WHY WORDING IS IMPORTANT WHILE
DRAFTING A CONTRACT ?
DOES INCLUSION OF THE EXPRESSION ‘ASSIGNS/ ASSIGNEE’ IN THE DEFINITION OF
THE PARTY INDICATE THAT, SUCH PARTY WOULD HAVE AN UNFETTERED RIGHT TO ASSIGN
THE CONTRACT, EVEN IF THE CONTRACT REQUIRES OBTAINING PRIOR APPROVAL OF THE
OTHER PARTY FOR ANY ASSIGNMENT?
It is held in the following case :
Neilan International Co Limited v. Powerica Limited [Commercial
Arbitration Petition no. 416 of 2019| Bombay High Court]
A typical clause introducing a Party to an agreement reads as follows:
ABC Limited, having CIN and registered office at __________ (hereinafter referred to as Party A, which expression shall, unless repugnant to the context or meaning thereof, be deemed to include its successors and permitted assigns).
Does inclusion of the expression ‘assigns/ assignee’ in the definition of the Party indicate that, such Party would have an unfettered right to assign the contract, even if the contract requires obtaining prior approval of the other Party for any assignment?
In a decision rendered last week, a single bench of Bombay High Court had
considered the implication of inclusion of expression ‘assigns/ assignee’ and
went on to observe that such inclusion makes it clear that the Parties had
agreed they would unreservedly have the right to assign the said Contracts.
Most contracts I have come across have the phrase in the name clause,
along with a restriction on assignability later. But in light of evolving
jurisprudence, we may need to altogether refrain from using such wording in
contracts.
Whilst the decision was silent as to whether the contracts in question had a specific clause limiting assignment of the contracts and if absence of such clause influenced such a decision, it did quote with approval one of its earlier decisions, where the Court had treated an agreement to be assignable (basis the definition of party including assigns), despite contract prescribing prior approval in writing of the other party for assignment to be effective.
Without going into the issue of whether the decision in the instant case was correct, one may need to tread with caution, should one wish to bypass the restriction on assignment purely on the basis of the definition clause.
Why? Because- any definition clause would invariably contain the
expressions “unless repugnant to the context or meaning thereof”. Where the
contract contains a specific restriction on assignability of a contract, such
restrictions would amount to ‘repugnant to the context’ or ‘context to the
contrary’, implying that, mere inclusion of ‘permitted assign’ in the
introduction clause of a Party, may not confer an unfettered right to bypass
the restriction of an assignment clause.
Most contracts I have come across have the phrase in the name clause,
along with a restriction on assignability later. But in light of evolving
jurisprudence, we may need to altogether refrain from using such wording in
contracts.
Courtesy : Shri Arka Majumdar
R V Seckar FCS
79047 19295
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