Finning (UK) Ltd. v Inveresk Plc

A novation requires a contract between the original contracting parties and a third party, with the consent of all three. A conditional acceptance does not create a novation. The parties may instead create a partial novation or variation, discharging the original party only for liabilities assumed by the third party. Consent to that limited discharge may be inferred from the surrounding circumstances. On a second appeal, very high prospects of success and a plainly wrong first-appeal decision may amount to another compelling reason for permission. An appellate court must respect the wide discretion exercised on first-instance costs unless sufficient grounds for intervention are shown.

Finning, as assignee of Lex Harvey, claimed early termination charges from Inveresk under forklift hire agreements. Inveresk had sold its paper-mill business and allowed Klippan to use the equipment. The principal issue was whether dealings between Lex and Klippan novated the agreements and discharged Inveresk.

HHJ Faber held that no full novation occurred and awarded Finning £53,786.56. A separate costs appeal arose after HHJ Knight ordered Inveresk to pay the costs of strike-out proceedings and Cox J allowed Inveresk’s appeal. The Court of Appeal considered both the substantive liability appeal and Finning’s renewed application concerning the costs appeal.

Lord Justice Tuckey delivered the leading judgment. Lord Justices Wall and Ward agreed. The substantive appeal was dismissed. The costs appeal was allowed after permission was granted, and HHJ Knight’s orders were restored.

1. Novation. A novation is a contract between the original contracting parties and a third party which extinguishes the original obligations of one party and replaces them with obligations owed by the third party. Consent of all three parties is necessary. Lex’s offer required Klippan to accept the hire terms in their entirety. Klippan’s signed response contained a proviso and was therefore a counter-offer. No novation or other variation had been agreed at that stage.
2. Partial assumption of liability. Lex accepted Klippan’s counter-offer to assume the hire liabilities until 31 December 2003, but did not release Inveresk from early termination charges. Lex made that position clear to both companies. Inveresk’s agreement to the limited discharge could be inferred from its wish to be released and its failure to object after being informed. The arrangement was aptly described as a partial novation, although assignment or variation were also possible descriptions. Klippan assumed the hire charges until the end of 2003, while Inveresk remained liable for early termination charges.
3. Second appeal. The court applied the approach in Uphill v BRB (Residuary) Ltd [2005] EWCA Civ 60. A second appeal is exceptional. Where no important point of principle or practice arises, very high prospects of success may provide another compelling reason for permission, particularly where the first-appeal decision was plainly wrong. The court found those circumstances present in the costs appeal. Wall LJ emphasised that this did not derogate from the principles in section 55(1) of the Access to Justice Act or the approach in Uphill.
4. Costs discretion and pleading. An appellate court should not interfere readily with the wide discretion of a first-instance judge on costs, especially in case management matters. Cox J wrongly treated the original pleading as permitting an allegation of novation and as bound to fail. Novation had not been pleaded, and the pleading sufficiently indicated a claim under the original hire agreements. It was not necessary to decide the wider question whether the CPR required a cause of action to be pleaded. Cox J’s reasons did not justify interfering with HHJ Knight’s discretionary orders.

• Court of Appeal (Civil Division): Dismissed Inveresk’s appeal from HHJ Faber’s judgment. Granted permission for Finning’s second appeal on costs, allowed that appeal, and restored HHJ Knight’s costs orders.
• High Court, Queen’s Bench Division, Mercantile Court: Cox J allowed Inveresk’s appeal against HHJ Knight’s costs orders.
• Central London County Court, Mercantile List: HHJ Knight ordered Inveresk to pay the costs of the strike-out application and made the stay application costs costs in the case.
• Central London County Court, Mercantile List: HHJ Faber awarded Finning £53,786.56 for early termination of the hire contracts.