Abraaj Investment Management v Kes Power: Commercial estoppel and the assignment of receivables

The Commercial Court has delivered an important judgement on the effectiveness of security assignments in complex corporate group structures, finding that an estoppel by convention can operate to perfect an otherwise defective assignment where parties have acted on a shared assumption.

The dispute centred on a US$41.4 million debt owed by KES Power Limited (KESP) to Abraaj Investment Management Limited (AIML). The debt comprised deferred consultancy fees and expenses relating to KESP's investment in K-Electric Limited, a Pakistani energy company.

In 2017, Abraaj Holdings (AH), AIML's parent company, sought to extend a loan facility with Mashreqbank. As security, AH purported to assign the KESP receivable to Mashreq through an Assignment Agreement. However, the debt was actually owed to AIML, not AH. After the Abraaj Group entered liquidation in 2018, competing claims emerged over the receivable.

The court's analysis

Lord Justice Foxton found that whilst there had been no valid legal assignment from AIML to AH, and therefore no valid onward assignment to Mashreq, an estoppel by convention operated to perfect Mashreq's security interest.

The court identified several factors supporting the estoppel. The Abraaj Group operated as a single unit, with the same individuals holding directorships across multiple entities and using common email addresses. Mr Naqvi, the dominant figure in the group, was the ultimate decision-maker for all group companies. The individuals who signed the various transaction documents were generally the same for both AIML and AH.

Critically, all parties had proceeded on a common assumption that the Assignment Agreement created effective security over the receivable. The granting of such security was a condition precedent to the loan extension. Both AH and AIML entered the Second Amendment on the basis that this condition had been satisfied. The assumption "crossed the line" because both companies consistently conducted themselves as though effective security had been granted, and their solicitors acted throughout on this basis.

Practical implications

The judgement addresses the amount assigned to Mashreq, holding that only the sum of US$37,030,000 specifically identified in the Assignment Agreement was transferred, rather than the full receivable or future accruing expenses. The court emphasised that assignment documentation must clearly identify the property being assigned, particularly to protect debtors facing competing claims.

Lord Justice Foxton also considered whether KESP had assumed an independent contractual liability to Mashreq through signing the Notice of Assignment. Applying rigorous consideration principles, the court rejected this argument. The notice was essentially a unilateral notification document, not the result of negotiation with KESP, and provided no benefit to KESP in exchange for any alleged promise.

The judgement reinforces that in commercial contexts involving complex group structures, courts will scrutinise carefully whether consideration exists for alleged contractual obligations, particularly where a party may become subject to additional liabilities through documents signed without independent advice or negotiation.

The decision demonstrates how estoppel by convention can operate to cure technical defects in security arrangements where all relevant parties have acted on a shared assumption about the effectiveness of the security, even in sophisticated commercial transactions involving multiple legal entities within a corporate group.

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