04 December 2018

Often in a business contract, the parties are keen to ensure that sums to be paid for the supply of goods or services cannot be assigned to a person who is not a party to that contract.

New regulations have just been implemented which mean that any such restriction on assignation shall not have any effect where it prohibits or imposes a condition or other restriction on the assignation of a receivable arising under that contract or any other contract between the same parties.

These regulations are the Business Contract Terms (Assignment of Receivables) Regulations 2018 which came into force on 23 November 2018 and apply to contracts made on or after 31 December 2018 to which English, Welsh or Northern Ireland law applies. Note however that the Regulations will apply even if the contract says Scots law is the relevant law of the contract where it is apparent that such choice of law was made for the purpose of evading the Regulations.

There are however exceptions where the supplier is regarded as a large enterprise or a special purpose vehicle falling within the conditions set out in the regulations. For example, the supplier is deemed to be a large enterprise unless it is an individual or a partnership (other than an LLP or a Limited Partnership) or an unincorporated association. This is one of the examples listed.

There are certain other exceptions listed in the Regulations, for example, contracts for financial services or which concerns any interest in land are excluded from the ambit of the Regulations.

As a consequence, it is necessary to be aware that whilst a contract may expressly state that it is not assignable, that may be overridden in certain circumstances in terms of these Regulations and care will be required to ensure that the parties are aware of the result.

If you would like more information on this or to discuss any queries please contact Jeremy Glen, Partner jsg@bto.co.uk T: 0141 221 8012.