Legal News for UK Co-ops and Mutuals

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Tuesday, May 16, 2006

Co-op Group wins Stansell Case in Court of Appeal

© Ian Snaith 2006
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On 9th May, the Court of Appeal released its judgment in Co-operative Group (CWS Ltd) v Stansell [2006] EWCA Civ 538

The case is important as it unanimously decides that a transfer of engagements by an I & P society can transfer all the assets and liabilities of the transferring society to the transferee and that this includes assets that cannot be assigned by contract.

The case arose from the transfer of engagements by CRS Ltd to the CWS. CRS had entered a construction contract with Stansell Ltd. After the transfer of engagements when CRS Ltd had been removed from the register of I & P's by the FSA, CWS took the view that Stansell Ltd had broken the contract. When they went to arbitration on that claim, the builders appealed to the Chancery Division of the High Court on the basis that CWS did not have the "asset" of CRS's right to sue under the contract. They argued this because a clause in the Stansell/CRS contract said it could not be assigned by CRS without Stansell's permission. The Chancery Division Judge upheld that claim and ruled that CWS had no right to sue as there had been an assignment without permission which is void under contract law

CWS appealed to the Court of Appeal on the basis that the statutory transfer of engagements mechanism in section 51 of the Industrial and Provident Societies Act 1965 overrides the contract's limitation on transferring rights under the contract. On the basis of the literal wording of section 51 of the IPSA 1965, the Court of Appeal unanimously upheld the CWS argument:

"In my judgment, section 51(1) vested the benefit of the building agreement in CWS, notwithstanding the prohibition against assignment in clause 18.1.1 and the absence of consent by Stansell to an assignment to CWS. I base my conclusion on the natural and ordinary meaning of section 51(1) and on the absence of (a) a legislative context and (b) binding authorities indicating that section 51(1) should be given a more restricted meaning than it naturally bears." - per Mummery LJ at para 52

Section 51(1) reads:

"Any registered society may by special resolution transfer its engagements to any other registered society which may undertake to fulfil those engagements; and if that resolution approves the transfer of the whole or any part of the society's property to that other society, the whole or, as the case may be, that part of the society's property shall vest in that other society without any conveyance or assignment."

This is an important decision for I & P's transferring their engagements as it confirms that, as long as the resolution is properly worded, all assets and liabilities can be transferred. That means that there is no need to keep the shell of the transferring society on the register as a subsidiary in case it has a right to sue or other asset that was not effectively transferred. The ease and flexibility of the transfer of engagements procedure remains one of the key benefits of using and I & P structure.


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