What does it do and why do I need it?
An assignment clause aims to control who performs a contract and who can receive benefits under the contract. It does not, however, mean that a party’s contractual obligations are transferred over, it simply means that the performance of such obligations can be delegated. This means that burdens cannot be assigned as a matter of law, but benefits can.
Including such a clause is important if you wish to control who receives the benefit of your performance if you are the supplier, or if you are a customer, control who carries out the contract for you. This may be important to you, for instance, if you do not wish to deliver work to your competitors or you do not want a particular person in your supply chain.
If the contract is silent on assignment and other dealings, a party can normally assign, mortgage, charge or declare a trust over its rights under the contract, without the other party’s consent and use a subcontractor to perform (but not transfer) its contractual duties. In some cases, however, a restriction on subcontracting may be implied where personal performance is required for example.
In light of this, if the parties wish to restrict such abilities, they should do this expressly. Please note, however, a prohibition on assignment has no effect on assignment of a right to receive payment, this applies to many contracts for supply of goods, services or intangibles made between UK businesses on or after 31 December 2018.
What should I look out for?
- Effect of an assignment breach - in most cases, a breach of an assignment restriction in the main contract may trigger termination rights or other remedies, may be valid between the assignor and assignee and it does not bind the original promisor who remains liable to the original promisee (the party receiving the benefit).
- Effect of a restriction of other dealings breach - if the wording specifically carves out restrictions on ‘mortgages, charges or trust of rights’ then it should be effective to stop the contracting party holding its rights in trust for a non-party. However, a restriction on an assignment/transfer alone might not have this effect. On the contrary, in relation to a subcontract, if a restriction was in place and there has been a breach, the subcontract is normally still valid, but the other party to the main contract may not be obliged to accept or pay for the subcontractor’s performance.
- Novation - if a party wants to actually transfer its obligations under the contract, as opposed to delegating their performance, it will need to do so by way of novation.
- Subcontracting of processing personal data - if, as part of subcontracting its obligations generally, the assigning/subcontracting party is subcontracting obligations to process personal data, it should note that the GDPR imposes conditions on sub-processing. The main contractor should check the data processing provisions and subcontracting provisions in the contract for provisions relating to sub-processing.
- Indemnities - in relation to subcontracting duties, the main contractor remains liable to the continuing party for the performance of any part of the contract that is still to be fulfilled. Therefore, a main contractor will therefore generally ask their subcontractor for an indemnity against any breach or failure to perform the contract. The indemnity will not usually cover liabilities incurred before the subcontracting took effect.