This precedent has been authored by Dr. Morris Averill, Solicitor, Averill Media Legal Services and updated by Dr. Gordon Hughes, Principal, Davies Collison Cave Law.
It is not uncommon for a boilerplate clause to be inserted in a contract that deals with the possibility of one or both parties assigning or transferring their rights under the contract to a third party. This type of term may be drafted either as a contractual right to assign (possibly with limitations) or as a prohibition against assignment (often with exceptions).
The following should be noted at the outset:
• a contracting party at common law has been regarded as having a general right to assign its rights without any necessary consent or approval from the other party. It is for this reason that a boilerplate provision may be inserted to exclude or limit such a right; and
• however, there is no general right to assign or transfer contractual liabilities. For such a transfer to take place, a novation agreement will be required. The difference between assignment and novation should be kept in mind in the boilerplate drafting process.
Novation and assignment may have different tax consequences.
See generally the Australian Encyclopaedia of Forms and Precedents title “Choses in action”.
Assignment is where a contracting party assigns or transfers its rights under the contract to a third party. The transferor parts with something in favour of the recipient (transferee) of the thing, who by that means acquires ownership. This does not extend to any purported assignment of liabilities or obligations (for which a novation agreement is required).
In order for assignment of rights by one party not to be exercised unilaterally without the knowledge of the other party, it is common for contracts to include a provision that a party can only assign its rights under the contract with the consent of the other party.
It is customary also to include a provision to the effect that consent will generally be given (because there is no possible assignment of liabilities that may affect the interest or security of the party giving consent). It may also be necessary to include a provision to guard against the possibility that consent will be circumvented.
Assignment without requiring consent
Consider your client’s circumstances whether assignment to a related party (eg related body corporate if a company) should be permitted without requiring consent, or if a change in control in shareholding of a company should be a deemed assignment requiring consent of the other party.