• Choose your language:
  •  
  •  
  •  

Tuesday, May 24th 2022

The ACP Legal Association

  • OHADAC and ACP Legal

    The partisans of this project, called OHADAC (Organisation for the Harmonisation of Business Law in the Caribbean), decided to meet within the framework of the association ACP Legal, to help interested Caribbean States to implement the project.

    Read more

  • OHADAC in brief

    This brochure has been published by the ACP Legal Association.

    plaquette_en_page1 plaquette_en_page2 plaquette_en_page3 plaquette_en_page4

    Downloads

Contact us

Sécid Tower, 8th floor
Renovation Place
97110 Pointe-à-Pitre
Guadeloupe(FWI)

Contact us

OHADAC PRINCIPLES ON INTERNATIONAL COMMERCIAL CONTRACTS

Article 8.3.1

Scope

1. By the assignment of the contract, a contracting party, called the “assignor”, transfers to another person, called the “assignee”, its rights and obligations in a contract in respect of the other contracting party, called “counterparty”.

2. This Section does not apply to assignment of contracts governed by special rules on transfer of a business.

1. Functioning of the Assignment of Contracts

The Principles, after regulating the assignment of a contractual right (Section 1) and a contractual obligation (Section 2), deals with the assignment of a contract as a whole, which has the added difficulty of transferring both rights and obligations [Section 2- 210 UCC; Article 6:159 of the Dutch and Suriname Civil Code; Article 9.3.1 UP].

Example: A franchisee wishes to assign its international franchise agreement to a third party. It shall be governed by this Section of the Principles because the assignment involves the rights of the franchisee (acquisition of knowledge and know-how, use of trademarks, supply of products or raw materials, etc.), but also its obligations (trade of products, payment of remunerations and economic considerations, etc.). Conversely, if the franchisee only wished to assign its obligation to pay monetary compensation to the franchisor, the Section on transfer of obligations would apply.

In this context, many systems of the OHADAC States do not provide for independent rules for the assignment of contracts, which differs from the assignment of rights and obligations. Consequently, the minimum consensus is found in basic rules, accompanied by a reference, as appropriate, to the transfer of rights and obligations, along the lines of the UP (sections 9.3.6 and 9.3.7), the PECL (Article 12:201), the DCFR (Article III-5:302) and Article 244 of the Proposals for the Reform of the French law on Obligations of 2013. Other aspects, such as the conditions for modifying a contract subject to assignment (Section 9-405 UCC), shall be governed by national law in accordance with the rules of private international law.

It has to be noted that in order to make the OHADAC Principles entirely effective they should be chosen in both the original contract and the agreement of assignment.

2. Assignments excluded from the Section

Like the previous Sections on transfer of rights and transfer of obligations and in accordance with the UP (section 9.3.2) and the DCFR (Article III-5: 301), this Section on assignment of contracts does not apply to transfers under the special rules concerning the joint transfer of business or assets. In these cases, given that there is a complete assignment of the entire legal relations of one of the parties, the rules concerning the individual assignment of each of the contracts is applied.

Commentary

Article 8.3.2

Conditions relating to the parties

1. The assignment requires the consent of the other party.

2. That consent may be given expressly or tacitly and before, at the same time, and after the conclusion of the agreement of assignment.

1. Consent of the other party

To the extent that the assignment of the contract involves not only the transfer of rights but also of obligations, the consent of the other party is required (Article 244 of the Proposal for the Reform of the French Law on Obligations of 2013; Tolhurst v Associated Portland Cement manufacturers (1902), 2 KB 660, Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (1994) 1 AC 85, HL; Article 9.3.3 UP; Article 12:201 PECL; Article III-5:302 DCFR). Thus, the Principles do not follow the rules on assignment of rights and follow the rules for the assignment of obligations. As noted in the comments on these Principles, the need for consent by the other party is based on the fact that the obligor of the obligation cannot dispose at will of its own obligation, since it can produce a clear loss to the obligee.

2. Time of giving of consent

As in the previous sections, consent may be given at different times. For example, it can be given when the agreement concluded, which is strategically the safest option. It can also be obtained after the conclusion of the agreement, in which case there is the risk that the efforts of the parties with respect to the negotiation and conclusion of the assignment are not rewarded because they will depend on the counterparty a posteriori. Finally, this consent can be provided in advance prior to the conclusion of the assignment agreement (Article 9.3.4 UP, Article III-5:302 DCFR). This strategy comprises two risks: firstly, the risk that the information provided to the other party to obtain its consent changes at the time of conclusion of the agreement. The parties need to tackle this risk by offering a closed agreement to the counterparty that only needs to be signed. The second risk, which these Principles can deal with themselves, is that the counterparty must be aware of when the assignment takes effect. This will require notice to the counterparty to ensure that it identifies the effective date of the agreement, for example, if when the consent is sought, the counterparty is informed of the date of the conclusion of the agreement.

3. Special incidence of the assignments in the obligations

As already noted, the transfer of contracts may involve a discharge of the obligor or retention as a subsidiarily or jointly and severally liable obligee in relation with the transfer of obligations. At this point, the OHADAC Principles have an advantage over the UP (section 9.3.5).

These are led by the expression “the other party may” discharge the assignor, retain it or make it jointly or severally bound, which, at a first glance, appears to be a unique and exclusive right of the counterparty. This could imply that the assignor and the assignee do not agree on anything, which is inaccurate. In fact, this interpretation may result in disproportionate prejudice to the assignor, since it can transfer its rights to the assignee, and lose ownership thereof, all the while continuing to be jointly and severally liable for all contractual obligations, because the counterparty has so decided. Also the expression of the UNIDROIT Principles raises considerable legal uncertainty between transferor and transferee, because a fundamental term of the assignment agreement depends on a third party who is not a party to the agreement.

In order to avoid risks of this type, the OHADAC Principles establish that the transferor and the transferee decide on the assignment conditions in which they are interested. This is probably one of the central aspects of the negotiation of the contract assignment agreement. However, the transferor and the transferee shall require the consent of the other party (Article 244 of the Proposal for the Reform of the French Law on Obligations of 2013). The counterparty may only consent to the assignment in the terms set by the assignor and the assignee. For example, if the transferor and transferee agree to an assignment with the discharge of the assignor [Graiseley Properties Ltd & Ors v Barclays Bank Plc & Ors (2013) EWCA Civ 1372], the counterparty may or may not accept it. However, if it accepts on condition that the transferor continues jointly and severally obliged, this will mean that it refuses the assignment under the terms agreed by the assignor and assignee. Indeed, the condition that weighs on the counterparty alters a fundamental term of the assignment agreement. It is true that the assignor and assignee may grant the other party a right to decide on the assignment conditions, although it is quite uncommon in practice. However, this provision would be, in any case, a right granted by the transferor and the transferee, and not by these Principles.

Example 1: A contractor wishes to assign a construction contract to a third party and, for these reasons, it requires the consent of the principal. Assignor and assignee will decide if the original contractor is discharged or has subsidiary or joint liability for the performance of the work. The customer may accept the terms of the transfer agreement, prior to, concurrent with or subsequent to its conclusion, but it may not unilaterally change them. If the assignor and assignee have agreed to discharge the original contractor, the counterparty is unable to accept the assignment under the condition of the joint and several liability of the original contractor. This consent would be equivalent to rejecting the assignment agreement under the terms under which it was drafted.

Commentary

Article 8.3.3

Effectiveness of the assignment

1. The assignment is effective against the counterparty:

  1. From the time when the consent is given by the counterparty, simultaneously or subsequently to the conclusion of the agreement of assignment.
  2. From the time when the notification of the assignment is received by the counterparty, if the consent has been given in advance.

2. After the assignment is effective, the counterparty is discharged only by performing in favour of the assignee.

3. When an assignee successively transfers the contract to another assignee, the counterparty is discharged by performing according to the last assignment that was effective.

1. When the assignment becomes effective

Given that the assignment of contracts may involve the transfer of rights, it is essential to determine at which time this assignment takes effect and when the counterparty must perform its obligations in favour of the assignee. This question has already been raised in the assignment of rights to the obligor and, in fact, the rules have many aspects in common. The main difference is that, in the assignment of contracts, the consent of the counterparty is always required and this greatly influences the time when the assignment takes effect. If the counterparty has accepted in advance, this time is when the counterparty receives notification of the agreement, without prejudice that the effective date may be deferred (Article III-5:302 DCFR). Provision is also made for the possibility that the counterparty may know from other sources when the assignment becomes effective, for example, if the counterparty, at the time of giving its consent in advance, had been informed of the effective date of the future contract (Article 244 of the Proposal for the Reform of the French Law on Obligations of 2013). If the counterparty has agreed at the same time as or after the conclusion of the agreement, this agreement will become effective when the counterparty consents, unless the parties agree on a later effective date.

In any case, once the assignment of the contract involves the transfer of rights vis-à-vis the counterparty, the counterparty is obliged to perform the obligation in favour of the assignee. Therefore, and in the same way as the assignment of rights, after notification of the assignment or the consent of the counterparty, when this is required, the counterparty will be only discharged after performing the obligation in favour of the assignee.

Example 2: the contractor assigns the execution of the construction work to a third party. A) If the principal has accepted before the conclusion of the assignment, once it receives notice that the agreement has become effective, payments for the execution of the work and delivery of materials shall be made to the assignee. B) If the principal has accepted at the same time as or after the conclusion of the agreement, it shall perform its obligations in favour of the assignee as from that time.

2. Successive assignments

The Principles also establish the rule tacitly agreed in the practices of OHADAC States, whereby, when an assignee successively assigns the contract to another assignee, the counterparty shall be discharged from its obligations by performing in favour of the last assignee whose assignment has been served or accepted.

However, the rule on “multiple assignments” by the same assignor, provided for the assignment of rights, is here obviated, as this case is anomalous and it is not regulated by most OHADAC States. In the assignment of rights, this rule made sense especially in relation to monetary rights, because the same claim could serve as guarantee of assignor's performance in several contracts. Therefore, several rights of third parties could be asserted against the same claim. Nevertheless, the assignment of the contract does not act as a guarantee of the transferor's performance, so a rule similar to the rule of assignment of rights is not necessary.

Commentary

Article 8.3.4

Legal framework of the assignment

1. To the extent that the assignment of contract involves a transfer of rights, Section 1 of this Chapter shall be applied.

2. To the extent that the assignment of contract involves a transfer of obligations, Section 2 of this Chapter shall be applied.

1. Rights in the assignment of contracts

As already highlighted in the commentary on Article 8.3.1, the lowest common denominator among the OHADAC legal systems refers, as appropriate, to the rules on assignment of rights and obligations. This trend is also observed in the UP (sections 9.3.6 and 9.3.7) the PECL (Article 12:201) the DCFR (Article III-5:302) and in Article 244 of the Proposals for the Reform of the French law on obligations of 2013.

Example: The case is the same as in the previous example where the contractor has assigned the performance of the construction to a third party. As soon as an assignment of right is involved, for example, the right to receive payment, the rules on transfer of rights will apply to the right. When an assignment of obligations is involved, for example, the contractor's obligation to provide materials or to deliver the construction, the rules on assignments of obligations will apply.

When the other party is the obligor of the obligation and the assignor is the obligee, the rules on transfer of rights will apply. Thus, the counterparty may assert against the assignee all defences provided against the assignor and any right to compensation against the assignor and that arose prior to the notification of the assignment or, if applicable, acceptance of this. Likewise, the obligor-counterparty is entitled to be compensated for the additional costs incurred by the assignment.

In this context, as an obligee of the obligation, the assignor will assume the following obligations against the assignee, unless stated otherwise. Firstly, it must ensure that the right exists or it is an identifiable future right that can be transferred and which is free from any claim or right of third parties. Secondly, it must ensure that it is entitled to transfer the right and that the obligor has no objection and there never will be a right of set-off against debts of the transferor. It has also been agreed in the contract of assignment that any performance in favour of the assignor, made since the transfer agreement entered into force until it was served on the obligor, is considered to be in favour of the assignee.

In these cases, the transferee, as a result of the contract assignment, acquires the rights. It will be the beneficiary of all guarantees to ensure the performance of the assigned right. However, the guarantees provided by third parties do not ensure the performance and shall be considered as extinguished in three cases; firstly, if the obligor's obligation becomes more burdensome as a result of the transfer; secondly, if the obligee and the obligor agreed to the prohibition of assignment of rights; thirdly, if the third party guarantor had provided the guarantee on condition that the right was not assigned.

2. Obligations in the assignment of contracts

When the counterparty is the obligee of the obligation and the assignor is the obligor, the rules on transfer of obligations will apply. There may be several options. The first one consists in the discharge of the assignor, who is exempted from all contractual obligations. The second option is a subsidiary obligation of performance by the transferor, in case the assignee does not perform its obligation properly. Subsidiary liability is established in the event that the assignee does not properly perform. Thirdly, a joint and several liability is established between the assignor and the assignee, so that the counterparty may claim the due performance against either of them. It is important to underscore that, in accordance with the section on the transfer of obligations, and unless otherwise agreed, joint and several liability between the transferor and the transferee will be presumed (see Article 9.3.5 UP in the same sense).

This rule implies that, if the discharge of the original obligor (assignor) is agreed, the assignee may assert against the obligee (counterparty) all defences of the original obligor. Instead, the transferee may not assert against the obligee counterparty any defence arising from the relationship between the assignee and the original obligor. In this context, the transferee may claim set off of its claims against the counterparty-obligee. However, it may not claim set off of those claims held by the original obligor (assignor). In addition, the obligor's discharge extinguishes guarantees provided for payment unless otherwise is stated by the guarantor. Also the guarantees could be maintained by agreement if they are referred assets the ownership of which was transmitted to the transferee by the obligor prior to or at the same time as the transfer of obligations.

When the original transferor-obligor agrees to a subsidiary obligation of performance, it could, whenever this is necessary in a subsidiary capacity, assert the set off of its claims. The guarantees provided before the transfer ensure the performance by the original obligor, when it is required.

In case of joint and several liability between the transferor (original obligor) and the assignee, the assignee's right to assert the defences of the transferor, the right to claim set off and the guarantees shall be governed by the provisions of these Principles on joint and several liability. The defences of the assignee against the assignor may be asserted against the counterparty (the obligee), regarded as a beneficiary under the terms of these Principles on agreements in favour of third parties.

SPECIFIC CLAUSES FOR ASSIGNMENT OF CONTRACTS

1. Clauses on the Scope of the Assignment of the Contract

It has already been pointed out that the assignment of contracts involves not only the transfer of rights but also of obligations. Therefore, it is important that the position of the transferor is regulated in the contract between the assignor and the assignee. See various possibilities:

Clause A: Discharge of the Assignor

“The assignee assumes all obligations under the assigned contract. The assignor shall be discharged without any liability to the other party of the assigned contract.”

Under this clause, the transferee assumes all the obligations of the assigned contract and discharges the assignor, which is not bound to the other party, unlike clauses such as the following:

Clause B: Subsidiary Obligation of the Assignor

“The assignee assumes all obligations under the assigned contract. However, in case of default or defective performance, the other party in the assigned contract may claim against the assignor.”

In this case, the assignor is not discharged and continues to have subsidiary liability when the assignee does not perform properly. Clauses of this style encourage the other party to accept the assignment, as is the case, but more strongly expressed in the following clause:

Clause C: Joint and Several Obligation between assignor and assignee

“The assignee assumes all obligations under the assigned contract. However, the assignor will remain jointly and severally bound to the other party.”

According to the preceding clause, the assignor and the assignee are jointly and severally liable to the other party in the assigned contract, except for reimbursement actions. Although this rule is applicable when the assignor and the assignee have not agreed upon anything in the assignment agreement, it is advisable to mention this joint and several obligation explicitly regulated in order to provide the parties with greater legal certainty for the parties and also to incite the other party to the assigned contract to consent to the assignment.

2. Clauses on Prohibition of Assignment

In accordance with the OHADAC Principles, the assignment of a contract requires the consent of the other party. For this reason, it is not necessary to include this provision in the original contract or expressly prohibit the assignment. This assignment will not take place if there is no subsequent agreement of the parties under the assigned contract stated as follows: by the assignor in the assignment agreement itself; by the counterparty, through the consent that it shall necessarily provide in connection with such assignment.

However, it is common for the parties to include clauses in the original contract that prohibit or admit the assignment. These clauses sometimes create issues of interpretation. The following sections and cases are, in this sense, paradigmatic: Section 2-210 (4) UCC on how to interpret expressions such as “prohibition of assignment of contract” or admission of “the assignment of all rights in the contract”, and certain English judgments [Helstan Securities Ltd v Hertfordshire County Council (1978) 3 All ER 262; Barbados Trust Company Ltd v Bank of Zambia & Anor (2007) EWCA Civ 148]. In these circumstances, the OHADAC Principles govern the interpretation of the contract, but it is highly recommended that the parties clarify and specify the exact meaning of their words and, in particular, whether the prohibition to assign the contract also affects the transfer of a right or specific obligation. In practice, this is particularly relevant in relation to the assignment of specific rights. If it is interpreted that the assignment is not prohibited, this transfer may be made by the obligee without the consent of the obligor. Conversely, if it is understood that individual assignment of rights is also prohibited, the obligee would require the obligor's consent to any assignment of any right.

In this context, the clause could be drafted in an absolute manner, prohibiting not only the assignment of the contract as a whole, but also the individual assignment of any of its rights and obligations:

Clause prohibiting assignment of contract rights and obligations

“The assignment of this contract to third parties is prohibited, as well as the assignment of any of the rights and obligations under the contract.”

According to the referred clause, the obligee of a particular right may not freely dispose of it without the consent of the obligor. Conversely, it could be that the parties prohibit the assignment of the contract as a whole, notwithstanding they might dispose of their rights. Such would be the case in the following clause:

Clause: Prohibition of Assignment of the Contract but not of Rights

“The assignment of the contract or of any obligation under the contract is prohibited. However, the obligee may assign a right conferred by this contract to third parties without the consent of the obligor”.

This clause prevents the assignment of the contract and of any of its obligations without the other party' consent. However, the parties may dispose of their contractual rights and freely transfer them, according to the Principles, without consent of the obligor. These clauses can also be modulated in the interests of the parties, admitting, for example, only the assignment of monetary rights arising under the contract.

3. Statements on the acceptance of the assignment (referral)

As in assignments of obligations, the acceptance of the assignment by the counterparty is very important. The reference to the models of statements contained therein is convenient, taking into account that the respondent acts as the other party, not only as a obligee, and that it accepts, conditionally or not, an assignment of the contract, and not only of obligations.

Commentary

Downloads

OHADAC principles on international commercial contracts.pdf