Risky Business - Ep 7: Commercial contracts | pitfalls and reminders - recent case on novation

Associates Laura Nelson and Hashem Hijjawi discuss the recent case Magee and others v Crocker and another [2024] EWHC 1723 (Ch), which concerned the question of whether a contract (in this case a shareholders' agreement) could be novated by conduct. 

In this case, a company was set up to develop a golf club on a farming land in Kent. A shareholders’ agreement was entered into by the parties to manage and operate the company. The no-dealing clause of the agreement stated that “no party may assign any of its rights under the [agreement] without the prior written consent of all the parties (such consent not to be unreasonably conditioned, withheld or delayed)”. 

A deed of assignment was executed by an outgoing shareholder of the company to a family trust, and the Court had to determine whether this assignment was valid in light of the no-dealing clause. The Court held that the parties novated the agreement, so that it now took effect between the remaining shareholders and the family trust.

This case is a reminder that including a no-dealing clause in a commercial contract does not automatically mean that contractual rights cannot be assigned or novated, and parties should include a clear drafting they wish to prevent a novation by conduct. 

The full judgment can be accessed here: https://knyvet.bailii.org/ew/cases/EWHC/Ch/2024/1723.html.