Widely worded no-assignment clause shuts out insurer’s claims

News / / London

Dassault Aviation SA v. Mitsui Sumitomo Insurance Co Ltd [2022] EWHC 3287 (Comm)
An  insurer that paid out on a claim brought by its assured, the buyer of aircraft under an English law sale contract, has been prevented from making a recovery against the seller because the sale contract incorporated a widely worded no-assignment clause. Notwithstanding public policy considerations in favour of insurance, and although it did so with hesitation, the Court gave effect to what it considered was the clear contractual wording agreed by the parties that effectively amounted to a blanket ban on a transfer of such rights.

This is a significant decision for both insurers and assured, as well as their counterparties. It has been confirmed that the case is going to appeal.

The background facts

The dispute arose out of a sale contract for the manufacture and delivery of two aircraft and related supplies and services for supply to the Japanese Coast Guard. Article 15 of the sale contract was an “Assignment-transfer” clause and provided in relevant part as follows:

"Except for the Warranties defined in Exhibit 4 that shall be transferable to Customer, this Contract shall not be assigned or transferred in whole or in part by any Party to any third party, for any reason whatsoever, without the prior written consent of the other Party and any such assignment, transfer or attempt to assign or transfer any interest or right hereunder shall be null and void without the prior written consent of the other Party…"

The sale contract was governed by English law and provided for LCIA arbitration in London. It also incorporated stringent confidentiality provisions. The buyer subsequently took out an insurance policy governed by Japanese law to cover the risk of liability to the Japanese Coast Guard for late delivery of the aircraft. The sale contract contemplated and provided for the parties to take out insurance but not this particular type of insurance. The buyer did not inform the seller nor seek its consent.

The delivery of the aircraft was delayed and the buyer faced a claim by the Japanese Coast Guard for liquidated damages, for which it made a claim under the policy. The insurer accepted and paid the claim. It was common ground that subrogation under Japanese law amounted to a transfer of rights; the insurer acquired the right to sue in its own name, including the right to initiate proceedings. This was also reflected expressly in one of the policy clauses.

The insurer sought to commence arbitration against the seller to recover the amounts paid out to the buyer. The seller contended that the transfer of rights from the buyer to the insurer was precluded by Article 15, with the consequence that the insurer was neither a party to, nor entitled to enforce, the arbitration agreement.

The tribunal dealt with jurisdiction as a preliminary issue and concluded, by a majority, that since the transfer of rights occurred by operation of law, it was not caught by Article 15. The dissenting arbitrator held that any transfer of rights under the sale contract by reason of the policy was precluded by Article 15 and was legally ineffective, resulting in the tribunal having no substantive jurisdiction over the dispute.

The Commercial Court decision

The Court allowed the appeal. There was a well-established principle that an attempted assignment of contractual rights in breach of a contractual prohibition was ineffective to transfer such contractual rights and the authorities did not support any general presumption that a transfer in the context of insurance should not be caught by this proviso or that a transfer by operation of law was not caught by a clause of this kind. Rather, the issue was whether the transfer of rights was voluntary.

In the Court’s view, the wording of Article 15 was very broad and apt to cover transfer to an insurer. The Court accepted the seller’s argument that while the transfer took place pursuant to Japanese insurance law and to that extent by operation of law, it was nonetheless voluntary because the buyer’s action of taking out the policy caused the transfer of rights to happen. The buyer could have done things differently: it could have chosen a policy governed by a different system of law; it could have excluded the relevant provision of Japanese law, rather than reinforcing it with an express clause in the policy; or it could have chosen not to make a claim. Instead, it acted voluntarily or consented to take a step which on a certain contingency would put it in breach of the no-assignment provision.

As to context and commercial purpose, the Court noted that there were many reasons for inclusion of a no-assignment clause (chosen counterparty, undesirability of increased number of people to deal with). There were also particular sensitivities in this case arising out of the nature of the contract and the use of the subject matter of the contract. These were reflected in the confidentiality provisions in the sale contract.

The most compelling argument in the buyer’s favour was that there was no practical difference between bringing a subrogated claim in the assured’s name (e.g. under English law) and the same claim brought by the insurer in its own name and so it would be illogical for Article 15 to prevent the latter claim when the former claim would have been allowed. The Court accepted the force of this argument, but noted that there is a conceptual distinction between subrogation and assignment. The position on subrogation may not depend on analysis of the parties’ intentions to be gleaned from the clause, but may in part be driven by public policy. For present purposes, the Court did not need to conduct a detailed analysis of the nature of subrogation or decide the point. Rather, it indicated that the position on subrogation was simply a relevant factual matrix point but did not go to the commercial purpose of the clause or the sale contract.

In conclusion, whilst it might not always be clear where to draw the line between voluntary and involuntary transfers, on the facts of this case, with the multiple routes open to the buyer to avoid the transfer, there could be only one answer. The triggering of the relevant provision of Japanese law was on multiple levels a consequence of the buyer’s voluntary acts.


Pending the outcome of the appeal, those incorporating no-assignment clauses into their contracts should think carefully about how the clause is drafted and the wording used. Options might include an express carve-out for the transfer/subrogation of rights under insurance policies. Article 15, for example, provided for niche exclusions.

Insurers should take note that they may be precluded from pursuing recoveries under a transfer or assignment of the type contemplated by Japanese insurance law following payment of a claim by such widely worded no-assignment clauses. In addition, given that the Court left open the question as to whether English law subrogation would automatically fall outside such a clause, relying on subrogated rights is arguably not going to be sufficient to avoid an outcome of this nature.

From a practical perspective, and where this is permitted by the relevant legal system, the judgment makes it increasingly important that insurers are able to require that the assured allows proceedings to be brought in its name.

Christopher Crane
Reema Shour

Reema Shour

Reema Shour Professional Support Lawyer

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