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Authored by: Justin Yuen
In West 28th Street Ltd v Halstead Associates Ltd [2024] EWHC 1698 (TCC), England’s Technology and Construction Court struck out the First Claimant’s claim on the basis that it had no standing to bring the proceedings, either as assignee or trustee.
The Parties
The case concerned the refurbishment of an existing house and construction of three new houses at a development (Site). The Second Claimant was the owner of the freehold title to the Site, and engaged a contractor (Country & Coast) under a JCT Contract. The Defendant was the Employer’s Agent and Quantity Surveyor in respect of the development. The Defendant’s contract was with the Second Claimant. Upon Country & Coast’s entry into administration, the JCT Contract was terminated and the Second Claimant appointed a replacement contractor (Towergate). The Second Claimant entered into administration in May 2020 and creditors’ voluntary liquidation in May 2021.
The Claimants alleged that the Defendant was negligent and/or in breach of contract in respect of the development at the Site in relation to: (i) inspection and/or monitoring; (ii) incorrect and/or over-certification of payments; and/or (iii) management and identification of delays to the construction programme.
Issues in Defendant’s strike out application
The issues in the Defendant’s strike out application turned upon the provisions of two documents. One of the documents was the Terms upon which the Defendant was engaged. In particular clauses 1.3 and 9.1 of that document, which provided as follows:
The second document, headed “Assignment Agreement (Agreement)”, referred to the Second Claimant having entered into administration in May 2020 and subsequently having been placed in liquidation and that it had agreed to legally and beneficially assign Assigned Claims (debts, actions, claims, rights, demands and set-offs that it had against the Defendant(s) including the entitlement to any proceeds, fruits, damages, or compensation arising from such claims, or relief consequent on such claims including (but not limited to) claims for breach of contract and professional negligence) to the First Claimant. It also stated the fact that the First Claimant is in the business of purchasing claims and legal disputes from insolvent estates and businesses facing closure, restructuring or insolvency and that following the assignment, the First Claimant intended to take all steps, at its absolute discretion, to pursue the Assigned Claims and to achieve a recovery.
Attached to the Assignment Agreement were “Terms and Conditions” for the assignment. Clause 3 provided that with effect from the date of the Agreement, the Assignors legally and beneficially assigned to West 28th (i.e. the First Claimant) absolutely, all of their rights, title and interest from time to time in and to the Assigned Claims (Assignment). Clause 4 headed “Trust and Power of Attorney” provided that in the event that, for any reason, the Assigned Claims were not effectively assigned to the West 28th by this Agreement, then: (i) 4.1.1 the Assignors shall hold the Assigned Claims on trust for West 28th absolutely (Trust); (ii) 4.1.2 it is agreed that the Assignors shall not bring proceedings against the Defendant(s) in relation to the Assigned Claims unless in the reasonable opinion of West 28th it becomes necessary or desirable to do so, and consent to West 28th bringing proceedings in its own name against the Defendant(s); (iii) 4.1.3 if in the reasonable opinion of West 28th it becomes necessary or desirable for the Assignors shall join the proceedings and shall appoint West 28th as their attorney to take any necessary steps in or in relation to such proceedings with power to do any act, and execute and deliver any deed or other document, on behalf of and in the name of the Assignors, which the Assignors could be required to do or execute in relation to the Assigned Claims; and (iv) 4.2 The Assignors shall promptly do all such acts or execute all such documents as West 28th may reasonably specify (and in such form as West 28th may reasonably require to give effect to Clause 4.1.3.
The Defendant’s strike out application was brought under England’s Civil Procedure Rules, CPR 3.4(2), which is similar to Hong Kong’s RHC Order 18, rule 19. CPR 3.4(2) provides that the court may strike out a statement of case if it appears to the court – a) that the statement of case discloses no reasonable grounds for bringing or defending the claim; b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal or the proceedings.
The Defendant attacked the claim brought by the First Claimant in its capacity as assignee, contending that Clause 9.1 of the Terms of its engagement (see above), meant that the assignment was ineffective to vest the Second Claimant’s contractual rights in the First Claimant. The Defendant relied on the House of Lords decision in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, which was binding on the court and in which the House of Lords upheld a contractual prohibition on assignment without consent, such that the purported assignee under the assignment in question had no standing to bring the claim as assignee against the Defendant. Accordingly, insofar as the claim was brought by the First Claimant as assignee, the claim would be struck out, the court said.
The court then went on to consider the other basis on which the First Claimant purported to sue, namely as trustee. The First Claimant contended that Clause 4.1 of the Agreement both declared a trust of the assigned claims for the benefit of the First Claimant, and gave the First Claimant certain powers to commence and control proceedings against the Defendant. The Claimants relied on that declaration of trust in the event that the assignment of the claim was otherwise ineffective. The Claimants argued that even if a clause agreed between parties prevents a legal assignment of a cause of action that one has against another, that will not prevent the assignor from holding the claim on trust for the assignee, unless the wording and/or purpose of the contract was clearly inconsistent with such a construction and particularly not where there has been an express declaration of trust. Clause 4.1 of the assignment, they argued, operated as such an express declaration of trust and also made it clear that if the assignment failed at law for any reason then the assignor (the Second Claimant) will hold the claims on trust for the assignee (the First Claimant).
The Defendant argued that the Terms of the Defendant’s engagement should be construed as preventing a declaration of trust, and therefore that Clause 4 of the Terms and Conditions attached to the Assignment Agreement was ineffective to create a trust. The court said that in the context of a strike out application, it had to determine whether the claim put forward is arguable. It had no doubt at all, it said, that there was a valid argument that Clause 4 was effective as establishing a trust in favour of the First Claimant as beneficiary. Accordingly, insofar as the Defendant’s application relied upon an assertion of the invalidity of the Clause 4 trust, the court rejected that as a basis for striking out the First Claimant’s claim.
However, there was a further argument which was that the appropriate party to sue to give effect to the Clause 4 trust was the Second Claimant as trustee, not the First Claimant as beneficiary. The court referred to CPR 19.10, which provides: (1) A claim may be brought by or against trustees, executors or administrators in that capacity without adding as parties any persons who have a beneficial interest in the trust or estate (“the beneficiaries”). (2) Any judgment or order given or made in the claim is binding on the beneficiaries unless the court orders otherwise in the same or other proceedings.
The Court also referred to the notes to CPR 19.10 which states: “Rule 19.10 lays down a general rule that trustees are the proper claimants in proceedings against third parties based on causes of action arising in respect of the trust in question. Beneficiaries who wish proceedings to be taken on behalf of the trust against third parties, can require the trustees to bring those proceedings (on terms giving the trustees an indemnity in respect of the costs thereof). Another aspect of this rule is that, except in special circumstances, a beneficiary has no standing to bring proceedings in his personal capacity against third parties relating to the causes of action vested in the trustees ….”
The court accepted the Defendant’s argument that any claim based upon the Clause 4 trust should be brought by the Second Claimant as trustee, not by the First Claimant as beneficiary. Accordingly, the First Claimant not only had no standing as purported assignee, but also had no standing as beneficiary under the Clause 4 trust. The court concluded that it could not discern any other basis upon which to give the First Claimant standing in the action and therefore ordered the claim brought in the name of the First Claimant to be struck out.
Comments
This judgment clarifies that even if no valid assignment has been made due to a prohibition against assignment in the contract between the assignor and defendant, the assignee can still require the assignor to sue the defendant as trustee, although the assignee has no standing as the plaintiff in those proceedings. It is therefore important for the assignee to include an express provision in its assignment agreement with the assignor that the assignee is entitled to require the assignor to bring those proceedings if the assignment is for any reason invalid.
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