[2024] EWHC 2329 (TCC)

JLR next argues that any purported assignment under the SPA was void because JLR did not give its prior written consent. It relies on clause 1.11.7 of the DCHA, which provides:

The effect of this clause is to prohibit and make void any purported assignment of rights under the DCHA without consent unless the assignment is either (a) a “transfer of [the DCHA]… within the legal entity of which either party is a part” or (b) a “transfer… to a successor organisation by merger or acquisition”.

Kyndryl argues that both parts of that exception apply. It says that “the legal entity of which either party is a part” means, or includes, the corporate group of which a party is a member, and that the DCHA was transferred to Kyndryl when Kyndryl was still within the IBM group. (It is common ground that at the relevant time, i.e. at the date of the SPA, both IBM and Kyndryl were subsidiaries of the same ultimate parent, IBM Corp.) It also says that it was a “successor organisation by… acquisition” because it acquired the GTS business from IBM.

JLR’s starting point is that only transfers are permitted by clause 1.11.7 without consent, and there was no transfer of the DCHA. It says that an assignment is something distinct from a transfer and that, in referring to a transfer rather than an assignment, the parties intended that the exception should apply only to a transfer of the whole of the DCHA, i.e. the burden as well as the benefit, and not to an assignment of rights only.

I do not agree with that argument. The words “assign, or otherwise transfer” (my emphasis) clearly imply that an assignment is a kind of transfer, not something distinct. In ordinary usage, transfer is a more general term; assignment is more specific. Kyndryl suggested in oral argument some examples of possible transfers otherwise than by assignment, such as by declaration of trust, subrogation, or novation, which illustrate the point.

JLR next argues that a permitted transfer must be “within the legal entity of which [IBM] was a part”, which means an internal transfer within IBM (i.e. within the IBM United Kingdom Ltd company), such as a change in management or administrative responsibility for the contract from one internal department or division of IBM to another. In support of that argument, it relies on the following:

In considering this question of interpretation, I have followed the well-established approach in Rainy Sky v Kookmin Bank [2011] UKSC 50; 1 WLR 2900; Arnold v Britton [2015] UKSC 36, [2015] AC 1619 and Wood v Capita [2017] UKSC 24, [2017] AC 1173. I remind myself that interpretation is a unitary exercise involving an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated. In striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause; and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest. Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.

The quality of drafting of clause 1.11.7 is poor. As a result, both parties’ interpretations involve a significant departure, in different ways, from the express wording. On balance, however, I prefer Kyndryl’s interpretation.

I do not attach much weight to JLR’s argument about the risk that the DCHA might be assigned to a company in the IBM group that could not perform the obligations. As a matter of general law, IBM could not unilaterally assign or transfer its liabilities or obligations under the DCHA, and clause 1.11.7 does not purport to permit that. It is concerned with assignments of rights.

JLR’s other arguments have greater force, particularly the argument that the expression “legal entity” generally means a legal person. I accept that; and if the wording of clause 1.11.7 had gone no further, then I would have been reluctant to stretch the interpretation of “legal entity” to cover a group of companies or some form of organisation that lacked unitary legal personality.

However, the clause must be interpreted as a whole, including the important phrase “of which either party is a part”. Kyndryl’s interpretation makes much better sense of those words. I agree with Kyndryl that they imply that “legal entity” is referring to some larger organisation of which the assigning “party” (here, IBM) is a part. The larger organisation can only be, in this case, the IBM group. On JLR’s interpretation, that phrase would be redundant or meaningless. In argument, Mr Charlton was not able to ascribe any real meaning to it, submitting instead that the language was clumsy and inelegant and ought to yield to the commercial context. In the circumstances, although I accept that it is not the usual meaning of “legal entity”, it is reasonable to interpret it as used in clause 1.11.7 as meaning “legal organisation” and so as referring to the IBM group.

It is also significant that the second sentence of clause 1.11.7 provides that any attempt to transfer the DCHA is void if not within the exception. That strongly suggests that the clause is concerned with transfers that would otherwise have legal effect. However, a change in the administration of a contract from one division of a company to another, not involving a change in parties, has no legal effect. Such an internal change is therefore generally no concern of the counterparty, and one would not expect the parties to make express provision for it in their contract, either by prohibiting it or permitting it. Indeed, I would not regard such an internal change as properly described as a “transfer” at all.

As to the second part of the exception, JLR argues that since Kyndryl neither merged with nor acquired IBM it cannot be regarded as a “successor organisation”. To be a successor, there needs to be “something that occurs at the corporate share level”. It would be uncommercial to interpret the exception in a way that would permit IBM to assign the DCHA to its own subsidiaries or to any company within the IBM group. Kyndryl responds that it is sufficient for it to be a successor organisation that it acquired the relevant part of the business of IBM; it was not necessary that it should acquire the shares in IBM.

Again, I prefer Kyndryl’s interpretation. In my view, the expression “a successor organisation by… acquisition” is capable of describing an acquisition of the business and assets of a predecessor organisation as well as an acquisition of its shares. There might be room for debate about whether any particular transaction amounts to an acquisition in that sense, but in the present case I am confident that the sale of the entirety of IBM’s GTS business to Kyndryl constituted Kyndryl a successor to IBM in respect of that business for the purpose of the clause. JLR’s attempt to distinguish a share sale from an asset or business sale seems uncommercial in that the right to assign under the DCHA should not depend on precisely how an acquisition is structured.

Finally, Kyndryl argues that the prohibition on assignment in the first sentence of clause 1.11.7 is in any case limited to the DCHA and rights under it and does not prohibit an assignment of the Variation Agreement or unjust enrichment claim (although an assignment of the Variation Agreement divorced from the DCHA might be of no practical value to Kyndryl).

JLR’s response is that the wording of clause 1.11.7 is sufficiently broad to include all the claims made by Kyndryl, not just the claims for breach of the DCHA. I note the argument that it might seem strange if IBM were prohibited from assigning rights under the DCHA but permitted to assign connected rights, such as claims in unjust enrichment. There is some equivalence with the point about the scope of paragraph 6 of schedule 1 of the SPA, discussed in paragraph 36 above. However, clause 1.11.7 is drafted narrowly. It is in terms restricted to “[the DCHA] or rights under [the DCHA]”; broader “arising from” or similar language is absent. On that drafting, I see no reason to extend the scope of the prohibition to a restitutionary claim not made under the DCHA.