Does an equitable assignee need to give notice?
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Does an equitable assignee need to give notice?
If a party (Party A) to a contact assigns its rights under that contract to another party (Party C), but the assignment does not meet the criteria for a “legal” assignment as set out in section 136 of the Law pf Property Act 1925, the assignment will be an equitable assignment. This means that the counterparty to the contract (Party B) does not need to be notified that the assignment has occurred i.e.: that its new counterparty to the contract is Party C.
An equitable assignment of a contract is effective between Party A and Party C and either party can enforce their rights against the other. However, as between Party B and Party C, there are different views as to whether notice of assignment must be given before the equitable assignee (Party C) can exercise contractual rights against the other contracting party (Party B).
In Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430, the Court of Appeal held that an assignee of an option who had not given notice of the assignment to the other party could not exercise the option. The decision is based on the Court’s view that unless the counterparty has had notice of the assignment, it does not know whether the person claiming that they are the new assignee has the contractual right to enforce the contract.
Applying the principals established in Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430, the High Court has held in General Nutrition Investment Company v Holland and Barrett International Ltd and another [2017] EWHC 746 (Ch), that notices of termination served by an equitable assignee of a trade mark licence agreement were invalid, because no notice of the assignment had been given to the licensee.
In summary, where an equitable assignee seeks to bring about a change to its contractual relationship with the other contracting party, notice of the assignment must first be given to the other contracting party. This is because the other contracting party is entitled to see that the change is being effected by someone that is entitled to do so.
It is likely that this decision will be appealed, but it re-enforces the need to give notice of an assignment (even if it’s an equitable one) because it now seems that it is also needed to enable the assignee to exercise its assigned contractual rights.
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