West 28th Street Limited & Anor v Halstead Associates Limited (trading as Halstead Associates)

A contractual prohibition on assignment may make a direct assignment of contractual rights ineffective against the debtor. It does not necessarily prevent the assignor from declaring a trust of those rights for a third party. Whether the trust is excluded depends on construction of the contract, and exclusion is not lightly inferred.

Where rights are held on trust, the trustee is ordinarily the proper claimant in proceedings against the debtor. The beneficiary generally lacks standing to sue in its own name in respect of causes of action vested in the trustee.

The claim concerned alleged negligence and breach of contract arising from the refurbishment and construction of residential property. The second claimant, the former site owner, had engaged the defendant as employer’s agent and quantity surveyor. After the second claimant entered insolvency proceedings, it purported to assign its claims to the first claimant.

The defendant applied under CPR 3.4(2) to strike out the first claimant’s claim. The issues were whether the engagement terms prohibited the assignment, whether the assignment agreement nevertheless created a trust in favour of the first claimant, and whether the first claimant could sue as assignee or beneficiary.

1. The first claimant’s claim was struck out. The engagement terms prohibited assignment without written consent. Applying Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85, the court held that the assignment was ineffective to vest the second claimant’s contractual rights in the first claimant.

2. The pleaded alternative trust was legally arguable. The court applied the principles discussed in Don King Productions Inc. v Warren [2000] Ch. 291: a declaration of trust of contractual benefits is distinct from an assignment, and a non-assignment clause does not ordinarily prevent such a trust unless the wording or purpose of the contract is inconsistent with it.

3. The proper claimant under the trust was the second claimant as trustee. CPR 19.10 reflects the general rule that trustees are the proper claimants for causes of action vested in the trust. The first claimant, as beneficiary, therefore had no standing to sue in its own name.

4. No other basis for the first claimant’s standing was identified. Its claim was struck out whether advanced as purported assignee or beneficiary. The security-for-costs applications were adjourned and were not determined by this judgment.