Loss Prevention Alerts

Loss Prevention Alert No 11 - CONFUSION ABOUT ASSIGNMENT

This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS. It highlights issues that the LPWG considers may be of relevance to members. It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.

Introduction

Several questions on the DLA Hotline relating to assignment disclose confusion about this far from simple concept. This Alert answers some common questions.

What does it mean to "assign a report"?

Strictly, the phrase is meaningless. A contract almost always involves a benefit and a burden. The benefit to a client employing a specialist will normally be the right to read and rely on a report and sue for breach. The burden is the obligation to pay. The burden of the contract cannot be assigned without the consent of the other party; so a consultant should not discover that unbeknown to him some other company has assumed the obligation to pay him. The position with benefits is less clear. In all probability, where the contract is silent on the point, the benefit of a contract with a specialist can be assigned without the specialist's consent provided he has notice of the assignment. Usually then, what is being assigned is not the report, but the benefit of the contract.

The benefit is being assigned to a company in receivership. I am worried that I will not get paid?

This should not affect payment. The burden of the contract - the obligation to pay - is still with the original client. Payment will only be a problem if there is some doubt about the credit worthiness of the original client.

Is assigning the benefit therefore never a problem?

No, it can be a problem. Assume that a specialist has worked for years for a particular housebuilder. He has built up a relationship with the housebuilder and believes him to be technically competent so that, should the consultant make a mistake, he feels confident that the housebuilder will spot the error before someone relies on it and suffers loss. The housebuilder then decides to assign the report to a notoriously aggressive developer whose team, the consultant believes, has real technical deficiencies. As has been noted in a recent House of Lords case, some companies are more difficult to deal with, and more likely to sue, than others. In cases of this nature, a specialist may very well be concerned about to whom he provides the benefit of the contract.

What then should be done?

One option is to state in the contract with the client that assignment of the benefit of the contract cannot take place without the specialist's express consent. This way, if the specialist is concerned about the characteristics of the proposed assignee, he can either refuse to give consent or give it subject to payment of a fee.

We have words to that effect in our report. Is that sufficient?

Not unless they also appear in the contract. The report is a post-contractual communication and, as such, cannot contain any contract clauses which vary the original contract. Any clause restricting the client's ability to assign the benefit ought to appear in the contract although there is nothing wrong with it being repeated in the report.

In one case I am involved in the assignee is bring a claim for negligence against my firm even though we believe the problem was caused by the original client's (ie. the assignor's) failure to provide accurate information. Can we raise this as a defence against the assignee's claim?

Yes. Any defence which could be made against the assignor can also be made against the assignee. Note also that the assignee cannot recover in damages more than would have been recoverable by the assignor had he brought the claim.

Can a specialist ever assign the benefit of his contract?

Yes. A specialist can assign the right to receive payment to another party. For example, he might assign the right to a lender as security for a loan. In all cases, notice of the assignment should be given to the client so that he has no doubt who he ought to pay.

So the right to read and rely on my report can be assigned by my client to a third party without my consent?

Yes. Provided you have notice of the assignment although that notice may arrive just before a claim for professional negligence brought by the assignee.

Am I insured against claims for professional negligence brought by assignees?

Normally yes, but check your policy or ask your insurance broker - wordings differ.

Prepared for the Members of the AGS by Steven Francis, DLA

Date of Issue: 21 June 2000