Where contractual rights are purportedly transferred to an insurer by operation of law in breach of a non-assignment clause, is the transfer effective? The answer provided by Cockerill J in Dassault Aviation SA v Mitsui Sumitomo Insurance Co Ltd 1 was that it depends on whether it occurs outside the voluntary control of the transferring party, rather than the mechanism of the transfer. In other words, where there is a “taint of voluntariness”, the non-assignment clause will operate to prevent the transfer of contractual rights. Whilst the decision seeks to settle the century-old question of the applicability of non-assignment clauses to transfers by operation of law, Dassault brings elements of uncertainty to the law of assignment and subrogation.

Mitsui Bussan Aerospace Co Ltd (“MBA”) and Dassault entered into a contract, governed by English law, for the manufacture and delivery of two aircraft and related services to the Japanese Coast Guard. Article 15 contained a clause prohibiting the assignment or transfer of the contract “by any Party to any third party” without the prior written consent of the other Party. Contravention would result in the purported assignment or transfer being void. Without seeking Dassault’s consent, MBA entered into an insurance contract with Mitsui Sumitomo Insurance Co Ltd (“MSI”) under Japanese law to cover the risk of MBA’s being held liable to the Japanese Coast Guard for late delivery. The delivery was indeed late, and the Japanese Coast Guard claimed liquidated damages against MBA. MBA was then paid under the insurance policy. Article 25 of the Japanese Insurance Law (“JLI”) provides that the insurer, upon fulfilling the insurance proceeds payment, “shall, by operation of law, be subrogated with regard to any claim acquired by the insured”.

Pursuant to the arbitration agreement in the contract, MSI submitted a request for arbitration in London against Dassault. The tribunal majority dismissed Dassault’s jurisdictional objection based on the non-assignment clause, concluding that Art.15 did not apply to involuntary assignments or those which arise by operation of law, such as through JLI, Art.25.2 Dassault applied under the Arbitration Act 1996, s.67 to set aside the Partial Award, maintaining that Art.15 should prevent the subrogation because the transfer was ultimately voluntary, resulting from a series of voluntary acts by MBA and MSI. MSI argued that Art.15 did not apply to assignments by operation of law, as the non-assignment clause prevented merely assignment or transfer “by” a party, not transfer “from” a party.