Assignment Of Loan Agreement

In this event, the assignor's obligation to account, would effectively afford the assignee a priority claim in the insolvency, in respect of the outstanding amount in question (G Mc Cormack "Debts and Non-Assignment Clauses" (2000) JBL 422).

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Whilst the case itself related to the assignment of a receivable, the court, per Carr LJ, put forward the following principles which would be equally applicable to assignments of loan participations: Although BP's position was that on a proper interpretation of the assignment letter they were not in breach of warranty as regards their entitlement to assign, the court ruled to the contrary and ordered the company to reimburse NBAD the full $68 million, plus interest.

Paradoxically, the non-assignment provision which ultimately proved to be detrimental for BP, was in fact a key stipulation of one of its own standard terms of contract.

In the Turcan case, Bristowe VC held that in circumstances where there was an agreement to assign a policy of insurance which incorporated a non-assignment clause, the assignor could effectively be regarded as trustee of the policy for the assignee.

Accordingly, the insured in this particular case was duly regarded as the trustee of the policy proceeds for a third party.

Despite an admission by the litigants themselves that the letter of assignment was a badly drafted document of randomly selected boilerplate clauses, the court held that it was nevertheless an assignment which thereby contravened the non-assignment clause contained in the initial contract between SAMIR and BP.

The key aspect of the case which was to be judicially addressed, was the resultant impact that the prohibited implementation of the non-assignment clause would have on the letter of assignment, as regards the contractual obligations that BP and NBAD had towards each other.Any assignment not made in accordance with the terms of this Section shall be void".BP subsequently assigned, to the National Bank of Abu Dhabi (NBAD), 95% of the value of the debt/receivable which was owed by SAMIR as consideration for the supply of oil under the terms of their agreement (the value of the discounted payment being million).The essence of this article is to afford due consideration to the legal ramifications of an assignment of rights (insofar as it relates to loan agreements), effected by an "original" lender to an "incoming" lender, in circumstances where such an arrangement is invalidated vis-a vis the borrower, having been made in contravention of a non-assignment clause which is stipulated in the contract between the original lender and the borrower.As a starting point, it might perhaps be worthy of mention, that a borrower may have convincing reasons for insisting on the inclusion of a non-assignment clause in an operative loan agreement.This particular aspect will be one of the core issues which will emerge from the ensuing analysis.A recent case which merits consideration and has contributed to casting further light on applicable legal principles governing assignments, is that of National Bank of Abu Dhabi PJSG v BP Oil Limited (2016) EWHC 2892, the facts of which are set forth below: BP entered into an agreement with a Moroccan refinery company, Societe Anonyme Marocaine de L' Industrie de Raffinage (SAMIR), to which it supplied Russian Urals crude oil.At the other end of the contractual spectrum, a lender would be significantly more amenable to the incorporation of an assignment clause in the governing loan agreement (although, as will be seen later in this text, this proved to be counter-productive for BP Oil, whose standard term, non- assignment clause was implemented to its detriment), for it stands to reason that this could cater for any subsequent change in his financial, personal or other circumstances, necessitating the assignment of his rights to a third party (e.g. In light of the foregoing, it is therefore arguable that the legal position concerning assignments may be such that it should seek a happy medium in accommodating diametrically opposing interests which, on the one hand, respects the debtor's freedom to restrict the lender's right to assign, and on the other hand, sympathises with the latter's reasonable expectation that his proprietary rights are adequately protected, should the purported assignment fail.Indeed, it has been said that, in the final analysis, what it essentially boils down to, is pursuing a balanced legal approach which strikes a compromise between these conflicting positions (G Mc Cormick, "Debts and Non-Assignment Clauses" (2000) JBL 438).It has been suggested however, that this decision should be narrowly regarded, by way of exception, as being restricted and applicable to its own particular facts, and that, as a general proposition it should, in such circumstances, be ordinarily incumbent on the borrower to effect payment only to the assignor as trustee, and not to the assignee as beneficiary .The upshot of the foregoing is that due care should be exercised by all parties to a loan arrangement, be they borrowers, lenders or assignees, to be vigilant in ensuring that, in the context of appreciating and understanding the nature and extent of their general contractual rights and obligations, there is also clarity as to the legal implications and potentially far-reaching consequences of assignments.


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