Assignment clauses in contracts, a drafting guide for Australian businesses

You have just been handed the contract for your biggest customer, or your own terms of trade are about to go out for the first time, and somewhere in the middle is the assignment clause. It reads like boilerplate. It is the clause that decides whether that business relationship can be moved to a new company without your agreement, and whether you can transfer your side of the deal when you sell, restructure or refinance.

An assignment clause sets out whether a party can transfer the rights and benefits it holds under a contract to another person or company, and on what conditions. It does not, by itself, move obligations: duties to perform, pay and indemnify stay with the original party unless the contract is novated, which is a separate three-party process. A well-drafted clause gives you room to grow while stopping the other side from handing you a counterparty you never chose. A poor clause, or none at all, leaves those decisions to the general law of assignment, which may not match what you intended.

The building blocks of an assignment clause

The decisions below are the ones every assignment clause has to make. They are set out roughly in the order a drafter should resolve them, from the biggest question to the smallest.

Rights can move; obligations generally cannot

At common law, the benefit of a contract, such as the right to be paid or the right to use intellectual property, is presumptively assignable. The Federal Court confirmed in Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40 that the benefit side of a contract is prima facie assignable. The burden, such as the obligation to perform services, cannot be shifted to a third party by assignment alone. That asymmetry has three drafting consequences:

The trap: A clause saying a party "may assign the contract" can be read as covering only rights, leaving the assigning party still on the hook for performance.
The personal contract trap: Where you chose the other side for its skill, systems or creditworthiness, an assignment can be ineffective even without an express prohibition, because the identity of the party is part of the bargain. The court in Pacific Brands also held that some rights, such as a power to terminate, are integral to the contract and cannot be carved out and assigned on their own.
Moving obligations: Properly shifting obligations requires novation, a new contract agreed by all three parties that releases the original party and substitutes a new one. Assignment cannot do the job on its own.

Every assignment clause has to choose between three settings: outright prohibition, assignment with consent, or free assignment. This choice matters more than any other, because Australian law does not quietly supply a reasonableness test.

In Allianz Australia Insurance Ltd v Delor Vue Apartments CTS 39788 [2022] HCA 38, the High Court confirmed that a contractual power expressed in absolute terms, such as consent at a party's "absolute discretion", can be exercised for any reason, and rejected a general implied duty of good faith in Australian commercial contracts. If you want the other side's veto limited, the words "must not be unreasonably withheld" have to appear in the clause. The three settings play out as follows:

"Consent may be withheld in the party's absolute discretion": A total veto, exercisable for no reason at all. The other side can say no even to a flawless assignee.
"Consent must not be unreasonably withheld or delayed": A real constraint, but it invites argument about what counts as reasonable. List examples in the clause, such as solvency concerns, lack of capability, conflicts of interest or a poor compliance history.
Silence: No consent requirement at all. The general law fills the gap, and for personal or relational contracts that may mean no effective assignment is possible.

Most balanced clauses allow assignment without consent in defined low-risk situations, usually with written notice: to a related body corporate, as part of a genuine sale of the business, or to a financier by way of security. These carve-outs are also where a clause gets quietly swallowed. Watch for three traps:

Related entity trap: A "related body corporate" defined only by ownership percentages can let the counterparty move the contract to an entity you would never deal with. Add that the related entity must be able to perform and comply with the contract.
Sale trap: Confine the carve-out to a genuine sale of the whole or substantially the whole of the business, not a transfer of a single valuable contract to a competitor.
Financing trap: Make clear that an assignment to a financier is by way of security only and that the underlying obligations stay with the customer.

If consent is required, the clause should say what the assigning party must provide: written notice in advance, the identity and details of the proposed assignee, and enough information to assess capability, solvency and compliance. Add a response deadline, such as 14 or 30 days, and decide what happens if the other side says nothing. Without these details, a consent process becomes an open-ended negotiation that can stall a sale or refinancing at the worst moment.

Partial assignments and receivables

Contracts often allow assignment of part of the rights, most commonly receivables under invoice financing. For a transfer to be a legal assignment under statute, so the assignee can sue the debtor in its own name, s 12 of the Conveyancing Act 1919 (NSW) requires an absolute assignment in writing signed by the assignor, not purporting to be by way of charge only, with express written notice to the debtor. Victoria's equivalent is s 134 of the Property Law Act 1958 (Vic). Because the transfer is made subject to existing equities, a debtor can raise against the assignee defences and set-offs that arose before it received notice of the assignment. Where the statutory requirements are not met, the assignment can still be effective in equity, but the assignee may need the assignor's involvement to enforce the right. Whatever the mechanism, the clause should settle at least the following:

Drafting minimums: State whether partial assignment is allowed and on what conditions.
Payment direction: Require written notice to the debtor and specify where payment is to be made after the assignment.
Set-off: Address disputed amounts explicitly, so the assignee knows it may receive less than the face value of the debt.

Change of control

A change of control of a contracting company, through a share sale or restructure, is not technically an assignment of the contract, but it can put the contract into the hands of people you never contracted with. Decide whether that matters to you. If it does, include a change-of-control provision requiring written notice and giving you either a consent right or a right to terminate in defined scenarios. A surprising number of disputes start because the assignment clause covers transfers of the contract but says nothing about ownership changes of the parties themselves.

Binding the assignee to your protections

When a contract moves, so does access to your confidential information, intellectual property and data. The clause should say that assignment is conditional on the assignee being bound by the confidentiality, IP, privacy and insurance obligations, and any industry standards, before consent is given. Practically, that often means requiring the assignee to execute a deed of adherence or sign confidentiality deeds as a condition of consent.

Liability after the transfer

An assignment of rights does not release the original party from liability for breaches that happened before the assignment, and unless there is a novation, the original party remains liable for performance after the assignment. Make that explicit in the clause: assignment does not relieve a party of its obligations unless the parties also execute a novation with the other party's consent. Consider what happens to indemnities and any limitation of liability after a transfer, and whether the assignor warrants the assignee's performance, which financiers often insist on.

Deeds, dates and notices

Assignments and novations are commonly documented as deeds in Australia, partly because a deed needs no consideration and partly for the strength of the record. A deed must be executed with the formalities the law requires; for individuals, most states require the signature to be witnessed by someone who is not a party to the deed. The clause should also fix the effective date of the transfer, how notices are given, who pays the cost of preparing documents, and what happens to your contract register when the transfer completes.

If the clause is silent

Where the contract says nothing about assignment, the general law supplies the defaults. The benefit of the contract is presumptively assignable. Rights that do not yet exist, such as receivables under contracts not yet signed, can be assigned in equity only, and the assignment attaches when the rights come into existence. And where the contract is one of personal performance, courts will treat it as incapable of assignment without consent. Drafting the clause is how you replace those default outcomes with results you have actually chosen.

Optional clauses worth adding when they fit

These provisions are situational. Add the ones that match the risk profile of the deal:

Consent conditions precedent: For sensitive contracts, make consent conditional on the assignee signing confidentiality deeds, meeting insurance requirements and complying with security policies.
Audit and monitoring rights: For ongoing services, keep a right to audit performance after a consented assignment, so quality does not quietly drop once the assignee takes over.
Payment directions and set-off: If receivables may be assigned to a financier, set out where the customer pays and confirm how set-off for disputed amounts is handled.
Subcontracting limits: If performance quality is critical, restrict subcontracting separately from assignment, because a prohibition on assignment does not necessarily stop the other side subcontracting the actual work.
Survival: Make confidentiality and IP obligations survive assignment and bind successors and assigns, so the protections outlast any transfer.

How an Artificer Legal lawyer reviews an assignment clause

In practice, an assignment clause is never reviewed in isolation. An Artificer Legal practitioner reads it with the termination, liability, set-off and confidentiality provisions, because the assignment mechanics have to work with the rest of the contract as a system. We would check the consent standard against your real risk profile, make sure the carve-outs do not swallow the protection they sit inside, and confirm the change-of-control position matches how your business could actually be sold or restructured.

There is one regulatory dimension worth naming. Where assignment terms sit in standard-form contracts offered to consumers or small businesses, they are exposed to the unfair contract terms regime. Under s 23 of the Australian Consumer Law, which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), an unfair term of a standard-form consumer or small business contract is void, and a small business is one with fewer than 100 employees or turnover under $10 million. Since November 2023, proposing or relying on an unfair term is itself a contravention, and under s 224 a body corporate can face a penalty of the greater of $100 million, three times the benefit gained, or 30 per cent of adjusted turnover. A one-sided assignment clause in a template used at scale, one that lets you transfer obligations freely while locking the other side in, is the kind of term regulators and courts look at closely. If you use templates, the assignment clause should be checked for that exposure before it goes out.

If there is one drafting choice that most often separates a clause that works from one that fails, it is the words of the consent standard read together with the carve-outs. Under Australian law, "absolute discretion" genuinely means the other side can refuse for any reason, and the High Court in Allianz confirmed there is no implied duty of good faith to rescue you. "Must not be unreasonably withheld" invites a fight about what reasonable means unless you define it, and silence hands the outcome to the general law, which may treat your contract as personal and non-assignable altogether. Before you sign anything, read that one sentence and ask what it would allow the other side to do to you, and what it would allow you to do to them, in a dispute.

The rest follows from that decision. Assign rights by assignment and obligations by novation, keep carve-outs narrow, bind assignees to your confidentiality and IP protections, decide whether a change of control triggers your rights, and remember that for standard-form contracts the unfair contract terms regime can void a clause that goes too far. A lawyer can check the assignment clause against the rest of your contract and against your actual plans for growth, sale or refinancing, and that short review is usually cheaper than the dispute that follows a badly drafted transfer.