Necarcu Ltd v Oldham Athletic (2004) Association Football Club Ltd

A novation replaces an existing contract with a new contract. It requires the consent of all relevant parties, which may be express or inferred from conduct. Where an existing debtor is released and a new debtor assumes the liability, the discharge of the old contract and the assumption of the liability provide consideration.

A novation may take effect on a condition precedent. Whether a party can withdraw before the condition occurs depends on the proper construction of the agreement. Where withdrawal would defeat the commercial purpose of the arrangement, it may be unavailable before the condition is satisfied.

The claimant sought repayment of £160,000, together with contractual interest, under a January 2017 loan agreement and a February 2017 debenture. The defendant accepted the loan agreement but contended that its liability had been transferred to Simon Corney, its chairman, director and controlling shareholder, under an agreement evidenced by a letter dated 12 January 2018.

The claimant disputed any novation and relied alternatively on a purported cancellation letter dated 15 January 2018. The central issues were the parties to, and effect of, the January 2018 agreement, whether it effected a novation, and whether the later letter had any legal effect.

The claim was dismissed. The court found that £350,000 had been advanced under the January 2017 loan agreement, that £260,000 had been repaid, and that £160,000 remained outstanding if the defendant remained liable.

1. The agreement evidenced by the letter of 12 January 2018 was made between Necarcu, Oldham Athletic and Mr Corney personally. Mr Corney acted both in his personal capacity and on behalf of the defendant.
2. The agreement expressly novated the debt. Upon completion of the sale of the football club, the defendant’s liability was discharged and Mr Corney assumed the liability in its place. The court applied the principles summarised in Musst Holdings Ltd v Astra Asset Management UK Ltd [2023] EWCA Civ 128, including the need for consent, the substitution of rights and obligations, and the availability of partial novation.
3. The defendant’s discharge and Mr Corney’s assumption of liability supplied consideration. It was unnecessary to rely on inferred novation, variation or estoppel.
4. The novation was subject to completion of the share sale as a condition precedent. Properly construed, the agreement did not permit Necarcu to withdraw after three days because that would defeat the commercial purpose of satisfying the purchaser’s and the English Football League’s requirements.
5. The purported 15 January 2018 cancellation letter was ineffective in any event. The court also found that it was fabricated and had never been written or delivered at the relevant time.