[1906]2KB604(CA)). GibbstonValleyEstateLimitedvOwen(2June1999)unreported,CourtofAppeal,CA175/98, 8;(1999)4NZCom193,024[GibbstonValley]. Theelementsneededforacontractbetweenthe assigneeandnonassigningpartydonotexist(forexamplethereisnomeetingofthemindsofthe assigneeandnonassigningparty,andnoconsideration). The diagrams in this article use unbroken lines for contractual rights/obligations and brokenlinesforothermatters.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

63

Thegeneralprincipleisthatwhileapartymayusuallyassignitscontractualrights(or "benefits") it may not assign its contractual obligations (or "burdens", "duties" or "liabilities")andhence,whilethatpartyhasunperformedobligations,itcannotassigna contractasawhole.6Thisprotectstheinterestsofthenonassigningparty:7
[a]nyonewhoisboundtoanyperformancewhateverorwhoowesmoneycannotbyanyact ofhisown,orbyanyactinagreementwithanyotherpersonthanhiscreditorortheoneto whomhisperformanceisdue,castoffhisownliabilityandsubstituteanother'sliability.Ifthis werenottrue,obligorscouldfreethemselvesoftheirobligationsbythesimpleexpedientof assigningthem.

And:8
...AcannotwithouttheconsentofBassigntheburdenofthecontracttoC,becauseBhas contracted for performance by A and he cannot be required against his will to accept performancebyCoranyoneotherthanA.

Thegeneralprinciplealsoprotectstheassignee,bypreventingtheassignorfromimposing contractualobligationsontheassigneewithouttheassignee'sconsent.9 Despitethisgeneralprinciple,commerciallawyersoftenrefertoassigning"acontract". In LindenGardensTrustLimitedvLenestaSludgeDisposalsLimited LordBrowneWilkinson explainedthisasfollows:10

See"ObligationsoftheAssigneeofaBilateralContract"(1929)42HarvLRev941["Bilateral Contract"] (a contract cannot be assigned as it is only a promise creating legal rights and obligations,withonlytherightcreatedbythepromisebeingassignable). CraneIceCreamCovTerminalFreezing&HeatingCo(1925)128A280,283.Inparticular,a party could otherwise transfer its obligations to obliging insolvents: Farnsworth on Contracts (Little,BrownandCompany,Boston,1990)volumeIII,126127[Farnsworth]. CLKnapp&NM Crystal Problems in Contract Law (2 ed, Little, Brown and Company, Boston, 1987) 1133 state, somewhatcolourfully,that"[i]fassigningarightislikepassingafootball,thendelegatingaduty resemblesmorethedisseminationofacatchytuneoracontagiousdisease.Passingitonisnotthe sameasgettingridofit". SouthwayGroupLimited vWolff (1991)57BLR33,52(CA)[SouthwayGroup]. SimilarlyJ Chitty and A G Guest (eds) Chitty on Contracts General Principles (27 ed, Sweet & Maxwell, London,1994)985. 42. MPFurmston"TheAssignmentofContractualBurdens"(1998)13JournalofContractLaw

9 10

Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited [1994] 1 AC 85, 103 (HL). Also,intheCourtofAppealStaughtonLJnotedthat"assign"isoftenusedincorrectlyinrelation tovicariousperformance:LindenGardensTrustLimitedvLenestaSludgeDisposalsLimited(1992)57 BLR66,82(CA).

64

(2000)31VUWLR

Although it is true that the phrase "assign this contract" is not strictly accurate, lawyers frequentlyusethosewordsinaccuratelytodescribeanassignmentofthebenefitofacontract sinceeverylawyerknowsthattheburdenofacontractcannotbeassigned.

Itisnotonlylawyerswhorefertoassigningcontractsasawhole(orboththerightsand obligationsundercontracts):recentNewZealandCourtofAppealjudgmentsalsoreferto assigningobligations.11 SimilarterminologyissuesariseintheUnitedStates,withaleadingtextlamentingthat referencestoassignmentofa"contract"makediscussion"muchconfused"andcallingfor precisionastowhetheraproposedtransferisofacontractualright,obligationorboth.12 B CommonLawQualifications Evenatcommon law,13 therearevariousqualifications tothegeneralprinciplethat contractualobligationsarenotassignable. Anassigneetakesrights"subjecttoequities". 14 In TitovWaddell(No2) MegarryVC, referringtooneaspectofthisprinciple,statedthatanassigneemayobtain"aconditional or qualified right, the condition or qualification being that certain restrictions shall be observedorcertainburdensassumed,suchasanobligationtomakecertainpayments" which are "an intrinsic part of the right".15 More recently, in Rhone v Stephens Lord

11 12

SeebelowPartII,C1.

SWillistenandWJaegar WillistononContracts (3ed,Baker,Voorhis&Co,MountKisco, NewYork,1960),vol3,s407[Williston]. SimilarlyFCWoodward"AssignabilityofContract" (1904)18HarvLRev23,23(thephrase"assignmentofcontract"isoneofnoprecisesignificance), G C Grismore "Is the Assignee of a Contract Liable for the NonPerformance of Delegated Duties?"(1920)18MichLRev284,286(notesthatthecourtshaveused"assignmentofcontract"to referindiscriminatelytosituationsthatarefundamentallydifferent,andarguesthatthatphrase shouldbediscardedentirely); Farnsworth aboven7,125(UnitedStatescourtsoftenfailtouse "assign"withprecision). English texts alsocall forclearterminology. See, forexample, G H Treitel TheLawofContract (8ed,Sweet&Maxwell,London,1991)603604(althoughthephrase "assignmentofliabilities"isoccasionallyused,itishighlymisleadingandshouldbeabandoned). Thisarticlerefersto"commonlaw"inthesenseofnonstatutorylaw.

13 14

Section 130(1) of the Property Law Act 1952, containing a method of assignment, also provides that rights so assigned are "subject to all equities that would have been entitled to priorityovertherightoftheassigneeifthisActhadnotbeenpassed"."Subjecttoequities"means that,iftheassigneeseekstoenforcetheassignedrightsagainstthenonassigningparty,thenon assigningpartycan(asadefence)setupanydefence,setoff,counterclaim(ofcertaintypes)or otheranswerthatitcouldhavesetupagainstaclaimbytheassignoratthetimeitreceivednotice oftheassignment:RogerFentonLawsofNewZealandChosesinAction(Butterworths,Wellington, 1993)paras49and50. TitovWaddell(No2)[1977]Ch106,290[Tito].

15

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

65

Templemanacceptedthatconditionsrelevanttotheexerciseofarightcouldbeattachedto thatrightinexpresstermsorbyimplication.16 Thiscanoccurwhentheassignormustperformcertainobligationspriortoandasa conditionofthenonassigningpartyperformingitsobligations.Aftertheassignorassigns itsrightstotheassignee,theassigneeisinnobetterpositionthantheassignor.Thus,the assignee must perform the assignor's obligations itself (or have someone else do so)17 beforeitcanenforceitsrights against thenonassigningparty. Thisprinciplehasbeen explainedasfollows:18
Thefactthatanassignmentofrightsdoesnotinitselfimposeliabilityforperformanceupon theassignee,doesnotmeanthattheassigneemayenforcethecontractiftheobligationswhich itimposes arenotperformed by eitherthe assigneeorthe assignor. On thecontrary, the assigneetakestherightswithalltheburdenstowhichtherightsweresubjectinthehandsof theassignorandifheundertakestoenforcetherightsbyanaction,hemustshowthatthe conditionshavebeenperformedeitherbyhisassignororbyhimself.

ThisprinciplewasappliedinFieldvFitton,19whereabuyerassigneditsinterestsunder anagreementforsaleandpurchaseofland.TheCourtofAppealheldthattheassignees werenotentitledtohavethelandtransferredtothemasneitherthey(noranyoneelse)had performedtheassignor'sobligationsundertheagreement. Bywayofcontrast,in HEB ContractorsLimitedvVerrissimo20 anassigneewhohadfulfilledtheassignor'sobligations underanagreementforsaleandpurchaseoflandwasgrantedspecificperformanceofthat contract. Thus there is a risk for assignees relying on assigned rights where their ability to enforcethoserightsdependsontheperformanceofobligations(especiallyperformanceby

16 17 18 19 20

RhonevStephens[1994]2AC310,322(HL)[Rhone].

Thisassumesthattheoriginalcontractexpresslyorimpliedlyallowspersonsotherthanthe assignortoperformtheassignor'sobligations:seebelown55. AndersonontheUniform Commercial Code (3ed,TheLawyersCooperativePublishingCo, Rochester(NY),1982)vol2,s2210:64. FieldvFitton [1988]1NZLR482(CA)[Field]. Similarly IsaacConstructionCompanyLtdv McDonald(1998)3NZConvC192,707(CA). HEBContractorsLimitedvVerrissimo[1990]3NZLR754[HEBContractors].

66

(2000)31VUWLR

someoneotherthantheassignee),suchasbankswhoareassigned,assecurityforaloanto theassignor,theassignor'srightsunderanexecutorycontract.21 In Tito,MegarryVCheldthatthereisalsoa"pureprincipleofbenefitandburden" whereby independent burdens pass because "he who takes the benefit must bear the burden".22However,the"pureprinciple"hasbeenrejected.23 C Section11oftheContractualRemediesAct1979 1 Section11(1)referstoassigningcontracts,benefitsandburdens

Inotherjurisdictions,referencestoassigningacontract,orbothcontractualrightsand obligations,canbedismissedassemanticimprecision. InNewZealandsuchreferences may also reflect the uncertainty created by sections 11(1) and 11(2) of the Contractual RemediesAct1979,whichstate:
(1)Subjecttothissection,ifacontract,orthebenefitorburdenofacontract,isassigned,the remediesofdamagesandcancellationshall,excepttotheextentthatitisotherwiseprovided intheassignedcontract,beenforceablebyoragainsttheassignee. (2)Excepttotheextentthatitisotherwiseagreedbytheassigneeorprovidedintheassigned contract,theassigneeshallnotbeliableindamages,whetherbywayofsetoff,counterclaim, orotherwise,inasumexceedingthevalueoftheperformanceoftheassigned contractto whichheisentitledbyvirtueoftheassignment.
21

Furmston,aboven9,44,givestheexampleofacontractorassigningattheoutsethisrightto paymentsunderacontractunderwhichthecontractoristoconstructabuilding.Furmstonstates that"itseemsverydoubtfulwhetherthecontractcaneffectivelyseparatetherighttobepaidfrom thedutytoputupthebuilding,soastotransfertherighttobepaidtohisbankandleavethe dutytoputupthebuildingunaffected"and"althoughtheburdenofperformingthecontractis stillonthecontractor,itisalsoinsomesenseonthebank,totheextentthattheworkisdone defectivelyorlate".SeeBatavianBankvMinneapolisStP&SSMRyCo(1904)101NW687where anassigneebank,topreventitsrighttoreceivefundsbeingsubjecttosetoffs,obtainedadirect acknowledgementfromthenonassigningpartythatitwastopaythebankandthatitcouldonly deductcertaintypesofchargesfromsuchpayments. Titoaboven15,292and302.

22 23

See Rhone aboven16,322and GovernmentInsuranceOffice(NSW)vKAReedServicesPty Limited[1988]VR829,841(FullCourtoftheSupremeCourtofVictoria)whereBrookingJstated thatthe"pureprinciple" is"founded uponauthoritythatwillnotsustainitandatoddswith settledandfundamentalrules". However,seeCJDavis"ThePrincipleofBenefitandBurden" [1998]CLJ522,523,540and547whoarguesthatthereisanestablishedprincipleofbenefitand burdeninEnglishlaw,thatinmanyrespectsthisprincipleissimplyanextensionofconditional rights,andthatperhapsMegarryVConlyfounditnecessarytocallitanewprinciplebecausehe tookarestrictiveapproachtoconditionalrights.SomeUnitedStatescasesineffectadoptthepure principle:see,belownn88and93.WhilesomeNewZealandjudgmentsreferingeneraltermsto assigneesofrightsalsohavingtobearobligations,itissubmittedthat,readincontext,theserefer toconditionalrightsratherthanendorsingthe"pureprinciple." See,forexample, Field aboven 19,492andGibbstonValleyaboven4,10perTippingJ.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

67

[Emphasisadded.]

Thecourtshavenotdefinitivelyinterpretedsection11insofarasitrelatestoassigning obligations.24Thereareatleastthreepossibleinterpretations. Thefirstinterpretation(favouredbytheauthor)assumesthat,whilebusinesspeople, lawyersandevencourtssometimeslooselyrefertoassigning"acontract"(orbothrights andobligations),25itisunlikelythatalegislativedrafterwoulddeliberatelyuseinaccurate language.26 Thus,section11(1)appearstohavebeendraftedonthemistakenassumption that parties can assign contractual obligations (and hence contracts as a whole). Furthermore,thelanguageusedinsection11(1)(thatis,"if"acontract,benefitorburdenis assigned)meansthatsection11(1)doesnotenableobligationstobeassigned,butonly deals with the consequences if they are assigned. Thus, in accordance with the view expressedinvarioustexts,27 thereferenceinsection11(1)toassigningthe"burdenofa contract"hasnoeffect. AsecondinterpretationwassuggestedintherecentCourtofAppealcaseofGibbston Valley Estate Limited v Owen.28 Given their other findings, Henry and Blanchard JJ consideredthatitwas"unnecessarytoexpressaconcludedviewuponthemeaningand
24

In GibbstonValley aboven4,8,HenryandBlanchardJJstatedthats11(1)"doesnotyet appear to have been the subject of judicial attention". Decisions referring to assignment of a "contract"unders11donotturnonwhetherpartiescanassigncontractualobligations. Seefor exampleAdamsFabricsvMonk (2May1989)unreported,HighCourt,ChristchurchRegistry,CP 189/87. In Waimate Land Development Limited v Morven Glenavy Ikawai Irrigation Co Limited (7 March 1996) unreported, High Court, Timaru Registry, CP 7/93 (appeal allowed on other grounds:(28October1997)unreported,CourtofAppeal,CA250/96),wheretheassignabilityof obligationswasinissue,thepointwasarguedbutleftopen.Thereportsleadingtotheenactment oftheContractualRemediesAct1979donotexplainwhatismeantbythe"burdenofacontract": "MisrepresentationandBreachofContract",ReportoftheContractsandCommercialLawReform CommitteepresentedtotheMinisterofJusticeinMarch1967,[CCLReport]andFurtherReport onMisrepresentationandBreachofContract,January1978. Thusitmaybeappropriatetogive meaning tosuchlanguagewhenusedintransactions: seebelowPartsIVBandV,andbelown113. Another possible explanation is that s 11(1) was intended to refer to "a contract, or the benefitandburdenofacontract."Thiswouldexplainthereferenceto"theassignedcontract"and wouldalsohaveavoidedtheoddresultthatapersonassignedonlyobligationscanbesubjectto damagesunders11(1)but,unlessotherwiseagreed,suchdamagesaresetatzerobecauseofthe limitationonliabilityins11(2)(andhencetheassigneeisnotsubjecttoanyremedyunders11(1) giventhatcancellationisnotaneffectiveremedyagainstanassigneewithonlyobligations). JBurrows,JFinnandSTodd LawofContractinNewZealand (Butterworths,Wellington, 1997)582;ABorrowdale(ed) Commercial LawinNew Zealand (3 ed, Butterworths,Wellington, 1996)122;andFDawsonandDMcLauchlanTheContractualRemediesAct1979(Sweet&Maxwell, NewZealand,1981)192. GibbstonValley aboven4. ThisapproachissimilartothatofDawsonand McLauchlan, aboven27,195.

25 26

27

28

68

(2000)31VUWLR

effectofsubs(1)ofs11oftheContractualRemediesAct". 29 However,inobiterstatements in his separate judgment, Tipping J discussed section 11 and did not limit it to the assignmentofcontractualrights:30
Thesectiondealswiththreepotentialsituations:(1)theassignmentofacontractasawhole; (2) the assignment of the benefit of a contract; and (3) the assignment of the burden of a contract. . . . The conceptual severance of benefit and burden, both from each other and from the contractasawhole,whichthesectionadopts,isapttocausedifficulties. Whenacontractasawholeisassigned,theassignmentisnecessarilyofallsuchbenefitsand burdensasarisethereunder. Theeffectofanassignmentofthiskindisthesameasifthe applicablebenefitsandburdenshadbothbeenindividuallyassigned.

What,then,didTippingJmeanbythe"assignment"ofobligations?HisHonouradded that theassignment of obligations doesnotrelievethe assignor ofthoseobligations as regardsthenonassigningparty;thatis,thenonassigningpartycouldstillenforcethose obligationsagainsttheassignor.31 Thus,TippingJinterpretedreferencestoassigning"a contract" or the "burden of a contract" in light of accepted methods of "transferring" obligations;thatis,asmeaning(or,inthecaseofassignmentof"acontract",including)a delegation of obligations with the assignor remaining liable for any default in performance.32 Under this interpretation, it is unclear whether the references in section 11(1) to assigning a contract or the burden of a contract should apply only to contracts or obligationsthatarepurportedtobe"assigned"orwhethertheyalsoextendtoobligations thatare"transferred","delegated"orotherwiseintendedtobeperformedbytheassignee. Thethirdinterpretationtreatssection11(1)asenablingtheassignmentofobligations (andhencecontractsasawhole). Thiscouldmean,byanalogywiththeassignmentof
29 30

GibbstonValleyaboven4,8.

GibbstonValleyaboven4,10.Similarly,indeliveringthejudgmentfortheCourtofAppeal in MountainRoad(No9)LimitedvMichaelEdgleyCorporationPtyLimited [1999]1NZLR335,337 (CA)[MountainRoad],TippingJstatedthatprovisionsinissuethere"makeitclearthatnotonly are the assignor's rights being assigned, but also its duties and obligations." His Honour's approach couldbebasedeitherontheassumptionthatthelegislativedrafterdeliberatelyused inaccurate(butcommon)terminologyorontheassumptionthatthedrafterwasmistakenasto theassignabilityofobligationsbutthecourtsshouldneverthelessseektogiveeffecttoallpartsof s11. Incontrast,FraserJintheHighCourtjudgmentin GibbstonValley referredtothebuyer's burdenundertheagreementforsaleandpurchasebeing"notassignable":GibbstonValleyEstates LimitedvOwen(1998)3NZConvC192,840,192,848. GibbstonValleyaboven4,1011. SeebelowPartsIIIAandB.

31 32

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

69

rights,thatthoseobligationspasstotheassignee,withthenonassigningpartyabletoseek a remedy against the assignee but not the assignor. To some extent, this would be consistent with consumer legislation under which assignees are subject to the same remediesasweretheirassignors. However,unlikesection11,suchlegislationexplicitly preservesthenonassigningparty'sremediesagainsttheassignor.33 Enabling a party to transfer obligations without the nonassigning party's consent wouldrepresentasignificantbreakfromthecommonlawwhichcourtsarereluctantto find34 and raise the difficulties that led to the common law prohibition on assigning obligations.35 Section11wouldgoevenfurther,bypotentiallydenyingthenonassigning partyaremedyagainstbothassignorandassignee.36 Thus,thisinterpretationshouldnot beadopted. 2 Applyingsection11(1)

Aswellasuncertaintyastowhetherobligationscanbe"assigned"and,ifso,whatthis means and the transactions falling within section 11(1) section 11(1) is uncertain in anotherrespect.37 Thereferenceinsection11(1)toremediesbeingenforceable"byoragainsttheassignee" couldapplyinitsentiretytoassigneeswhoareassignedrightsor(ifeffective)acontractor obligations.Thus,thenonassigningpartycouldenforceremediesagainstanassigneeof rights38foranydefaultinperformanceofobligations"assigned"totheassignee,orperhaps any obligationsunderthecontract(subjecttothelimitationonliabilityinsection11(2)). Section11wouldthenenableanonassigningpartytobringanactionagainsttheassignee (rather than merely being able to set up equities as a defence against a claim by the assignee).ThisinterpretationwasrecentlyendorsedbywayofobiterdictabyRandersonJ

33 34 35 36

SeebelowPartIIDandbelown48. SeeRaschbelown50andLindenbelown51. SeebelowPartIIA.

Asnotedinaboven26,followinganassignmentofobligationswithouta corresponding assignment of rights, the remedy of cancellation in s 11(1) would not be an effective remedy againsttheassignee,andnorwouldtheassigneebeliablefordamages(unlessotherwiseagreed). Thus,an assignor would not even need an "obliging insolvent" (aboven 7) butcould merely assignitsobligationstoanyotherpersonwhilekeepingitsrightsforitself. ThetwointerpretationsinthissectionarefoundinBurrowsetal,aboven27,582583.

37 38

Thelimitationins11(2)(assigneenotliableindamagesinasumexceedingthevalueofthe performance of the assigned contract to which the assignee is entitled) means that, unless otherwiseagreed,theassigneemusthavebeenassignedrightsbeforetheassigneecanbeliable.

70

(2000)31VUWLR

in Impact Collections Limited v Cornerstone Group Limited39 and by Tipping J in Gibbston Valley.40 However,thereisanotherinterpretationopen.Thephrase"byoragainsttheassignee" could refer respectively to remedies being enforceable by assignees who have been assigned benefits(bythemselvesoraspartofacontract)andbeingenforceable against assigneeswhohavebeenassignedburdens(bythemselvesoraspartofacontract). If referencestoassigningcontractsorburdenshavenoeffect,section11(1)wouldnotthen exposeassigneestogreaterrisksthanatcommonlaw. 41 If,however,section11(1)covers the delegation of obligations or enables the assignment of obligations, then the non assigning party could seek remedies against the assignee (subject to the limitation on liabilityinsection11(2)). 3 Conclusiononsection11

Itisuncleartowhatextentsection11oftheContractualRemediesAct1979modifies thegeneralprinciplethat,subjecttovariousqualifications,obligationscannotbeassigned. Therearefewcasesonsection11andnonedefinitivelyinterpretingit.Section11might have no effect on the assignment of obligations; at the other extreme it might make obligations generally assignable; or could mean that a nonassigning party can seek damagesfromanassignee(uptothevalueoftheperformanceoftheassignedcontractto whichtheassigneeisentitledbyvirtueoftheassignment)iftheassignee's(orperhaps others')obligationsunderthecontractarenotperformed. Thisuncertaintycreatesdifficultiesforcommerciallawyersintransferringcontractual obligations (and contracts as a whole) and in determining the consequences of past transfers. Thus, section 11 should be amended (or authoritatively interpreted by the courts)toclarifyitsintendedeffect. D StatutoryTransfersofCertainContractualObligations Specific legislation can directly or in effect override the principle that contractual obligationsarenotassignable.Forexample,theStateOwnedEnterprisesAct1986enables
39 40

ImpactCollectionsLimitedvCornerstoneGroupLimited(6May1999)unreported,HighCourt, AucklandRegistry,AP6/09. GibbstonValleyaboven4,10.Furthermore,HenryandBlanchardJJ,afterstatingthatitwas unnecessarytoexpressaconcludedviewons11(1),addedat8thats11(1)"appearstoprovide thatwherethebenefitofacontractisassigned,theotherpartytothecontract...hasaremedyin damagesagainsttheassigneeifthereisabreachoftheassignor'sobligationsunderthecontract, subjecttothelimitationonquantumofdamages".Thisinterpretationwouldbeconsistentwith theCCLReport,aboven24,para19.8. Underthisinterpretation,s11(2)canbetreated ashavingnoeffect(beingbasedonthe mistakenassumptionthatobligationsareassignable)orascodifyingthecommonlawprinciple thatassignees'rightsaresubjecttoequities(aboven14).

41

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

71

shareholdingMinisterstotransfertoastateownedenterpriseCrownassetsandliabilities (includingliabilitiesunderanycontract) 42"notwithstandinganyrestriction,prohibition,or otherprovisioncontainedinany...ruleoflaw...thatwouldotherwiseapply".43 Third personsmustthendealwiththestateownedenterpriseinplaceoftheCrown. 44However, suchtransfersmirrorthecommonlawposition45tosomeextentbyprovidingthat:46

The Crown shall remain liable to any third party as if the asset or liability had not been transferred butshallbe indemnified bytheStateenterpriseinrespectofanyliabilitytothat thirdparty.

Similarly,whileconsumer legislation oftenenablesnonassigningpartiestoexercise remedies against assignees subject to various limits,47 such legislation typically also providesthatassignorsdonot,byvirtueoftheassignment,shedtheirobligationsunder thecontract.48 Theprovisionsenablinglocalauthoritiestoestablishlocalauthoritytradingenterprises (LATEs)mirrorthecommonlawpositionevenmorecloselyonlyallowingtransfersof obligationswherethelocalauthority,LATE,thepersontowhomtheobligationisowed andanyguarantoragreetothetransfer.49
42 43

Section29(1)oftheStateOwnedEnterprisesAct1986.

Sections23and29(3)oftheStateOwnedEnterprisesAct1986.Incontrast,whencompanies amalgamatethereisnoassignmentortransferofrightsandobligationsfromtheamalgamating companiestotheamalgamatedcompanybutrathertheamalgamatedcompany,asthecontinuing entity,succeedstothoserightsandobligationsand"standsintheshoes"oftheamalgamating companies:CarterHoltHarveyLimitedvMcKernan[1998]3NZLR403(CA). Section23(5)oftheStateOwnedEnterprisesAct1986.

44 45

Atcommonlaw,anassignorwhohasalsodelegatedorsubcontractedtheperformanceofits obligationsremainsliabletothenonassigningpartyifthoseobligationsarenotperformed:see belowPartsIIIAandIIIB. Section 23(5)(d) of the StateOwned Enterprises Act 1986. Similarly, in the 1993 health reformstheMinisterofFinance,MinisterofHealthandtheGovernorGeneral,weregivenpowers totransferbothassetsandliabilitiesoftheCrownandvariousgovernmententitiesto(asthey werethen)regionalhealthauthoritiesandcrownhealthenterpriseswithoutbreachinganyruleof lawprohibitingthetransfer:ss4,5and6(1)oftheHealthReforms(TransitionalProvisions)Act 1993.Afterthetransfer,theCrownwasliabletoanythirdpartiesasiftheassetsorliabilitieswere thoseoftheCrownbutwastobeindemnifiedbythetransfereeinrespectofanysuchliability:ss 6(2)(c)and(d)oftheHealthReforms(TransitionalProvisions)Act1993. Seess2(definitionof"supplier")and46(1)oftheConsumerGuaranteesAct1993andss2(1) (definitionsof"purchaser"and"vendor"),18(1)and21(3)oftheHirePurchaseAct1971. Seeforexamples46(4)oftheConsumerGuaranteesAct1993andss18(5)and21(4)ofthe HirePurchaseAct1971. Sections594ZIand594ZKoftheLocalGovernmentAct1974.

46

47 48 49

72

(2000)31VUWLR

Thus, even when specific legislation authorises transfers of contractual obligations, Parliamentisreluctanttoallowpartiestoescapetheirobligationsbytransferringthem. Furthermore,thecourtsarereluctanttointerpretlegislationsoastofindarighttotransfer obligationswherethisisnotexpress,50ortoholdthatatransferofobligationsrelievesthe transferorofongoingliabilityforperformanceofthoseobligations.51

III

MEANSOFTRANSFERRINGOBLIGATIONS

A Delegation52 Whilecontractualobligationsaregenerallynotassignable,thereareseveralmeansof "transferring"53obligationsinsomesenseswithvariousdegreesofeffectiveness

50

WellingtonCityCouncilvRasch [1995]2ERNZ91,96(CA)(whileParliamentcanlegislate awayanemployee'srightnottohavehisorheremploymentcontracttransferredwithoutconsent, theCourtwillexpectsuchanintention"tobeplainlystated")[Rasch]. SeeEffortShippingCoLimitedvLindenManagementSA[1998]AC605(HL)[Linden].

51 52

PartIIIAofthisarticlediscussesdelegation(andcorrespondingvicariousperformanceby theassignee)wherethereisnocontractbetweenthedelegatoranddelegatebindingthedelegate toperformtheobligations.DelegationundersuchacontractisdiscussedinPartIIIB. Justasitisincorrecttoreferto"assigning"obligations,strictlyspeakingnoneoftheother methodsdiscussedinPartIII"transfer"obligations. SeeforexampleTreitel, aboven12,604. Thus,referencesinthisarticleto"transfers"ofobligationsrefertotransfersinapracticalsense ratherthantransfersinastrictlegalsense.

53

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

73

dependingontheobjectivesofthetransfer.54Forexample,subjecttocertainexceptions,55a partytoacontractneednotperformitsobligationsitselfifanotherperson("delegate") performsthoseobligationsonitsbehalf.56 However,thedelegator remainsliabletothe othercontractingpartyforanydefaultinperformance.57 Insomecircumstancesthedelegatorkeepsthebenefitofthecontractforitself. 58 In other cases the delegator also assigns its contractual rights to the delegate. These alternativescanbeshowndiagrammaticallyasfollows:

54

Novationisthemosteffectiveifthetransferor'sprimaryobjectiveistoavoidliabilityfor future performance of obligations. However, other methods are more effective where the transferor seeks to transfer obligations without the consent of the other party to the original contract. Mostsignificantly,obligationscannotbedelegatedifthecontractprohibitsdelegationorif theyarepersonalinnature: TolhurstvAssociatedPortlandCement Manufacturers(1900)Limited [1902]2KB660(CA),669(affd[1903]AC414(HL)).InMvB(1998)6NZBLC102,463,102,469 WilliamsJstatedthat"apartytoacontractisatcommonlawentitledtoperformthatcontract through an agent unless the contract is one which expressly or impliedly excludes vicarious performanceorissopersonalastoberegardedasincapableofthatmodeofperformance". A prohibitiononapartyassigningrightsmayalsopointtowardsthatpartybeingunabletodelegate itsobligations: JeffreyvDBBreweriesLtd (19February1999)unreported,HighCourt,Auckland Registry,HC158/98,1719. HEBContractorsaboven20,763. BritishWaggonCovLea(1880)5QBD149,154[BritishWaggon].

55

56 57 58

This would be morecommon when thedelegator and delegate enter into a subcontract under which the delegator provides other consideration for the delegate's performance. See belowPartIIIB.

74

(2000)31VUWLR

Ifitdoesnothaveacontractwiththedelegate,thedelegatorcannot(asamatterof contractlaw)compelthedelegatetoperformthedelegator'sobligations.Neithercanthe otherpartytotheoriginalcontractsuethedelegateincontractfordefault.59 While asamatter ofcontractlawthedelegateneednotperformtheobligations, in commercial terms this may not be so. Where the delegation is accompanied by an assignmentofthedelegator'srights,adelegatewishingtoenforcethoserightsagainstthe nonassigningpartymustperformanyobligationsonwhichthoserightsdepend(orhave someoneelsedoso).60AsstatedinCoopervMicklefieldCoalandLimeCompanyLimited:61
It is, of course, true that the assignee cannot insist on the continued performance of the contractunlesseitherhisassignorisableandwillingtosatisfytheobligationtopay,orthe assigneehimselfiswillingtodoitforhim. Inthatsenseatleast,apartfromnovation,the obligation to pay is doubly secured after the assignment, because there is not only the continuing personal liability of the assignor, but the necessity upon the assignee, of performingtheobligations....

B Subcontracting SubcontractingissimilartodelegationasdiscussedaboveinPartIIIAexceptthatthe delegatoranddelegateenterintoacontractbindingthedelegatetoperformthedelegator's obligationsundertheoriginalcontract.AswasthecaseinPartIIIA,thedelegatormight alsoassignitsrightsundertheoriginalcontract.Showndiagrammatically:

59 60 61

Wherethedelegatehasbeenassignedrights,thisconclusionmaybeaffectedbys11ofthe ContractualRemediesAct1979.SeeabovePartIIC. SeeabovePartIIB.

CoopervMicklefieldCoalandLimeCompanyLimited(1912)107LT457,458.Theauthoragrees with views expressed elsewhere that the necessity referred to in this passage is the practical necessityofthedelegateperformingtheassignor'sobligationsifitwantstoenforcetheassignor's rights;thedelegateisnotlegallyobligedtoperformthedelegator'sobligations:PMegensandB Ang "Assignment, Novation and Subcontracting Who Cares What You Call It?" (1994) 10 BuildingandConstructionLaw319,323.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

75

The Court of Appeal has recently categorised assignments included as part of a contract between the assignor and assignee as "contractual" assignments. In Mountain Road62anassignor,byamemorandumofagreementofassignment,transferredallitsrights inandbenefitstobederivedfromatentinreturnfortheassigneeagreeingtoassumethe assignor'sdutiesandobligationsinrelationtothetent.TippingJdescribedthenatureof thetransactionasfollows:63
Whateverthepositionmaybeinothercases,thiscaseinvolvedacontractualassignment,nota voluntaryassignment.... Thisassignment...wasundoubtedlyintendedtobecontractualinnature.[Theassignee]was providingconsiderationbyitsagreementtotakeover[theassignor's]obligations.

A subcontract between an assignor and assignee does not affect the assignor's responsibilityforperformancevisvisthenonassigningparty.Thus,iftheassigneefails toperformtheassignor'sobligations,theassignorisinbreachofitscontractwiththenon assigningparty.64 Nordoesthesubcontractinitselfcreateacontractbetweentheassigneeandthenon assigningparty65orotherwiseenablethenonassigningpartytosuetheassigneeunless thenonassigningpartycanrelyonsection11oftheContractualRemediesAct1979oron section4ofthe Contracts(Privity)Act1982. UndertheContracts(Privity)Act1982,the nonassigningpartycanbringproceedingsagainsttheassigneeifthesubcontractconfers, orpurportstoconfer,rightsonthenonassigningparty 66(exceptwherethesubcontracton itsproperconstructionisnotintendedtogivethenonassigningpartytherighttosuethe subcontractor).Otherwise,thenonassigningpartycanonlysuetheassignor(whocould inturn,subjecttothetermsofthesubcontract,suetheassignee).
62 63 64 65

MountainRoadaboven30. MountainRoadaboven30,339340. BritishWaggonaboven57,154;SouthwayGroupaboven8,43and53.

SouthwayGroup aboven8,53. However,see OlympicCorporationLimitedvOrcatoryRoad PropertiesLimited[1990]2NZLR519(CA)inwhichaseller,whowasliabletopayrenttoathird party,solditsbusinessonthebasisthatthesellerwouldtransferitsleaseholdestatetothebuyer andthebuyerwouldindemnifythesellerforanyrentthebuyerfailedtopaytothethirdparty. Thebuyerrefusedtotakeanassignmentoftheleaseholdestateanddidnotpaytherent. The issuewaswhethertheseller,whohadpaidthethirdparty,couldseekanindemnityfromthe buyer.RichardsonandBissonJJstatedat527,apparentlyobiter,thattheassignmentimposedon thebuyeracontractualliabilitytothethirdparty.Forcriticismofthemajority'sreasoning,seeC Corry"ContractualObligationsofanAssignee"(1990)5BCB165.Aswasthecasefordelegation withoutasubcontract,aboven59,s11oftheContractualRemediesAct1979mayenablethenon assigningpartytoseekremediesfromasubcontractorwhohasbeenassignedrights. Thenonassigningpartymustalsobesufficientlydesignatedinthesubcontract. Thisis unlikelytocausedifficultiesinthiscontext.

66

76

(2000)31VUWLR

C Novation Novationisanothermeansbywhichcontractualobligationscanbe"transferred"from onepersontoanother.InSouthwayGroupLimitedvWolff,67BinghamLJstated:

IfAwishestoassigntheburdenofthecontracttoChemustobtaintheconsentofB,upon whichthecontractisnovatedbythesubstitutionofCforAasacontractingparty.

Inthiscontext,68a"novation"occurswhenacontractbetweenAandBisreplacedwith acontractbetweenBandCunderwhichChasthesamerightsandobligationsasdidA undertheoriginalcontract.Ineffect,CreplacesAinthecontractualarrangementswithB. Thiscanbeshowndiagrammaticallyas:

Bmustagreetothisrearrangementbothtotheterminationoftheoriginalcontract betweenAandBandtotheformationofthenewcontractbetweenBandC.69 From A's perspective, the main advantage of a novation is that it creates a "clean break";thatis,subjecttothetermsoftherearrangementagreedbetweentheparties, 70 A
67

Southway Group above n 8, 52. For a detailed analysis of the nature and elements of novation,seeJBailey"Novation"(1999)14JournalofContractLaw189.Baileystates,at220,that "[i]f it werepossiblefor contractual obligations to be assigned .. .novation would beallbut banishedintotheoblivionoflegalhistory". "Novation"canbeusedmoregenerallytodescribeanewcontractsubstitutedforanexisting contract,eitherbetweenthesamepartiesorbetweendifferentparties:ScarfvJardine(1882)7App Cas345,351perLordSelborneLC. Theotherelementsofcontractformationmustalsobepresentforthenewcontractbetween BandC(forexampleconsideration,anyformalities).Whereacontractcontemplatesthataparty can substitute another person for itself, it has been suggested that the substitution is not a novation as the substituting party performs rather than terminates the original contract: AustralianNationalAirlinesCommissionvCommissionerofStampDuties(Qld) (1987)87ATC4,218 [AustralianNationalAirlines]. FormaldeedsofnovationandnovationagreementsoftenprovidethatAremainsliabletoB foranybreachofitsobligationsbeforethedateofthenovationbutisnotliableforanybreaches afterthatdate.

68

69

70

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

77

doesnothaveongoingobligationstoBonceitterminatesitscontractwithB.71 Rather,B cansueCdirectlyunderitscontractwithCifCdoesnotperform.Novationistheonly meansenablingAto"transfer"itsobligationsinthesensethatAisnolongerliableforany defaultintheperformanceofobligations. 72Cmayalsopreferanovationas,subjecttothe termsoftherearrangementagreedbetweentheparties,C'srightsarenotthensubjectto equitiesresultingfromanythingdonebyA. Whilenovationscanbeeffectedformally(forexamplebythepartiesenteringintoa deed of novation or exchanging other documentation), novations can also be effected informally.InKarangahapeRoadInternationalVillageLimitedvHolloway73ChilwellJstated:74
Novationcanbeinferredfromactsandconductbutordinarilyitisnottobeinferredfrom conductwithoutsomedistinctrequest.

Inthatcase,MrandMrsHollowayagreedtoselllandtoJackson"ornominee".Jackson nominatedKarangahapeRoadInternationalVillageLimitedasnominee. Thatcompany arguedthattherehadbeenanovationcreatingacontractbetweenitselfandtheHolloways (andterminatingthecontractbetweenJacksonandtheHolloways)basedonconductsuch astheHollowaysexecutingamemorandumoftransfertothecompanyandaddressing their settlement statement tothecompany. TheCourtheld thattherewas insufficient evidence of a novation by conduct, as the conduct was consistent with an alternative explanation(thatis,that thecompany remainedJackson'snomineeforthepurposesof completingthecontract). Ultimately,whetherornotthereisanovationasagainstanothertypeoftransaction dependsontheparties'intention.75

71

However, parties to commercial contracts must often rely instead on an assignment accompaniedbyadelegationorsubcontractingofobligations,asBmaynotconsenttoanovation (orseekingconsentmaygiveBanopportunitytorenegotiatethesubstanceofthecontract). SouthwayGroupaboven8,43. KarangahapeRoadInternationalVillageLimitedvHolloway[1989]1NZLR83,101.

72 73 74

InCoopervCommissionerofInlandRevenue(1995)17NZTC12,216,12,223CartwrightJstated thatthenovationinthatcasedidnothavetobeinwritingand"consentmaybeinferredfromacts and conduct in the absence of rebutting circumstances". See also Rouse v Bradford Banking Company[1894]2Ch32,54and72(CA)andChatsworthInvestmentsLimitedvCussins(Contractors) Limited[1969]1AllER143,144(CA)perLordDenningMR. VickeryvWoods(1952)85CLR336,345(HCA).

75

78

(2000)31VUWLR

IV

PURPORTEDASSIGNMENTSOFOBLIGATIONS

A NewZealand,EnglishandUnitedStatesFrameworksDiffer Asexplainedabove,contractualobligationsgenerallycannotbeassigned,buttheymay be able to be "transferred" by delegation (either with or without a subcontract) or by novation. However,inaccurateterminologyusedinrelationtosuchtransferscreatesdifficulties. Contract law is based on discerning the parties' (to some extent fictitious 76) intention. Whenthepartiesuselanguageatoddswiththeunderlyinglegalprinciples,theirintention canbeobscured. What, then, is the effect of a purported "assignment" of obligations (either by themselves or as part of a purported assignment of a contract)?77 In English law, the approach proposed in the House of Lords78 is to construe references to assigning "a contract"asassigningonlytherightsunderthatcontract.Beyondthis,Englishcommon lawoffersfewguidingprinciples.InNewZealandthepositionisnoclearerintheabsence ofanauthoritativeinterpretationofsection11oftheContractualRemediesAct1979. In contrast, the United States common law has developed a framework for such transactions,basedinpartonpresumptionsofinterpretation.Thisframeworkisdesigned togiveasfulleffectaspossible(intheabsenceofthenonassigningparty'sconsent)tothe intentionthattheassigneebesubstitutedfortheassignor. 79PartsIVBtoIVEofthisarticle examinetheUnitedStatesframework,andcompareitwiththepositioninNewZealand andEngland. B Assignor'sIntentiontoDelegateObligationsasWellasAssignRights MostUnitedStatesjurisdictionsusethefollowingpresumptiveruleofinterpretation:80
76

It is abasicpremiseof contractlaw thatinterpreting contractsinvolves ascertainingthe parties'objectiveintention,ratherthantheirsubjectiveintention(s).AsstatedbyLordHoffmanin InvestorsCompensationSchemeLimitedvWestBromwichBuildingSociety[1998]1AllER98,114(HL), interpretation "is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been availabletothepartiesinthesituationinwhichtheywereatthetimeofthecontract". While Part IV of this article is relevantboth to a purported assignment itself and to an assignment provision in the original contract, Part V examines "prospective substitution provisions"intheirownright. SeeabovePartIIA.

77

78 79

RestatementoftheLawSecond,Contracts2d,s328(1),comment.HOHunter"Commentaryon 'Assignment of Contractual Burdens'"(1998) 13 Journal of Contract Law 51, 54 describes the UnitedStatespositionasthat"forallintentsandpurposes,[theassignee]isakintoasubstituted partyinanovation".

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

79

Unless the language or the circumstances indicate the contrary, as in an assignment for security, an assignment of "the contract" or of "all my rights under the contract" or an assignmentinsimilargeneraltermsisanassignmentoftheassignor'srightsandadelegation ofhisunperformeddutiesunderthecontract.

Thisreflectswhatthepartiesinthemajorityofsuchtransactionsarethoughttohave intended:81
Thepresumptionseemsreasonableinviewoftheevidentexpectationoftheparties...[The assignment]purportstotransferthecontractasawhole,andsincethecontractismadeupof bothbenefitsandburdensbothmustbeintendedtobeincluded...[C]ommonsensetellsus thattheassignor,aftermakingsuchanassignment,usuallyregardshimselfasnolongera partytothecontract....Theassigneeontheotherhandunderstandsthatheistocarryout thetermsofthecontractasisshownbythefactthatheusuallydoes,mostofthedecidedcases beingthoseinwhichtheotherpartyobjectedtoperformancebytheassignee.

This presumption can be overridden when the language of the assignment or surroundingcircumstancessuggeststhattheassignmentisnotofacontractasawholebut islimited,forexample,towhatisdueortobecomedueunderacontract.82 In contrast, New Zealand and English courts must examine the assignment of "a contract" in light of the contract as a whole and surrounding circumstances before concluding that an assignor intends to delegate obligations as well as assign rights. 83 Moreover,applyingLordBrowneWilkinson'sanalysiscouldleadtotheconclusionthat referencestoassignmentof"acontract"meanonlyanassignmentofrights,withoutan accompanyingdelegation. Itissubmittedthat,inmostcaseswhere"acontract"isassigned,itisreasonableto assumethattheassignorintendstheassigneetoperformits obligations. Therefore,the explicitpresumptionusedintheUnitedStateswouldbeusefulhere,asitwouldmakea
80 81

RestatementoftheLawSecond,Contracts2d,s328(1). Similarly,ss2210(4)oftheUniform CommercialCode. Grismore, above n 12, 288, quoted with approval in Rose v Vulcan Materials Company (1973)194 SE 2d 521, 534. Similarly Bilateral Contract above n 6, 941 (in the usual case the assignor'sobviouspurposeistosubstituteanother'sperformanceasfaraspossible). ChapinvPike(1903)68NE42,43.SeealsoChathamPharmaceuticals,IncvAngierChemicalCo, Inc (1964)196NE2d852 (assignmentoftheassignor's"right,titleandinterest"inacontract wherethatcontract itself distinguished between the assignment of rightsandobligations was onlyanassignmentofrights). However,iftheapproachofTippingJtos11oftheContractualRemediesAct1979was adopted(seeabovePartIIC1),thenthecourtswouldpresumablybemorelikelytoholdthata purportedassignmentofacontractinvolvedadelegationofobligationsaswellasanassignment ofrights.

82

83

80

(2000)31VUWLR

court'sruling astotheassignor'sintention morepredictable(withsuch arulingbeing likelytomirrorthatintentioninpractice). C Assignee'sLiabilitytotheAssignor MostUnitedStatesjurisdictionsalsouseafurtherpresumption:84

Unlessthelanguageorcircumstancesindicatethecontrary,theacceptzancebyanassigneeof [an assignment of "a contract", etc] operates as a promise to the assignor to perform the assignor'sunperformedduties....

Asbefore,thejustification forthis presumptionisthatitreflectswhatmostparties actuallyintend.85Consequently,itisalsojustifiedasassistingcommercialtransactions:86

Theruleofpresumptiveinterpretation...makessenseforcommercialtransactionsinvolving assignments, particularly where it is the regular business of the assignee to render the incompleteperformance.

Ultimatelythepresumptionisonlythat:whetherornottheassigneeisboundtothe assignortoperformtheassignor'sobligationsdependsontheparties'intentionsasshown bytheiracts,wordsandsubjectmatterofthecontract.87

84

RestatementoftheLawSecond,Contracts2d,s328(2). Similarly,ss2210(4)oftheUniform Commercial Code. This has not been consistently adopted by United States courts: Williston aboven12,s418A. Grismore,aboven12,288,asquotedinabovePartIVB. KeyesvScharer(1968)165NW2d498,502.

85 86 87

EnterpriseLeasingCorporationvShugartCorporation (1991)282CalRptr620,624[Enterprise Leaving].

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

81

Most United States jurisdictions hold that the implied assumption of obligations attachedtoanassignmentcreatesanimpliedcontractbetweentheassignorandassignee. 88 InNewZealandandEngland,wherethereisnosuchpresumption,thecourtsmaywell reachthesameresultinmanycases.However,thisresultisnotguaranteedgivencourts' generalreluctancetofindanacceptancewhereconductisambiguousor,wherethereis otherwiseacontract,toimplytermsintothatcontract. 89Thiswouldbeespeciallysowhere analternativeinterpretationisthattheassignmentof"acontract"isanassignmentofrights coupled with authority (that is, rather than an obligation) to perform the assignor's obligations. IftheUnitedStatespresumptionreflectswhatmostpartiesactuallyintend,itwouldbe efficienttoadoptanequivalentpresumptioninNewZealand(whetherinlegislationor commonlaw). D Assignee'sLiabilitytotheNonAssigningParty AsinNewZealandandEngland,UnitedStatescasesstartwiththeprinciplethatan assignmentdoesnotinitselfmaketheassigneeliabletothenonassigningparty.90 Inallthesejurisdictions,iftheassigneeexpresslyorimpliedlyentersintoacontract with,orotherwisedirectly assumes abindingobligation to,thenonassigningpartyto performtheassignor'sobligations,theassigneeisdirectlyresponsibletothatpartytodo so.91 Thus, New Zealand lawyers use various means to make an assignee directly responsibletothenonassigningparty.92
88

SeeforexampleCuttingPackingCovPackers'Exchange(1890)25P52,KirbyLumberCovRL Lumber Co 279 SW 546 (1926), 549; and Williams v McWhorter (1923) 218 P 791, 793. Some judgmentsinsteadrelyonequitableprinciples.Thesecanincludebroadstatementssuchasthat theassignee"cannotrequiretheassignortocontinuetobeartheburdensofthecontractwhilehe enjoysthebenefits"similartotheillfated"pureprincipleofbenefitandburden"inEnglishlaw referredtoinabovePartIIB.(SeeforexamplePioneerLoan&LandCovCowden(1915)150NW 903,905.)SeealsoBilateralContractaboven6,942943(principlethattheassigneemusttakethe burdenswiththebenefitsdoesnotexplainanything;assignee'sliabilitymustbeonapromise impliedfromtheacceptanceoftheassignment). See generally Hon Justice Gallen, J Finn, C French Laws of New Zealand, Contract (Butterworths,Wellington,1997)paras33,34,109and112.Ontheotherhand,inCircuitSystems Ltd(inliq)vZukenRedac(UK)Ltd [1996]3AllER748,758(CA)StaughtonLJsaid"Iwonder whetherapurportedassignmentofburdenmaynothavesomeeffectasbetweenthepartiestoit; ineffectitmayobligetheassigneetobearthecostofperformanceasagainsttheassignor". LangelvBetz(1928)164NE890,891[Langel];McGillvBaker(1928)266P138,141;Enterprise Leasingaboven87,623. Langelaboven90,891.

89

90 91 92

Forexample,aparty'sabilitytoassignitsrightsunderasignificantcommercialcontract maybeconditionalontheassigneeenteringintoadeed,infavourofthenonassigningparty,in whichtheassigneeundertakestoperformtheassignor'sobligations.

82

(2000)31VUWLR

Also, where there is a contract between assignor and assignee (either an explicit contract, or an implied contract applying the presumption set out above inPartIV C) UnitedStatescourtsgenerallyallowthenonassigningpartytosuetheassigneefornon performance, usually93 under the "third party beneficiaries" doctrine.94 This has been rationalisedonthebasisthat:95
Itis,perhaps,moreinharmonywithmodernideasofcontractualrelationsthanis"thearchaic viewofa contract ascreatinga strictly personalobligationbetweenthecreditoranddebtor" (PollockonContracts[9Ed]232)....

AsdiscussedaboveinPartIIIB,inNewZealandthenonassigningpartymaybeable tosuetheassigneebyrelyingonsection4oftheContracts(Privity)Act1982(equivalentto theUnitedStates"thirdpartybeneficiaries"doctrine).However,nonassigningpartiesin NewZealandareworseoffthantheirUnitedStatescounterpartsbecause(asdiscussed aboveinPartIVC)inNewZealandthereisnopresumptionofacontractbetweenthe assignor and assignee when the assignor purports to assign a contract as awhole a necessaryelement96foranonassigningpartyseekingtorelyontheContracts(Privity)Act
93

Therearevariousotherrationalisations(whichcanapplywhetherornotthereisacontract between the assignor and assignee). Some cases hold that where the assignee performs the assignor'sobligations,andthusinteractswiththenonassigningpartyasiftheassigneewasa partytothecontract,theassigneemaybetakentohaveassumedtheassignor'sobligationsvis visthenonassigningparty(forexample EconomicWaterHeatingCorporationvDillonSupplyCo (1931)159SE78). Somecasesevenfindassumptionofobligationsfromanassigneeaccepting paymentsfromthenonassigningpartyinaccordancewiththeassignmentofrights(forexample DahlhjelmGaragesIncvMercantileInsCoofAmerica(1928)270P434,436),incontrasttotheEnglish position(PanOceanShipping LimitedvCreditcorpLimited [1994]1AllER470(HL)(assigneeof receivablesdueunderacharterpartywhoreceivedanadvancepaymentofhirenotliabletorepay ittothechartererintheeventofhirenotbeingearnedduetothevesselbeingoffhireforthe relevantperiod)). OtherUnitedStatescourtshaveheldthat,whereanassigneeseeksspecific performance from the nonassigning party, the assignee impliedly binds itself to perform the assignor's obligations (for example Couch v Crane (1914) 82 SE 459, 462). In other cases, the assignee'sobligationtothenonassigningpartyhasbeenexpressedasarisingfromthedoctrineof mutualityofliability(forexampleBlueStarNavCovEmmonsCoalMiningCorporation(1923)120A 459,460).SeeBilateralContractaboven6,943944(assigneecannotbeliableonapromiseimplied fromacceptanceofthenonassigningparty'sperformancebecausethatperformancecannotbe consideration,giventhattheassigneewasalreadyentitledtoit). RosevVulcanaboven81,533and534.SeeWillistonaboven12,ss347,356,356A,361and 393. In general terms, when a party to a contract promises to the other party to render performancetoathirdperson,inmostUnitedStatesjurisdictionsthatthirdpersoncansuethe promisor.Intheassignmentcontext,thethirdpersonwillbea"creditorbeneficiary"thatis,the promisor's (assignee's) performance of the promise will satisfy obligations of the promisee (assignor)tothethirdparty. Langelaboven90,892.

94

95 96

Thisassumesthattheassigneehasnotentered intoadeed conferring(orpurportingto confer)abenefitonthenonassigningparty.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

83

1982.Henceanonassigningpartysuinga"defaulting"assigneeinNewZealandhasthe onusofestablishingsuchacontractattheoutset. On the other hand, in New Zealand the nonassigning party may be able to seek damagesfromanassigneebyinvokingsection11oftheContractualRemediesAct1979 although,forthereasonssetoutaboveinPartIIC,theeffectofsection11isuncertain. In practice, following the purported assignment of rights and obligations under a commercial contract, the assignor often plays no part in the ongoing operation of the contract(forexamplewhencontractualrightsandobligationsare"assigned"withthesale ofabusiness).Thus,applyingtheUnitedStatespresumptions,facilitatingactionsbythe nonassigningpartyagainsttheassigneewouldaccordwithbusinessrealities. E Assignor'sLiabilitytotheNonAssigningParty InNewZealandandEnglandanassignorisnotreleasedfromitsobligationstothe nonassigning party merely by purporting to assign a contract as a whole;97 as such a release requiresthe nonassigning party's consent (whether by means ofanovation or otherwise).98UnitedStatescourtstakeasimilarapproach:99
Thecontrollingelementistheintentionoftheparties,andunlessthereisaclearanddefinite intentiononthepartofallconcernedtoextinguishtheoldobligationbysubstitutingthenew [party],thenanovationisnoteffected.

Where the nonassigning party consents to the assignee performing the assignor's obligations or accepts performance from an assignee, the United States case law and commentariesshowthatthismaybe:100 (1) mereapprovaloftheassigneeperformingtheassignor'sobligations;
97

Seeforexample CB PeacockeLand CoLimited vHamiltonMilkProducersCoLimited [1963] NZLR576,583[Peacocke] andtheanalysisofTippingJin GibbstonValley aboven8(discussed aboveinPartIIC1). SeeabovePartIIIC.

98 99

EplandvMeadeInsuranceAgencyAssociates,Inc(1996)545NW2d401,407[Epland].Seealso RestatementoftheLawSecond,Contracts2d, s318(3), PottsvBurkett (1926)278SW471,473,and Southern Concrete Company v Carter Construction Company, Inc (1970) 174 SE 2d 447, 449. For example,inClarkvGeneralCleaningCompany,Inc(1962)185NE2d749[GeneralCleaning]Clark's employmentcontractwithGeneralCleaningprovidedthatthecontractcould"betransferredto any purchaser of this branch of the business". After General Cleaning sold its assets and transferredClark'scontracttoabuyer,Clarkworkedforthebuyerfortwoweeks(andthenfora subsequentbuyerfortwoweeks). TheCourtheldthatthejurycouldfindthatClarkhadnot releasedGeneralCleaningfromitsliabilitytohim.(Whiletheinstrumentofassignmentwasnot beforethecourt,thejudgmentprimarilyreferstoassignmentof"thecontract",suggestingthat therewasapurportedassignmentofthecontractasawhole.)

100 Willistonaboven12,s418.

84

(2000)31VUWLR

(2) acceptanceofanoffertoformanovation(whichwillreleasetheassignorfromits obligations);or (3) acceptanceofanoffertoenterintoacontractwiththeassigneeunderwhichthe assignee promises to perform and the nonassigning party to pay, but not a dischargeofthecontractbetweenthenonassigningpartyandtheassignor. OnequalificationisexplainedinWillistononContractsasfollows:101
Bywhatevernamethepartiesmaycallthetransaction,ifitismadeclearthatthesocalled assignorintendsbythetransactiontobefreefromallfurtherliability,itseemsthatacceptance bytheotherpartytothecontractofanysubsequentperformancefromthesocalledassignee, would amount to assent to a proposed novation, and the socalled assignor would be dischargedfromfurtherliability.

The assignor will repudiate its contract with the nonassigning party if the non assigning party does not agree to a proposed novation yet the assignor nevertheless maintainsthatitisnolongerliabletothenonassigningpartynowthatthedelegateis (purportedly)liable.102 Intheabsenceofevidencetothecontrary,UnitedStatescourtswillnotfindthatan assignorwhomakesan"assignment"intendstoproposeanovation.103 Thus,likeNewZealandandEnglishcourts,UnitedStatescourtsaregenerallyslowto findthatanassignorhassheditsobligationstothenonassigningparty. Intheauthor's view,itisappropriatetoprotectthenonassigningparty'srightsinthisway,inlightofthe policyfactorssetoutaboveinPartIIA. F Conclusions NewZealandandEnglishcommonlawhasnotdevelopedaframeworkwithinwhich toconsiderpurportedassignmentsofobligations(bythemselvesoraspartofacontract). Thus, courts must resort to first principles or perhaps try to apply Lord BrowneWilkinson's analysis which correctly reflects legal doctrine but not necessarily commercialpractice. InNewZealand,section11oftheContractualRemediesAct1979 adds a further layer of uncertainty. This lack of guiding principles imposes costs on
101 Williston above n 12, s 420. However, the courts consider the surrounding circumstances in

determining whether the nonassigning party has accepted the proposed novation. See for exampleEplandaboven99(insuredwhowasnotifiedthattheinsurerhadtransferredthepolicy and would no longer be liable did not necessarily accept a proposed novation by paying premiumstothetransferee).

102 Willistonaboven12,s420. 103 BoswellvLyon(1980)401NE2d735;DowningvDial(1981)426NE2d416.ComparewithBartonv

Perryman(1979)577SW2d596.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

85

commercial parties seeking to enter into, or understand the consequences of, such transactions. In contrast, by using presumptions and consequentially applying the third party beneficiariesdoctrine,UnitedStatescourtscan,toagreaterextent,substitutetheassignee in the contractual arrangements, while also preserving the nonassigning party's rights againsttheassignor.Itissubmittedthatthisapproachbettermirrorsparties'intentionsin respectofthepurportedassignmentofacontractasawhole.

PROSPECTIVESUBSTITUTIONPROVISIONS

A Introduction AsseenaboveinPartIV,theeffectofapurportedtransferofcontractualobligationsis uncertainespeciallyunderNewZealandandEnglishlawincomparisonwithUnited Stateslaw.ThisPartexaminesaspecialcase:apurportedtransferofobligationspursuant toaprovisionintheoriginalcontract. Commercialcontractsoftenprovidethateitherorbothpartiesmayassigntheirrights under that contract. Other provisions, which this article will refer to as "prospective substitutionprovisions",refermoreambiguouslytoassigningortransferringeither"the contract" or bothrights and obligations. For example, in New Zealandmany utilities' standardformcustomercontractsstatethattheutilitysuppliermaytransferthecontractto anyotherperson.104

104 Ofthesamplecontractsobtainedbytheauthor,typicalprovisionsincludethosestatingthatthe

utilitycan"transfertosomeoneelsealloranypartofoursideoftheagreement",and"transfertoa thirdpartyourrightsandobligationsunderthisAgreement".

86

(2000)31VUWLR

The primary issue is whether a prospective substitution provision authorises a novationormerelyanassignment(perhapsaccompaniedbyadelegation).Therearefew reportedcasesonpoint.105 ThisPartconsiders,first,prospectivesubstitutionprovisions requiring consent at the time of transfer, and then provisions with no such consent requirement. B ProspectiveSubstitutionProvisionsRequiringConsent 1 Novationanalysis

Whether or not the nontransferring party must consent to a proposed transfer pursuant to a prospective substitution provision is important both legally and commercially. The granting of consent can support a novation analysis.106 In British Gas Trading LimitedvEasternElectricityPlc107BritishGasandEasternElectricitywerepartiestoalong termgassupplycontractwiththefollowingprovision:
ExceptasprovidedinGeneralCondition15(1)aboveneitherpartyshalltransferorassignits rightsorobligationshereunderwithoutthepriorwrittenapprovaloftheotherparty,which approvalshallnotbeunreasonablywithheld.

WhiletheissuewaswhetherEasternElectricitycouldwithholdapprovaltoaproposed transferbyBritishGas,LeggattLJ,deliveringthejudgmentoftheEnglishCourtofAppeal, notedthat:

Itseemstomethatwearenothereconcernedwithconsenttoanassignment,properlyso called,butwithapprovalofanovation.

Thus,ifgiven,EasternElectricity'sconsentwouldbeconstruedasacceptinganofferto contract with the "transferee" on the same terms as Eastern Electricity's contract with BritishGas,andasterminatingitscontractwithBritishGas(releasingBritishGasfrom liabilityforfutureperformance).

105 Onereasonforthisisthatsuchprovisions(especiallythosenotrequiringconsent)aretypically

found in standard form consumer contracts (such as utility supply contracts) in which case, followingatransfer,thetransfereeusuallyseekstoestablishanewcontractbetweenitselfand consumers. Thereforethetransferor'scontinuingliability(ifany)israrelyinissue. Prospective substitutionprovisionsnotrequiringconsentincontractsbetweenlargecommercialparties(for exampleprovisionsenablingapartytotransferbothrightsandobligationstoanothercompanyin thesamegroup)usuallyprovidethatthetransferorremainsliable.

106 However,seeaboven69. 107 British Gas Trading Limited v Eastern Electricity Plc (18 December 1996) unreported, Court of

Appeal,QBCMF96/1647/B[BritishGas].

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

87

The New Zealand Court of Appeal's judgment in Commissioner of Inland Revenue v RenoufCorporationLtd108arguablyalsosupportsanovationanalysis.109 Inthatcaseneither partycouldassignthebenefitorburdenofajointventureagreementwithouttheother party'spriorconsent.TheCourtstatedthat:110
[Thetransferor],ontheCommissioner'sargument,wouldhaveceasedtobeboundbythejoint ventureagreement.Anovationwouldhaveoccurredwhen[theotherparty]consentedtothe assignmentof[thetransferor's]contractualrights.[Thetransferor]wouldnolongerbebound byitsprovisions.

A novation analysis would also beconsistent with comments of McCarthyJin CB PeacockeLandCoLimitedvHamiltonMilkProducersCoLimited:111

Acontractwhichisassignableonlybyconsentisnot(unlessthereissomeprovisionagainst theunreasonablewithholdingofconsent)instrictlanguage,assignableatall...

However,thereareotherpossibleanalyses. 2 Assignmentofrightsonlyandpossibledelegationofobligations

If, as Lord BrowneWilkinson presumes, lawyers referring to assigning "a contract" knowthatcontractualobligationscannotbeassigned,prospectivesubstitutionprovisions sowordedmaymerelybeimpreciselywordedstandardassignmentprovisions(thatis,for the assignment of contractual rights). The contract as a whole and surrounding circumstances may also show that the parties intend to authorise a delegation of obligations(withorwithoutasubcontract).

108 CommissionerofInlandRevenuevRenoufCorporation(1998)18NZTC13,914[Renouf]. 109 TheissueinRenoufwaswhetherconsiderationforthetransferor'sinterestinajointventurewas

assessable income. This turned on whether, under the transfer agreement, the transferor transferredthebeneficialinterestinitssharesinthejointventurecompanyaswellasitsinterest inthejointventureagreement. WhiletheCourtconsideredthearrangementsasawhole,the effectoftheprospectivesubstitutionprovisionwasnotthecentralissue.Also,itisnotclearfrom thejudgmentwhethertheCourtacceptedtheCommissioner'sinterpretationofthatprovision.

110 Renoufaboven108,13,919. 111 Peacockeaboven97,581. ItisunclearfromthecontextexactlywhatMcCarthyJintended.The

author'sviewisthatthereisnothingpreventinganassignmentofrightsbeingsubjecttothenon assigningparty'sconsent: theconsentmaybemerelyaprerequisitetoimplementingwhatis otherwisea normalassignment transaction. In somecircumstances, a consentmayconstitute consenttoanovation.(SeeabovePartIVE).

88

(2000)31VUWLR

Whereaprovisionrefersmoreexplicitlytotransferringorassigning"obligations"(asin BritishGas),112thiscouldbedismissedasbasedonamistakenviewofthelawandhenceof noeffect,orelseinterpretedtomeanadelegationofobligations.113 Applyingthisanalysis,ratherthananovationanalysis,hasimportantconsequences. If, following a transfer with consent, the transferor has assigned its rights and merely delegated or subcontracted its obligations it will continue to be responsible for performanceundertheoriginalcontract,sothenonassigningpartycouldsuetheassignor foranydefaultinperformancebutmaynotbeabletosuethedelegate.114 Also,when consentissought,thenontransferringpartywouldbefreetoconsentonlytothetransfer ofcontractualrights.115 3 Choosingbetweencompetinganalyses

It may be difficult to discern the parties' intention in a particular case involving a prospectivetransferprovisionrequiringconsent.Astheconsentrequirementprotectsthe nontransferringpartyfromaunilateraltransfertoa"manofstraw",insomecasesthe partiesmayhaveintendedthatthecontractbe"transferred"asawholewiththetransferor ceasingtoberesponsibleforperformance. Ifso,theirintentionmaybethwartedifthe provision and transaction pursuant to that provision are interpreted in light of Lord BrowneWilkinson'sapproachinsteadofaninterpretationfacilitatingrearrangementsas faraspossible. Aswellastheprovisionitself, theterms ofthe actualtransfer andconsent willbe important. Even if, on its proper interpretation, a prospective substitution provision
112 AlthoughtheprovisioninBritishGasaboven107wentfurtherandpurportedtoenableaparty

notonlyto"assign"butalsoto"transfer"itsrightsandobligations,thisdoesnotnecessarilyassist atransferoras,strictlyspeaking,anovationdoesnotinvolvea"transfer"ofobligations.Seeabove n53. RemediesAct1979,asdiscussedaboveinPartIIC.Theauthorsubmitsthatformosttransactions itwillbeeasiertogivemeaningtoinaccuratelanguageusedbythepartiesthanthatusedins 11(1), as the other parts of the contract and the surrounding circumstances may assist in ascertainingtheparties'intentionand,incontrasttolegislationpreparedbyalegislativedrafter,it shouldnotnecessarilybeassumedthatthepartiesunderstandandcorrectlyusetechnicallegal language. assigningpartyanddelegatemaycomeintoexistenceasaresultoftheirdealingswitheachother. consentisparticularlyimportantwherethenontransferringparty'sabilitytowithholdconsentis constrained(forexamplewhereitcannot"unreasonably"withholdconsent).Inanyevent,while thenontransferringpartymightnotconsenttothetransferofobligationsinthesensethatthe assignorwouldnolongerberesponsibleforperformance,itmightnotbeabletoobjecttothe assignordelegatingthoseobligationstotheassignee(oranyotherperson).

113 There are obvious parallels with the possible interpretations of s 11(1) of the Contractual

114 UnlessanyofthebasesofliabilitysetoutaboveinPartIVDapply.Acontractbetweenthenon

115 Determiningthetypeoftransactionauthorisedbyaprospectivesubstitutionprovisionrequiring

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

89

enables only the assignment of rights (and perhaps a delegation of obligations), the transferandconsenttransactionmayneverthelessconstituteanagreementtoterminatethe original contract and enter into a new contract on the same terms with a new party. Conversely, while a prospective substitution provision may anticipate a novation, a transferandconsentmaybemerelyanassignmentofrights(perhapsaccompaniedbya delegation of obligations). In practice consents are often not worded with the finer nuancesoflegaldoctrineinmind.116 Insummary,whiletheparticularwordingofaprospectivesubstitutionprovisionand correspondingtransferandconsentmustbecarefullyexamined,itisnotclearthatsucha provision requiring consent willusually resultinthe"transferee" assuming contractual obligations as well as contractual rights visvis the nonassigning party and the transferorceasingtoberesponsibleforperformance.Thus,partieswishingtobringabout such consequences should ensure that these are clearly specified in the prospective substitutionprovisionandrelateddocuments. C ProspectiveSubstitutionProvisionsNotRequiringConsent Thepositionisevenlessclearwhentheprospectivesubstitutionprovisionpurportsto enableassignmentortransferofthecontract(orbothrightsandobligations)withoutthe nontransferringparty'sconsent atthetimeofthetransfer. Whiletheabsenceofsuch consentmakesitmoredifficulttoapplyanovationanalysis,thenontransferringparty has,inabroadersense,agreedtoatransferalbeitprobablytotransfersingeneralrather thanaparticulartransfer,andatthetimeoftheoriginalcontactratherthanatthetimeof transfer. Therefore,doprospectivesubstitutionprovisionsnotrequiringconsentenablewhat thelawgenerallyprohibits,thatis,thesubstitutionofonepartyforanotherinacontract (and,withinthat,thesubstitutionofthepersonliabletoperformcontractualobligations) by the unilateral action117 of one party at the time of substitution? Or should such provisions be interpreted as authorising merely an assignment of rights, perhaps accompaniedbyadelegationofobligations?

116 Inparticular,referencesto"transfer"intheprospectivesubstitutionprovisionandcorresponding

transferandconsentmaysuggestatleasttoabusinesspersonifnotalawyerthatobligations undertheoriginalcontractaretomovefromonepersontoanother,ratherthanbeextinguished visvisthe"transferor"andcreatedvisvisthe"transferee."Seeaboven53. consent to enter into a new contract with the nontransferring party before it is contractually boundtothenontransferringpartytoperformwhatwerepreviouslythetransferor'sobligations.

117 Theactionisunilateralasbetweenthepartiestotheoriginalcontract.Theincomingpartymust

90

(2000)31VUWLR

ThereissomeEnglishauthority118andAustraliandicta119holdingthatsuchaprovision authorisesanovation.Ontheotherhand,thereisUnitedStatesauthorityholdingthata prospective substitution provision does not necessarily constitute prior consent to a novation.120 The New Zealand Court of Appeal's decision in Lambly v Silk Pemberton Limited,121 concerninga"nominee"provisionratherthanaprospectivesubstitutionprovisionassuch, also shows a reluctance to hold that one party can substitute another person for itself withouttheotherparty'sconsent.Inthatcase,Lamblyenteredintoacontracttosellland to "Nigel Pemberton of Auckland or his nominees". Pemberton later nominated Silk Pemberton Limited as his nominee. When Lambly refused to settle, Silk Pemberton LimitedsuedLamblyforspecificperformance. SilkPembertonLimitedarguedthatthe contract gave Pemberton the power to bring about a novation, so that there was continuouslyabindingcontractbutonepartytoitcouldbealteredbyunilateralaction. Thiswasdescribedas"novel",withthejudgesconcludingthat:122

118 InReEuropeanAssuranceSociety(1875)1ChD307(CA)[ReEuropean]aninsuredhadtakenoutan

insurancepolicywithalifeassurancesocietycontainingaprovisionthatthepolicywassubjectto thesociety's deedofsettlement. Thedeedprovidedthatthesocietycouldtransferpoliciesto another insurer. The English Court of Appeal held that a transfer pursuant to the deed of settlementwaseffectivetotransferthepolicytoanotherinsurersothatthesocietywasnolonger liable under that policy. The English Court of Appeal has also held that where partnership articles state thatanypartner may nominateanyother person to join the partnership, once a nominationismadeandacceptedbythenomineetheotherpartnersmustadmitthenomineeasa partner: ByrnevReid [1902]2Ch735(CA). In TheBlankenstein [1985]1Lloyd'sRep93(CA), wherebuyersagreedtobuyshipsthemselvesand/oronbehalfofcompaniestobenominatedby themandlaternominatedacompany,theCourtheldthattherewasanovationofthecontractin favourofthatcompanyastheoriginalcontractentitledthebuyerstosubstitutethecompany. However in The Aktion [1987] 1 Lloyd's Rep 283, Hirst J did not accept that The Blankenstein established "as a matter of principle that the novation must take place at the moment of nomination,whateverthenatureandcircumstancesofthecontract"andheldinthecasebefore himthatthenovationdidnotoccuruntilthesellertransferredtheshiptothenominee. statedthatunlesstheprovisioninquestion"conferredaunilateralrighton[theparty]notonlyto assignitsrightsbutalsotobringaboutanovation"thetransferofbothrightsandobligations requiredatripartiteagreementbetweenbothoriginalpartiesandthetransferee. CallawayJA addedthatinanyevent"itwasmorestraightforwardandmadecommercialsensetoagreethat theassignmentwouldbeeffectedbyatripartiteagreement". inadvancetoreleaseGeneralCleaningfromitsobligationstohim.

119 InRisedaNomineesPtyLtdvStVincent'sHospital(Melbourne)Ltd[1998]2VR70,75CallawayJA

120 InGeneralCleaningaboven99,thecourtheldthatthejurycouldfindthatClarkhadnotconsented 121 LamblyvSilkPembertonLimited[1976]2NZLR427(CA)[Lambly]. Comparewith LangvFox(10

May 1999) unreported, Court of Appeal, CA49/99 where, following a nomination by a seller whichwasacceptedbythenominee,thebuyersacceptedthenomineeasacontractingpartythus creatinganovation.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

91

Nodoubtitistheoreticallypossibleforavendortoauthoriseapurchasertobringabouta substitution of some other person of his own choosing as a new purchaser under the agreement,directlyresponsibletothevendorasamatterofprivityofcontract.Butthewhole conceptissounusualinpracticethatIwouldlookformuchclearerwordsthanaretobefoundinthe presentagreement.... [I]ntheabsenceofcompellinglanguageIdonotthinkthecourtshouldimputetothepartiesan intentiontoallowanoriginalsignatorytosubstituteforhimselfamanofstraw.... Therealdifficultyintheideaofnovationisthatnovationinvolvesanewcontract,towhich(it isusuallysaid)theconsentofallpartiesmustbeobtained....Inthepresentcasethevendor didnotinfactconsent,andanyimpliedconsentwhichmightarguablyarisefromthecontract waswithdrawbeforethenominationofSilkPembertonLtd. [Emphasisadded.]

Thus, the Court left open the possibility that, absent a withdrawal of consent, the consentinasufficiently clearprospectivesubstitutionprovisionmayitselfbesufficient agreementtoanovationatalatertime. Thereisalsodicta inemployment contractcasessuggestingthatasuitablyworded prospective substitution provision would enable an employer to substitute a new employerinitsplace:
[I]ntheabsenceofanexpressorimpliedterm(andtheCourtwouldbeveryslowtoimply one)inthecontractofemploymentorawardthereisnorighttotransferworkerstoanother employeragainsttheirwill.123 Itisnotpossibletotransfertheservicesofanemployeefromoneemployertoanother... unlesstherebesomecontractualarrangementwhichauthorisessuchtransfer.124

There is no compelling reason why a suitably worded prospective substitution provisionshouldnotenableapartytoshedbothitsrightsandobligationswheretheseare

122 Lamblyaboven121,429,433and434.TheCourtconsideredthattheargumentwas"notwholly

withoutauthority". However,majormatterswouldbelefttoinference.Forexample itwould have to be implied that, before settlement, the nominee would accept the buyer's obligations underthecontractandprovidethesellerwithasufficientnoteor memorandum inwritingto enabletheobligationstobeenforcedagainstthenominee. NZILR762,766(LabourCourt).

123 WellingtonandTaranakiShopEmployees,etcIUOWvPacemakerTransportWellingtonLimited[1989]2 124 Wellington etc Local Bodies IUOW v Feilding Borough Council [1983] ACJ 629, 631632. Also,

AttorneyGeneralvGrant [1998]3ERNZ259(CA)concernedanemploymentcontractproviding that the employer could transfer employees. However, the Court of Appeal did not have jurisdiction to determine, and hence left open, the possibility that such a provision could authorisethetransferofemployeesfromoneemployertoanother.

92

(2000)31VUWLR

assumedbyanotherperson.125Whilethiscreatessomeuncertaintyovertheidentityofthe parties, a contract will not fail for uncertainty if there is a mechanism to resolve that uncertainty(evenifthemechanismiscontrolledbyoneparty). 126Theactofsubstitutionby the"transferring"partydeterminestheidentityofthenewparty. Theabilityofapartytosubstituteanotherpersoninitsplaceexposestheotherpartyto theriskthatapartywillsubstitutea"manofstraw". However,contractlawdoesnot generallystrikedownprovisionsbecausetheycreatean"unfair"risk.Anysuchriskcould becounteredbyrestrictionsonthetypeofpersonwhocouldbesubstituted. Inanyevent,prospectivetransferprovisionswithoutaconsentrequirementmaybe socially desirable. For example, they promote efficiency by decreasing the transaction costsincurredbyasellerofabusinesstransferringthatbusinesstoabuyer, 127andonintra grouptransfersofcontracts,onagrouprestructuring.Insuchcircumstances,theremaybe significant costs in obtaining consent from, or otherwise effecting a novation with, numerouscounterparties. In summary, it seems that prospective substitution provisions that do not require consentatthetimeofsubstitutioncanbeeffectivetoenableonepartytosubstituteanother personincontractualarrangements(andthus"transfer"contractualobligationsaswellas contractualrights). However,giventheapproachproposedbyLordBrowneWilkinson, andNewZealandcourts'reluctancetointerpretprovisionsthisway,theprovisionshould setoutthisintentionveryclearly.128

125 InReEuropeanaboven118,322,theCourtemphasisedthattheissuewasresolvedbyconstruing

thedeedofsettlement.

126 SeeforexampleCoachmanPropertiesLimitedvPanmureVideoClubLimited[1984]2NZLR200. 127 InReEuropeanaboven118,317318theEnglishCourtofAppealusedsimilarreasoning,noting

that:

unlesssomearrangementofthiskindforthetransferofthebusinessofinsurance companies is inserted in their deeds of settlement, there is no practical mode by whichaninsurancecompanycanevercometoanend[butotherwise]mustgoonfor anindefiniteperiodoftime,oratalleventsfortheperiodwhichwillbecoveredby theaggregatelivesofallthepartiesinsured.
128 ForanexampleofaclearlydraftedprovisionseeAustralianNationalAirlinesaboven69.Abuyer

of property could nominate another buyer, with the seller having agreed to enter into "an agreementtorescindthiscontract"and"acontract(withthenewpurchaser)onthesametermsas thiscontract".However,whilethesellerwasobligedtoacceptanewparty,ithadtotakeaction toeffectthesubstitution.Thus,suchaprovisionwouldnotbesuitablein,forexample,utilities' standardformcustomercontracts.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

93

D AncillaryIssues as: Substitutionsinrelianceonaprospectivesubstitutionprovisionmayraiseissuessuch (1) Does the transferring party retain (or resume) its obligations when the person soughttobeintroducedisnotableeithertoenterintotherelevantcontractorto perform that contract at all (for example, because it does not have a necessary regulatoryapproval)orthenewcontractisunenforceable?129 (2) Isthereanewcontractpostsubstitutionoracontinuationoftheformercontractbut withanewparty?Thiscouldberelevant,forexample,wherethecontractcontains timelimitsorrenewalprovisions. (3) Where no consent is required atthe time of substitution can aparty effectively withdrawconsentbeforeasubstitutionoccurs?130 Where such uncertainties are significant to a party, they could be removed or minimised, for example by setting out in the original contract the parties' intention regardingtheprospectivesubstitutionprovision.

VI

PRACTICALDRAFTINGSUGGESTIONS

TheearlierPartsofthisarticlehaveshownthatthelawon"assignment"or"transfer"of contractualobligationsisuncertaininsomerespects. Theapplicationofthelawisalso uncertain,asitdependsondiscerningtheparties'intention(or,perhapsmorerealistically, imputinganintentiontothem)intheabsenceofadevelopedinterpretiveframeworksuch asthatusedbyUnitedStatescourts. Theauthorsubmitsthatthelawshouldbeclarifiedtominimisethisuncertainty,and thustolowerthecoststhatsuchuncertaintycreatesincommercialtransactions. Absent

129 Byanalogy,in MorrisvBaron [1918]AC1,wherepartiestoawrittencontractforsaleofgoods

substitutedanoralcontract,theHouseofLordsheldthateventhoughthenewcontractwasnot enforceable (as it was not in writing as required by statute) the former contract had been terminated and hencecould nolonger be relied upon. See also United Dominions Corporation (Jamaica)LtdvShoucair [1969]1AC340(PC)(althoughvariationunenforceable,nointentionto terminateoriginalcontractsothisremainedinforce). sellercouldwithdrawconsentasshewasnotinacontractualrelationshipwiththenominee.As thepartyseekingtoexitthecontractwasnotapartytoproceedings,theCourtdidnotexamine the effect visvis that party. Thus, a party seeking to exit in reliance on a prospective substitutionprovisionmaybeabletoenforcethatprovisioninthefaceofapurportedwithdrawal ofconsentand,ifs4oftheContracts(Privity)Act1982applies,theproposedincomingparty mayalsobeabletodoso.SeealsoReEuropeanaboven118,319(eveniftheapplicanthadrefused tosubmittothetransferofthesociety'sbusiness,hisrefusalwouldhavebeeninvain)andBailey aboven67,217218(priorconsentgiveninacontractbindsthepartygivingconsent).

130 Thishappenedin Lambly aboven121,434,withCookeJstatingthatvisvisthenominee, the

94

(2000)31VUWLR

suchclarification,partiestocommercialcontractscanminimiseuncertaintythemselvesby draftingassignmentandprospectivesubstitutionprovisionsandrelateddocuments131 to correctlyreflecttheunderlyinglegalprinciplesand,inlightofthoseprinciples,tostatethe parties'intentionasclearlyaspossible.Varioussuggestionsaresetoutbelow. A Assignors (1) Donotreferinassignmentprovisionsincontracts(andinrelateddocuments)to "assigning"acontractasawhole(orto"assigning"bothrightsandobligations),but insteadtoassigningrightsand,ifrelevant,delegatingorsubcontractingobligations. (2) Consider whether the original contract should prevent the nonassigning party enforcingtheremediesofdamagesandcancellationagainstanassignee. (3) Iftheassigneeistoperformtheassignor'sobligations,makeclearindealingswith theassigneewhethertheassigneeismerelyauthorisedtodoso132oriscontractually boundtotheassignortodoso.133 (4) If the assignee is to be contractually bound to the assignor to perform the obligations, consider whether the contract with the assignee should specify a remedyforfailuretoperform(whichmaybe,orinclude,theassigneeindemnifying theassignorforanyliabilityoftheassignortothenonassigningpartyasaresultof anydefaultbytheassignee). (5) Toavoidliabilityfollowingatransfer(forexamplewherethereistobeanovation), makethisintentioncleartothenonassigningpartyandobtainitsconsent. B Assignees (1) If involved at the time the original contract is negotiated, consider whether to promote aprovisionexcluding theenforceabilityoftheremediesofcancellation anddamagesagainsttheassignee. (2) Whentakingrights,checktheoriginalcontracttodeterminewhetherthesedepend ontheperformanceofobligations(and,ifso,clarifywiththeassignorwhoisto perform those obligations), whether the nonassigning party is excluded from enforcingdamagesorcancellationagainsttheassignee,andwhetherthelimitation
131 Forexampleagreementsornoticescontainingassignments,noticestononassigningparties,and

consentstoassignmentsorsubstitutions. Sometimestheremaybetacticalreasonswhyaparty doesnotwishtomaketheconsequencesofatransactionclear. concernedaboutwhetherthecontractisperformed.

132 Thismaybeappropriatewhentheassignorisassigningallitsrightsunderthecontractandisnot 133 Thismaybeappropriatewhentheassignorwillbeliabletothenonassigningpartyintheabsence

ofperformance,ratherthantheassigneemerelylosetheabilitytoenforcerightsagainstthenon assigningparty.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

95

ontheassignee'sliabilityinsection11(2)oftheContractualRemediesAct1979is excluded. (3) To take rights free of some or all conditions (or other equities), enter into an agreementwiththenonassigningpartytothiseffect. (4) Ifexpresslyorimpliedlyassumingallorsomeoftheassignor'sobligations,ensure thatthoseobligations,andwhetherornottheassigneeiscontractuallyboundtothe assignortoperformthoseobligations,isclear. (5) Beforebecomingcontractuallyboundtotheassignortoperformthoseobligations, considerwhetherthecontractwiththeassignorshouldexcludethenonassigning party being able to bring proceedings against the assignee by relying on the Contracts(Privity)Act1982. C NonAssigningParty (1) Aswellasensuring that any assignment provision intheoriginalcontract (and related documents if the nonassigning party is a party to these) is worded in accordance with the underlying legal principles, ensure that (if intended) that provisionmakesclearthattheassignor'sliabilitycontinuesafteranyassignmentor transfer. (2) When negotiating the original contract, check for any limitation on exercising remediesagainsttheassignee,andconsiderwhethertoexcludethe limitationon theassignee'sliabilityundersection11(2)oftheContractualRemediesAct1979. (3) Tobesureofarightofactionagainsttheassigneefordefaultinperformingthe assignor'sobligations,contractdirectlywiththeassignee,havetheassigneeenter into a deed in the nonassigning party's favour binding the assignee to performance, orensurethat section 4oftheContracts(Privity)Act1982canbe reliedupon. D ProspectiveSubstitutionProvisions (1) Makeclearwhetherornotthetransferringpartywillcontinuetobeliableforany defaultinperformance. (3) Considerwhethertheprospectivesubstitutionprovisionshouldspecifyanyother consequencesofasubstitution.134Forexample,shoulditstatethatthenewcontract between the nontransferring party and the new party will be deemed for the

134 Thisisespeciallyimportantwhenasubstitutioncanbemadewithoutconsentortherearelimited

grounds for withholding consent, as the nontransferring party may not be able to withhold consentuntiluncertaintiesareclarified.

96

(2000)31VUWLR

purposesoftimeperiodsspecifiedinthecontracttohavebeenenteredintoatthe timeoftheoriginalcontract? (4) When seeking and granting consent to a proposed transaction pursuant to an ambiguousprospectivesubstitutionprovision,makeclearwhethertheconsentisto anassignmentofrights,asubstitution(thatis,novation)orothertransaction. (5) Thenontransferringpartyshouldensurethatthenewpartyiscontractuallybound toit.

VII

CONCLUSION

Thelawonthe"assignment"or"transfer"ofcontractualobligationsinNewZealandis unclear.Aswellastheuncertaintiesthatariseatcommonlaw,NewZealandlawyersand courtsmustcontendwiththeconfusioncreatedbysection11oftheContractualRemedies Act 1979. Despite having been on the statute books for 20 years, the courts have not clarifieditsmeaning. Thiscreatesdifficultiesforlawyersinstructuringtransfersandin determiningtheconsequencesofpasttransfers. Thus, an authoritative clarification of section 11 by the courts or by legislative amendmentwouldbewelcomed. However,evenmoremightneedtobedone. While contractlawhastosomeextentmovedfromtreatingcontractsascreatingonlypersonal rightsandobligations,itmayneedtomoveevenfurthertobeappropriateforthemarket characteristicsofthe21stcentury. AshasbeenstatedofthedevelopmentoftheUnited Stateslawinthisarea:135
ThereisnodoubtthattheAmericanruleonassignmentanddelegation...standsthedoctrine ofprivityonitshead.Freeassignabilityandtheconcomitantpresumptionofadelegationof duties,however,havebeenextraordinarilyusefulinthedevelopmentofacrediteconomyand inthefreealienationofpropertyinadynamic,fluideconomy.

The United States case law suggests other mechanisms which, if adopted in New Zealand,couldmovetheoryclosertopractice. Inthemeantime,theinconclusivenatureofthetheorysurroundingthe"assignment"or "transfer"ofcontractualobligationsmeansthat,inpractice,theburdenfallsonlawyersto draft documents that clearly indicate the nature and effect of any such transfer or assignment.

135 Hunter,aboven79,54.

ASSIGNMENTSANDTRANSFERSOFCONTRACTUALDUTIES

97

DUTRANSFERTUNTIERSDESOBLIGATIONSCONTRACTUELLES:LA NCESSAIRECONCILIATIONDELAPRATIQUEETDELATHORIE
Sil'ons'accorded'unemaniregnrale,danslaCommonLaw,reconnatrequeles droitsissusderelationscontractuellespeuventtretransmissiblesdestiers,ledouteet l'incertitude demeurent encore quant la possible transmission des obligations contractuelles. L'auteur,lalumiredesdispositionsdel'article11duContractualRemediesAct1979 etdesmthodesdetransfertdesobligationsretenuesparlapratique,examineetcompare leurmiseenuvredansledroitpositifnozlandais,anglaisetnordamricain. Elledmontreainsi,lancessitqu'ilpeutyavoirdeclarifiercertainsdesprincipes dgagsparlaCommonLawdanscedomaine,proposantpourcefaire,quelquessolutions pratiquespourquepuissetre,notamment,priseencomptel'intentiondespartiesetce d'autantplusqueledroitpositifresteencoreincertain.

98

(2000)31VUWLR