Novated contract

Our team advised the developer of a residential scheme which was requested by its contractor to ‘novate’ the building contract to a new company (owned by the same shareholders) due to the first contractor’s potential insolvency.

To protect our client from the possibility of subsequent ‘claw back’ claims from a future liquidator, we negotiated into the novation agreement a provision whereby our client paid a fixed amount to the old company for the work it had done to date. The old company gave our client a full discharge from all liability for that work. The building contract was then transferred to the new company on the basis that the latter would be paid for its work from the date of the novation.

The contractor (as the new company) duly completed the works and then (having bought from the administrator the right to use the old company’s name) changed its name back to that of the old company. Subsequently the contractor brought a substantial claim on its final account which included numerous items incurred and carried out before the novation. This was resisted by our client’s quantity surveyor, and the contractor appointed an adjudicator.

In our response to the (new company) contractor’s referral notice, we demonstrated how the items claimed were in fact done by the old company (a different legal entity) which had been paid and had given our client a complete release from further liability to pay for this work.

The adjudicator agreed and upheld the novation agreement.

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