There are good reasons for putting a ‘no-cession’ clause in a contract.  For one, it is binding on a trustee or liquidator of the insolvent creditor.

Personal rights can be ceded

All personal rights can be freely ceded unless they are of a personal nature where a particular person is expected to perform the obligations (eg employment contracts).  But any right of cession can be restricted by an agreement not to cede the right.  (The principle is sometimes described using the Latin maxim pactum de non cedendo).

If that restriction is contained in the very agreement that records the right (for example in a lease) the right will always be subject to the prohibition against cession because the rights are created as non-transferable rights.

If however you try to prohibit the cession of rights in a subsequent agreement it will not be binding after insolvency because you cannot keep assets out of the hands of a trustee or liquidator in that way.

Fact of case

Born Free Investments 364 (Pty) Limited purported to take cession of two claims against FirstRand Bank from two companies that were in liquidation.  The claims were based on a loan agreement between the liquidated companies and the bank.

No-cession clause should always be included unless there is a good reason not to

The loan agreement was emphatic: “You shall neither cede any of your rights nor assign any of your obligations under this agreement without our prior written consent”.  The liquidators of the companies did not have the bank’s consent to the cession.  The claim failed in the supreme court of appeal because the cessions were invalid.  When the parties concluded the loan agreements the rights acquired by the borrowers were intended to be non-transferable.  The liquidated companies were not entitled to cede the rights and could therefore not give the applicant, Born Free Investments 364, more rights than they themselves had (ie none).

What to do

If you want the rights created by your contract to be non-transferable even after insolvency, remember to include the ‘no-cession’ clause in the contract itself, rather than in a separate ‘no-cession’ contract.

A no-cession clause should always be included in a contract unless there is a good reason not to.