An invitation to challenge Linden Gardens? (First Abu Dhabi Bank v BP Oil)

An invitation to challenge Linden Gardens? (First Abu Dhabi Bank v BP Oil)

This case considers the effect of a prohibition on the assignment of a contract right as between the assignor and purported assignee and the possibility that a long standing authority of the House of Lords which held an assignment made in breach of a no assignment clause was of no effect as between assignor and assignee might now be ripe for overturning.

Original news

First Abu Dhabi Bank PJSC (formerly National Bank of Abu Dhabi PJSC) v BP Oil International Ltd [2018] EWCA Civ 14

Why is the case of interest?

The House of Lords held in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd that an assignment of contractual rights in breach of a contractual restriction on assignment was ineffective to transfer the contractual rights even as between the parties to the assignment. This element of the decision has been roundly criticised as going too far in protecting a contractual counterparty with the benefit of a no assignment covenant from the consequences of an assignment made in breach of such a prohibition.

In First Abu Dhabi Bank v BP the Court of Appeal in analysing a receivables financing arrangement and the underlying contract, which contained a prohibition on assignment of rights without consent, made it clear that they thought the criticisms of the Linden Gardens decision were justified. However, the Court of Appeal reluctantly accepted it was bound by the decision and so could do nothing about it.

The case also makes it clear that a claim for breach of warranty to the effect that the contract can be assigned “as contemplated” by the relevant agreement is not easy to establish where the agreement contemplates the proposed assignee may end up with the fruits of the contract (ie the relevant funds) through some other mechanism such as a trust of the proceeds or a funded participation.

What were the facts?

BP had

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About the author:

Meet Neil:

1. Banking and finance lawyer with particular experience in asset finance

2. Likes Wales, wine, sport and anything else that means he doesn’t have the time to have to write personal information about himself

3. Thinks the law is a far broader topic than any of his family and friends who do not work in law

Neil specialises in banking and asset finance transactions with a particular emphasis in finance for shipping, aviation and renewable energy, as well as providing corporate transactional support. He trained and qualified at TLT LLP and spent a further four years working as a finance solicitor, acting for borrowers and lenders before joining the Asset Finance team at DLA Piper (UK) LLP.