Barbados Trust Company Ltd v Bank of Zambia & Anor

An assignment requiring the debtor’s prior written consent is ineffective against the debtor if effected before that consent has been obtained. A consent deemed to arise after a specified period of silence does not retrospectively satisfy the requirement for prior consent.

A restriction on assigning rights and benefits under a lending facility may extend to an established or acknowledged debt. A prohibition on assignment does not, without sufficiently clear language, ordinarily prevent the creditor from declaring a trust of the relevant rights. Whether the beneficiary may use the Vandepitte procedure to enforce those rights directly against the debtor remains sensitive to the construction and commercial purpose of the restriction.

Bank of Zambia owed an admitted debt under a 1985 oil import facility. Article 12.01(A) permitted a participating bank to assign its rights and benefits to a bank or other financial institution, provided that Bank of Zambia’s prior written consent was obtained. Consent was deemed given if no reply was received within 15 days.

Masstock assigned the debt to Bank of America with an effective date of 10 December 1999. Bank of Zambia had not replied to a request for consent, so any deemed consent arose on 17 December. Bank of America later declared a trust of the debt in favour of Barbados Trust Company, which was neither a bank nor a financial institution. The beneficiary sued Bank of Zambia and joined Bank of America as a defendant under the Vandepitte procedure.

Langley J held that Bank of America obtained title but that the beneficiary could not enforce the debt through the trust procedure. The beneficiary appealed, and Bank of Zambia challenged the ruling on title by respondent’s notice.

1. Appeal dismissed and respondent’s notice allowed, by a majority. Rix and Hooper LJJ held that the assignment to Bank of America was ineffective against Bank of Zambia because it had been effected on 10 December 1999, before the contractual requirement for prior written consent had been satisfied. Any deemed consent arose only after the 15-day period expired on 17 December and did not retrospectively validate the assignment. Bank of America therefore lacked legal title to the debt, and the beneficiary’s claim necessarily failed. Waller LJ dissented on this issue.

2. Article 12.01(A) applied to an established or acknowledged debt, as well as rights requiring future performance under the facility. Its general reference to rights and benefits under the facility was not confined to the active lending period. The restriction therefore governed an assignment of the debt itself.

3. The court agreed that a declaration of trust is distinct from a legal or equitable assignment. In the absence of sufficiently clear language, a clause prohibiting assignment does not itself prevent the creditor from declaring a trust of the contractual rights. An equitable assignment in writing may become a legal assignment under section 136 of the Law of Property Act 1925; a declaration of trust cannot.

4. The further discussion of the Vandepitte procedure was not necessary to the majority’s disposition. Waller LJ considered that the procedure merely placed the trustee’s legal claim before the court and could be used because Bank of Zambia would have had no defence to a claim by Bank of America. Rix LJ was, on balance, inclined to the same conclusion if Bank of America had held title, but expressly declined to make a final decision. Hooper LJ considered that allowing the beneficiary to sue directly would circumvent the restricted-assignment clause and agreed with Langley J on that issue.

1. Court of Appeal (Civil Division): By a majority, dismissed Barbados Trust Company’s appeal and allowed Bank of Zambia’s respondent’s notice. The claim remained dismissed because Bank of America had not acquired legal title to the debt. [2007] EWCA Civ 148
2. Commercial Court: Langley J held that the assignment to Bank of America was effective, but dismissed the beneficiary’s claim because use of the declaration of trust and the Vandepitte procedure was inconsistent with article 12.01(A). No citation is stated in the judgment.