817

[No. 22] Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

IN THE HIGH COURT OF JUSTICE - CHANCERY DIVISION10

Before: MR JUSTICE LlGHTMAN

March 4-10 and 27, 1998

15 DON KING PRODUCTIONS, INC. V. FRANK WARREN AND OTHERS

Contract - Contracts for personal services - Contracts prohibitingassignment - Effect of purported assignment - Effect of agreement to hold forthe benefit of another - Whether trust of benefit of being a contracting party -

20 Whether non-assignment clause prohibited declaration of trust of benefit.

This was a trial of certain preliminary issues arising out of two successivepartnership agreements between the plaintiff, a company owned by Don King, aleading boxing promoter in the United States, and Frank Warren, a leading

25 boxing promoter in the United Kingdom, his business associate and a thirdparty. The questions before the court were (I) the construction of theagreements and (2) the effect of a purported assignment of, or agreement toassign, and of an agreement to hold for the benefit of another, a non-assignablechose in action. The judgment is reported only is so far as it concerns the

30 second question.

On the first question, the judge concluded that the intentions of the parties tothe two agreements were that all the PM & A agreements relating to Europeanregistered boxers held at any time during the subsistence of the partnership by

35 the partnership or by either partner should be assigned to or held for the benefitof the partnership absolutely and that the business of the partnership includedthe exploitation of the rights under such agreements. "PM & A Agreements "was the term used to describe the promotion, management and associatedagreements between a promoter and a boxer. Typically the boxer would be

40 engaged for a given number of fights without specifying the venue or theopponent, which were decided by the promoter closer to the time of the fight.The agreements ordinarily contained undertakings on the part of the boxer notto fight other fights during the period of the agreement. The promoter couldexploit his promotional rights by promoting an event either alone or jointly with

45 a co-promoter or by releasing the rights for a consideration to anotherpromoter. Where the promoter promoted the event he could exploit hispromotional rights further by entering into "associated agreements" with thirdparties such as for the sale of tickets, broadcasting and merchandising rights.

50 Having decided the first question, the judge then had to consider whether andhow far those intentions had effect in law and equity in the case of the PM & AAgreements which involved the rendering of personal services or whichincluded express prohibitions against assignment. The plaintiff contended thata trust of the contract and of the rights under a contract could be and, in the

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Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

present case, was created. The defendants contended that any effect in equitywas confined to the creation of a trust of the receipts in the hands of the"assignor" or of requiring the assignor to account for them to the assignee.They also contended that a party could not without the consent of the other 5parties to the contract make himself or become a trustee in respect of a contractwhich involved personal skill and confidence and which prohibited assignmentsbecause this would involve him in creating a conflict between the duties he owedto the other as party to the contract and those duties owed to the beneficiariesunder the trust. They also argued that to allow a contracting party to declare 10himself to be a trustee of the benefit of the contract when the contract prohibitedassignment was to be regarded as an attempt to defeat the non-assignmentclause and to enable the beneficiary to sue for enforcement (joining the trusteeas defendant) if the trustee refused to use, thereby by-passing the whole purposeof the non-assignment obligation. 15

Held, that each of the partners held the PM & A Agreements on trust for thepartnership:

(1) While the wholesale importation into commercial law of equitable 20principles would be inconsistent with the certainty and speed which were theessential requirements for the orderly conduct of business affairs, there was nosustainable objection on those grounds to the recognition of a trust where - as inthe present case - the parties had manifested their intention to do so and, afortiori where it was necessary to do justice between the parties. 25

Westdeutsche Landesbank Girozentrale v. Islington London Borough Council[1996] A.C. 669 referred to.

(2) Whilst it was possible for the legal and beneficial ownership to be 30vested in different persons without the relationship between trustee andbeneficiary, the existence of an obligation binding the conscience of the personvested with the legal title was the hallmark of a trust.

Westdeutsche Landesbank Girozentrale v. Islington London Borough Council 35[1996] A.C. 669 referred to.

(3) If and so long as the legal ownership of the PM & A Agreementsremained in one or other partner and the beneficial ownership was in thepartnership, the necessary fiduciary relationship existed and so did a trust. 40

(4) A trust could exist of the benefit of a contract and this could extend notonly to the benefit of the rights conferred but also to the benefit of being acontracting party.

45(5) In the case of a contractual obligation which was such that the identity

of the person who performed it was a matter of indifference to the contractingparty for whose benefit the obligation was imposed, its performance could bedelegated to another person. Otherwise no such delegation was possible.

50(6) The only assignment in respect of a contract which was legally possible

was of the benefit of the contract.

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[No. 22] Ch D

(7) A provision for the assignment of a contract was to be construed as theassignment of the benefit of the contract.

5 Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85referred to.

(8) Whether or not the benefit could be assigned depended primarily on theterms of the contract and secondarily on the character of the obligations.

10 Assignability of the benefit was not a matter of all obligations arising under thecontract or none at all.

(9) A contract could expressly or impliedly permit assignment of rights nototherwise assignable.

15Devefi Pty Ltd v. Mateffy Pearl Nagy Pty Ltd [1993] R.P.C. 493 referred to.

(10) Conversely a contract could prohibit the assignment of rights otherwiseprima facie assignable. Unless specially drafted to draw such a distinction, the

20 prohibition attached equally to the assignment of the right to futureperformance of the contract and the right to receive benefits accrued under thecontract.

Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 A.C. 8525 referred to.

(11) Unless the contract expressly or impliedly provided otherwise, thecharacter of an obligation precluded assignment of the benefit of the obligationif the identity of the person performing the obligation was material to the

30 person for whose benefit the obligation was imposed because the effect of suchan assignment was to alter the substance of the obligation.

Tolhurst v. Associated Portland Cement Manufacturers (1900) Ltd [1902] 2K.B. 660, Nokes v. Doncaster Amalgamated Colliery [1940] A.C. 1014, Devefi

35 Pty Ltd v. Mateffy Pearl Nagy Pty Ltd [1993] R.P.C. 493 and Linden GardensTrust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85 referred to.

(12) A declaration of trust in favour of a third party of the benefit of acontract was different in character from an assignment of the benefit of the

40 contract to that third party.

Devefi Pty Ltd v. Mateffy Pearl Nagy Ltd [1993] R.P.C. 493 referred to.

(13) A clause prohibiting assignment was prima facie restricted to45 assignments of the benefit of the obligation and did not extend to declarations of

trust of the benefit.

Pincott v. Moorstons Ltd [1937] 1 All E.R. 513 and Linden Gardens TrustLtd v. Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85 referred to.

50(14) The creation of a trust of the benefit of a contract involving personal

skill and confidence did not give rise to any objectionable conflict of duty. Aparty to a contract involving fiduciary duties who declared himself a trustee of

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Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

the contract had the paramount duty to perform his obligations under thecontract and to fulfil his duty of undivided loyalty to the other contracting party.In so doing he was acting as a trustee in preserving the trust property, namelythe contract itself. 5

(15) If a party wished to protect himself against the other party declaringhimself to be trustee of the benefit of a contract, he should expressly so providein the contract.

10(16) Only the basic principles of trust law whose rationale had application

in a commercial context would be applied. Accordingly, the courts would beastute to prevent a beneficiary from abrogating the fullest protection that theparties to the contract had secured for themselves under the terms of thecontract from intrusion into their contractual relations by third parties. 15

Target Holdings Ltd v. Redferns [1996] 1 A.C. 421 referred to.

(17) A declaration of trust could not prejudice the rights of the contractingparty who had to perform the obligation. If the contract required any judgment 20to be exercised by either party to it, an assignment could not alter who was toexercise it or how it was to be exercised or vest the right to make that judgmentin the court.

(18) Where the subject matter of a trust was a non-assignable contract and 25there were outstanding obligations to be performed by the trustee, the rule inSaunders v. Vautier (which enabled the sole beneficiary or beneficiaries to givedirections to the trustee) did not apply and the beneficiary could not interfere.

Re Brockbank [1948] Ch. 206 followed. 30

(19) There was, accordingly, no obligation in principle to a party tocontracts involving skill and confidence or containing non-assignmentprovisions from becoming trustee of the benefit of being the contracting party aswell as the benefit of the rights conferred. 35

Re Turcan (1880) 40 Ch. 5, Devefi Pty Ltd v. Mateffy Pearl Nagy Pty Ltd[1993] R.P.C. 493, Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd[1994] 1 A.C. 85 and First National Securities Ltd v. Hegerty [1985] 1 Q.B. 850referred to. 40

(20) It was the clear intent of the parties manifested in the two agreementsthat the PM & A Agreements should be held by the partnership or by thepartners for the benefit of the partnership absolutely. Accordingly, the ordinaryequitable principles applied and the partnership assets included all renewal and 45replacement agreements obtained by any partner during the partnership andover the period between dissolution and the completion of winding-up.

The following cases were referred to in that part of the judgment concerningthe second question: 50

British Wagon Co. (The) v. Lea & Co. (1880) 5 Q.B.D. 149.

Brockbank (Re) [1948] Ch. 206.

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[No. 22] Ch D

Devefi Pty Ltd v. Mateffy Pearl Nagy Pty Ltd [ 1993] R.P.C. 493.

First National Securities Ltd v. Hegerty [1985] 1 Q.B. 850.5

Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85.

Lord Strathcona Steamship Co. Ltd v. Dominion Coal Co. Ltd [1926] A.C.108.

10

Nokes v. Doncaster Amalgamated Collieries Ltd [1940] A.C. 1014.

Pathirana v. Pathirana [1987] 1 A.C. 233.

15 Pincott v. Moorstons Ltd [1937] 1 All E.R. 513.

Target Holdings Ltd v. Redferns [1996] 1 A.C. 421.Thompson's Trustee in Bankruptcy v. Heaton [1974] 1 W.L.R. 605.

20Tolhurst v. Associated Portland Cement Manufacturers (1900) Ltd [1902] 2

K.B. 660.

Turcan (Re) (1880) 40 Ch. 5.25

Vandepitte v. Preferred Accident Insurance Corporation of New York [1933]A.C. 70.

Westdeutsche Landesbank Girozentrale v. Islington London Borough Council30 [1996] A.C. 669.

Williams v. Inland Revenue Commissioners.

Michael Briggs, Q.C., Nicholas Le Poidevin and Douglas Close instructed by35 Bird & Bird appeared on behalf of the plaintiff. Jonathan Sumption, Q.C.,

Charles Hollander, Antony Zacaroli and Andrew Thomas instructed by ParkNelson appeared for the first, second, third and fourth defendants. KennethMaclean instructed by Herbert Smith appeared for the fifth defendant.

40 /. Introduction

I have before me for trial certain preliminary issues in an action in substancebetween two boxing promoters but in form between the vehicle company of oneof the promoters and the other promoter and his associate and a third party

45 which has become involved in the dispute. The plaintiff, Don King ProductionsInc. ("DKP"), is a company owned by Mr Don King ("Mr King"), the leadingboxing promoter in the United States. The first defendant, Mr Frank Warren("Mr Warren"), is the leading boxing promoter in this country. The seconddefendant, Mr Christopher Roberts ("Mr Roberts") is Mr Warren's business

50 associate. The third defendant, Centurion Promotions Limited, formerly SportsNetwork Limited ("SNL") until its liquidation was, and the fourth defendant,Sports Network (USA) Inc. ("SNI") is, a company controlled by Mr Roberts.The fifth defendant, Times Warner Entertainment Company LP ("TWE") carrieson business in the fields of television and broadcasting. Home Box Office("HBO") is the name of a division of TWE.

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Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

The disputes between the parties arise from the entry by Mr King and MrWarren into two successive partnership agreements. The difficulties in largepart spring from the exceptionally poor drafting of these agreements. The first(on occasion referred to as "the Preliminary Agreement") was a partnership 5agreement dated September 16, 1994 ("the First Agreement") and madebetween (1) DKP and (2) Mr Warren and SNL. The second was a partnershipagreement dated April 25, 1995 ("the Second Agreement") and made between(1) DKP and (2) the corporate vehicle of Mr Warren and Mr Roberts, SportsNetwork (Europe) Limited ("SNE"). The Second Agreement superseded the 10First Agreement, but the First Agreement has some lasting effect. Issues ofconstruction arise in this action in respect of both agreements.

It is common ground that not later than March 1996 by act of the parties (butwithout any formalisation in writing) there was a novation of the Second 15Agreement and Mr Warren and Mr Roberts were substituted as parties to thatagreement in place of SNE. There was subsequently executed a third agreement("the Third Agreement"), and there is a dispute between the parties as to theextent of a fourth also ("the Fourth Agreement"). One or both of these mayhave modified the rights of the parties under the Second Agreement, but the 20questions now before me relate only to the First and Second Agreements, and allquestions relating to the Third and Fourth Agreements are deferred forconsideration on a subsequent occasion. The partnership constituted by theSecond Agreement was determined at some (as yet undetermined) date betweenNovember 27 and December 5, 1997. The date and method of dissolution are 25not relevant for present purposes. Issues arise as to the rights of the partiesunder the Second Agreement on the dissolution of the partnership.

DKP issued the Writ in this action in early November 1997. On December11, 1997 I made an order ("the Order") for the winding-up of the affairs of the 30partnership with all necessary accounts and inquiries and (at the request of theparties) for the hearing of some 16 preliminary issues. The purpose behind thelatter direction was to enable the deck to be cleared of a number of questions(essentially of construction of the First and Second Agreements) so as to enable:(1) the partnership assets to be identified and a regime imposed for the 35protection of these assets, and no others, pending the completion of the winding-up; and (2) the winding-up to proceed without delay.

Before and at the trial it became apparent that not all these questions cansatisfactorily be resolved in this way, in particular because of the need which has 40since become apparent for detailed evidence and substantial cross-examination.It has been agreed that in this judgment I shall not seek to pose and answer thesurviving questions as raised in the Order, but determine the questions ofprinciple argued before me. In the light of this judgment, it is anticipated thatthe answers to many (if not all) the questions will be apparent, and that if and so 45far as further clarification is required, such can be sought hereafter.

The questions before the Court may be categorised as: (1) of construction ofthe two "one-off agreements before the Court; and (2) of the issue of law ofwide application and importance, namely the effect of a purported assignment 50of, or agreement to assign, and of an agreement to hold for the benefit ofanother, a non-assignable chose in action.

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[No. 22] Ch D

//. Relevant Facts

A. Background5

The United States is by far the most important country in the world for thesport of professional boxing, and second only to the United States is Britain,which dominates the sport in Europe.

10 In Europe, boxing is regulated by national sporting bodies, which registerboxers and license managers, promoters and other participants in boxingmatches. The most significant national body for present purposes is the BritishBoxing Board of Control ("BBB of C"). The BBB of C (like the equivalentboards of other countries) maintains a register of boxers and grants licences to

15 managers and promoters. It is not in practice possible for a person to operate asa manager or promoter in Britain unless he or his partner has the relevantlicence. In view of the fact that Mr Warren has at all times held licences both asa manager and a promoter (and indeed lodged a bond and was accountable tothe BBB of C), there is and has been no obstacle to his partnership with DKP

20 promoting in Britain.

Management and promotion are distinct functions in the boxing world,although in Britain (unlike in the United States) the same people commonlyperform both. A manager has a management agreement with a boxer managing

25 his career. The duration of the management agreement may be anything up tothree years plus 18 months from the date that the boxer has won a championship(see Clauses 11 and 12 of the BBB of C Approved Boxer/Manager Agreement).The contract obliges the manager to arrange and supervise an appropriateprogramme of suitable boxing and other engagements for the boxer and gives

30 the manager a proportion (normally 25 per cent) of the boxer's earnings (or"purses"). A promoter promotes a particular event or series of events, payingthe costs of the event or events (including the purses). A promoter may enterinto a promotional agreement with a boxer conferring on the promoter forconsideration (which may take the form of a substantial payment) promotional

35 rights in respect of that boxer. The promotional rights may be to promoteevents involving that boxer, as do the agreements with Mr Naseem Hamed ("theHamed Agreements") to which I will have to refer; but typically they engagethe boxer for a given number of fights without specifying the venue or opponentwhich are decided by the promoter near the time of the fight. Almost all of Mr

40 Warren's promotional contracts are of this kind. They ordinarily containundertakings by the boxer to fight no other fight during the period of theagreement. It is usual, if the boxer is successful, for the promoter and boxer toenter into further promotional agreements either during the term of the initialagreement or upon its termination. (That process repeatedly occurred in respect

45 of the Hamed Agreements.) The promoter may exploit these promotional rightsby promoting an event or by jointly doing so with a co-promoter or by releasingthese rights for a consideration so as to enable another promoter to promote anevent in which the boxer takes part. The promoter who promotes an eventexploits his promotional rights (and derives his earnings and profits) by entering

50 into "associated agreements" with third parties, e.g. for the sale of tickets,broadcasting and merchandising rights. The term "PM&A Agreements" is usedto denote in this field of activity and in this judgment such promotion,management and associated agreements.

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Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

DKP is the leading promoter of boxing events in the United States. Itpromotes bouts by boxers of various nationalities, some of whom are Europeanregistered. These have included at various times Mr Frank Bruno, Mr NigelBenn, Mr Carl Thompson and Mr Henry Akinwande, the latter of whom Mr 5King has described as part of his "core business". (The contracts with Mr NigelBenn and Mr Carl Thompson were entered into prior to the date of the FirstAgreement and the contract with Mr Henry Akinwande was entered into prior tothe date of the Second Agreement.) The only promotional contract of DKP witha European registered boxer of which Mr Warren was aware at the time of the 10First Agreement was with Mr Nigel Benn. In addition to promoting theprincipal boxing events there, DKP has significant interests in United Statesbroadcasting and in particular a special relationship with Showtime TelevisionNetwork and through this relationship the means of obtaining publicity forfights promoted by him. For the purpose of the preliminary issue, it is common 15ground that DKP does not manage any boxers.

Mr Warren is the most significant manager and promoter in Britain. Fromabout 1985, DKP and Mr Warren co-operated on an adhoc basis on particularpromotions sharing the profits. In 1994 they agreed to extend their business 20relationship by entering into a partnership whose ambit is in issue, but maybroadly be stated as the promotion and management of boxing having somerelevant connection with Europe. This took the form of the First Agreement,which was later superseded by the Second Agreement.

25The judge then considered the two Agreements and having given judgment on

the first question, continued:

III Assignment30

A. Introduction

I accordingly conclude that (1) the intentions of the parties to the First andSecond Agreements were that all the PM&A Agreements relating to Europeanregistered boxers held at any time during the subsistence of the partnership by 35the partnership or either partner (and accordingly held by Mr Warren) should beassigned to or be held for the benefit of the partnership absolutely; and (2) thatthe business of the partnership included the exploitation of the rights under suchagreements.

40The question now arises whether and how far the first of those intentions can

in law or equity have effect in case of PM&A Agreements which involve therendering of personal services or include express provisions prohibiting anyassignment of such contracts. The defendants concede that a purportedassignment of a personal contract and of the benefit of non-assignable rights, 45though ineffective at law, can have some effect in equity as between assignorand assignee; but contend that this effect does not extend to creating a trust ofthe contract or of the rights under the contract, but is limited to creating a trustof the receipts in the hands of the "assignor" or requiring the assignor to accountfor them to the assignee. In contrast DKP contends that a trust of the contract 50and of the rights under the contract can be and in this case was created.

The resolution of this dispute requires consideration of the relevant principlesgoverning the declaration of trusts of contracts and the rights arising thereunderand the assignment of such rights.

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[No. 22] Ch D

/. Declaration of Trust

The defendants sought to discourage me from finding the existence of any5 trust in this case, and they invoked for this purpose the long established

principle restated in Westdeutsche Landesbank Girozentrale v. Islington LondonBorough Council [1996] A.C. 669 ("Westdeutsche") (at 704-5) that thewholesale importation into commercial law of equitable principles would beinconsistent with the certainty and speed which are the essential requirements

10 for the orderly conduct of business affairs. There can however be nosustainable objection on these grounds to recognition of a trust if the partieshave manifested their intention to do so, a fortiori when this is necessary toachieve justice between the parties. Justice does so require its recognition whenthe "trustee" has already received (as SNE, Mr Warren and Mr Roberts received

15 in this case) the full agreed consideration for the beneficial interest in thesubject matter of the trust. For this purpose it makes no difference that thesubject-matter is a chose in action. "The scope of the trusts recognised in equityis unlimited. There can be a trust of a chattel or of a chose in action or of a rightor obligation under a legal contract just as much as a trust of land", per Lord

20 Shaw in Lord Strathcona Steamship Co. Ltd v. Dominion Coal Co. Ltd [ 1926]A.C. 108 at 124.

Westdeutsche is also authority for the proposition (contrary to previousthinking), that the fact that the legal ownership is vested in one person and the

25 beneficial ownership is vested in another does not necessarily involve therelationship of trustee and beneficiary. This proposition (counsel hassuggested), supports a possible view that the contractual rights may be vested inMr Warren and the beneficial ownership of those rights may be vested in thepartners without the creation of any trust or trust relationship. I do not however

30 think that this is a possibility in this case. The reasoning of the House of Lordswas that the existence of an obligation binding the conscience of the personvested with the legal ownership is the hallmark of a trust. Only if and so longas the exceptional circumstances exist where separation of the legal andequitable ownership does not give rise to or coexist with such an obligation, a

35 trust relationship will not come into being. If and so long as legal ownership ofthe PM&A Agreements remained in one or other partner and the beneficialownership was in the partnership, plainly in this case the necessary of fiduciaryobligation coexisted and so did a trust.

40 As a matter of general principle it is, I think, quite clear that a trust may existof a contract, and this may extend, not merely to the benefit of the rightsconferred, but also the benefit of being a contracted party. This will occurwhen, e.g. a trustee or partner enters into a contract as such or a trustee orpartner or other fiduciary becomes a constructive trustee of the contract. It is

45 important to recognise that a trust of the benefit of the contract (and inparticular of the benefit of being a contracting party), may be more beneficial tothe beneficiaries than the mere assignment to them of the benefit of thecovenants contained in it. For according to established principles the trusteewill hold any benefit arising from his trusteeship (and in particular his being a

50 contracting party), such as renewals of the contract, on trust for the beneficiarieswhether or not the renewal would have been granted to anyone other than thetrustee or was assignable: see, e.g. Pathirana v. Pathirana /1967] 1 A.C. 233and Thompson's Trustee in Bankruptcy v. Heaton [1974] 1 W.L.R. 605.

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Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

There can be no doubt that the partnership in this case could have validlyentered into management and promotion contracts with boxers: the partners insuch a case would hold the contract as a partnership asset. The issue raised iswhether one of the partners who has entered into such an agreement in his own 5name alone can subsequently hold such a contract as a partnership asset. Thedefendants contend that this is not possible without the consent of the otherparties to the management and promotion contracts (i.e. the boxers) because thecontracts involve the rendering of personal services and by their terms are notassignable. 10

2. Assignment of rights

It is clear that a purported assignment of a contract or the rights arising undera contract may be ineffective as such because the contract involves the rendering 15of personal services or prohibits their assignment. The question arises whether apurported assignment for valuable consideration, ineffective as an assignmentfor the above reasons, may be effective as a declaration of trust or as imposingfiduciary duties on the assignor. The defendants contend that it cannot be soeffective. 20

B. General principles

1. The principles25

The applicable principles emerging from the authorities in a field stillundeveloped are as follows:

(1) It is not possible (save pursuant to statutory authority) without anovation to transfer the burden of a contract to a third party. 30

(2) In the case of contractual obligation where the obligation is such that theidentity of the person who performs it is a matter of indifference to thecontracting party for whose benefit the obligation is imposed ("the Obligee")(e.g. the payment of a sum of money or the delivery of a fungible), the other 35contracting party ("the Obligor") may delegate to a third party theperformance of the obligation: see The British Wagon Co. v. Lea & Co.(1880) 5 Q.B.D. 149. But otherwise no such delegation is possible. Thus inthe absence of a contractual provision to the contrary, in case of a publishingcontract, the author cannot delegate to someone the performance of the duty 40of writing the book and the publisher cannot delegate to someone else theperformance of the duty of publishing it.

(3) The only assignment in respect of a contract which is legally possible isan assignment of the benefit of the contract (i.e. the rights thereby created) or 45some benefit (e.g. the profits) derived by the assignor from the contract. Thedistinction is between the assignment of rights under the contract and of whatis referred to as "the fruits". A provision for the assignment of a contract is tobe construed as the assignment of the benefit of the contract: see LindenGardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85 at 103 50("Linden Gardens"). The assignment may expressly or by implication requirethe assignor to perform outstanding obligations on his part under theagreement so as to enable the assignee to obtain the full benefit intended

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[No. 22] Ch D

(subject if necessary to the assignee indemnifying the assignor against thecost); and to hold the benefit of being the contracting party (and accordingly,e.g. the opportunity to obtain a renewal) as trustee for the assignee.

5(4) Whether or not the benefit can be assigned depends primarily upon theterms of the contract and secondarily upon the character of the obligations.The benefit of some obligations of a party under one contract may beassignable whilst at the same time others under the same contract may not:

10 assignability is not a matter of all obligations arising under a contract or noneat all.

(5) The contract may expressly or impliedly permit assignment of rights nototherwise so assignable: see Devefi Pty Ltd v. Mateffy Pearl Nagy Pty Ltd

15 [1993] R.P.C. 493 ("Devefi") at 503. The contract may likewise prohibitassignment of rights otherwise prima facie assignable. Such contractualprovisions are legally effective. The purpose of the non-assignment clause isthe genuine commercial interest of a party of ensuring that contractualrelations are only with the person he has selected as the other party to the

20 contract and no one else. This is particularly important in areas such asbuilding contracts which are "pregnant with disputes": see Linden Gardens at107 and 108. Such a clause avoids the possibility of a third party beingenabled to raise issues of set off not available to the other contracting party.Unless specially drafted to draw such a distinction, the prohibition attaches

25 equally to the assignment of the right to future performance of the contractand the right to receive benefits accrued under the contract (ibid). The clausealso preserves the parties' rights of set off against each other and saves themhaving any concern whether there has or has not been, or preserving anyrecord of, any assignment of the benefit of the contract by the other party.

30(6) Unless the contract expressly or impliedly otherwise provides, thecharacter of an obligation precludes assignment of the benefit of theobligation if the identity of the Oligee is material to the Obligor: see Tolhurstv. Associated Portland Cement Manufacturers (1900) Ltd [1902] 2 K.B. 660

35 at 668, per Collins M.R. For the effect of such an assignment can alter thesubstance of the obligation. For this reason an employer cannot assign thebenefit of an obligation of the employee to serve him, for the choice ofemployer is material to the employee: and the employer cannot without hisconsent transform a contract to serve him into a contract to serve anyone else.

40 Accordingly any purported assignment or contract to assign will have noeffect at law or in equity: see Lord Atkin in Nokes v. Doncaster AmalgamatedCollieries Ltd [1940] A.C. 1014 at 1020. Again for the same reason neitheran author nor his publisher may assign the right to performance of the other'sobligations under a publishing agreement: see Devefi. But the benefit of any

45 obligation of the employer to pay his salary, or of a publisher to pay royaltiesto an author, is (in default of a term of the contract to the contrary)assignable, since the identity of the recipient is a matter of indifference to theemployer or publisher: consider Linden Gardens at 105B and Devefi at 505.

50 (7) A declaration of trust in favour of a third party of the benefit ofobligations or the profits obtained from a contract is different in characterfrom an assignment of the benefit of the contract to that third party: seeDevefi at 505. Whether the contract contains a provision prohibiting such a

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Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

declaration of trust must be determined as a matter of construction of thecontract. Such a limitation upon the freedom of the party is not lightly to beinferred and a clause prohibiting assignments is prima facie restricted toassignments of the benefit of the obligation and does not extend to 5declarations of trust of the benefit: consider Pincott v. Moorstons Ltd [1937] 1All E.R. 513 at 516. In the words of Lord Browne-Wilkinson in LindenGardens (at 108):

"a prohibition on assignment normally only invalidates the assignment 10as against the other party to the contract so as to prevent the transfer ofthe chose in action: in the absence of the clearest words it cannot operateto invalidate the contract between the assignor and assignee, and eventhen it may be ineffective on the grounds of public policy."

15C. Application of principles

The application of these principles to this case produces the situation thatneither the First nor the Second Agreement could effectively vest the PM&AAgreements in, or assign the benefit of them to, the partnership, but none of the 20PM&A Agreements (so far as I have been able to ascertain) contained anyprovision purporting to prohibit or having the effect of prohibiting the partnersdeclaring themselves trustees of the PM&A Agreements entered into in theirown names for the partnership. It is necessary however to turn the questionraised by the defendants whether the nature of the PM&A Agreements was 25nonetheless such as to preclude such a declaration of trust.

Mr Sumption has submitted that a party cannot without the consent of theother parties to the contract make himself or become a trustee in respect of acontract which involves personal skill and confidence and which prohibits 30assignments.

I. Personal skill and confidence

Mr Sumption submits that the assumption of trusteeship by a party to such a 35contract would involve him in creating a conflict between the duties owed to theother party to the contract and those the duties owed to the beneficiaries underthe trust. He drew the distinction between the case where the other parties to thecontract deliberately contract with trustees as such {e.g. as partners in apartnership) and accordingly consent to such a conflict, and the case where by a 40subsequent declaration of trust by the other party to the contract, such a conflictis foisted on them without their consent. This contention fails for (amongstothers) the following reasons:

(a) there is in neither of these situations any objectionable conflict of duty. 45It is a matter of every day experience that the same persons owe fiduciaryduties to one set of people (e.g. one partner to the other partners in asolicitors' firm or a director to the company that employs him) and at thesame time fiduciary duties to another (e.g. to the solicitors' or company'sclients). The reason that there is no problem of conflict is that one set of 50these duties (namely the duties assumed to the client) is paramount. Thefiduciary owes to the client in the performance of the duties owed to the clienta duty of undivided loyalty.

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(b) a party to a contract involving fiduciary duties who declares himself atrustee of the contract has the paramount duty to perform his obligationsunder the contract and to fulfil his duty of undivided loyalty to the other

5 contracting party. Indeed this accords with the recognition by Equity that thefirst duty of a trustee is to preserve the trust property (in this case the contractitself).

2. Non assignable contracts10

Mr Sumption further submitted that, where a contract contains a provisionprohibiting assignment, a party cannot by a declaration of trust or otherwisemake himself the trustee of the benefit of that contract because this woulddefeat the whole purpose of the non-assignment obligation which is to ensure

15 that the other contracting party alone, and no one else, can enforce theobligations contained in the contract against him; and that if a trust is createdand if the trustee refuses to enforce an obligation, the beneficiary may sue forenforcement, joining the trustee as a defendant: see Vandepitte v. PreferredAccident Insurance Corporation of New York [1933] A.C. 70 {"Vandepitte") at

20 79.

This contention likewise fails for (amongst others) the following reasons:

(a) if one party wishes to protect himself against the other party declaring25 himself a trustee, and not merely against an assignment, he should expressly

so provide. That has not been done in this case;

(b) the applicable principles of trust law in this situation are the basicprinciples and those (and only those) whose rationale have application in this

30 commercial context (see Target Holdings Ltd v. Redferns [1996] 1 A.C. 421at 436). The courts will accordingly be astute to disallow use of theprocedural short-cut sanctioned in Vandepitte in a commercial context whereit has no proper place. A beneficiary cannot be allowed to abrogate thefullest protection that the parties to the contract have secured for themselves

35 under the terms of the contact from intrusion into their contractual relationsby third parties;

(c) a declaration of trust cannot prejudice the rights of the Obligor. If thecontract requires any judgment to be exercised whether by the Obligor or the

40 Obligee, an assignment cannot alter who is to exercise it or how thatjudgment is to be exercised or vest the right to make that judgment in theCourt;

(d) the rule in Saunders v. Vautier (which enables the sole beneficiary or45 beneficiaries to give directions to the trustee) only applies if the beneficiary

is entitled to wind up the trust and require the trustee to assign to him thesubject-matter of the trust. If the trust cannot be determined because thetrustee has under the contract held as a trust asset outstanding obligations andhas no power to transfer the trust asset to the beneficiary or his order; the rule

50 does not apply: see Re Brockbank [1948] Ch. 206. Accordingly in a casewhere the subject-matter of the trust is a non-assignable contract and thereare outstanding obligations to be performed by the trustee, the beneficiaryunder the trust cannot interfere.

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Accordingly in principle I can see no objection to a party to contractsinvolving skill and confidence or containing non-assignment provisions frombecoming trustee of the benefit of being the contracting party as well as thebenefit of the rights conferred. I can see no reason why the law should limit the 5parties' freedom of contract to creating trusts of the fruits of such contractsreceived by the assignor or to creating an accounting relationship between theparties in respect of the fruits. The broader approach which I favour appears tobe in accord with the authorities, so far as they go. The leading authority is ReTurcan (1888) 40 Ch.D 5. The Vice-Chancellor in that case held that an 10agreement to assign a non-assignable policy constituted the assignor a trustee ofthe policy for the assignee. The Court of Appeal dismissed the appeal. At thedate of the hearing of the appeal the proceeds of the policy were represented bycertain assets and the Court of Appeal upheld the validity of the trusteeship ofthese assets, and Lord Browne-Wilkinson in Linden Gardens (at 104) referred to 15Re Turcan as authority for the proposition that a party to a contract may agreewith a third party to account for him for the fruits he receives from the othercontracting party. No doubt was cast by the Court of Appeal in Re Turcan or bythe House of Lords in Linden Gardens on the decision of the Vice-Chancellor.As Lord Browne-Wilkinson said in Linden Gardens (at 107) the House of Lords 20only had to consider the validity of the restriction of an assignment which wouldhave the effect of bringing the assignee into direct contractual relations with theother party to the contract. The view of the Vice-Chancellor finds some supportin Devefi at 55-56 and Williams v. Inland Revenue Commissioners [1965]N.Z.L.R. 395 at 401. (See also First National Securities Ltd v. Hegerty [1985] 1 25Q.B. 850 at 854). But most importantly this view accords with common-senseand justice and achieves the commercial objective of the parties.

X. Alternative Route30

I should add that, even if for some technical reason there could not be createdin this case a trust relationship in respect of the PM&A Agreements, I wouldreach the same practical result by another means. For it seems to me that, ifparties agree to enter into a partnership and bring about the vesting of thebenefits of certain agreements in a partnership (public policy considerations 35apart) they will be constrained by the terms of that contract to bring about thesame substantive consequence if it lies within their powers to do so, even if theanticipated means of doing so is blocked. No public policy considerationspreclude the adoption of this course in this case.

40XL Result

I accordingly hold that the clear intent of the parties manifested in the Firstand Second Agreements was that the PM&A Agreements should be held by thepartnership or by the partners for the benefit of the partnership absolutely, and 45that this intent should be given fullest possible effect. The Agreements haveaccordingly at all time been held by the partners as trustees for the partnership.Accordingly the ordinary equitable principles apply (including the rule in Keechv. Sandford) and the partnership assets include all renewal and replacementagreements obtained by any partner during the partnership and over the period 50between dissolution and the completion of winding-up.

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XII. Dissolution

There was at one time some considerable debate between the parties as to the5 rights arising on dissolution in respect of the PM&A Agreements, but in view of

my finding that the PM&A Agreements held by the partnership or any partnerconstitute partnership assets, most of these difficulties disappear.

It is common ground that, howsoever the partnership was determined, Clause10 22.1 of the Second Agreement applies. This clause supplements the regime

imposed by Clause 21.3, which preserves existing rights and provisionsexpressed to be operative during winding-up. These provisions do not exclude,but rather embrace, the provisions made by sections 38 and 42 of thePartnership Act 1980. Section 38 provides for the completion of outstanding

15 transactions unfinished at the date of dissolution. This must include completionof the outstanding PM&A Agreements if it is in the interests of the partnershipto complete them and if the partnership has the means to do so. Suchcompletion obviously requires the co-operation of the partners in whose namesthese agreements were taken during the twilight period until winding-up is

20 completed or the purchase by Mr Warren pursuant to Clause 22.1 is completed,whichever is the shorter. (The period until completion of the purchase but forthe present disputes should have been relatively short). There is involved noparticular problem or difficulty. If the partner in whose name a PM&AAgreement is held completes the agreement or exploits any of the rights

25 thereunder without the consent of his partner for his own benefit, he is acting inbreach of duty, and his partner will be entitled to appropriate relief. It is noanswer that the completion or exploitation required the partner to take asubstantial financial risk to provide substantial funds or security, though theseconsiderations may be taken into account when the accounts are taken between

30 the partners. Subject to the fulfilment of these obligations, Clause 9.1 and 18.2contemplate that the partners will be free on dissolution to compete.

Clause 22.1 provides that on the winding up of the partnership sufficientassets and credits (which could theoretically include the benefit of the PM&A

35 Agreements) will be realised to pay and discharge, debts, liabilities and theexpenses of winding-up; and that subject thereto:

"SNE shall procure that [Mr Warren] shall purchase all the remaining assetsof the Partnership at a price to be agreed between DKP and [Mr Warren] or,

40 in the event that no agreement can be reached at a price which an expertappointed by the President for the time being of the Institute of CharteredAccountants in England and Wales shall determine to be the fair market valueof such assets."

45 With the novation effecting the substitution of Mr Warren and Mr Roberts forSNE, this obligation to purchase became the personal obligation of Mr Warren,and it must be clear that the obligation extends to purchasing the partnership'sinterest in the PM&A Agreements. As a matter of constructions this extendsequally to the PM&A Agreements entered into by Mr Warren and those entered

50 into by DKP with European registered boxers irrespective of any assignmentcovenant contained in them. Contrary to contentions of Mr Sumption, I can seenothing unworkable in including such equitable interests as assets of thepartnership to be dealt with in the winding up. The required valuation exercise

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Don King Productions Inc. v. [1998] R.P.C.Frank Warren and Others

may be difficult, but that would be a good reason for providing (as the SecondAgreement does provide) for its determination by an expert in default ofagreement. No doubt if Mr Warren completes his purchase and this includes (asprovided) the promotion contracts entered into by DKP with the European 5registered boxers, DKP will be obliged to fulfil the obligations he has assumedunder those agreements (subject to provision of an indemnity by Mr Warren) soas to enable Mr Warren to obtain the benefit of what he has brought. No doubtif Mr Warren fails to complete, the available market for the benefit of theagreements could be very restricted and indeed could be limited to the parties 10and the boxers and others who might wish to purchase a release of the existingrights under them. But the obligation imposed by Clause 22.1 is clear andenforceable and extends to the benefit of those arguments. I do not accept thedefendants' submission that the clause is or is intended to be limited in effectand operation to office equipment, any securities held and the like. Pending 15completion of this purchase, the trusteeship of the contracts held by Mr Warrenhas continued for the benefit of the partnership, and the trusteeship has extendedto replacements and renewal agreements and the proceeds of exploitation.

XIII. Conclusion 20

I accordingly determine the questions raised on the trial in favour of thecontentions made by DKP. One consequence which I should spell out is thatsince the date of the First Agreement the successive Hamed Agreements havebeen held by Mr Warren as trustee for the partnership and his entry in the Multi 25Fight Agreement in his own name and on his own account was in breach of theduties which he owed to DKP. The detailed working out of the consequences ofthis judgment can be left to the parties to agree so far as they can andincorporate in a minute of order; and so far as any questions cannot be resolvedin this way they may be referred back to me for decision. 30

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