Foamcrete (Uk) Ltd v Thrust Engineering Ltd

A contractual prohibition on assignment does not prevent enforcement of security created before the prohibition existed. Where a floating charge validly covers present and future property, the chargee acquires an equitable interest in future debts as they arise. On crystallisation, that interest becomes a fixed charge over the relevant debt. A later transfer of the charge is therefore not an assignment by the chargor of contractual rights in breach of the prohibition. The construction of related agreements remains decisive: a restriction applying to “this agreement” does not ordinarily extend to a separate agreement concerning a specific transaction unless incorporated expressly or by implication.

PTE owed Thrust Engineering money under a purchase of stock agreement made in connection with a joint venture. Before that agreement, PTE had granted Midland Bank a debenture containing fixed and floating charges over its present and future property, including book debts. PTE later entered into the Principal Agreement with Thrust Engineering, which prohibited assignment without consent. After PTE went into liquidation, the floating charge crystallised. Midland Bank transferred the debenture to Foamcrete, which sought payment of the outstanding debt.

The Epsom County Court dismissed Foamcrete’s claim, holding that the transfer was ineffective under the prohibition in the Principal Agreement. Foamcrete appealed. The central issues were whether the prohibition applied to the debt under the separate purchase agreement and whether the pre-existing floating charge could be enforced after its transfer.

1. Appeal allowed. Judgment was entered for Foamcrete in the agreed sum of £19,670, inclusive of interest. Thrust Engineering was ordered to pay the costs of the appeal and the hearing below.
2. Per Lord Justice Mummery, clause 18.1 of the Principal Agreement did not apply to the claim. The Purchase of Stock agreement was separate and contained no assignment prohibition. The words “this agreement” naturally referred to the Principal Agreement alone. Its context, including clauses 5 and 18.6, supported that construction.
3. Alternatively, even if clause 18.1 applied, the transfer to Foamcrete was not an assignment of contractual rights made by PTE after the prohibition arose. The debenture and its fixed and floating charges had been created two years earlier. The bank’s security interest in the later debt derived from that antecedent charge.
4. The floating charge constituted an immediate equitable charge over PTE’s present and future property. It gave the bank a beneficial interest in the future debt when that debt arose. On PTE’s liquidation, the charge crystallised as a fixed charge over the debt. The later transfer of the debenture vested the charge in Foamcrete, which could enforce it after notice to Thrust Engineering.
5. The Court of Appeal distinguished the principle in Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited [1994] 1 AC 85, because that case concerned a post-contract assignment made in breach of an existing prohibition. Re Margart Pty Ltd [1985] BCLC 314 supported the analysis of the charge over future property.
6. Lord Justice Keene agreed with Lord Justice Mummery.

• Court of Appeal (Civil Division): [2000] EWCA Civ 351. Appeal allowed; judgment entered for Foamcrete.
• Epsom County Court: HHJ Holden dismissed Foamcrete’s claim and the counterclaim, holding that the assignment was unlawful under clause 18.1 of the Principal Agreement.